You start your business, calculate your operating expenses, calculate the cost of goods, and hone in on developing a go-to market product or service. Seems pretty straight-forward. But this may be the most difficult part of running a sustainable business. Do you really know your market? Have you researched the market enough to know if your entry price point is the right number?
So many times, businesses are so focused on launching a product that they fail before they ever ship out the first one.
Depending on your business model, direct-to-consumer, wholesale, distributor, or all, you will have to calculate your actual margin. Surprisingly many businesses do not appreciate the variable costs associated with each level and forget to make adjustments for each. For example, direct-to-consumer certainly gives you the best margin percentage, but what if each phone order ends up with a 20 minute phone call at $15 per hour in order to close the sale? Is that $5 labor cost calculated into your margin? Is it still a good idea to go direct-to-consumer?
The other piece is where the market is at for your product. A recent national study of Americans revealed that 60% of Americans cannot afford to write a check for $500 in March 2017. Let that sink in. What type of product do you have? Is it a necessity and likely to be purchased no matter what – think food, gasoline, etc – or is it a premium item such as cosmetics where there is a wide range of pricing? If you are trying to sell $100 hand blown glass bowls to the mass market you are likely to fail in this environment. Can you sell at smaller quantities? For example, if you sell tea, instead of trying to sell it by the pound, can you sell it in a four ounce size instead? Often times lowering the price point by selling a smaller amount is a wise decision. Not only will consumers gravitate to a lower price point but you are enticing potential consumers to discover the brand. Discover is an important part of a brand growth strategy.
As you roll out your new product, are you tracking performance against all channels? Did your distributor load up on the launch, but is not re-ordering the product? This may indicate a problem that may result in a lot of product being returned to you. Each channel needs to operate smoothly in order for you to sustain a successful market launch.
The same goes for service providers. Is your service a value service, meaning does it do something special for the user? Does it add value to the user? Is it convenient to use? Does it do something better? Or is it a cookie-cutter service being offered at a competitive discount – think mobile phone service. These are all things to think about as you build your consumer base.
How well do you know your consumers? How well do you understand your market?
Give us a call if you need help. Good luck.