How Profitable Is Your Business - 5 Questions to Ask Yourself
I meet so many entrepreneurs that are passionate about creating a business around their new and exciting ideas
. This is great, but all too often, they forget that if this new business does not make them some money, then their passion can be little more than a very expensive hobby.The problem with this is that over time, it can be a huge drain on not only their finances, but also on their creativity and self esteem. When you have been used to being successful in other endeavours in your life, and suddenly your new business idea that you have so much passion for, does not bring in the dollars like you hoped it would, it really can be disastrous. The sad thing is, that with a little planning, pre-thought and perhaps support, the result could be so different.
Getting some of the basic maths sorted out early in the piece can help to reveal the brilliance of your business idea, or uncover a shortcoming that you can re-design to ensure success.
There are many business models to choose from so it is vital that you map the numbers before you even begin, so that can determine whether or not your idea is financially viable. This one step could save you a lot of pain and heartache, and hours and hours, if not years of working at something that may not be sustainable.
On the other hand, it could just be that you need to make a few small tweaks or changes so that your model does in fact provide you with the income that you are wanting.
5 important questions to ask yourself about your business idea:
1. What price will the market pay for your product or service?
Bearing in mind here that what you believe your product or service is worth may be quite different to what the market will pay. It may surprise you that in most instances, you will undersell yourself. Promoted well, and to the right client or customer, you may often find that your market price will be higher than what you first anticipate. Particularly if you learn to position yourself as the expert, and understand how to provide great value.
2. How do you initially plan on providing that product or service?
Are you going to do one-to-one sales only, or are there ways in which you can progress to delivering your product or service on a one to many basis? One-to-one sales is a great way to get started with clients, but when you start to systemize this client attraction process you will soon find that your ability to increase your income is stifled by the number of hours you want to work. At this point you will want to start to look at ways of multiplying the people you can serve in the same amount of time through group programs, workshops, teleseminars, webinars etc.
3. What are your costs associated with providing your product or service?
There will be expenses to consider no matter how you deliver your product or service. Things to consider whether you are working at home, in an office, offline or online might be: rent, electricity, maintenance of equipment, monthly subscriptions for online services such as Audio acrobat, Instant Teleseminar, your Shopping Cart, printing, mailings etc. It is important to know what your base line costings are.
4. How many items of your product or hours of service can you realistically sell?
Do you need to sell 1000 units of a $17.00 e-book or perhaps you need to book out 10 hours of client contact time each week? When I ask people to tell me what they are doing specifically to meet their income goals, they will say they have an e-book", or are doing a teleseries", but in fact they have no idea as to exactly how many units need to be sold in any given timeframe in order to achieve their income goals.
5. Is there anything left over as profit?
At the end of the month, or week, or there anything left over to pay yourself and your taxes?
So you can see just how this process will work, lets run some simple numbers for a month so that you can get a good idea of how to track your business. Let's say that you have a real gift with creating exquisite meals. Everyone loves you food and thinks that you should teach others how to cook.
1. Price: You think that you can sell one cooking session for $40.
2. Capacity: You can teach one class a day times 20 work days in a month equaling 20 classes a month.
3. Costs: You know that each class will cost you $10 in ingredients. So 20 classes = $200/month in costs.
4. Sales: Assuming you will charge $40 per class and fill all the classes each month: $40 x 20 = $800
5. Profit: Subtract your costs ($200) from your sales ($800), and you have $600 in profit for a month.
This simple example shows you are profitable. But keep in mind that you will have other costs such as marketing, taxes, etc.
So while this idea would not pay your mortgage yet, it's a start. Your next steps would be considering ways to increase your profits.
First take a look at whether you can increase the income side of this equation. Can you increase the price? Maybe you can focus on teaching the affluent to cook. Could you do the sessions as group sessions rather than individual sessions? Could you look at investing in a machine that reduced your preparation time further so that you could do more classes each week?
On the other hand, consider where you may be able to reduce your costs. Maybe you could sell the recipes alone without the classes or with a DVD of demonstrations. This will lift your limit on how many people you can serve and yet still have the ability to teach others how to prepare this wonderful food.
Do you see that by working the numbers, and taking a bit of time for planning you can ensure that whatever business model you decide on will be a profitable one. By doing this, you will save yourself a lot of heart ache and frustration as you try to promote your great idea into the market place.
You must keep track of the numbers. If you focus on the money, you will soon find that more money will flow. You will also be able to hold you head up high amongst your family and friends as you know that you are providing a financially viable service that you are also enjoying.
How Profitable Is Your Business - 5 Questions to Ask Yourself
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