Model the existing sales a new offer could displace

A new offer's sales forecast should identify how much business comes from customers who would otherwise buy an existing offer. Those customers may create revenue in the launch model without creating the same amount of additional revenue for the company. The relevant comparison is the whole business under a credible launch case and a credible no-launch case.

Damodaran's treatment of project interactions discusses product cannibalization and the role of competing substitutes in the alternative case. Apply that idea carefully: do not assume existing sales remain unchanged forever, and do not assume a competitor will take them all without evidence. Record the commercial reasoning behind both forecasts.

Consider a hypothetical offer expected to sell 300 units, each generating $60 of contribution after its variable costs. Management expects 100 of those purchases to replace an existing offer that would have generated $40 per unit. The new offer contributes $18,000, while the displaced sales remove $4,000. The incremental contribution is $14,000 before new fixed costs and other effects.

Keep customer migration and genuinely additional demand in separate assumptions. The new offer still sells 300 units; the company has 200 additional units under this simplified one-for-one comparison. A forecast that subtracts the switching customers from new sales and also subtracts all displaced contribution would count the displacement twice.

Use contribution definitions that match actual cost behavior. If a legacy cost remains after customers migrate, it does not disappear merely because the original offer has fewer sales. If the launch adds dedicated support, training or system costs, include them separately with the activity that triggers them.

Ask sales or product management which customers are likely to move and why. A replacement product, premium upgrade and lower-priced entry offer can have different migration patterns. Use actual customer research, prior launches or a clearly bounded test where available. Label estimates that rest on judgment.

Consider timing. Some customers may wait for renewal, exhaust existing stock or continue using both offers for a period. Model the transition according to those circumstances. Moving every expected switch into the launch month can distort capacity requirements as well as revenue.

Review effects on complementary purchases and service costs without assigning every subsequent sale to the launch. A claimed cross-sale benefit needs an explanation of the customer behavior that creates it. Have one owner reconcile the gains and losses across offers so separate teams do not each claim the same increment.

Show results across plausible migration rates and demand levels. If the project works only when almost every new customer is additional, management needs to see that dependency before committing. Where a lower-priced offer protects customers who would otherwise leave, preserve the evidence supporting that retention case.

Ask a finance adviser to deliver a company-level bridge with a clear no-launch forecast. The deliverable should identify the source of the customer assumptions, the contribution basis and the effects excluded for lack of evidence. A presentation of the new offer's standalone margin cannot settle this question by itself.

After launch, compare observed migration and combined customer contribution with the approved assumptions. Keep changes in the market, prices and service levels visible. The review should assess whether the company gained the expected economics, even when the new offer meets its own sales target.