So, you have a great product idea. You decide you want to make your millions on this product. Can you really make millions on this product?
My last post was about planning with the end in mind. I’ve recently sat down with a freelancer, and two small businesses to discuss job costing. I know that finance is scary, but think about your first entrepreneurial venture, the lemonade stand. You borrow money from your parents, you mix up your lemonade, you set up a table in the front yard and then you get to work in the hopes that you can pay mom back, and buy yourself a new toy.
So, your end goal is that new toy. It’s $10. You borrowed $10 from your parents to buy supplies (they wanted you to earn the toy, rather than give you money for the toy directly). It’s pretty simple math. You need to sell enough lemonade to pay your parent’s back and buy the toy. End goal, clear $20. Simple enough.
Other things to factor in. Other lemonade stands in the area. You need to price your goods competitively. Then there is the actual cost of goods sold. Ingredients, cups, a sign, and maybe some decorations for your front yard set up. If you are lucky, You can scavenge around for the decorations, and make the sign yourself. You are down to cups and ingredients, and you have $10.
Around the corner, your neighbor is selling lemonade for $0.50 a cup and they are making it from a mix. If you go with a mix, You can’t really sell your lemonade for more. You could use better ingredients (although more costly) to raise the price.
Most small businesses, end up running right out to the store with $10 and buy the ingredients for their lemonade. They get the nice cups, they get the organic ingredients, they make a glorious signage, they sit out at the curb, and sell lemonade until they have exhausted their supplies and themselves. If they are disciplined, they spend their earnings from the day on more supplies and they show up the next day with more lemonade.
Does that define success? Not really. Your goal was to make money. At some point you have to make money off the cups of lemonade, not just get more supplies for lemonade. You want to make enough money to pay off what ever start up costs you had. You want to pay off any loans you took out to open your lemonade stand. You want to pay yourself for your time spent running the lemonade stand (at least minimum wage).