Last week I posted that I start with a new business by asking the owner where they were getting funds for the business. For someone starting a business, that should be about halfway down their train of thought. I start there because it helps me understand where they are in the process. But that is not where they start. People start with an idea and a passion. They know something they want to do. They have an idea, but where do they go next. The answer to that question is very simple - The Customer!
Why start there? There are two reasons. The first reason is simple. The market needs to be defined, especially the Ideal Client. Ideal Client is not any Client. When I ask many people who their Ideal Client is, they answer to me "Anybody". That is a horrible answer. What you are looking to define is the Client that wants what you sell and can afford to buy it. They are also going to be swayed by your Unique Selling Proposition (USP - others might call this the Unique Value Proposition). I posted about an example of this from one of my past employers HERE. From that same employer, I have an example of a possible non-client HERE. To put it into a larger Sonoma County context, I note we have some wonderful wineries in the County. But I need to tell you that Boone's Farm still exists. The Ideal Client for the two products does not overlap in any serious way. But both are alcoholic beverages and at that level are in the same market. I apologize if I insulted the sensibilities of wine drinkers out there. I wanted to provide as stark and clear and example as possible.
The second reason may not be as clear. But I will go back to my example. Boone's Farm is very inexpensive and in fact that is the primary reason that people buy it. Sonoma County Wines cost a lot more and provide the value to support the price. What that means is to make the same revenue, Boone's Farm needs a lot more customers. The number of clients that you will serve means a lot to a business. It drives decisions around the size of the firm and how the product is delivered to the market. Low price products require more transactions but have a lower barrier to new customers trying them out. Both types of businesses can work, but they are built differently. So, this is not a question of the right way or wrong way to build a business.
Which leads us to one of the key part of "The Way to Wealth Formula" as popularized by Focal Point's founder Brian Tracy. This part is the "Revenue Formula" where we look at the number of customers, the average sales price and the number of sales to a customer per year. One of the most important parts of this formula to understand is that Revenue is an output of the formula. Revenue is not something you can dictate. Revenue is dictated by the factors that I noted here. When we build a Business Plan, we need to think through those customer metrics to start. There is no need to be perfect, especially when you start. Expect to make a couple of passes at the plan before you get one that works for you.
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