How to build a profitable business

This week we are talking about pricing. This session is really task based, so get your notebook and a pen ready for some work and some calculations.

Click on the image to access the video presentation.

Tasks

Create a table that shows the comparative breakdown between your company and your top 5 direct competitors. What do they do and how much do they charge?
Make a list of all the different actions you have to complete to get a customer to buy from you and assign a relative cost to each activity per customer.
Consider how much money you need to make so that you can pay your bills and live a life that is at least the average for what other people your age are doing. Based on that information, how many customers will you have to onboard each month to pay your business costs and your salary at that average amount?

Downloadable resources

Feedback

Book in a 40-minute 1-2-1 video conferencing based feedback session based on this topic's tasks.

Further reading

Purpose Incorporated: Turning your cause into your competitive advantage by John Wood

Tools to adopt

This is the final session of Side Hustle Support.
I hope you have enjoyed learning about some of the theory that underpins building a good business foundation. Remember that being entrepreneurial is about seeing different ways of doing things, evaluating each method as objectively as possible and then applying your best judgment to the given situation.

Webinar Notes

Running out of cash is one of the biggest threats you will ever have to face. Let's work on preventing that.

This is one of the true awfuls of running a business, and though there are market changes that you may not be able to foresee, kind of like what’s happened because of the Coronavirus outbreak across the world, there are still ways to build up your business so that it is as environment proof as possible.

To run a profitable business is to know the ins and outs of your finances. I get that numbers can be scary and stressful, especially when you’re talking about money. However, you can’t really run a business without being obsessed with money. I don’t mean to say that you should have an unhealthy obsession with it, I do mean that you need to know where absolutely every penny is going, why it is going and if it really needs to be going there at all.

Furthermore, you need to know how much money you will have to spend each month and how much money you have in your balance so that you can calculate how long you have before your money runs out. That is called a cashflow forecast. We have a really simple one you can play around with as a downloadable resource. Money is power, but that power can only be accessed by having intimate knowledge of your finances. Tide Business Banking has gone a long way to make it easier for you to have good business accounting services within the app so that you can properly categorise your spending, but beyond that you will need to know more.

Make a list of all the resources you need to have to keep your product or service alive.

Really get into the details. Think about your phone bill, internet bill, transport, office space, freelancers, software subscriptions etc.

Make a list of all the things you need to do to win a customer.

Again, get into the details. Networking events, pitch calls, emails back and forth, site visits, free consultations, social media etc. Add all the subscriptions and services you have to use as well. These are the types of costs you would typically label as marketing and advertising.

Are you considering every angle of your business?

It’s really easy to get laser focused on one thing and stop paying attention to other parts of your business, especially when that one thing is working really well and all the other things are only subpar. That practice won’t serve you as an entrepreneur.

Look at your list of all the different things you would have to do to keep your business alive and the list of the things you need to do to win your customer. What is the purpose and expected outcome of each of those things? Some of them may overlap in their purpose or outcome. If they do, choose one. This is an effort in scaling back your operations so that you are not overextending yourself. It is like having different memberships to streaming platforms. If you only really watch two shows on one of the platforms and ten shows on the other, do you really need a membership to two streaming platforms? Take this audit mindset and continually apply it to your business.

What are the top three ways each one of your competitors is making money?

Now that you know what you’re doing and you’ve tightened up the loose screws with your audit mindset, take a moment to think about what your competitors are doing.

Every business is making and losing money in areas that aren’t on their products or services page of their website. Think about all the practices that your competitors have that add to their ability to attract paying customers. Adopting practices that bring in the money while abandoning or shelving practices that don’t is another way to make sure you’re focusing on what will bring financial sustainability in the long run.

How much does it cost to produce your product or service?

It may be tempting to give a ballpark figure, but I really want you to go do the research necessary to make sure you know exactly how much money you have to put in to produce an end product.

The easiest way to think about this is to consider all the things you would have to do to keep your product or service alive as well as the things you would have to do to win your customers. Give each of those tasks a monetary value based on how much you think each task is worth.

To do this, you might want to think of a salary you should be making based on your age, where you live and your expertise level. For each task that you would need to complete, assign it a time slot. For example, it would take 2 hours to develop a personalised pitch for a potential client, or it would take 5 hours to sew a handmade dress.

Taking the dress example, if a logical salary is £25K and you, like everyone else, are working 40 hours a week, then your weekly salary is about £480 and your hourly rate is about £12. If that dress just took up 5 hours of your week, then that dress is worth £60 plus the amount of time it took to source the fabric, design it, list it on your website, etc. which is the cost of production. Plus another 20% in the form of overheads. Don’t worry if this is confusing right now, you can play around with all of this stuff using the downloadable resource. Overheads are things like the cost of your internet, phone bill, laptop, key subscriptions, etc. Things that help you keep the lights on but cannot be charged to one particular customer.

Use your data to understand the flow of your customer's pocket.

In a previous session we talked about the need to collect data directly from people that match your ideal customer profile. Take some time to consider all the information you collected again and based on that start playing around with amounts you think are likely for your customer to spend on your product or service.

If you asked them the right questions, you should have a really good understanding of how they currently spend their money to solve the problem your product or service is solving. Use that information wisely. If you’re finding that what your customer is willing to spend is far lower than the cost of production, you will have to consider two things.

First, are you over-producing for the market you are in? Perhaps there are ways you can scale back your activities and plans so that they are more cost effective and in line with what your customer is interested in engaging with financially.

The second consideration is, are you serving the right ideal customer? When it comes down to it, you may find that the customer you want to serve is not financially able to engage with the product or service you want to provide.

Don't price yourself out of the market. Be realistic about what it's worth.

You might have a tendency to under-price your products or services in hopes of getting people to use your products or services as opposed to your competitors’.

If you’re going to do that, make sure the number you settle on is still producing a profit for you. A good profit margin is between 10-30% of your costs. Really play around with the downloadable resource on pricing because that is going to help you think through whether or not your numbers make sense.

You're on your way to success if you can account for every cost in your business, both seen and unseen.

This webinar was presented by:
Bayo Adelaja, Chief Do-er at Do it Now Now
Connect on Linkedin, Instagram and Twitter
Buy me a Coffee
This is How I got Here