From the Director: Revenue Forecasting Pros & Cons

This is a guest post from Todd Sherer, the former Executive Director of Technology Transfer and current Interim Vice President for Research Administration.

Technology Transfer offices are often asked to provide projections of revenue to senior administration. There are a number of reasons administration may be looking for these numbers, it could be due to declining sponsored research funding or a desire to diversify the revenue streams to the institution. As one could imagine such forecasting is challenging. Below are some of the pros and cons on such activities.

What are the key pros and cons of revenue forecasting?Todd Sherer Photo

Academia can be a challenging business, there are concerns about federal funding, there’s a healthcare crisis, there’s pressure on tuition, and so on. Just as companies are always looking for alternative revenue sources, so are universities and technology transfer can provide this — naturally the university would want a way to forecast that revenue source, but it’s tough. OTT does not make or sell the products that are generating the revenue, other companies do and we get a portion of it. There are many factors affecting success and sales that we wouldn’t be aware of, such as competition, production challenges, or regulatory challenges. In addition, there is high risk involved in a drug or medical device making it to the market and becoming lucrative. But such forecasting is necessary and we do our best to provide revenue information along with risk and probability information.

In the forecasting booklet what was the process for determining these estimates? And what were the criteria used?

Trying to forecast revenue is only helpful if a company is at or past human testing. There is no magic to how we forecast, we take information about prior revenue, estimated how long until the product hits the market and how well it would do, and then factored in various risks. After this information is gathered mathematical formulas were applied to each step of the products development.

How does the time horizon until potential commercialization factor in?

It’s a huge factor. The longer the timeline the greater the risk, just because there are still so many unknowns. If a potential product is in phase one clinical trials there is a one in five chance of success. If it enters phase three there is a one in three chance of success. It is a critical component to estimating when and how revenue may come to the university.