No matter how great your business idea is you won’t be able to stay in business if you can’t bring in income over the long-term. You can use these 5 ways to determine your income potential to help you discover whether or not your new business idea can thrive over the next five, ten or even twenty years.
Income potential (also known as “profit potential”) is the difference between the revenue you expect to bring in minus the total cost associated with making your product. For instance, if you make handbags that sell for $150 each, and it costs you $75 to make it and another $15 to market them, your income potential is $60 per handbag. In other words, to determine your income potential you have to take a lot of factors into account, including industry trends, your overhead, costs, and your target market’s interest in what you have to offer.
It is also important to note that calculating your income potential is still a simple projection and it doesn’t mean that income is guaranteed. You can create a more accurate income potential projection by taking your time and including all potential costs, including those that come with natural disasters or other extenuating circumstances.
Here are 5 ways to determine your income potential:
- Is Your Product Going To Be Able To Garner Long-Term Demand?
One of the most important factors to consider regarding your income potential is whether or not customers will continue to buy your product into the long-term. If your product is only going to garner interest in the short term or is only for a very small target audience, chances are your demand will fizzle out.
- How Much Competition Is Out There?
If there is already a lot of competition for your product, you might have a very long road to turning a profit. As the new business you will have to compete against more established businesses, meaning you will turn a profit much less quickly.
- What Is The Consumer Demand For Your Product?
Do some research and find out if people are interested in purchasing a product like yours. Then find out where they buy the product and what price they are willing to pay.
- Calculate The Lifetime Value Of Your Customers
To do an accurate calculation of the lifetime value of your customers you need to look far beyond the initial sales projections. This calculation looks at the potential income that can come from creating long-term relationships with your clients who will continue to give you their business.
- Is There A Way To Lower Your Production Costs?
One of the easiest and most efficient ways to increase your income potential is by lowering the costs associated with production. You can do this by decreasing fixed costs, searching for new vendors and by looking for tweaks that can be made in the manufacturing process.
It is essential that you use these 5 ways to determine your income potential before launching your new business. Building a clear-cut case for long-term profitability will help you bring on investors who can help you achieve your business dreams.