So you want to start a business?
You’re sitting at your desk one day, contemplating leaving your 9-5 job, booking a one-way ticket, and starting a new life in another city. We’ve all been there, and all though that sounds like one amazing plan we all wish we could do, it’s not everyone’s reality.
We can’t all just pack up our things and drop all responsibilities when we are feeling spontaneous and inspired, that would be crazy right?
Well, it is, but you know what’s even crazier? Having a dream and not making that dream a reality, or at least not having the courage to make it happen
I’ve worked with many brands from different backgrounds, cultures, and mindsets over the years, and although they are all very different, they all have one thing in common. The owners and the founders all took RISKS.
Every single owner I spoke to all mentioned that they were tired of working for someone else, tired of making other people’s dreams a reality, and most importantly not being able to have something that was their own!
That new life plan doesn’t sound so crazy anymore, right?
Life is all about taking risks! If you have the luxury to go for it and make a drastic change, I say go for it!
Alright, so I’ve just inspired you to quit your job, take out a loan to start your lifelong dream of creating a swim suite brand, and now you find yourself at a loss instead of making profits!
You probably didn’t take into consideration your contribution margin
Your contribution margin is basically the price of your item minus the cost to make that item
Contribution Margin = P (price) – VC (variable cost)
Let’s say you want to sell your newly designed swimsuit for $60 and when you add up all the costs to make that swimsuit (the fabric, the tassels, the clips, etc.…) it equals to $10
You would calculate $60 (P) – $10 (VC) = $50
Your contribution margin for that one swimsuit is $50
What does this mean? It means you are making money!
You are making more than what you are spending so that’s good! But if your cost was higher than your price, you are at a loss, which is what probably happened.
The contribution margin can actually help you set a price for your products if you are just starting out. You always want to sell higher than your cost. It also helps you differentiate between which manufacturer you want to use, which style of swimsuit you might end up selling, or even which fabric you want to go for
All these variables have costs, and to make money you want to pick the one that will yield you a higher contribution margin
So, you can compare the price point to different types of costs and see which option will be cheaper and get you the most profit
This is also great if you have already begun selling and you want to put your items up for sale. Without knowing your contribution margin you might sell your product at a low price and lose money
But, if you figured out your contribution margin, you would be able to know what the lowest price you could sell your product while still making money!
You are now a business owner, and as a business owner, it is up to you to know the ins and outs of your own company, starting with the costs associated with your products.
It’s not about being cheap and cutting corners to increase profits, it’s about bringing your clients high-quality products while being efficient and smart in your own business!