Pre-Revenue Planning
Making money in your business isn’t a mystery, it’s math. If you want to make your first (or next) $10,000 with your own products and services, it starts with a really simple formula. In this guide, we’ll cover financial and pricing basics to help you set and hit your first revenue goal. You’ll get guidelines to help you know where to start when you’re setting your prices and how to make more money as the business—and your community base—grows.
Numbers Don’t Lie
A few of the most common fears I hear from entrepreneurs when they’re just starting out are things like:
- “What if I don’t have what it takes?”
- “I’m afraid it won’t work out.”
- “I feel like it’s too risky.”
And while it’s normal and can even be beneficial to have a healthy dose of hesitation when you’re starting something new… a wise friend once told me, “f*ck your feelings, we have math.” Basically, we don’t have to wonder if your business will work out, we can plan for it. It’s just math. How many units do you have to sell, and at what price point, to cover your costs and take home a profit.
In this guide we’ll cover the basics of unit economics, the importance of financial tracking, and how you can set yourself up for success with good financial planning.
Unit Economics
It doesn’t matter if your goal is to hit six figures in revenue in your first year or in your first month—you have to have a plan to get there:
- How many units do you need to sell (# of sales)
- How much does each unit costs the business to make (cost)
- And how much the customer pays per unit (price)
Work backwards from your revenue goal to determine how many units you would need to sell at different price points to hit your goal. For example, if you want to make $100,000 in revenue, you could sell:
Revenue Goal
$100,000
$100,000
$100,000
$100,000
Price
$100
$500
$1000
$10,000
Goal Units Sold
1,000
200
100
10
Understanding basic unit economics will help you set and hit realistic goals as your starting and growing your business.
Pricing
So how do you know whether you should sell something for $100 or $1,000? To determine the best sales price to start out with, let’s look at three factors.
Your break-even point
This is the point at which your total cost and total revenue are equal. For example, if it costs you $49 to make your widget and you sell it for $49, you’re breaking even. There is no profit or loss.
But we’re in the business of making profits, not breaking even, so we know we want to sell the widget for more than $49. But how much more?
Your competitor’s pricing
Look at 3-5 competitors in your space and compare similar items. What’s the average competitor price? Do you want to position your product as a luxury item (the most expensive on the market) or a value item (the most affordable on the market)?
Your sales and marketing
The higher the price point, the harder your sales and marketing will have to work to close the sale. How strong is your sales and marketing? Srong? Price high. Weak? Price low and increase as your skills grow.
If you’re not sure where to begin with pricing, start lower and get higher over time. A benefit to starting with a lower price point product is it’s easier to give people value with your first version, and then increase the price as you make the product or service better over time.
Plus, a lower price point means you’ll be able to close more sales, get more feedback, and ultimately, learn and iterate faster. Read: build a better long-term business in a shorter amount of time.
Deep vs. Wide
If you’re starting with a small community of fans—a handful of friends, colleagues, and clients who could be potential customers — then it’s a lot easier to sell a few units at a high price point than a lot of units at a low price point.
On the other hand, if you’re starting with a big community of raving fans, for example, you’re a social media influencer with hundreds of thousands of followers, it makes sense to sell a lot of units at a low price point.
Planning
You could write a whole book on pricing (and people definitely have)! The goal here is simply to land on a beginning price point that (1) you feel comfortable asking for, (2) that sets you up for profits, and (3) that helps you get your first customers who can give you feedback. Use the space below to create a simple financial goal using unit economics.
Action Item:
- Set a revenue goal, price point, and goal units to sell.