Skip to main content

The product life cycle & cash flow

The cash flow from a product as it moves through its life cycle will change. Initially high development costs and high promotional costs will mean a negative cash flow, but as the products moves through the growth phase and into maturity, the cash flow should start to become positive. This is shown in figure 1 below.


Figure 1 Product life cycle and cash flow

As a product moves through its life cycle the price elasticity of demand will also tend to change - this is shown in figure 2 below. As a product becomes more mature, it is likely that competition in the form of substitute products will increase which should make the demand more price elastic. This may well reduce the profit margin the firm earns on the product unless they are able to reduce costs correspondingly.


Figure 2 Product life cycle and elasticity