If you’re ready to start your first business, then how about getting a big dose of reality before moving onto the next stage? It can be exciting planning your new venture, but the following checklist might save you from the biggest mistake you’ll ever make! Or, it could add a little more value to your products just by thinking about how you’ll make everything you do much better.
Your main objective is probably to make enough money for yourself or for others. Before you begin looking through the three questions below, have in mind a realistic figure you need to achieve. Once you have a goal to aim towards, you should find it easier to manage the rest of your business strategy.
1) What is the demand for your product or service?
You may have invented some very special that saves you time in your life, but do others share your passion? If there is limited demand or it’s extremely specialised, you may find your business short-lived. In some cases you may have to show everyone they need your product.
In other cases you may be entering a crowded market, for example, a coffee shop. If you are in a commodity type industry you’ll have to do something different to stand out from the crowd. It might be environmentally related, price related or the quality of your product.
2) How many units will you need to sell to hit your profit objectives?
Once you’ve understood how your customers could interact with you, the next big question is about initial profit numbers. You may have invested your life-savings into your venture, but at some point you’ll need to get a return on your investment. Add up all your fixed costs for one year including utilities, rent and employees. Find your product margin (selling price less cost price). Then find out how many you need to sell to cover your fixed costs. This is your break-even point. That’s the amount you need to sell this year just to pay all costs. After that, it’s all profit.
So how much do you want to make this year? Divide that by your product margin. Add this volume number to the one that covers your fixed costs and now you know how many you need to sell this year. Do you think you’ll sell more? That’s great because that’s more profit for you.
Do you think you’ll struggle? Then have a look at your pricing strategy, your marketing and the next question!
3) Are there any additional products you can sell to your customers?
It’s all well and good selling hundreds of your core products, but you’ll make more profits by selling other products to your existing customers. Once you’ve sold something that your customer likes, it’s much easier selling them something else. You can increase your product margin simply by adding an additional smaller product. McDonald do this by asking “is that a large meal” or “do you want fries with that?” It’s easy to do and a large percentage of your customers will opt for the additional product or service.
Think about what your competitors offer and adapt some of their strategies. Research associated industries for additional ideas that could work for your business.
Don’t forget that a simple business plan can also hone your ideas and objectives into one easy to read and refer to document. Once you have your plan, you can keep refining it once your business has started trading.