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Sample Business
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After you have come up with a business idea, you must determine whether
it is viable. Consider:
- Are there customers for my product or service?
- How do I know?
- How will I find them?
- Who are my competitors?
- What will I charge?
- How will I promote my product or service?
Finding the answers to these questions is the challenging and sometimes tedious
homework that will help determine your chances for success. Sometimes
the information is negative, but it is invaluable nevertheless.
Discovered upfront, it saves you from investing time, money and energy
into a venture that simply wouldn't be profitable for you.
For any proposed business concept, here are the questions that you must
answer:
1) What is my product?
The first step in creating a business is to decide what your product is
or what you want it to be. What are you selling? Practice
writing a short, specific statement describing your product or service.
Getting a clear idea of a business concept is one of the most difficult
tasks in creating a company.
Your statement may change and evolve several times as you experiment
with the market and test your skills. Instead of "I make toys,"
you may want to narrow your product line to "I paint handcrafted porcelain
dolls." Instead of "I design web sites for nutritionists," you
may decide to tap into a larger market and "provide web sites for small
home-based business women."
See how it feels to describe your product or service to family, friends,
potential customers and fellow business people. Is your description
clear and brief? Can you say it with confidence and enthusiasm?
2) Who Will Buy It?
To test your business idea, answer the question "Who will buy my product
or service?" Make a list of potential customers: individuals, groups,
segments of the population or other businesses that need what you plan
to offer. If you are making fabric-covered dog beds for large breeds,
how will you quickly and inexpensively find a market? Through the
AKC or other national organization of pet owners? Through craft
stores by displaying them as gift items? Mail order catalogs?
Is there a market avenue that will reach dog show participants?
Ask friends and colleagues for help in brainstorming all of the possible
markets (customers) and uses for your product or service.
3) Who Is The Competition?
Your business planning must also include an up-to-date analysis of your
competition. Why? Because you need to plan your market position:
how you will fit into the existing marketplace. Will your product
or service be cheaper or more expensive than that of your major competitors?
Will it be more durable? Will you be open during hours that
your competitors are closed? What benefits can you build into your
product or service that your competitors don't offer? Will you
do last-minute rush jobs?
In planning your business, look for a unique niche that will give you
freedom from strong competition or that will make your product or service
more valuable than others in the market. If you plan to open a
day-care center and find that none in your area are open before school,
early opening might make your service more competitive. If you
discover that local caterers have overlooked the office party market,
you might highlight that in your brochure. The more you can learn
about your competition, the better you'll be able to decide how to position
yourself in the market.
Newspaper ads and trade magazines are other good sources of market information.
Check also with the Chamber of Commerce, your county office of
economic development, the Census Bureau, and business and professional
organizations to gather market and pricing data.
As you become more familiar with the competition, you will also discover
where and how to find buyers. Whatever home business you want to
open, you will need to do market research to determine if there are buyers
for your idea, where they are, and how to find them. In the process,
you will also be gathering information on pricing.
Visit your local library to compile local and county statistics on the
size and makeup of your market. While you are at the library, check
out some books on marketing research so you will know what you are getting
into.
When your marketing research is completed you will have:
- identified your potential customers
- revealed their habits, needs, preferences and buying cycles
- decided how to reach them to generate sales
4) How Much Shall I Charge?
Four main factors will help you decide what to charge for your product or service:
- your direct and indirect costs
- your desired profit
- your market research data on competitor's prices
- the urgency of the market demand.
There is rarely an exact "right" price but an acceptable range within which you will want to fall.
Avoid the common mistakes made by many new business owners: charging too much or too little.
Use several approaches to arrive at a cost and "test" the price.
If your ego is too involved, your price may be too high.
On the other hand, if you have the attitude that "this is just a little something I do in my spare time" or "anybody could do this", then your price may be too low.
Visit our pricing tips page for a more thorough discussion.
Here is the formula for setting a fair price, but before you make your final decision, calculate your price using other approaches as well:
Typical Pricing Formula:
- Direct Material Costs Determine the total cost of the raw materials needed to make your item.
- Direct Labor Costs Determine what you would pay employees to produce the item (whether or not you have employees now).
You must assign a wage figure, even if you are the only one producing the item.
Take the weekly salary you pay someone to produce the necessary number of items and divide by the number of items.
Add this figure to the Direct Material Costs total.
- Overhead Expenses These expenses include rent, gas, electricity, business telephone calls, packing and shipping supplies, delivery and freight charges, cleaning, insurance, office supplies, postage, payroll taxes, repairs, and maintenance.
The accuracy of your costing depends on estimating logical amounts for all categories of expenses.
If you are working at home, figure a portion of total rent or mortgage payment (in proportion to your work space and storage areas), or assign a reasonable, competitive rent figure for the same amount and type of space.
List all overhead expense items and total them.
Divide the total overhead figure by the number of items per month (or time period you used above).
The answer is your overhead per item.
Overhead + Materials + Labor = Total Costs / Item
Profit: Include an amount added to the cost of each item so you won't just break even.
Check your competition and see what they are charging.
(Retail prices are generally double the wholesale prices.)
If your product is comparable, price it similarly.
Remember, you will get the profit from each sale, in addition to the salary figure.
Add the profit figure you have chosen to the total cost per item to get your total price per item.
Profit + Total Cost / Item = Total Price / Item
Remember, the main purpose in operating a business is to make a profit.
Don't undersell your product or service just because "I'm just starting out" or "I work out of my home".
If you have a rare handmade product or personalized service, the demand may be so high that customers are willing to pay more.
5) Promotion
Promotion is a long-range plan that informs potential customers about what you have to sell.
Advertising is the paid communication part of the promotion program.
To develop a promotional campaign you must answer these questions:
- What image or message do I want to project?
- What are the best media for reaching my potential customers?
- How much time and money can I spend on the effort?
Develop a long-range, consistent program for building an image and reaching customers.
Your image should be reflected in your business card, logo, stationery, brochure, newsletter, telephone and answering service, signs, paid ads and promotional activities.
Word-of-mouth recommendations from satisfied customers are the best possible promotion.
Consider which promotional tactics will build the confidence and image you desire:
- giving speeches and interviews (good for counselors, teachers, lawyers, consultants)
- having an open house or holiday home sale (craftspeople)
- offering free samples (caterers)
Several small ads may have more impact than one large splashy ad.
Conduct a campaign rather than having a one-shot ad or event.
If you hire a public relations firm, look for one that can give you personal attention and develop a total marketing plan for you, not just a couple of ads.
The plan should include market research, a profile of your target audience, a clear description of the image they recommend you project, the written copy, and a list of media (including cost and scheduling calendars) that are best for your type of product or service.
As a new small business owner, you will probably decide to set aside a certain dollar amount per year or a percentage of past, current, or projected sales for paid advertising.
Case History Of A Successful Self-Promotion:
A small Florida gift basket business was having difficulty obtaining customers.
Since there were several similar businesses in town, the owner needed to come up with an unusual promotion.
Over Mother's Day weekend, she obtained several hundred silver dollars from her bank and gave one free coin to each customer.
She offered the coins for two days only, "while the supply lasts."
The promotion was a phenomenal success!
For two days she had customers waiting in her showroom and she gave away over 300 silver dollars.
But in return, she gained 350 new customers for a gross income of over $15,000 in two days.
She was also savvy enough to make a list of all her new customers for future ads and promotions.
See how a little ingenuity can turn a marginal business around dramatically?
When it comes to promoting your business, let your imagination soar!
Copyright © 2004
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