3 Ways To Decide If Your Idea Is Profitable
At the end of the day, in order to become a fully fledged business you need to know that your idea actually makes money.
There are two parts to determining profitability:
1. Is there a market there?
2. Can you sell it for more than it costs to make?
The first, determining your market, can be done in many different ways.
The most successful entrepreneurs have a business that solve a problem. It may be a problem that they themselves have faced, or that they can see is prevalent in the lives of those around them.
Ask around. Ask your friends, neighbours, family. Would they buy your product/service? Ask for specific feedback, if yes, why? If no, why not?
The most valuable piece of market research I conducted for my own business was reaching out to people in my circle that I thought may buy my service. Some of them were people I hadn't spoken to in over 5 years. It was nerve-wracking, making myself vulnerable to these almost-strangers, but the feedback I received was priceless.
Look around online and in your community, are there businesses already providing a solution to the problem you have identified? If so, how can you do it better? What makes you different?
My services, providing bookkeeping services to small-businesses, isn't new or unique in any sense of the word, but I differentiate myself by providing financial analysis and insight to the small businesses that I work with. This was an issue for business owners that I identified early on, and has proven to be a valuable addition to my company.
Once you have determined that there are people out there that would pay for your product or service, you need to figure out if it is worth it for you to make.
Think of how much you would sell your product or service for. Let's say you've chosen $50 per item.
Now, think of all the costs that go into creating this. Below are some examples:
• Office space rent
• Your salary
• A website
• A bookkeeper/accountant
• Advertising costs
Obviously, at the start you may be able to work out of your home, not pay yourself a salary, and get the cheapest website, but at some point you will want to grow your business past your bedroom, and you need to know whether or not your idea will fund this.
If the total of the above were to cost around $3000/month, then you'll need to sell 60 products per month to cover this. This is a simple example, and of course there are variable and fixed costs so this number will change, but it will give you a ball-park figure to start with to see if you have something.
Think; is 60 products a month realistic? Sustainable? Doable?
Once you have tested your idea in these three ways, you will have a better understanding of whether or not your product or service will be profitable, and can start making your next moves.
If your idea doesn't seem profitable, that doesn't mean you can't do it! Just look at ways to cut costs and/or add value, and listen to the valuable feedback that your friends and family have told you to help tweak your business!
Check out our previous article: 10 Financial Musts For Your Start-Up (Or Side Hustle) 2019