The ladder / Level 4 · New products and services
Business math for new products and services
Royalty and licence fees, unit economics and CAC payback, cost-plus and value-based pricing, simple payback, NPV and IRR, break-even with development cost, R&D budgets and TAM/SAM/SOM market sizing.
A new product spends money long before it earns any: licence fees, prototypes, tooling, launch. The arithmetic here helps you judge whether it can pay that back: what each unit and each customer contributes, what price the customer's value supports, and what the whole investment is worth in today's money.
Each topic has a plain-words explanation, the standard formulas with their terms, worked examples at three levels (Basic Intermediate Advanced), and a quiz that tells you instantly whether you were right and why.
Every number on these pages is calculated by a script and checked against the page before it is published.
- Licence fees and royaltiesLump sum, percentage of sales or per unit; the volume at which options cost the same; minimum guarantees and contribution after royalty.3 worked examples · 6 quiz questions
- Unit economics and pricingContribution per unit, customer acquisition cost (CAC), CAC payback and lifetime value; cost-plus versus value-based pricing with economic value to the customer.6 worked examples · 12 quiz questions
- Payback, NPV, IRR and break-even with development costSimple payback, discounting and net present value, IRR as a check value, and how many units recover a one-time development cost.6 worked examples · 12 quiz questions
- R&D budgets and market sizingPrototype and phase budgets with contingency, burn rate and runway, budget variance, and TAM, SAM and SOM with a bottom-up check.6 worked examples · 12 quiz questions
- Mixed quizQuestions across all topics, basic to advanced.12 quiz questions
Related topics on other levels. Built on trader basics: break-even and contribution, margin versus markup (cost-plus pricing), and compound interest (the idea behind discounting). Costing a product you will make yourself: manufacturer business math.
How numbers are rounded on these pages. Calculations are done at full precision and rounded only at the end, half up. Rupee amounts are rounded to the nearest rupee unless shown with paise, in which case to the nearest paisa. Percentages are shown to two decimal places, months to one decimal place, years and ratios (such as LTV : CAC) to two, and discount factors to four. Discounting assumes cash flows at the end of each year, compounded yearly. IRR has no exact formula: it is found by repeated trial and shown to two decimal places as a check value. Break-even quantities are rounded up to the next whole unit. All examples and quiz questions are Hypothetical: they show the method, not real prices or rates.