The Cost of Product Failures

Shipping bad product is expensive. Taken at face value, that statement makes logical sense. If a company launches a bad product or feature, it will fail to gain traction in the market and lose out to competition, resulting in lower revenues and a failure to offset the costs of development.

But exactly how much money do product failures cost us? That's the question we've set out to answer, so let's dive into the data and find out.

Losses From Software Failures

According to a 2018 report published by the Consortium for IT Software Quality (CISQ), the total cost of poor quality software in the US is $2.84 trillion!

The largest single category of this cost comes from software failures, which make up approximately 37.5% of the total cost:

From this data we can extrapolate the total cost of losses from software failures in 2018 at $1.064 trillion.

Product Launches in 2018

In order to understand how much the average failed launch costs, we first have to estimate how many products and features were launched in 2018. We're never going to know the true number of launches, but we can estimate using a few different data points.

Let's start by trying to determine how many software companies exist in the US. According to the U.S. Department of Commerce, there are more than 100,000 software companies of all shapes and sizes. It's difficult to get an exact number, so let's start with a conservative estimate of 100,000.

Thanks to the rise of SaaS, shipping products and features has never been easier. Most companies, regardless of size or level of resources, have the capabilities to ship product multiple times a year. Business cycles are often measured quarterly, so let's assume that the average company launches a new product or feature once a quarter, or four times each year. Some companies ship more, others less - but one release per quarter on average sounds fair.

Using these estimates, we calculate that US software companies launched approximately 400,000 products or features in 2018.

Failed Launches in 2018

But how many of those 400,000 launches were failures? Again, we're going to have to use data to estimate.

A study conducted by George Castellion and Stephen K. Markham of New Product Success suggests that new software fails at a rate of 39%. The caveat here is that they're only measuring new launches, and not launches of features or updates to existing products. The failure rate for these smaller launches is most likely higher, simply due to increased volume - it's easier to release a feature or update as opposed to a new product. Let's estimate the overall failure rate of launches at an even 50%.

If 50% of the estimated 400,000 launches failed, then we had approximately 200,000 failed launches in 2018.

Average Cost per Failed Launch

If we divide the total cost of software failures ($1.064 trillion) by the number of failed launches (200,000), we get an average cost of $5.3 million per failed launch.

To be fair, we're using estimates to arrive at these figures. But even if we overestimated the number of launches or failures, that only means the average cost of a failed product launch is even higher than $5.3 million.

And if you think we've underestimated the number of launches or failures, consider this - even if we're off by a factor of 10 (which is a lot), the average failed launch still costs over $500,000.

The ROI of Customer Research

We're faced with a couple really serious problems. First, the odds that your next product release will fail are around 50%. That's a coin flip! Coin flips might work for Harvey Dent, but we as product people can't accept those odds.

Secondly, if our launch does fail, it's probably going to cost us somewhere between $500,000 and $5 million. That's a lot of money wasted. Like, A LOT of money wasted.

But it doesn't have to be like this. We have plenty of data that illustrates the ROI of talking to customers and learning from users, yet we still struggle to take the basic steps necessary to do customer research.

We'll make it easy for you. Your first step to learning from customers starts with EnjoyHQ.