How To Estimate Profitability and Revenue
So you’re planning to start your own business, and you’re wondering how much profit and revenue you can make.
Well, sorry to disappoint you, but no one can give you an accurate number for sure.
You can get a general idea of a similar operation’s revenue and profit margin, but many variables come into play. Your numbers will vary due to the issues included below.
Each affects your revenues and profits. Have a look at each of the following sections for a brief explanation.
The revenue you can expect from your new business will depend on the following:
The Location of Your Business:
Location is a key success factor for a brick-and-mortar business. You must be in an area of the customers you’re planning to target. As an exaggerated example, let’s say you open a computer store in a small town of 500 people, consisting of retirees. Do you think this operation would be successful?
Compare that to opening a computer store in the business sector of a large city. Choose your location wisely. For more, see Choosing the Best Location for Your Business.
The way you market your business will affect your revenue. If you have a successful campaign, you can get a lot of potential customers. Depending on walk-ins will most likely result in failure, unless you’re in a high-traffic area or a mall.
Without effectively marketing your business, you won’t see a lot of revenue. See The Marketing Section of this site for tips on marketing your business.
There must be a demand for your products and services. When you’re dealing with products and services with very little demand, you’re fighting an uphill battle to make sales.
If you end up in a saturated market, you’ll have a hard time getting any market share as a newcomer.
You need a strong demand for what you’re offering along with a healthy market to get started on the right track. For more, see, What Is the Demand for Your Products and Services.
The issues listed below will affect the profit your business can generate.
You may think I can double my money. Yes, you could. You need to find a supplier that can give you wholesale pricing. This allows you to make a good profit while ensuring you can pass on good deals to your customers. You don’t want your customers to find the same item for a lower price.
On the other hand, if you price too high, you will reduce your revenue. If you set your price too low, it might not be profitable enough to keep your business moving in the right direction.
When you are pricing your products and services, you want to make sure your customers are getting value. You want to be in the correct range for the market price. You want to make sure you are making enough profit. For more on pricing, see our resource page to help you become good at pricing your products and services.
Your operating costs have a strong impact on your profits. For example, imagine starting an online business selling clothing. You purchase a warehouse, an office, and hire a staff of 50 employees. How much extra profit would you have to make to cover the costs? As opposed to starting off as a one-person operation and expanding as you grow. It would make a big difference.
When you’re starting out, you need to keep the cost as low as possible until your business is established and bringing in revenue. That doesn’t you should cut costs to the point that it is restricting operations. Find a balance to keep costs down without affecting key operations.
Profits are important, and so are sales volumes. The two must work in harmony.
If you have a high amount of sales and very little profit, you’ll struggle to keep your business open. The same applies if you have very high profits with very little sales. For any business to be successful, there needs to be an acceptable amount of revenue with profits to pay for all the business expenses.
Once you have a good formula to price your products and services, your next step is to increase revenue by marketing your products and services to the right customer base.