Page 188 - Budgeting for Managers

Small Business Money Management
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How do you estimate how much money other people will
pay for your products or services? Here are some tips:
•Calculate each product or service separately.
•Think about your customers: Are they businesses or con-
sumers? Who will make the buying decision? How much
money do they have? How much would they spend to get
whatever you offer from someone else? What advantages
do you offer? Is your product or service less expensive,
more convenient, or better? If it’s not less expensive, why
will people choose to buy it?
•Pretend to be one of your customers. Be realistic. If you
build a business on the idea that people will want you to
wash their car every week, you won’t succeed. You have
to offer real value for real success.
•How many customers will you have? Where will they be?
•How much will they buy?
•How often will they come back?
•What would cause a customer to buy more, to buy less or
stop altogether? Which of those elements are under your
control? More important, which ones are not?
•How long will it take to build a customer base?

Once you see your business from the customer’s perspec-
tive, you can develop a marketing and sales plan. From a budg-
eting perspective, you’ve started to estimate how much income
you will have. It’s a very good idea to do a low, medium, and
high estimate of projected income for each product or service.
If you can deliver everything your customers want, then
your marketing plan drives your business plan. But that may
not be the case. There may be some other limiting factor, often
called a bottleneck. If you can’t produce as much as you can
sell, then the limiting factor is in production—and it will limit
your income, because you can sell only as much as you can
produce. Here are some examples of limiting factors:
• Production capacity. If you have a factory, you can sell
only as much as you can manufacture.