In the final of a three part series of blog posts from the University of Leeds, Nigel Lockett, lead educator of the free course ‘Starting a business: realise your vision’, looks at how scaling innovation can lead to business success.
It’s all too easy to think that the difference between the price the customer pays and the cost is the profit. Of course, it is true that if the sales price is greater than the cost price, you are making a gross profit on each sale. But what about the cost of being in business? All the overheads, operating costs, wages, fees, interest on loans and something for you to live off! How many items do you need to sell to produce enough gross profit to cover these? (The turnover less cost of sales = gross profit). And, what is left after this is the net profit [link to activity 5]. What is the point of working really hard on your business only to make little or no net profit? Or in other words being a busy fool!
So, it’s really important to charge the right price. But how do you determine this and quickly? You could look at competitors or ask customers. There is a thought that you should test the market at an early stage and learn quickly from this.
I remember meeting a serial entrepreneur whose first business was selling large foam hands at football matches. He and two friends stood outside different gates selling at different prices. They called each other to see at what price point the hands stopped selling then they all sold just below this price. That was his first of many businesses.
Once you have got your price right and the cash is coming in, you will need to start collecting information and thinking about scaling your business operation. This is all sounding rather complicated! Don’t worry help is at hand. Week two of the Starting a Business free online course is all about designing a scalable business, understanding accounts and getting the money you need.
Five ways to build a successful business!
- How does information flow around your business?
- What are your key financial indicators for your business?
- Turnover is vanity, profit is sanity!
- Who you know that could help you?
- Cash is king or queen!