Marketing & Money

THE MARKETING FACTOR

The marketing factor asks the all-important question:

“Is there sufficient demand for your intended product or service?”

By answering this set of questions you’ll determine:

 

  1. Whether your idea is fresh, original, and attractive?
  2. If it’s based on an existing concept, what makes it special and different.  How will you gain an edge over competition?
  3. Has your concept got mass-market potential or is it a speciality purchase for a niche market?
  4. Have you researched the market to identify the competition?
  5. When looking at the market, have you conducted a gap analysis to pinpoint any missing opportunity your product can dominate? You may have spotted something missing in terms of what consumers may want or your product may have features which are different and attractive.
  6. Have you researched the market potential?  How are businesses already in the marketplace performing?
  7. Is the market subject to rapid change – for example, seasonal highs and lows in the gardening market or technologically with products becoming quickly obsolete?
  8. Is your product a one-off or can you add other related products to it over time to create a range with strength in depth?
  9. Is your product easily copied?  If it is, it will be.
  10. Do you need intellectual property protection, copyright, patent protection or design protection?
  11. If creating a totally new and innovative product, what control do you have over the supply of raw materials and production?  It’s wise to explore different suppliers, get quotes and create fall-back positions.
  12. If it’s a retail venture, are there any established patterns you can improve upon?  For example, vary your opening days and times to capture the greatest number of customers. This is especially true if you’re based in a commuter belt, with people travelling to work and returning in the evening.
  13. If providing a service, can you offer client flexibility of contact, can you arrange to meet them in their homes or offices?
  14. If offering a product, what level of after-sales service can you offer?
  15. How price sensitive is the market?  Sometimes just a few pennies can be enough for consumers to leave your product and buy another.

 

The book examines these questions under the headings of:

NEVER FORGET THE  5 Marketing Ps

Product – Positioning – Place – Presentation – Promotion

PROPER PLANNING PREVENTS POOR PERFORMANCE

 

 

 THE FINANCIAL FACTOR

 

“Can you make a sustainable profit in the short term?”

Ask yourself:

  • What is your price point?
  • What is your profit margin?
  • What are your sales estimates to calculate profit?
  • What are your product costs?
  • What are your estimates for set-up and running costs?
  • When will you first make, then sustain a profit?
  • What will your cash flow provision be?

 

The Cash Flow Killer

 

Negative cash flow kills businesses.  This happens when the business runs out of ready cash to meet costs. Often, this is because there are insufficient funds available as a capital investment in the first instance, or that money due to the company from sales has not be received in enough time to match money being paid out. The business gets out of balance, pressure from creditors mounts, bills remain unpaid, pressure increases and the business fails. Game over.

 

Pricing Strategy

 

Undercut. Price match. Charge a premium price.

 

What’s your pricing strategy? How are you going to agree your prices?

 

These are the four positioning options when first setting your pricing. Do you:

  1. Attract customers by charging a lower price than similar products on the market and continue at a price point below the brand leader?
  2. Price match the brand leader, but offer a short term promotional price discount to encourage consumers to sample the product?
  3. Price match the existing brand leader, then continue to keep your price the same as the brand leader?
  4. Charge a premium price because your product has advanced features, higher production quality or has some other factor, like a designer label, that gives a product a higher perceived value.

 

The Three Elements of Profit

 

1. Breakeven

Without making a sustainable profit, a business will fail. It’s true that in the early stages, a business may rely on the financial buffer of working capital to cover for possibly months of trading losses. It is not unusual for a restaurant, for example, to trade for months at a loss, until it becomes established and builds a loyal client base. This is why planning is such an aid to managing your finances, especially if you take a realistic view to avoid disappointment.

The point where it moves from the red into the black is called the breakeven point and income exceeds costs. We will revisit breakeven points in Step 3. It’s all part of understanding the need for making a financial provision to meet start-up and trading costs for the first months, not forgetting a separate fund to meet your personal and private spending needs. The important thing is to plan and make a sufficiently large allocation of money, (working capital), to see you through to the break-even point and beyond.

2. Gross Profit

Profit is the difference between total income earned and costs. Gross profit is the result of any one transaction, where the total income received is set against the direct costs of making the sale. The direct costs are those that can be attributed to a particular sale, including production costs, packaging and sales.

The gross profit margin is a percentage calculation between selling prices and direct costs. For example, if you sell a product for £25 with direct costs of £15 you’re left with a margin of £10.  £10 as a percentage of £25 = 40%. You have a 40% gross profit margin.

 

3. Net Profit

Net profit is the amount left when you subtract all the other costs of running the business. These are known as fixed costs and would include rent, rates, wages and a provision for corporation tax. A way to remember the difference between gross and net profit is to use catching fish as an analogy. The net is your fisherman’s keep-net (the net that holds only the fish to take home) or put another way, all that remains after costs have been taken out.

The ‘net result’ is your bottom line.