What is a ‘What If’ Analysis?
A ‘What If’ analysis, aka Sensitivity Analysis, uses existing data, along with estimated data points, to calculate a range of probable outcomes. This information allows a marketer to make more informed decisions. This analysis helps you find a solution when data is limited.
‘What If’ Analysis Example
Suppose you are planning a new product launch and need to project the profit margin for the product. You know what the fixed costs will be, but variable costs depend on several factors that are not defined. ‘What If’ analysis takes the known factors (in this case, fixed price) and estimates of unknown factors (variable costs such as raw material costs, product pricing and sales) and determines a range of probable profit margins. This information can be immensely helpful in deciding if a new product will likely provide enough margin to justify further investment.
When would I use ‘What If’ Analysis?
Precise response data like leads, click-through rates, conversions and sales is valuable in making decisions about future marketing efforts.
But what do you do to if you don’t have data? How do you make marketing decisions when you have only partial information or just estimates?
That’s when a ‘What If’ analysis can be extremely useful.
A Common Methodology
‘What If’ analysis has been used for years by many major corporations such as General Motors, Proctor and Gamble and Eli Lilly.
While a ‘What If’ analysis doesn’t predict a specific outcome, it does provide a precise range of probable outcomes. By varying the input data, decision makers can see how those changes impact the probability of desired outcomes.