Before you start your own business, you'll want to make sure your idea is worth something—how much money can you make from it? Once you determine your start-up is worth, well, starting, you have to decide what to charge for your product or service, and this can be difficult to predict, prelaunch. Money recently revealed a few easy steps for identifying the value of your business idea, and we're breaking them down below.
- Do some digging. If your taking your own path in a career you're currently in, get some inside information from the company you work for, which means finding out what they charge for similar services and using those numbers as a baseline when naming your price. In some cases, trade organizations put out public reports that reveal standard rates in the industry, so look for those, too. Window shopping as a perspective customer of your soon-to-be competitors is another way to get a general sense of what you can and should be charging for the same products or services. If you feel like doing a deeper search, the government’s General Services Administration publishes rates from contracted businesses for federal services, but you'll have to determine which lists apply to you and your prospective business.
- Know what you need. You'll have to come up with a detailed budget plan in order to know what you'll need to charge to simply cover the cost of doing business. If you want to add in a salary, you'll have to charge 1.5 times whatever your base cost is to fund that as well. If you have an overall idea about these numbers in the beginning, you can get a better sense of what you'll need to charge to see a profit.
- Find out if your expectations are realistic. Though you think your idea is great, you'll have to make sure other people do, too. Write up a business plan—a description of your product or service, your marketing plan, a market analysis, and financial projections—and get feedback from mentors or credible sources in the field. This step is supposed to serve as your reality check; use the input you get back to be sure your idea is actually going to work.
- Plan ahead. Look into the future and make some projections as to what you plan to earn from the business you already have lined up (you should be reaching out to prospective clients ahead of time). From there, do some market research about how much more business you'll gain down the road. These projections will help you calculate your expected earnings before you even start.
Do you have any tips for figuring out how much a business idea is worth? Tell us in the comments below.