How to Quickly Work Out a Marketing Plan and Cost/Price Per Unit.

How to Quickly Work Out a Marketing Plan and Cost/Price Per Unit.

by Diane M. Hoffmann, ph.d./th.

You've been thinking about starting your own business. You’ve worked out a basic business plan to see what it will take to start and operate your own business...

But now you need to know the figures within the ones you calculated in your initial business plan that told you what it will take to start and run your business.

How do you do that?

Let's take an example... Let's say that your business plan gave you some figures something like this:



Ok, how did you arrive at the $120,000? Did you just pick that figure out of the sky?

If so, how do you know what you will need to sell at what price to get to that figure?

Well, you need to calculate your product or service on a per unit basis.  Let's say you sell a product. You need to know how much that product is. Is it $10, $50 or $100 at retail?

Let's say it is $100 per unit. Dividing the $120,000 by the $100, that gives you 1,200 units. It means you have to sell 1,200 units at $100 per unit in order to get $120,000.

If you don't know what the retail price of what you will sell is... for example if you create your own e-book or product... how do you know how many units you need to sell, in order to reach your $120,000 sales projection?

Well, you decide how much the e-book or product should sell for and then use that to divide into your sales projection figure. Let's say you will sell it for $47 each.  then you divide the $120,000 by the $47 and you get 2,553 units.

Then you divide this by 12 and you get your monthly sales figure of 213 units per month. That's what you have to sell inorder to achieve your projected sales figures.

Now, is $47 the right price?  If it is an e-book, your cost of sales will be only on your original master copy. After that, it's just a matter of putting up the link that people click on. So your margin will be high. If you have affiliates selling the book for you of course you will give 50% to them so you will be left with $23.50.

But if you have a physical product that you either buy wholesale or build yourself, then you need to figure out exactly what your cost is going to be.  The example used above for the Cost of Sales is based on 25% (that's a pretty conservative figure).  So make sure you figure out everything that goes into your cost of producing or obtaining that product. It could be as high as 50%.  I used to have a sailboat dealership and my cost of sales was 80% -- because I only got 20% discount from the manufacturer.

From this cost, you can calculate a retail price. Just remember to put enough percent in it to cover a discount that you would give to a dealer or wholesaler.  In other words, if you have a hard copy book for example, you will need to give a discount of 40% (average) to a dealer and 50% to a wholesaler and 55-60% to a distributor. Find out what the going rates are and use that to build into your retail price. 




As you can see, your cost of sales varies depending on who you sell to.  So you can take an average.  But just a moment, it's not that simple yet... before you do that, your next step is to figure out how much you will sell direct to retail, through dealer, wholesaler and distributor.  You make more percent selling to retail, however it's more costly for you to operate a retail store.  You make less percent selling to dealers but, collectively they bring you more volume; and the wholesaler more volume than the deale, and the distritubor more volume than the wholesaler --  you don't have to do the selling.

So figure out how much of your sales will come from each of these distribution venues, than calculate the total income from each one and then you can take an average.  If it is different then what you had originally projected, then go back and make that change in your Cost of Sales line of your business plan. If your cost is higher, then you'll have to sell more in order to bring your top Gross Sales up so that you don't get a lower profit at the bottom.

And there is more to it yet but this is a good basic start.  As you work with your figures, things will come to your mind that you can add to all this.  It's always a good idea to let an accountant look at it to make sure you didn't miss anything. And then you must monitor monthly to make sure your figures make sense to the reality of actual figures./dmh

P.S.:


For my Ebooks "Business Plan 101" and "Business Plan 201" click on the tab at the top.


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