Fermi
Fermi estimates can be used for both Product and Feature impact estimation
Creating a Custom Spreadsheet Template for Fermi Estimates
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Define Key Metrics: Start by listing the key metrics you'll need for your Fermi estimate. These might include customer acquisition cost, lifetime value of a customer, conversion rates, and pricing strategy.
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Input Assumptions: Create columns for each assumption you're making in your estimate. For example, you might assume a certain conversion rate from visits to paid customers, or a specific customer retention rate.
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Calculation Columns: Next to each assumption, add a column for the calculation that uses that assumption. For instance, if you're calculating the number of customers needed to reach a certain revenue target, multiply the assumed conversion rate by the number of visits.
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Outcome Metrics: Add columns to display the outcomes of your calculations, such as the estimated number of customers needed, projected revenue, or profitability.
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Adjustment Factors: Include columns for adjusting your estimates based on feedback or new data. This allows you to iteratively refine your estimates as you learn more.
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Visualization Tools: Utilize charts and graphs to visualize your estimates and outcomes. Bar charts can compare different scenarios, while line graphs can track changes over time.
Example Spreadsheet Structure
| Metric/Assumption | Value | Calculation | Outcome |
|---|---|---|---|
| Visits Per Month | 10000 | - | - |
| Conversion Rate (%) | 1 | (Visits / 100) * Conversion Rate | Estimated Customers |
| Average Spend per Customer | $50 | - | - |
| Number of Customers Needed | - | Estimated Customers / Conversion Rate | Projected Revenue |
Tips for Using the Spreadsheet
- Iterate Based on Feedback: As you gather more data or insights, adjust your assumptions and re-run the calculations to see how they affect your outcomes.
- Use Colors and Formatting: Highlight cells based on whether they represent assumptions, inputs, calculations, or outcomes. This makes it easier to follow the logic of your estimates.
- Share and Collaborate: Share your spreadsheet with team members to collaborate on refining estimates and discussing strategies.
While this approach requires some initial setup, it offers flexibility and customization to fit the specific needs of evaluating a lean product's viability. Remember, the goal of a Fermi estimate is not to achieve perfect accuracy but to provide a quick, order-of-magnitude assessment that guides decision-making.
Citations: [1] https://www.linkedin.com/posts/ashmaurya_dont-create-a-financial-forecast-use-a-activity-7069432878354362368-f8D4 [2] https://longform.asmartbear.com/roi-rubric/ [3] https://www.lesswrong.com/posts/PsEppdvgRisz5xAHG/fermi-estimates [4] https://www.leanfoundry.com/articles/fire-the-business-plan [5] https://navajomath.math.ksu.edu/wp-content/uploads/2015/03/fermi_questions_handouts_and_lesson_plan.pdf [6] https://economistsview.typepad.com/economistsview/2009/05/fermi-problems.html [7] https://www.soinc.org/sites/default/files/FermiQuestionsHandout.doc [8] https://res.infoq.com/articles/scaling-lean-ash-maurya/en/resources/Scaling-Lean%20Excerpt.pdf [9] https://www.leanfoundry.com/articles/stop-wasting-time-on-unviable-business-ideas [10] https://kromatic.com/blog/the-art-of-guesstimation/