Before everything… consider your fixed and variable costs!

So even before considering starting out in the big bad business world there's something called costs or expenses that need to first be determined. This will then allow you to work out the price of your service or product and the break even point to then of course make sure that there is profit.

There are two different types of costs that need to be considered. The first being the fixed or overhead costs. The costs that will remain the same no matter how much product or service is sold. These types of costs can include such things like the rent, services such as electricity, water, waste and equipment. The other is the variable costs which is generally the costs associated to the consumables and casual labour. 

Looking at these more closely if i were to start an online baby shower gift company i would have to consider both of these costs to make sure the venture was viable. I would first look at the fixed costs. These would include the rent of hiring a facility to run the company out of, electricity, internet, phone, water, advertising, web site development, business name registration, legal fees, salaries and alike. These are all costs that need to be paid no matter the output and are constant. 

And then we look at the variable costs. These include the consumables that can vary with the amount of product i need or sell. These costs could be the gift boxes/packaging, clothing, cards, freight and any casual labour i require. These costs will increase as the output increases and will decrease if output decreases but the fixed costs will remain the same. 

My variable costs can change with the market too. I may have to change suppliers which could decrease or increase my variable costs. Freight charges may increase and again this affects my variable cost.

Once i have both these costs i can then work out what the minimum price per unit to cover all costs which is the break-even price. 

Making sure that you have all of your facts, or more importantly calculations, correct is the key cornerstone of going into a business. And if you're looking at a bank investing, this pre work is a requirement. Again it comes back to the planning and being prepared!

Evaluating ideas: Working in the then or now…

Before any brilliant or seemingly brilliant idea goes anywhere some planning must first happen. For it to become a brilliant idea a few factors must also be considered. By doing this the idea is evaluated properly and screened and either pursued or abandoned.  Apparently there's no such thing as a bad idea but rather a bad solution…

So you have an idea but before anything you need to work out if there is a market or demand, determine if you can in fact deliver it or whether you can physically do it. There are other marketing principles that come into play. 

Firstly, looking at planning ahead; start with a specific result or having the end-in-mind and working up a plan to implement. This principle looks at everything that you will need to do to reach your goals. This principle is a more thought out and structured process.

Where as the bird-in-the-hand principle looks at what you have available now. This approach allows you to take your idea, create a plan based on what you have and basically start now… today. This type of evaluation is something that is more common with entrepreneurs. 

Looking at both principles more closely they can be broken down simply like this. You can work through what you need to get started, build a plan to implement and achieve your vision; or look at what you already have available and see what you can do to make it happen now.

So the factors that must be taken into consideration when working out whether an idea should be pursued, no matter which principle is used, include looking at strategy and market positioning. But also is it realistic, can the idea be pursued because you have the resources including money, the know how, physical assets and people. 

Again it comes down to what consumers want and need. If there is no demand or no potential then it's harder to market and may not be something that would be successful. After all generally three out of four start ups don't make it!

With that being the case, if i were to pursue a business idea i would be more inclined to work with the bird-in-hand principle. It could possibly be cheaper rather than working through from scratch and leaning on what resources were available at the time. But it really depends on the idea and the circumstances. 

RM

New horizons and the identification of market potentials

What lies ahead in untapped markets? The potential to identify new markets is vast but knowing where there are holes and how you can fill them is key.

I watched a video about the potential of untapped markets which demonstrated how two brothers saw an opportunity in a new market. One of the brothers, Bertrand explained how they moved from Mexico to the USA. In doing so they also moved from a paper based money society to one that predominately worked with electronic cash. From personal experience he saw the need and demand first hand of needing a way to pay for things but not having the means to do so. 

A lot of immigrants did not have bank accounts or have the ability to use alternate financial services. Their idea was simple. It allowed users to pay their bills using reload able prepaid debit cards. This idea gave flight to a concept and company called Netspend. It allowed consumers with the prepaid cards to make purchases online, over-the-counter, and a way to manage their money.

When looking at the hole in the market Bertrand also looked at what the consumers needed and begun to ask whether it should be done and why hasn't it been done before? Something that so many people would benefit from, there had to be a catch as to why there wasn't something like that available already. He answered each of these questions, saw that there was a demand and made a case to push forward with the idea.

Because Bertrand was out of his comfort zone he was forced to look at alternatives for him personally. He saw this as an opportunity to help others in a similar situation. He saw value in serving the under served which led him to thinking outside of the box and putting his thoughts into action. Moving from a one culture to another is hard and this initiative is more than helpful to help ease the transition.

No matter the idea you should always question and find solutions. Is there something that would make life easier, that would make your life easier? Is it such a simple idea that no one has even considered and that could be put into action. Look at all the options and how to best fill the market gap. Determine the need and cater to the consumers. You can learn from your own experiences. Having that first hand knowledge and understanding of what is required can help uncover a market that hasn't been identified before. Knowledge is power.

RM.

You're part of a marketing strategy whether you like it or not...

Do you complete online surveys about your experiences when you shop, eat out or swipe reward cards when making purchases? Chances are you do. And the likelihood that you've been contributing to the collection of marketing data for a very long time without realising would probably alarm you. But alas, it's relatively harmless! You've probably been taking part in this type of market analysis or research for many years and your habits and opinions have helped shape your most loved and admired brands even if you don't realise.

Using those pesky reward cards at the check out (you know the ones! They are usually buried deep in your purse and you struggle to find them under pressure) actually obtains a lot of information without your direct knowledge. They instantly track where you are, what you've purchased and make comparisons, projections and assumptions on your shopping habits. This data is collected, analysed and reports on how to keep up with consumer demands and how best to evolve their products. It's a good way for companies to work out what is working and what's not. Not only that, but when you signed up for the cards you have also provided a lot of information about your demographic like your age, your address, your likes and dislikes maybe. You have a whole marketing profile and you're providing some really good marketing data!

I recently read a paper on 'The hidden side of loyalty card programs' 1. They highlighted the blindside of using such things as loyalty programs by providing so much information without your knowledge. You don't think about what you're actually providing to the company when you're handing over the card. You have just told them what you like to buy, at what time of year and where just to name a few! It is a rather powerful way to gather a lot of information whilst 'rewarding' the user. I have to admit, i do partake in swiping cards and getting tailored emails and redeemable vouchers. It sucks me in to continue to return shopping at that particular establishment as i feel like i'm getting something back but in fact I'm being rewarded for my data.

On the other hand, the most notable and direct way to get information from you and your habits is through the national census. It gathers an enormous amount of data which is then analysed and stats are made available for the public and allows the Government (and relevant departments including businesses and other organisations) to make informed decisions for the country, business and alike based on the research and analysis of the data. They provide a number of services to understand and use the data obtained from the census as well. One such tool is one that i tried out for myself this week. It asked a few simple questions about me and where i lived. And after working through the survey I was rewarded, yet again, with a cool info graphic snapshot about me and provided comparable information taken from the 2011 Census 2. 


Check out Spotlight 2.0 for yourself at http://spotlight.abs.gov.au and create your very own personal info graphic to see where you fit in Australia. You may just be surprised by some of the facts and figures! I know i was!

So from conducting these types of direct and indirect surveys businesses are able to better understand their markets, consumers and how to grow or diversify. It can also help identify problems and make better marketing decisions by formulating strong marketing strategies.

Let's go shopping!… 

RM 


References;

1. Professor Steve Worthington, Monash University & Josh Fear, The Australia Institute, December 2009, 'The hidden side of loyalty card programs', retrieved June 13 2014, http://www.buseco.monash.edu.au/centres/acrs/research/whitepapers/hidden-side-of-loyalty.pdf

2. The Australian Bureau of Statistics, June 2014, http://abs.gov.au