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Planning Through the Life Cycle of Your Business - Part 2

© 2017 Elena Fawkner

Part I - Part II - Part III

This is part two of a multi-part article on business planning
through the lifecycle of your business.  In this part, we're
dealing with more than a theoretical business ...
your business now exists and it's time
to learn how to crawl, walk and run.


 

Perhaps the best way to illustrate the remaining life stages
of your business and the planning issues that arise in each is to
use an actual example.   Therefore, for the purpose of the
remainder of this article series, your business is creating beautiful
stained glass lampshades, door panels and windows.  This is a
craft you have enjoyed for many years and you are very good at it.
You have received many compliments from friends, family and
other visitors to your home which is a shining example of your
best work.  Until now, you have limited yourself to creating
pieces for special people in your life and for yourself.
 

TODDLERHOOD

In the toddlerhood stage of your stained glass business, you
need to learn to crawl and then to walk, albeit unsteadily at
first.  To this point, you've only created your stained glass
pieces for friends and family for special occasions.  Now it's
time to start generating paid orders.

=> Setting Your Prices

To begin with, before you start touting your services, you need
to decide what you are going to charge for your various pieces.
How will you structure your pricing menu?  Will you charge a
set price for a small lampshade, a higher set price for a larger
lampshade, more again for a window of a certain size?  Or will
you charge by the hour?  In our example, your best bet is
probably to charge a set fee per piece as people will generally
be more comfortable ordering something if they can be certain
up front what it's going to cost them.

So, sit down with a piece of paper and work out your pricing.
To start with, decide on a few basic products that you will
offer.  You may decide that a basic product line includes
lampshades, windows and door panels.  Within each of these
product categories, you refine your product offering.  In the
lampshade category, you may offer a small shade for a desk
lamp, a medium shade for an end table lamp and a larger shade
for a floor lamp.  Within the window category, you may again
offer basic sizes: small, medium and large.  You probably
won't be able to settle on definite sizes for your three categories
so set ranges.  A window that falls within the six by twelve
inches to eight by eighteen inches range is a "small", ten by
twenty inches through 15 by 30 is a "medium" and so on.
And the same thing for your door panels product category.

Now, when it comes to pricing, remember this formula:

Price = Cost plus Profit Margin

Here's how to go about pricing your small lampshade.

Figure out your costs.  These are your raw materials,
such as glass and lead, AND YOUR TIME.

We'll assume, since you've been practising your craft for
years that you already have the necessary equipment.  If
not, factor this cost into your pricing as well, spreading it
out over whatever amortization rate applies in the tax tables
for your business.  (We're not going to get overly clever here
and draw fine distinctions between fixed and variable costs.
You can learn about that by doing your research.)

Now, how do you go about pricing your time?  Well, ask
yourself this question: how much do you need to earn in
a year to be making a decent living if you did this full-time
and had no other source of income?  I'm not talking here
about megabuck income.  What's a reasonable income for
you given your background and opportunities?

Let's say, for the sake of argument, that it's $50,000.  OK.
Calculate how many days a year you would work in an outside
job.  Let's say it's 235 after allowing for weekends off, two
weeks vacation, ten public holidays and five sick days.  In
hours, that's 1,880 assuming an eight hour work day.
$50,000 divided by 1,880 hours is $26.60.  So, in order to
make from your business the equivalent of what you earned
in your job, you need to end up with $26.60 an hour.  (This
is a highly simplistic analysis since it doesn't take into
account tax considerations, foregone fringe benefits etc.
but it will do for the sake of this illustration.  Be sure to
factor these things into your analysis when you do it
though.)

Now, how long does it take you to create a small lampshade?
If you're smart, you'll create a series of designs up front.
Let's say that, on average, each small lampshade takes
two hours.  Your basic price for a small lampshade will
therefore be your costs of materials, let's say $14.80, plus
two hours of your time ($53.20) for a total of $68 plus profit.
Remember: what you're paid for your time is not profit, it's
a cost you're covering.  So, don't forget to add a profit margin.
15% - 20% for a home-based business is about average.
So, taking your basic price of $68, you would add another
$10 or so for your 15% profit margin, making a total of around
$78.

That's the basic strategy for pricing your products.  Follow
the same approach for your other product lines.

Strictly speaking, this exercise is something you should have
completed during the "Conception and Birth" stage of your
business as it's a vital part of assessing the viability of your
business.  Is this pricing structure something your market
will bear?  That's a crucial consideration.  If you can't sell
your work for the prices you strike during this stage, your
business will not be viable.  I've assumed for the sake of
this example that you've done your competitive analysis
and you can, indeed, demand this sort of price for your work.
Be sure to read "Pricing Yourself to Get and Stay In Business"
for a more detailed consideration of these and other pricing
issues.  It's available by autoresponder at .

=> Generating Sales

Now, back to crawling and walking.  Now that you know
what you need to charge to run a viable business, you need
to get orders.

To start with, create a sample of your work.  You need a
catalogue of your product range.  So, create a small, medium
and large size lampshade; a small, medium and large window
and sample door panels.  Make these your best work.  They
are the showpieces you will use to generate sales.

To get orders, get the word out that you are now in business.
Start with your immediate circle: work colleagues, parents
of your children's schoolfriends, friends, friends of friends
and friends of family.  Word of mouth will do wonders, believe
me.  You may even want to think about arranging for friends and
acquaintances to host parties to showcase your work.
Then distribute flyers around your community with photographs
of your work.

Develop a website and work hard to generate traffic to it.
Get this bit working and you'll have a worldwide market.
Get professional photos of your work taken and display them
at your site.  Provide for online ordering and get set up to accept
payment by credit card.

=> Moonlighting

During this stage of toddlerhood, which could last for a couple
of years or longer, you're running your business on the side.
On the side of work if you work full-time outside the home, on the
side of raising your children if you're a homemaker taking care
of young children.  The point is, it's not a full-time business
yet.  Use this time, while you still have the security of a
regular paycheck, to learn to walk.  Work out the kinks in your
business plan.  Orders not coming in as fast as anticipated?
No problem, you haven't got everything riding on this.  Spend
some more time developing your website and generating
traffic.  The orders will come, it will just take time.
 

This concludes Part 2 of this article.  Stay tuned for Part 3
next week when we'll grapple with those terrible two's.

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