Predicting Earnings Means Securing Your Business

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The secret of creating stable streams of income is to set up the basics of a predictable business. In today’s business environment, it becomes harder and harder to forecast properly the income that a business produces. There are a large number of factors involved, but the fast change of the customer’s behavior and needs is the most important. Now, any predictable business on this planet works only if it can involve statistics. This means it goes on large numbers, where statistics is accurate. So, no matter what you sell, if you target 10-20-50-100 clients, you do not have a predictable business.

"There will be more competition in your industry in the future and there will be more challenges than you can imagine now. But, in the same time there will be more opportunities and more areas to exploit."

This prediction was made in 1952 by a study group in Harvard University. If you have a business that addresses to a very specific type of customers, it is very likely that things will be more difficult for you each day from now on. The secret of creating stable streams of income is to set up the basics of a predictable business. A predictable business allows the manager to forecast the sales volume and the profit with great accuracy, irrespective of unpredictable factors.

Step 1:

Create your "ideal client" - age, sex, location, education, income level, etc.

Step 2:

Build a database of people who fit your ideal client description. You need at least 500. If the accuracy of matching the ideal client profile is not very good, then you will need a larger database, up to 5,000 entries.

Step 3:

Make a pilot campaign. See how many of the people in your database are interested in what you sell and how many actually buy that product.

Step 4:

Check the cost-per-client (i.e. how much did the pilot campaign cost you and how many people bought from you). Then compare with the profit margin of the product - the difference between your purchase price and retail price. Now you know how much from your profit margin per item sold represents the campaing cost. This is the profit-per-sale.

Step 5:

Think how much money you want to make in a month. Then, divide this amount by the profit-per-sale so you know how many items you must sell in a month to match the desired income.

Step 6:

Extrapolate to the database to discover the number of people needed for you to reach the sales level that makes you happy. Then look for means to collect such database. You can buy it, rent it or place and add that will attract subscribers. The costs of collecting the database must be included in the campaign costs.

Let's say you want to start an online business. If you sell a product that has a very narrow potential market, you will simply not be able to sell enough. Many people think that if their product is very specific, everybody interested in that type of product will buy it, because there is no other better offer. You simply can't know how many will actually be interested. If you have 10% buyers from 10.000 people in your niche, although it is a ultra-high percentage, your sales is limited to 1000 items. However, if you sell something that only 0.5% of the target group buys, but you sell the product nationwide or worldwide to 10,000,000 potential buyers, you sell approximately 50,000 items! Just because your initial test showed a relatively low response ratio, you don't have to be discouraged. On the contrary, think that it might be easier to rise the buying percentage from 0.5% to 0.6% and selling 10,000 items more by slightly adjusting the marketing strategy, rather than increasing the ratio from 10% to 12% and selling just 200 items more.

Remember, statistics never fails. The larger the number it operates with, the greater the accuracy. All you have to do is to find out how much it costs you to find one client. Then, you look at your profit margin per item sold and check if you can live with that. If yes, then you have a business. If not, you have a black hole instead.

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