Larkland Morley's Professional Blog

Keeping on the trend to discuss business idea development, there are some important cost factors that can help with the decision making process. The two cost factors I came up with are called “Customer acquisition Cost” and “Product delivery Cost”. How do we explain these factors?

Customer acquisition cost is how much you have to spend to get a paying customer. For example, if say twenty persons walked into your store then one person out of that twenty purchase an item then you are looking at a one out of twenty conversion rate (5%). The other discussion then is how much did you spend to get those twenty customers to walk into your store? Is it just because of your location? or was it some advertising work that you did? In looking at a new idea, its important to get an idea of this cost. Typically when the market you are entering is competitive, this cost would be generally higher. If you are coming out with a totally new product, then you need to spend a bit on promoting it as well, so there is an important discussion in understanding this cost especially for a new business. Put it this way, your goal is to get a sale as soon as possible, so getting a grip on this would be very useful. The good news is that things such as referrals could reduce this overall cost over time but initially you have to be conservative about this factor.

Product Delivery Cost would be all other cost that is related to getting the product from conception to delivery. This depends on what role you play in the process. If you are just reselling products then this cost is fairly low and may just focus on inventory and relevant logistics to getting the product into the customers hand. If you develop products, then you have to look at the whole cost of development including salaries and materials until the product is even ready for selling.

There you go. In developing your business plan and idea, you need to factor in these realistic cost especially to ensure that you will have adequate cash flow to succeed in your business. Bear in mind that these cost are already mentioned in generic business plan templates under different names but its good to look them in terms of getting paying customers and getting the product ready for delivery.

We will definitely be discussing more around this topic in the future.

Another short and quick post. Most times you may think that a business plan is aimed at sharing things with outsiders but actually at the initial stage, its much more important for you actually. Its important to convince yourself objectively that you really have a good grasp of what you are trying to do. If you want people or banks to invest into the venture you need to convince them that it makes sense. Now, it does not mean your business plan has to be perfect upfront but the overall trust should be there to make the pitch without too much effort.

Some keys I can share to help with this off the top of my head.

1. Market research – this is a critical piece to see if there will be a demand for the service or product that you have in mind. Also look at the competition in terms of whats being offered in that market. If its a physical business; which location would suit you better?

2. Value Creation – How will your business add value to customers, employees and owners/investors? This is important piece of delivering something that will take you to the next level.

3. Cashflow Projection – Even without too much details, the key to success is to generate cash as fast as possible. You could get millions in orders but how much of that is cash in the bank to at least pay the bills soonest?

4. Execution Strategy – This is a critical piece before you get into details of operations and tactics. What are the strategies you will use to succeed long term. As we speak, lots of large companies are failing as they don’t have strategy in place to guide them for the long term.

Those are a good start for now, we will look into more details as I dig more into a useful and effective business plan approach.

Found this great article on 45 Ways to use mind mapping tools. Most of these can make your business a lot more efficient in the process.

Check out the Article – 45 Ways to use Mind Map

Try these out now on your business or new ideas