How to Develop a Feasibility Study

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A feasibility study determines whether taking a product to market is a worthwhile business risk.
A feasibility study determines whether taking a product to market is a worthwhile business risk. (Image: business 2 image by Nathalie P from Fotolia.com)

A feasibility study is company research into the viability of a project or product from an economic and operational standpoint. Conducting a feasibility study can be more crucial to the success of a business than the novelty of the innovation. Businesses that conduct feasibility studies size up competitors in the market place, self-assess weaknesses and strengths, analyze customer willingness to buy products and weigh the overall financial viability of pursuing the project.

Review the company's strengths and weaknesses. Identify major competitors and assess their advantages. Identify primary customer demographic and assess relevant industry trends.

Describe the proposed project in detail. List the benefits of the project. List all of the costs associated with the project. Costs include all capital expenditures, variable costs (people and skills required, wages and benefits), infrastructure required, any necessary marketing and promotions, legal fees and taxes. Consider whether any alternatives would be just as viable.

Weigh costs against benefits through a cost-benefit analysis. A cost-benefit analysis takes all costs into consideration against the anticipated benefits. Evaluate anticipated revenue against costs. Calculate the expected difference between the profit margin and expected net profit. Gauge the number of sales needed to break-even on the product by dividing the total cost by price per unit. Calculate different scenarios for sales returns, including low sales numbers with a high volume of supply in the warehouse. Compare the data against similar analyses or expectations from industry competitors. Account for the margin of error expected based on the reliability of economic assumptions.

Calculate how much money will be required to begin the project. Estimate how much money will be needed to carry the project through to market. Evaluate sources of capital and how easy it would be to obtain capital.

Test market the product on a select group of customers. Hire a marketing consulting firm to conduct consumer research in select markets. Assess whether the product is well-received by customers in the target demographic based on the market research results.

Ascertain whether any business partners may be necessary to bring the product to market on a large enough scale to render the project viable.

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