RVICE DESIGN AND DEVELOPMENT One of the first things that should be apparent about the multi-year P&L compared to the yearly P&L is the time frame. In the instant case, a 5-year planning horizon was decided on. The basic factor driving this selection is the product life cycle of the organization's products and services. In this case, the design and development cycle from start to product introduction is between 2 and 3 years. In other words, it typically takes our mythical company that length of time to organize and perform all the tasks required to get from nothing to revenue producing product or service. Once product and service delivery begins, the product life averages 5 to 7 years. While the 5- to 7-year cycle might be representative of many businesses, recognize that there are many others with significantly shorter, as well as others with longer time frames. Understanding and recognizing the reality of the life cycle, it is no surprise many companies go the acquisition route instead of internal product or service development. After all, why risk losing an opportunity to buy an ongoing, successful busi- ness now instead of waiting 3, 5, or 7 years for engineering, marketing, and sales to make one? Table 13-2 is an example of the magnitude and timing between development cost and revenue. In practice, revenue is not what we are really looking for. What we're looking for is gross margin-the difference between cost of goods or service and revenue. Typically, gross margin averages 50% to 55% over the life of a product. Each development project is evaluated by a simple return-on-investment measure, where the total development cost is measured as a percentage of gross margin returned over the life of the product. So, in the case of our mythical product X, the development cost is approximately 20% of the projected gross margin return. This relationship can vary widely of course because this is literally one of the most creative parts of managing and running a business. The total return can depend on sales and market