Plan twice, launch once
A quick initial analysis can take just a few hours. It takes just 2–3 hours (depending on the specific project) to work out whether it makes sense to go ahead with the project. You don’t even need to know anything about economics or accounting; basic primary school-level addition and subtraction is enough.
“In my experience, only a fifth of companies have a properly developed business strategy,” says our consultant Daniel Musil. “These companies have a major advantage in the market; they always know exactly how much they can afford to invest and by how much they might need to reduce prices. They don’t need to carry out complex analyses to plan their post-Christmas sales and promote their products. They simply have a better overview of the whole process.”
Will the project be profitable?
Let’s say you want to set up an online shop with a collection point; the costs of running an online shop are actually fairly straightforward to calculate.
1. Determine your marketing costs
You can calculate your marketing costs very easily. The Google AdWords tool will help you determine the optimal bid for your chosen keyword. This will give you an idea of prices in your industry, and you can then set your monthly budget (or budget per number of impressions). It works similarly on Facebook – you set a budget for a chosen time period and target audience.
You can calculate the costs for each individual channel in a similar way.
2. How do you determine market potential?
Fortunately, the internet is a great way to estimate the size of your target audience in advance. Don’t make up figures; instead, use the free tools available. You can obtain hard data before starting your business from:
- AdWords, Sklik – these will help you estimate monthly keyword search volume and cost-per-click
- Facebook – helps you determine the size of your target audience on this social network
- Google Analytics (if you already have a website)
- Collabim – helps you analyse the competition and keyword search volume
With this information, you’ll know roughly how many people you can reach with your offer and which channels are most suitable.
3. Set up your business model
Decide how you want to reach your target audience. Perhaps a Facebook and Instagram page will suffice, or maybe a blog, PPC or email marketing. Choose based on your target audience, the persona of your typical customer and their habits.
Create a calculation for three scenarios – that everything goes extremely well, average, and that everything goes extremely badly.
How do you calculate profitability for a start-up?
A startup approaches the calculation from the back end. So first, you need to work out how many products must be sold for the startup to turn a profit. Only then do you calculate how many users you need to attract and prepare your sales and marketing channels. It always depends on the specifics of the project; there are also startups that don’t make a profit and whose aim is to sell an idea or technology to a large company.
“Start-ups generally don’t have any sales or conversion figures. However, they can base their calculations on general or average figures. In my experience, the average e-shop has a conversion rate of around 1% – meaning one in 100 visitors makes a purchase,” says Daniel.
How does the website and online marketing fit into this?
There is a difference between a company that has operated offline and is entering the online space, and one that is just starting out and will operate exclusively online. Similarly, the role of an e-shop differs from that of performance-focused websites and brand sites, which essentially serve as a business card.
“You need to define what goals the website and online marketing are meant to achieve and proceed accordingly,” explains Daniel. This method is, of course, not a silver bullet. It will give you a clear idea of the project and the basis for further development planning.
Daniel spoke on this topic at the Entrepreneurship Week Summit; you can find his talk here: