How do you know if a business idea is profitable

How do you know if a business idea is profitable? If this question has already crossed your mind, don’t worry: this is a common concern for practically all entrepreneurs who are starting out.

However, although there is no single answer to this question, it is important that you knew that there are several ways to find out if it is worth investing in the planned business. For a business to be profitable, it needs to sell a minimum amount of solutions and that, in addition to paying the bills, it allows you to achieve the expected profit.

In addition, the key involves strategic analysis, the development of a business plan and marketing actions that are able to attract consumers.

Start with strategic analysis

The first action to be taken is a market research that can verify the viability of your idea. This initial survey of data will allow you to know the profile of your future customers and understand what your competitors are doing (or failing to do) to attract consumers.

In addition, this is the time to research your suppliers and measure sales expectations. The idea is that you have an overview of the business working before it even starts. Explore competitors’ weaknesses or try to take advantage of what they already do and it works.

1. What is your target market and how big is it?

From the general information, we started to search for specific data. For example: what is your target market and how big is it? Answering this question is essential to define your area of ​​expertise.

You can have an online company that sells all over Brazil as you can opt for a physical store, selling products only to residents of your neighborhood. Regardless of your choice, it will serve as a parameter to measure the expected sales volume.

2. Does your target audience need your product or service?

This is a common mistake for beginning entrepreneurs. Often, they have ideas that they think are excellent, but that do not find an audience. For example, if you make homemade cakes, your peach cake may be delicious, but that does not mean that it will be the favorite of consumers.

Therefore, before going to the market, check the possibility of testing your products and services. Are customers willing to pay for it? What is the maximum amount they would pay? How often would they buy? Having answers to these questions is a good start to minimize the chances of error.

3. Who are your competitors?

Which companies will you compete with directly? Your market analysis will also indicate which companies you will be competing with consumers with.

In general, there is a market for everyone in most segments, but competing in certain areas can be more complicated. This is the case, for example, of services and products marketed by multinationals, which are better known and have more capital for investment in marketing.

4. Why will they buy from you and not your competitor?

From the answers to the previous question it is time to raise the strengths and weaknesses of your competitors. Put yourself in the customer’s shoes and answer: why would I buy a product from my company and not the competitor’s?

In general, consumers seek differentiated or personalized service; unparalleled or superior services and products; cheaper priced products; or time-saving solutions. Are you able to offer any of these differentials?

5. Will your product be valued and seen as different?

Finally, keep in mind that there are ideas that are perceived as “excellent” only while they are seen as new. Perhaps, after a certain time, it is necessary to change the focus or add new differentials to the business. Find out which category your product or service fits into.

Business plan: why do you need one?

The answers to all of the above questions should be included in the business plan. It is the document that brings together all the concepts and market analyzes, indicating items such as initial investment, breakeven point, risks and threats and projected return.

  • What is your initial investment required? Based on all the data that was collected, how much money you need to get the business up and running.
  • What is the balance point of the business? Based on the estimated operating costs and profit margins, what is the monthly amount your company needs to bill to cover all expenses.
  • What are your risks? What factors pose the biggest threats to your business. Exchange rate fluctuations, a significant increase in the cost of raw materials and changes in legislation are some of the possibilities.
  • What is the viability in the short, medium and long term? Is your business idea easily replicable and has high growth potential or do we talk about something that depends a lot on your workforce?

Marketing: attracting customers to your business

Finally, we cannot stop talking about marketing. It is through it that companies win and retain customers. Considering the 4 Ps of marketing – product, place, price and promotion – it is necessary to think about strategies to attract consumers to your products. It is called inbound marketing .

Have you heard of inbound marketing ?

Simply put, inbound marketing is a set of strategies that is based on creating content that can attract a specific target audience. Every consumer goes through several stages in the so-called “shopping journey”. Identifying which stage he is in and offering the solutions he needs at that moment are efficient ways to increase sales. The steps are as follows:

  • Learning and discovery: at the beginning of the process, the consumer does not yet know that he has a problem or need. Your role is to pique his interest and capture his attention.
  • Recognition of the problem: at this stage the consumer already knows that he has a problem. Your role is to generate a need for resolution in it.
  • Consideration of the solution: here the consumer has already considered some possible solutions and is evaluating them. You must make him understand that your product is one of the possible solutions.
  • Purchase decision: with all the options available, it is time for the consumer to make a decision. Show your differentials so that the choice is for your product or service.

Feel fulfilled with your business

Last but not least, you need to keep in mind that your business will be a source of income and will occupy a large part of your day. Will you feel fulfilled working with it?

It is important that work is aligned with your personal values, as there is nothing worse than investing time and money in what you don’t believe in. With patience and persistence it will be possible to overcome any barrier and transform your idea into a profitable business.

Profitability should be the main objective

Basically, your business needs to answer “yes” to the following question: in addition to covering operating costs, does it allow me to make the expected profit, whatever it may be?

From that objective, you will develop the others: the strategic analysis of competitors, your business plan and the forms of communication and marketing to attract customers.

All of these aspects must be directed towards increasing your sales and, consequently, increasing profitability. It may seem complex, but it is not: it is a more guaranteed way to make sure that your idea is really a viable business and that you are ready to grow from it.

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