Once you have identified a profitable business idea and developed a product the next step is to establish the cost of producing your product and the price you can sell it for.
To achieve the above, the following considerations need to be undertaken.
1, First, you need to assess the costs associated with your proposed business, including direct costs for producing your product and indirect expenses such as marketing, administrative overheads etc.
2, Calculating the break-even point is essential. This highlights the level at which total revenue equals total costs, indicating the minimum sales volume required to cover all expenses and begin generating profit.
3, Thirdly, explore the available financing options and determine how to fund your business venture. This may involve self-funding through personal savings, or external financing from investors or lenders.
4, Additionally, learn how to calculate your profit. Knowing how much you can profit, allows you to gauge the financial performance of your business.
5, Lastly, analyze the pricing strategies used by your competitors and use this information to position your products effectively in the market. This includes evaluating pricing models, pricing levels, discounts, promotions, and value-added services offered by competitors to inform your own pricing decisions.
Sales and Profits
Sales represent the revenue generated from selling goods or providing services to customers., on the other hand, profits reflect the net income or earnings after all expenses have been deducted from the total revenue.
The selling price
The selling price is the amount customers are willing to pay to acquire a product or service from a business. It is a key component of pricing strategy and is influenced by factors such as
1, Cost of Goods Sold.
This represents the direct costs incurred in producing or acquiring the products. It includes expenses such as purchase price, manufacturing costs, and transportation.
2, Customer Demand and Perceived Value:
The selling price is also influenced by how much customers are willing to pay for the products or services
Costs
Costs are an important aspect of any business. There are two main categories of costs, namely fixed costs and variable costs.
Variable costs
Variable costs are those costs that fluctuate with production and sales volumes.
For instance, if you operate a bakery, the expenses associated with purchasing packaging materials and raw ingredients would be considered variable costs. If you produce more baked goods, you’ll need to buy more packaging materials and raw materials, whereas if production decreases, you’ll require fewer supplies and incur lower costs.
These variable expenses are commonly referred to as “Cost of Goods Sold since they directly represent the cost of producing the goods sold by the bakery.
Fixed Costs
Fixed costs, on the other hand, are those costs that remain constant every month, regardless of variations in sales. They include salaries, rent, and electricity.
Business Description | Entrepreneurship & Business Management N4
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