BUSINESS ANALYSIS
(Step 3: The Product / Service)
To be able to estimate if you will be able to make money from your business, you must find out what the customer is willing to pay for the service or product you offer.
You also need to find out how much the product will cost you to purchase, produce or import.
The difference between the two amounts shows how much money you will have left to pay your rent, telephone, internet access, marketing and your own salary (or the profit of firm).
Example of estimating cost
If you sell CDs at $25 on the internet and promote it as “No postage & packaging”, your calculation could look like this:
Sales price 25.00 $.
- Purchase price at CD company: 18.75 $
- Packaging and padded envelope: 01.00 $.
- Postage: 02.00 $.
= Contribution margin: 03.25 $ (13%)
Contribution margin
This calculation shows you that each time you sell a CD at $25. You will have $3.25 left. This has to cover expenses other than those related directly to purchasing, packing and dispatching the CD.
This amount is also called the contribution margin or gross profit.
To be able to estimate if you will be able to make money from your business, you must find out what the customer is willing to pay for the service or product you offer.
You also need to find out how much the product will cost you to purchase, produce or import.
The difference between the two amounts shows how much money you will have left to pay your rent, telephone, internet access, marketing and your own salary (or the profit of firm).
Example of estimating cost
If you sell CDs at $25 on the internet and promote it as “No postage & packaging”, your calculation could look like this:
Sales price 25.00 $.
- Purchase price at CD company: 18.75 $
- Packaging and padded envelope: 01.00 $.
- Postage: 02.00 $.
= Contribution margin: 03.25 $ (13%)
Contribution margin
This calculation shows you that each time you sell a CD at $25. You will have $3.25 left. This has to cover expenses other than those related directly to purchasing, packing and dispatching the CD.
This amount is also called the contribution margin or gross profit.
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