It's an interesting question to ask.
But, we should ask it early on. Sometimes after having a great idea and doing some research we just plough into it without a second thought. We should stop and do the numbers to see if the effort is truly worth it and if the new venture is what we really want.
Some of the numbers we need to crunch are:
- Variable costs - these vary based on how much we produce or how active the business is. Examples are material and labor.
- Fixed costs - these remain steady regardless. examples are rent, salaries, utilities, insurance etc.
- Don't forget tax and other regulatory obligations.
- Calculate your gross profit and net profit margins.
- Gross profit margins should be 50% or higher and net profit 10% or greater
- Don't forget to account for your time - you are the businesses most valuable asset and should be remunerated accordingly.
- Pricing must cover all costs and and the desired profits.
Now after crunching these numbers you can figure out if you have a profitable business that is worth your time.
If the numbers don't work out or the profits are to small then its back to the drawing board or time to abandon the idea in its current form.
