The economy has been good to many small businesses this past year. Many are ramping up for expansion through introduction of a new product or service. This can be an ideal way to grow your business if you do it strategically.
To help increase your odds of success, I suggest you analyze your business and market history. He.re are seven questions that will assist you in analyzing your information and creating a growth plan.
1 – Is my business already on a solid foundation?
If your systems, processes and personnel are not ready, efforts to expand will overload your capabilities and set you up for failure. Make sure you are ready to handle the orders, deliver the product or service and collect your money in a systematic and timely fashion.
Also, make sure you have one or more strong indications that there is a market for what you plan to offer. Strong past $ales of something similar or a part of what you are expanding are usually a positive sign. Be careful you don’t fall in love with an idea and disregard the warning signs that the market won’t support it.
2 – What is the size of the market?
How is what you plan to offer filling a market need? What will be your position within this market? Who is your target market and how will you reach them? You want to reach the conclusion that your efforts have the potential to pay off. If you are offering the same product to a new or broader market the same principles apply.
3 – How should I price it?
Pricing is an important consideration. When you do your competitive analysis you’ll learn how similar products or services are priced. You want your price to be attractive enough to sway people to buy; unless you’re pricing a luxury product and the higher the price, the higher the perceived value. The option for prospects to keep their money and not buy from anyone is always one of your competitors.
I find it’s better to start on the low side to make sure the perceived value is greater than the cost. You can raise the price once demand has been established.
4 -How much revenue can I expect to generate within a specified time period (usually one year)
This is an important question and is dependent upon the actions you take to generate sales. You’ll need to think through your Marketing Plan in order to come up with a realistic projection of how many widgets you can sell at $XX within a specified time period. Analyze your sales history to help you know what has worked in the past. If you have a long lead time for sales, that should be taken into consideration. This may mean hefty upfront expenses with corresponding delayed revenue income. To be conservative make your revenue projections and then knock off 30%.
5 – What will it take to realize this additional revenue and profit?
What additional resources will you need? Do you need to hire more people, buy more supplies or inventory, etc.? That additional cost must be taken into the equation. These may be in the form of fixed or variable costs.
Consider what the competition is doing and what market insights and trends you can utilize that will generate sales. Select one or two actions for your initial campaign and test on a small scale before committing major dollars.
At best, making a financial revenue and expense projection is always a guesstimate. Gathering and analyzing pertinent information is the key.
6 – Where is the break even point and what is the potential profit?
The formula to determine how many you have to sell to start making a profit is Fixed Costs divided by (Revenue per unit minus Variable costs per unit). A quick and simple explanation of this can be viewed in the article, “Breakeven Analysis” at http://sbinfocanada.about.com/cs/startup/g/breakevenanal.htm . For some products or services the upfront investment is such that the breakeven doesn’t happen for more than a year. If that is your situation, you’ll definitely want to know how you’re going to capitalize such a project.
7 – Is this new direction in line with my overall Business Vision and Long Term Goals?
This is a good time to determine if your new offering will take you closer to (or further from) where you want your business to be going. One of the real values of having a clear Vision and Goals is to help you make this type of decision for every opportunity that presents itself. Think long and hard before starting something new that does not have an obvious fit.
While these questions and answers are simple, applying them to your business my seem a bit overwhelming. If you’d like to discuss specific strategies for launching your new project, send me a note, and I’ll be happy to schedule a time to talk.