The relationship between the product life cycle, investment, profit and cash flow (AO2)

The cash flow from a product changes through its life cycle.

Introduction and growth stages

High development and promotional costs result in a negative cash flow.

Maturity and saturation stage

As a product moves into maturity, cash flow becomes positive. Economies of scale causes falls in unit costs and profits increase rapidly.

As a product becomes mature, competition increases and demand becomes more price elastic. Falling price reduces profit margins.

Decline stage

Sales fall and cash flow declines, possibly leading to losses.

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