Definition: In Demand
coveted: greatly desired
Today, we will be looking at a common small business opportunity. We know that the foundation of economy is supply and demand, previously discussed in short in
'It Ain't What It Used To Be'.
The truth is; the international market in regard to supply and demand is already saturated.
The challenge entrepreneurs face is finding something
locally that is in demand with a
low supply. This task as daunting as it seems, isn't quite so difficult.
The easiest entrepreneurial way of starting a business is by
buying cheap and
selling high. Usually when purchasing stock, you aim at getting stock prices (reduced total price per item).
Sometimes it requires you drive an hour or so to get to an area where supply is high and demand low.
Lets look at a few ways of making money (from simplest to most difficult):
Entrepreneurs:
- 2. Buy cheap, sell high.
- 3. Buy, process and sell.
- 4. Deliver a service.
Other:
- 5. Investments (requires a rather large investment to make it worthwhile)
But don't judge a book by its cover. For example, in regard to Buy, process and sell: You could buy real estate, fix it up and resell it, or purchase vacant land, build a property on it and then resell for profit. You could buy ingredients, make a product and then sell it. Or even buy paper and materials to make birthday cards you could sell.
Opportunity presents itself in the company of others. The easiest of the three entrepreneurial ways is to buy and sell, also requiring the least effort (most of the time, in comparison to processing goods). Delivering a service usually has the highest profit margin, but the
Do It Yourself market trend makes it very hard for entrepreneurs to enter the market.
When presented with such an opportunity, consider the market prices in comparison to quality and profit margin. Pricing the product is sometimes harder than making use of the opportunity.
Take for example: You get a product at 40% of the cost of similar products in the market, where the quality is about the same.
We must consider
Perceived Value in estimating a price for our product. If our price is too low, then the perceived quality is low
and people tend to want stuff that suit their needs. On the other hand, if the price is too high, people would rather buy the stuff they are used to.
Definition: Law of Demand
The lower the price of a service or commodity, the greater the quantity demanded.
Which is what we want, to make more sales on average to generate a larger profit and cash flow (in the case of
local supply and demand).
Perhaps you are thinking; "now we have to do more work to get less money". Hidden from most entrepreneurs for far too long;
Generalization: Parkinson's Law
The demand upon a resource tends to expand to match the supply of the resource.
You must be wondering what
Parkinson's Law has to to do with pricing of your product. In
Less Than Adequate - Part 1, I mentioned the notion of
business lines. In short, it is the means to expand your product/business by adding more lines (products, services).
Consider this scenario:
You have found a place where you can buy meat (pork, lamb and beef) at nearly stock price, which is about 50% cost of market price. Later on, you discover a place to buy chicken at a similar cost ratio.
You saw this opportunity (low cost, good quality meat) as feasible (doable with what is on hand and in current circumstances) because your family are meat lovers or you live in a complex/cluster housing where neighbours know each other.
In essence,
Parkinson's Law states if people allocated a budget to buying things (such as meat in this example), that they would
spend their entire budget, instead of only buying the quantity they need.
So by expanding your business lines, you could make all or most of the sales people budgeted toward acquiring meat.
Another opportunity that presents itself by selling low with a high
Perceived Value, is creating an opportunity for others to buy stock from you for cheap (budget price, but you still making good profit) and reselling it in their areas. Which means, you make your sales and they find customers and distribute the product with their own margin, meaning regular business.
Stay tuned for more tips & lessons on how to make money!
Feel free to leave a comment if you found this post helpful or if you wish a specific topic to be addressed.
Adieu,
Shelah
