January 26, 2022

SB-Accounting

Accounting + Finance Blog

Tip to calculate a product life cycle for small business

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An important area of every business is to know the life span of its product. A product after it’s breakthrough into the consumer or industrial market may remain for a while after which users lose interest in its usage.

Management of business organization needs to know when its product is losing value in the market. The product life cycle one of those methods a firm can use to predict the aforementioned.

What is the product life cycle?

A product life cycle is a period of time a product can remain in existence from its ideation to the decline period.

Generally, there are four stages in a product life cycle. Introduction, Growth, Maturity and Decline stage. To achieve success in each of these stages, the firm has used various strategic choices. Advertising, price reduction, rebranding, and expansion into new markets are some of this choice the entity management needs to consider in the various stages of the product.

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How to compute a product life cycle?

It is quite easy to compute the product life cycle. This is generally done with the aid of a diagram. MS Excel is a powerful tool to use in knowing a product’s life cycle.

First of all, the diagram below demonstrates the stages of a product life cycle.

To dramatized your product life cycle, it is important to collate revenue(sales) and profit data on a monthly or yearly basis. If your firm has a financial statement then, it can be used to understand the position of your product in its life cycle.

Input such data into a worksheet in MS Excel. Let there be three rows: years, revenue and profit. Then, input the data for revenue and profit for as many years as possible.

Then, make a pivot table from such data. After which you can insert a chart for the table created. The screenshot below is a hypothetical example of a life cycle of product XYZ.

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