Putting up a business isn’t a hit-or-miss affair. If you’re sticking your neck out, you’ve got to do your homework, making sure that your objectives are realistic, the target market is crystal clear, and the selling strategies are creative and spot on.
In this regard, it is important to consider three terms that will help you be reasonably prepared to do battle. In fact, they are what you need to know at the outset to be able to increase your chances of making it in the end. Knowing these terms and what they require can hold the key to an auspicious beginning.
When you enter a new market, you can’t expect to get all your target customers running towards you in droves because you have competitors that will try to keep that from happening. Depending on how well you have positioned your product and set up distribution points for it, your market penetration could either be high or low.
So the short answer to what market penetration is, therefore, would be — your share of the pie. It’s the percentage of the total products sold in your category that you were able to take. For example, if one million pairs of shoes were sold and 200,000 of them were yours, you can divide 200,000 by one million, and you get 20% market penetration.
Your market penetration will also go high or low depending on what measures you will take to get a bigger share of the pie. There are several strategies that you can consider in order to increase your market penetration. Making sure that you are not pricing yourself out of the market is one sure-fire way. You can also use such attractive sales promotion techniques as giving away premium items or discounts.
ROI, or return on investment, is what any businessman hopes for after investing money, or capital, into a venture. But ROI does not always mean profit, as is usually assumed, because you can register a loss, which means you have a negative ROI.
But presuming you actually made money out of your investment, ROI could be computed by dividing your profit with your cost of investment and multiplying the result by 100. The result is usually expressed in percentage to easily see the amount of growth or loss in relation to capital investment.
Using actual figures: If your capital is one million dollars and your total sales is 1.5M, your profit is half a million. Now, half a million divided by one million and multiplied by 100 results in an ROI of 50%.
So, with that in mind, what is ROI? It is a measure of how your business is performing financially — profiting or losing money. By extension, it can also give an idea of how efficiently or not the business is being managed or operated.
Getting into business is more than just having a product and marketing it. You must realize that there are many other goods out there that you need to compete with, and your success would depend on how you can get customers to prefer yours over the rest. If you’re content with simply being a me-too, you could get passed up, especially since your competitors have been in the game much longer and have already earned a measure of customer loyalty.
But there’s another way you could get noticed and compel customers to switch over to your side. It involves coming up with a product or feature that breaks the mold, so to speak, drastically changing the status quo or prevailing value system. It’s called disruption.
Some examples of what disruption include streaming services, OTT devices, cryptocurrency or cars that drive themselves. You can imagine the disruptive impact this technology can make on the car business that is still largely making machines driven by people.
Something important to understand here is that disruption need not be applied to mega-industries. It can be initiated in any business regardless of scale. All one takes is the imagination and daring to come up with something really unexpected but useful.
Getting into business is not a walk in the part. You’ve got to be prepared, and that includes knowing the things that can help you get noticed and grow. Of course, the three terms we have discussed here are only a small portion of the startup definitions that small businesses might need. However, knowing them might already give you an edge as you embark on your quest.