Welcome to week four of the Programme!
After considering your product last week, now, you will have the opportunity to bring together many of those topics to consider pricing. Numerous elements impact the price you put on your product: you must be able to pay for the skilled members of your team, production, distribution, and marketing. You must also consider the market in this process, understanding what competitors are charging and what your customers are able or willing to pay. To explore these topics, you will be considering what your competitors charge, thinking through your own costs in greater details, and consider projections for long-term profitability.
During this process, your mentors are available with their business experience to consider your questions and help brainstorm your ideas. We also invite you to post your ideas, questions, and comments in the activity tab to help and learn from your fellow Programme participants.
Read the Glossary this week to understand terminologies!
Project To-Dos
Fourth Survey
Complete Pricing Strategy Survey
Competitor Identification
Research the price range for the competing products or services from your Competitor Identification Worksheet from Module 02. Consider different ways of finding this information. Replicated from Module 02: Competitor Identification Worksheet
Price variation
Talk to at least three vendors of the product or service about the price, and how it has changed recently. Consider how the price you will charge may vary due to factors such as perceived quality, distance from the merchant, size of the order, customization, etc.
Estimating price for basic and luxury versions
Based off of your research and conversations, estimate the price of a basic and luxury version of the product or service and consider the cause of the different pricing structures.
Complete Pricing Strategy Worksheet
Read Business Model Article
Complete Business Model Survey
Complete Business Model Worksheet
Complete Business Model Canvas v4.0
Upper and Lower Bound to Price
Using what you learned in this module, develop an upper and lower bound price for your product/service. If volume or customization impacts your product pricing, develop upper and lower bounds for these conditions, as well.
Read Profit Logic Article
Complete Unit Economics Survey
Complete Unit Economics Worksheet
Identify major production cost drivers
Estimate profit margin resulting from Unit Economics Worksheet
Discuss your Worksheet results with your Mentor
Glossary of Terms
Unit Economics
Unit economics is a simple way of thinking about your business. It captures the costs and revenue associated with every additional product. In the case of internet businesses, that means every additional user. Positive unit economics means that your business makes money each time you sell something or add a user. Negative unit economics means you lose money.
Profit Logic
A business’s profit logic is the simple framework for how value is created for customers by solving their problem, then captured by the business.
Wholesale
Wholesale refers to purchasing goods at larger quantities for lower prices. Usually, the goods are sold to retailers, who then sell them directly to customers.
Retail
Retail refers to the selling of goods directly to customers, usually in smaller quantities for personal use.
Cost
Cost is a financial consequence of doing business. It usually means some amount of money that you have to pay to get something done. Typical examples are required materials, salaries for employees, or renting an office.
Profit
Profit is the total amount of money that a business keeps after subtracting the cost of producing and selling its solution from the total revenue from its sales. It is the money left over after you paid off all the costs.
Profit Margin
Profit margin refers to the percentage of money that your business keeps after subtracting all of expenses from its revenue. A company that keeps $100,000 in profit from $1,000,000 in revenue has a 10% profit margin.
Production Cost Drivers
Production cost drivers are the most expensive elements of your business that are involved with making your product or service. For physical business, this is usually equipment and material. For digital businesses, it is usually employees.
High Volume Low Margin
High volume, low margin refers to a category of goods or services that are sold in large quantities with a small amount of profit from each sale. These are usually more basic commodities that are purchased regularly by customers.
Low Volume High Margin
Low volume, high margin refers to a category of goods or services that are sold in small quantities with a large amount of amount from each sale. These are usually more luxury items that are purchased infrequently by customers.
Pricing Strategy
Pricing strategies are ways for you to determine what to charge for your product or service.
Cost-based pricing
Cost-based pricing is an approach to setting prices that looks primarily at the various costs associated with producing and selling the product. Then the company adds in a profit margin, which then equals to the total price.
Value-based pricing
Value-based pricing is an approach to setting prices that looks primarily at the customer’s problem. The business tries to estimate the value of solving the problem, then sets the price to reflect that estimate.
Market-based pricing
Market-based pricing is an approach to setting prices that looks primarily at the currently available options. The company then determines whether to price itself above, below, or the same as its competitors.
Business Model
A business model is a summarized plan for how a company makes money.
Customer Intimacy Business Model
A Customer Intimacy business model relies on predicting and gathering data about a customer’s need in order to provide a customized solution.
Operational Efficiency Business Model
An Operational Efficiency business model relies on selling cheaper goods or services at the same quality by running a business faster, better, and cheaper than anyone else. These businesses are optimized from a management perspective.
Product Leadership Business Model
A Product Leadership business model relies on creating new experiences for customers.
Differentiated Value
Differentiated value refers to the unique benefits that a customer receives from purchasing your good or service. These benefits should not be available from any of your competitors.
Marketplace
A Marketplace also called a platform, business model relies on the interactions of different groups of customers to create new forms of value.
Absolute Profit
Absolute profit is the total amount of money that your business keeps after subtracting all costs from total revenue.
Marginal Profit
Marginal profit is the amount of money your business keeps from selling one additional good or acquiring one additional customer. This is calculated by taking the value of one customer, then subtracting the cost of acquiring that customer and the cost of producing the good or service they are purchasing.
Unit Economics
Unit economics is a simple way of thinking about your business. It captures the costs and revenue associated with every additional product. In the case of internet businesses, that means every additional user. Positive unit economics means that your business makes money each time you sell something or add a user. Negative unit economics means you lose money.
Profit Logic
A business’s profit logic is the simple framework for how value is created for customers by solving their problem, then captured by the business.
Wholesale
Wholesale refers to purchasing goods at larger quantities for lower prices. Usually, the goods are sold to retailers, who then sell them directly to customers.
Retail
Retail refers to the selling of goods directly to customers, usually in smaller quantities for personal use.
Cost
Cost is a financial consequence of doing business. It usually means some amount of money that you have to pay to get something done. Typical examples are required materials, salaries for employees, or renting an office.
Profit
Profit is the total amount of money that a business keeps after subtracting the cost of producing and selling its solution from the total revenue from its sales. It is the money left over after you paid off all the costs.
Profit Margin
Profit margin refers to the percentage of money that your business keeps after subtracting all of expenses from its revenue. A company that keeps $100,000 in profit from $1,000,000 in revenue has a 10% profit margin.
Production Cost Drivers
Production cost drivers are the most expensive elements of your business that are involved with making your product or service. For physical business, this is usually equipment and material. For digital businesses, it is usually employees.
High Volume Low Margin
High volume, low margin refers to a category of goods or services that are sold in large quantities with a small amount of profit from each sale. These are usually more basic commodities that are purchased regularly by customers.
Low Volume High Margin
Low volume, high margin refers to a category of goods or services that are sold in small quantities with a large amount of amount from each sale. These are usually more luxury items that are purchased infrequently by customers.
Pricing Strategy
Pricing strategies are ways for you to determine what to charge for your product or service.
Cost-based pricing
Cost-based pricing is an approach to setting prices that looks primarily at the various costs associated with producing and selling the product. Then the company adds in a profit margin, which then equals to the total price.
Value-based pricing
Value-based pricing is an approach to setting prices that looks primarily at the customer’s problem. The business tries to estimate the value of solving the problem, then sets the price to reflect that estimate.
Market-based pricing
Market-based pricing is an approach to setting prices that looks primarily at the currently available options. The company then determines whether to price itself above, below, or the same as its competitors.
Business Model
A business model is a summarized plan for how a company makes money.
Customer Intimacy Business Model
A Customer Intimacy business model relies on predicting and gathering data about a customer’s need in order to provide a customized solution.
Operational Efficiency Business Model
An Operational Efficiency business model relies on selling cheaper goods or services at the same quality by running a business faster, better, and cheaper than anyone else. These businesses are optimized from a management perspective.
Product Leadership Business Model
A Product Leadership business model relies on creating new experiences for customers.
Differentiated Value
Differentiated value refers to the unique benefits that a customer receives from purchasing your good or service. These benefits should not be available from any of your competitors.
Marketplace
A Marketplace also called a platform, business model relies on the interactions of different groups of customers to create new forms of value.
Absolute Profit
Absolute profit is the total amount of money that your business keeps after subtracting all costs from total revenue.
Marginal Profit
Marginal profit is the amount of money your business keeps from selling one additional good or acquiring one additional customer. This is calculated by taking the value of one customer, then subtracting the cost of acquiring that customer and the cost of producing the good or service they are purchasing.
Pricing Strategy Worksheet
Now that you have learned more about competitors and thought about a general price range for your product, it is time to more carefully explore pricing. As you develop the pricing strategy for your business, think about the distinctions among the terms below. They can have a big impact on how you and your team operate, and how much you would charge for your product or service.
Selling Strategies
Wholesale: Wholesale refers to purchasing goods at larger quantities for lower prices. Usually the goods are sold to retailers, who then sell them directly to customers.
Retail: Retail refers to the selling of goods directly to customers, usually in smaller quantities for personal use.
High volume, Low margin: High volume, low margin refers to a category of goods or services that are sold in large quantities with a small amount of profit from each sale. These are usually more basic commodities that are purchased regularly by customers.
Low volume, High margin: Low volume, high margin refers to a category of goods or services that are sold in small quantities with a large amount of profit from each sale. These are usually more luxury items that are purchased infrequently by customers.
Pricing Strategies
Cost-based pricing: Set your price as a multiple of cost, or cost plus a determined amount. An example would be a bookstore selling each book for 150 percent of whatever amount the store paid for it. Another example is a clothing boutique selling items for twice what it paid to buy them.
Value-based pricing: Base your price on what your product and service is worth to the buyer. Computer software, for example, is often priced according to the time-savings and productivity gains, rather than the direct cost. Some would say airlines use a value basis to price the same flight differently for different travellers; they're cheaper for budget-minded consumers who buy with a lot of advance notice, and more expensive for the business traveller who has to go somewhere today.
Market-based pricing: Let the market determine the price. This is the most common and most realistic pricing method for small and medium businesses. If everybody else charges $15 for a haircut, you charge $15 for a haircut, or some price related to $15 depending on your strategy. Maybe you want to be a low-cost provider, for example, so you charge less.
Pricing is a constant concern for entrepreneurs. It is very hard to know how much to charge for your product. Existing businesses already know how much customers are willing to pay, so they can make small adjustments. As complicated as it can seem, however, this simple chart will let you know how customers will think about you - in one of these four categories.
Some additional considerations for your pricing are presented below. Refer back to the strategies when you think you have a good price estimate. Try to figure out which strategy you are using, and whether that makes sense given the rest of your business model.
What selling strategies does your business intend to utilize? Why?
If you are selling your products wholesale, how are you determining the proper pricing standard for the retail firms that purchase your products?
If you are selling your products retail, how are you determining the proper pricing standard for the customers who will be directly purchasing your products?
What pricing strategies does your business intend to utilize? Why?
If you are utilizing cost-based pricing, how are you determining your profit margin?
If you are utilizing value-based pricing, how are you determining the value of your goods to the buyer?
What is your marginal profit (how much do you make by producing one more item), and what does this tell you about your levels of production?
Business Model Article
This exercise will test your understanding of some basic concepts related to business models. A business model is simply a detailed answer to two questions:
1. How do you create value?
2. How do you extract some or all that value?
Business models are important for you to understand because your company, while unique in some sense, will probably make money in one of four broad ways. Understanding these four categories will allow you to more easily build a business plan, determine prices, identify customer segments, develop marketing campaigns, and other important activities.
The four types of business models represent different ways of thinking about your company and the way it relates to customers, partners, and investors. They help you tell a logical story about your business.
Customer Intimacy businesses operate by knowing and addressing the customers’ needs. The emphasis in these businesses is getting to know each customer by collecting information about them. This information mostly comes from marketing, survey forms, interviews, and observation. Businesses that operate according to this model are able to predict and fulfill very specific needs that other companies do not notice, or don’t care enough to address.
Product Leadership businesses set themselves apart by offering new and different features on an existing product, or even an entirely new product. They are often described as “reinventing” an industry, and their products are immediately copied by competitors.
Operational Efficiency businesses create products or services faster and cheaper than their competitors, often while sacrificing very little quality. These companies build dependable but comparatively simple offerings. Large clothing and food stores are good examples of the operational efficiency model in practice.
Marketplace businesses are a more recent type. They allow multiple groups to interact in a common environment, creating value by sharing information and discovering new opportunities to buy or sell things. While physical marketplaces are a good starting point, newer digital versions can grow quickly across countries and even continents.
Business Model Worksheet
As we learned in the “Business Model Survey”, a business model is a detailed answer to the questions “How do you create value?” and “How do you extract some or all of that value?” These are difficult questions because there are many critical elements to consider. The logic behind both creating and extracting value require a lot of thought.
Business models are not meant to be perfect, and always right. They are more like the plan for building a home. A business model must be flexible so that you can adjust it as needed, particularly when you receive new information about the customer, the market, or the product. In other words, the business model is built for experiments and tests. The point is learning as much as it is execution.
Remember that there are four business models:
● Customer Intimacy, where you know everything about the customer and are constantly collecting more information to better serve them
● Operation Efficiency, where you sell goods or services of sufficient quality at a lower price than the other options available to customers
● Product Leadership, where you create goods or services that redefine the market and often offer new features or benefits
● The Marketplace, where you allow different groups with mutual interest to interact, creating opportunities for business transactions
In any case, the core issues that you must consider are the same. Create value, then extract as much as possible. You must validate your business by answering tough questions. Please consider these all as you think more about your particular business.
Who is the customer and what am I offering them?
What is my idea's differentiated value?
How will I reach the customers I want in the marketplace?
What are my sources of revenue?
What are the costs of production?
What are the unit economics of my product (i.e. revenue and costs or selling one single product by itself)?
As you start answering these questions, remember to mark the things that you know are true and the things that are assumptions you need to test. The most important task is always getting out and talking with customers about your idea. That is how you can improve your business model early, when you can learn lessons at a low cost.
As we learned in the “Business Model Survey”, a business model is a detailed answer to the questions “How do you create value?” and “How do you extract some or all of that value?” These are difficult questions because there are many critical elements to consider. The logic behind both creating and extracting value require a lot of thought.
Business models are not meant to be perfect, and always right. They are more like the plan for building a home. A business model must be flexible so that you can adjust it as needed, particularly when you receive new information about the customer, the market, or the product. In other words, the business model is built for experiments and tests. The point is learning as much as it is execution.
Remember that there are four business models:
● Customer Intimacy, where you know everything about the customer and are constantly collecting more information to better serve them
● Operation Efficiency, where you sell goods or services of sufficient quality at a lower price than the other options available to customers
● Product Leadership, where you create goods or services that redefine the market and often offer new features or benefits
● The Marketplace, where you allow different groups with mutual interest to interact, creating opportunities for business transactions
In any case, the core issues that you must consider are the same. Create value, then extract as much as possible. You must validate your business by answering tough questions. Please consider these all as you think more about your particular business.
Who is the customer and what am I offering them?
What is my idea's differentiated value?
How will I reach the customers I want in the marketplace?
What are my sources of revenue?
What are the costs of production?
What are the unit economics of my product (i.e. revenue and costs or selling one single product by itself)?
As you start answering these questions, remember to mark the things that you know are true and the things that are assumptions you need to test. The most important task is always getting out and talking with customers about your idea. That is how you can improve your business model early, when you can learn lessons at a low cost.
Profit Logic Article
The ultimate long-term indicator of success in business is profit. Paying business expenses, developing further internal investment on things like research and development, and expanding business operations all require cash on hand, and profit provides these resources. Part of what sets successful businesses apart from unsuccessful ventures is the strategy surrounding pricing: maintaining profitability over the life of a business is not a simple thing.
We call this strategy the Profit Logic Model. Before major sales begin, it is important to think through a number of vital questions that will help you think through the many costs that build up within a business, and to fairly transfer that cost to your customers. If the price is set too high, customers will likely purchase other solutions from your competitors. If your price is set too low, customers will gladly purchase your products or services, but will also reduce your profit.
Who pays you?
In order to develop a profit, someone must ultimately be paying you. Sometimes, the answer to this is obvious: if your business sells rice, the individual purchasing your rice for their family is paying you for providing their meals. In other instances, this is more complicated. Web-based social media platforms may receive some payments through subscription services or user fees, but often are largely paid by other corporations eager to take advantage of targeted advertisements.
An element of who pays you is the conversion rate. Businesses attempt to sell to more individuals than they actually convert into transactions. If your business sells rice, families may consider your product as well as your competitor; some of these potential customers will ultimately choose to do business with other farmers in the region. A strong Profit Logic considers the percentage of customers who interact with your business and ultimately become clients. This number is difficult to calculate initially, but over time most businesses will develop a consistent conversion rate.
How much do they pay you?
The price received for your services must be carefully tailored to the market. Too much, and customers are unlikely to maintain their business with your company. Too little, and you won’t be able to cover your own expenses. In setting the proper value for your products or services, you can think about the cost of running your business, the value of your products or services to the client, the market valuation of your work, or some combination of the three.
Additionally, some customers will purchase larger orders than others. In calculating profit margins, it is important to recognize these different purchase orders, and consider how they impact profit.
When do they pay you?
The timing of your payment helps determine how much cash you have on hand and may impact the ability of your company to keep running. If you agree to a large, costly project and are only paid at the time of delivery, you may be unable to keep paying employees or purchasing materials for the project and have to close your business. Carefully monitor the status of your tangible cash flows, in addition to on-paper profit margins, to ensure that your business continues to be able to pay its bills.
How do they pay you?
Payments can come in many forms. Cash payments are often preferable, as they are immediately accessible to continue company operations. Equity payments may be valuable, especially for growing companies; however, receiving equity for services is also risky, as the value could also quickly go away. Some companies will pay in credit; this may be acceptable in some circumstances but can also be risky in greater amounts and if your company maintains low cash reserves.
What does your solution cost?
Ultimately, your business needs to be making more money than it is spending. By knowing precisely how much the solution costs (including all the prices of operation, including miscellaneous business costs unrelated to production), businesses are better equipped to set proper pricing.
How much does each additional/marginal unit cost and generate?
The cost of producing the first product or service is unlikely to be the same as the cost of producing the ten-thousandth product or service. Each additional unit produced adds a different amount of strain on the business. Often, additional production costs less, as it repeated processes and lower sales efforts drive down the price to the company. However, at a certain level, additional production will require a business to build more factories, lease additional warehouses, hire more staff, and invest in other costs that will ultimately increase the cost of those additional units. A strong Profit Logic recognizes these different costs in order to more effectively sell products and services.
The ultimate long-term indicator of success in business is profit. Paying business expenses, developing further internal investment on things like research and development, and expanding business operations all require cash on hand, and profit provides these resources. Part of what sets successful businesses apart from unsuccessful ventures is the strategy surrounding pricing: maintaining profitability over the life of a business is not a simple thing.
We call this strategy the Profit Logic Model. Before major sales begin, it is important to think through a number of vital questions that will help you think through the many costs that build up within a business, and to fairly transfer that cost to your customers. If the price is set too high, customers will likely purchase other solutions from your competitors. If your price is set too low, customers will gladly purchase your products or services, but will also reduce your profit.
Who pays you?
In order to develop a profit, someone must ultimately be paying you. Sometimes, the answer to this is obvious: if your business sells rice, the individual purchasing your rice for their family is paying you for providing their meals. In other instances, this is more complicated. Web-based social media platforms may receive some payments through subscription services or user fees, but often are largely paid by other corporations eager to take advantage of targeted advertisements.
An element of who pays you is the conversion rate. Businesses attempt to sell to more individuals than they actually convert into transactions. If your business sells rice, families may consider your product as well as your competitor; some of these potential customers will ultimately choose to do business with other farmers in the region. A strong Profit Logic considers the percentage of customers who interact with your business and ultimately become clients. This number is difficult to calculate initially, but over time most businesses will develop a consistent conversion rate.
How much do they pay you?
The price received for your services must be carefully tailored to the market. Too much, and customers are unlikely to maintain their business with your company. Too little, and you won’t be able to cover your own expenses. In setting the proper value for your products or services, you can think about the cost of running your business, the value of your products or services to the client, the market valuation of your work, or some combination of the three.
Additionally, some customers will purchase larger orders than others. In calculating profit margins, it is important to recognize these different purchase orders, and consider how they impact profit.
When do they pay you?
The timing of your payment helps determine how much cash you have on hand and may impact the ability of your company to keep running. If you agree to a large, costly project and are only paid at the time of delivery, you may be unable to keep paying employees or purchasing materials for the project and have to close your business. Carefully monitor the status of your tangible cash flows, in addition to on-paper profit margins, to ensure that your business continues to be able to pay its bills.
How do they pay you?
Payments can come in many forms. Cash payments are often preferable, as they are immediately accessible to continue company operations. Equity payments may be valuable, especially for growing companies; however, receiving equity for services is also risky, as the value could also quickly go away. Some companies will pay in credit; this may be acceptable in some circumstances but can also be risky in greater amounts and if your company maintains low cash reserves.
What does your solution cost?
Ultimately, your business needs to be making more money than it is spending. By knowing precisely how much the solution costs (including all the prices of operation, including miscellaneous business costs unrelated to production), businesses are better equipped to set proper pricing.
How much does each additional/marginal unit cost and generate?
The cost of producing the first product or service is unlikely to be the same as the cost of producing the ten-thousandth product or service. Each additional unit produced adds a different amount of strain on the business. Often, additional production costs less, as it repeated processes and lower sales efforts drive down the price to the company. However, at a certain level, additional production will require a business to build more factories, lease additional warehouses, hire more staff, and invest in other costs that will ultimately increase the cost of those additional units. A strong Profit Logic recognizes these different costs in order to more effectively sell products and services.
Unit Economics Worksheet
We learned about the importance of unit economics in the “Unit Economics Survey” that you recently completed. Now we can get into more detail about how this helps your business. Remember that unit economics is the total revenue and total cost for each unit that you produce.
In the case of digital products or services, the unit is generally replaced by the user. That means you have to think about the amount of money you spend to get each additional user, and how much money you make because of that same user.
The most important thing to study is the ratio between the two factors, revenues and costs. If the revenue for each unit (or user) is greater than cost, then you have positive unit economics. That is good because it means you are already making money as the company grows. If the unit economics are negative, then you have to look at the main costs.
Understanding unit economics will help you quickly identify the current and future value of a particular product or service. Even estimates are useful because they help you think about the financial health of your business, especially as it grows. Notice how the profit per bag of fertilizer remains relatively steady as production increases from 100 to 1,000 bags. This is very important, since the price - what the customer cares about - has decreased from 50 U.S. Dollars to only 30 U.S. Dollars. These are positive unit economics and as long as the estimates are accurate, they indicate that the business fundamentals are strong.
This chart shows how unit economics looks on an absolute scale. That means we are looking at the total amounts of revenue, cost, and profit. The unit profit did not change much when you looked at it per bag of fertilizer, but in absolute terms, the company is making over ten times as much profit at 1,000 bags compared to 100 bags. The company could also choose to keep its prices higher and capture even more profit. That is the sort of strategic decision that should be made by consulting with advisors, mentors, and Board Members.
Please answer these questions to get a better understanding of your specific unit economics.
What is your unit of production? Is it a user (this is often the case in terms of digital products or services)? Is it a specific item or action?
How do you currently (or how do you plan to) draw more users to your business? How much do you expect these actions will cost?
What is a conservative estimate for the number of users who will be drawn to your business by these efforts? How about an optimistic estimate?
We learned about the importance of unit economics in the “Unit Economics Survey” that you recently completed. Now we can get into more detail about how this helps your business. Remember that unit economics is the total revenue and total cost for each unit that you produce.
In the case of digital products or services, the unit is generally replaced by the user. That means you have to think about the amount of money you spend to get each additional user, and how much money you make because of that same user.
The most important thing to study is the ratio between the two factors, revenues and costs. If the revenue for each unit (or user) is greater than cost, then you have positive unit economics. That is good because it means you are already making money as the company grows. If the unit economics are negative, then you have to look at the main costs.
Understanding unit economics will help you quickly identify the current and future value of a particular product or service. Even estimates are useful because they help you think about the financial health of your business, especially as it grows. Notice how the profit per bag of fertilizer remains relatively steady as production increases from 100 to 1,000 bags. This is very important, since the price - what the customer cares about - has decreased from 50 U.S. Dollars to only 30 U.S. Dollars. These are positive unit economics and as long as the estimates are accurate, they indicate that the business fundamentals are strong.
This chart shows how unit economics looks on an absolute scale. That means we are looking at the total amounts of revenue, cost, and profit. The unit profit did not change much when you looked at it per bag of fertilizer, but in absolute terms, the company is making over ten times as much profit at 1,000 bags compared to 100 bags. The company could also choose to keep its prices higher and capture even more profit. That is the sort of strategic decision that should be made by consulting with advisors, mentors, and Board Members.
Please answer these questions to get a better understanding of your specific unit economics.
What is your unit of production? Is it a user (this is often the case in terms of digital products or services)? Is it a specific item or action?
How do you currently (or how do you plan to) draw more users to your business? How much do you expect these actions will cost?
What is a conservative estimate for the number of users who will be drawn to your business by these efforts? How about an optimistic estimate?
Fourth Survey
(For the surveys, the answers are not necessarily correct, they are my personal opinions)
Please rate yourself between 1 (weakest) and 5 (strongest) on Budgeting
1- No Experience
2- Minimal Experience
3- Some Experience
4- Good Experience
5- Strong Experience
Answer: 3- Some Experience
Please rate yourself between 1 (weakest) and 5 (strongest) on Accounting
1- No Experience
2- Minimal Experience
3- Some Experience
4- Good Experience
5- Strong Experience
Answer: 3- Some Experience
Please rate yourself between 1 (weakest) and 5 (strongest) on Business-to-Consumer Sales
1- No Experience
2- Minimal Experience
3- Some Experience
4- Good Experience
5- Strong Experience
Answer: 1- No Experience
Please rate yourself between 1 (weakest) and 5 (strongest) on Business-to-Business Sales
1- No Experience
2- Minimal Experience
3- Some Experience
4- Good Experience
5- Strong Experience
Answer: 1- No Experience
Please rate yourself between 1 (weakest) and 5 (strongest) on Business-to-Government Sales
1- No Experience
2- Minimal Experience
3- Some Experience
4- Good Experience
5- Strong Experience
Answer: 1- No Experience
Please rate yourself between 1 (weakest) and 5 (strongest) on Pricing Strategy
1- No Experience
2- Minimal Experience
3- Some Experience
4- Good Experience
Strong Experience
Answer: 1- No Experience
(For the surveys, the answers are not necessarily correct, they are my personal opinions)
Please rate yourself between 1 (weakest) and 5 (strongest) on Budgeting
1- No Experience
2- Minimal Experience
3- Some Experience
4- Good Experience
5- Strong Experience
Answer: 3- Some Experience
Please rate yourself between 1 (weakest) and 5 (strongest) on Accounting
1- No Experience
2- Minimal Experience
3- Some Experience
4- Good Experience
5- Strong Experience
Answer: 3- Some Experience
Please rate yourself between 1 (weakest) and 5 (strongest) on Business-to-Consumer Sales
1- No Experience
2- Minimal Experience
3- Some Experience
4- Good Experience
5- Strong Experience
Answer: 1- No Experience
Please rate yourself between 1 (weakest) and 5 (strongest) on Business-to-Business Sales
1- No Experience
2- Minimal Experience
3- Some Experience
4- Good Experience
5- Strong Experience
Answer: 1- No Experience
Please rate yourself between 1 (weakest) and 5 (strongest) on Business-to-Government Sales
1- No Experience
2- Minimal Experience
3- Some Experience
4- Good Experience
5- Strong Experience
Answer: 1- No Experience
Please rate yourself between 1 (weakest) and 5 (strongest) on Pricing Strategy
1- No Experience
2- Minimal Experience
3- Some Experience
4- Good Experience
Strong Experience
Answer: 1- No Experience
Pricing Strategy Survey
Setting a price for a product or service is difficult. There are many strategies, which we will discuss later this week. The most important things to remember is that you should always go back to the customer and their problem. How much do they think it is worth to solve this problem? The best estimate is usually the current solutions in your area. Look at the prices charges by your competitors. To begin thinking more about pricing, please select the best answers to the following questions.
You are importing luxury men’s and women’s shoes from China and other Asian countries for 15 U.S. Dollars then selling them in your local area. The current models on the market charge around 5 U.S. Dollars for basic sandals, 10 U.S. Dollars for basic men’s shoes, 15 U.S. Dollars for basic women’s shoes, 50 U.S. Dollars for luxury shoes for either gender. What is a good price estimate for your shoes?
a. 15 U.S. Dollars
b. 35 U.S. Dollars
c. 50 U.S. Dollars
d. 60 U.S. Dollars
Answer: b. 35 U.S. Dollars
You are selling software to help computer programmers who are developing smartphone applications. It costs you 50,000 U.S. Dollars to produce the basic software, which you expect to sell to 1,000 local programmers for them to use for at least three years. There are currently no other options for these programmers. What is the best pricing strategy for you?
a. 50 U.S. Dollars upfront
b. 50 U.S. Dollars upfront plus 3 Dollars per month
c. 25 U.S. Dollars upfront plus 4 Dollars per month
d. 0 U.S. Dollars upfront, but 5 Dollars per month
Answer: b. 50 U.S. Dollars upfront plus 3 Dollars per month
You are selling storage units to maize farmers. The average farmer currently grows 1,500 U.S. Dollars’ worth of maize each year. During the drying and storage phases, farmer lose between 10 and 15 percent of their crops due to pest, moisture, and other factors that you will be able to address with your product. The remainder they sell to local wholesalers. What is the best initial estimate for pricing your storage unit, which costs 50 U.S. Dollars to produce, market, and install?
a. 150 U.S. Dollars
b. 175 U.S. Dollars
c. 200 U.S. Dollars
d. 225 U.S. Dollars
Answer: a. 150 U.S. Dollars
Setting a price for a product or service is difficult. There are many strategies, which we will discuss later this week. The most important things to remember is that you should always go back to the customer and their problem. How much do they think it is worth to solve this problem? The best estimate is usually the current solutions in your area. Look at the prices charges by your competitors. To begin thinking more about pricing, please select the best answers to the following questions.
You are importing luxury men’s and women’s shoes from China and other Asian countries for 15 U.S. Dollars then selling them in your local area. The current models on the market charge around 5 U.S. Dollars for basic sandals, 10 U.S. Dollars for basic men’s shoes, 15 U.S. Dollars for basic women’s shoes, 50 U.S. Dollars for luxury shoes for either gender. What is a good price estimate for your shoes?
a. 15 U.S. Dollars
b. 35 U.S. Dollars
c. 50 U.S. Dollars
d. 60 U.S. Dollars
Answer: b. 35 U.S. Dollars
You are selling software to help computer programmers who are developing smartphone applications. It costs you 50,000 U.S. Dollars to produce the basic software, which you expect to sell to 1,000 local programmers for them to use for at least three years. There are currently no other options for these programmers. What is the best pricing strategy for you?
a. 50 U.S. Dollars upfront
b. 50 U.S. Dollars upfront plus 3 Dollars per month
c. 25 U.S. Dollars upfront plus 4 Dollars per month
d. 0 U.S. Dollars upfront, but 5 Dollars per month
Answer: b. 50 U.S. Dollars upfront plus 3 Dollars per month
You are selling storage units to maize farmers. The average farmer currently grows 1,500 U.S. Dollars’ worth of maize each year. During the drying and storage phases, farmer lose between 10 and 15 percent of their crops due to pest, moisture, and other factors that you will be able to address with your product. The remainder they sell to local wholesalers. What is the best initial estimate for pricing your storage unit, which costs 50 U.S. Dollars to produce, market, and install?
a. 150 U.S. Dollars
b. 175 U.S. Dollars
c. 200 U.S. Dollars
d. 225 U.S. Dollars
Answer: a. 150 U.S. Dollars
Business Model Survey
A business model falls into one of four types: customer intimacy; product leadership; operational efficiency; and marketplaces. Please select the best option for each of the following scenarios.
You are running a business in Mali that offers French translation services to Chinese companies that want to do expand their business. You price your service cheaper than the local competitors and offer to complete the translation within 72 hours, which is 2-3 days faster than other options. Please select the most appropriate business model type that describes this business.
a. Customer Intimacy
b. Product Leadership
c. Operational Efficiency
d. The Marketplace
Answer: c. Operational Efficiency
You are building a company that collects various crops from local farmers, then sells them in bulk at regional processing centers at higher prices than the farmers would be able to get on their own. You do not require that the customers contact you in advance with information about the type or volume of crops because you monitor the farms through a series of mobile assessment teams. At the end of every season you have each farmer fill out a questionnaire about the service, particularly how you can improve the service. Please select the most appropriate business model type that describes this business.
a. Customer Intimacy
b. Product Leadership
c. Operational Efficiency
d. The Marketplace
Answer: a. Customer Intimacy
You developed an e-commerce company for East African textile workers to sell their products on eBay by facilitating payments and taking high-quality pictures. Shortly after beginning operations, some users began creating profiles for entire villages, and also trading among each other before selling on eBay. Please select the most appropriate business model type that describes this business.
a. Customer Intimacy
b. Product Leadership
c. Operational Efficiency
d. The Marketplace
Answer: d. The Marketplace
Seeking to overcome the problems with wind turbines, you develop a new bladeless wind power plant that exceeds existing efficiency limits. You spend great amounts of time testing prototypes of this new design and reference concepts such as sailboats and birds’ wings to develop the best possible product. Please select the most appropriate business model type that describes this business.
a. Customer Intimacy
b. Product Leadership
c. Operational Efficiency
d. The Marketplace
Answer: b. Product Leadership
A business model falls into one of four types: customer intimacy; product leadership; operational efficiency; and marketplaces. Please select the best option for each of the following scenarios.
You are running a business in Mali that offers French translation services to Chinese companies that want to do expand their business. You price your service cheaper than the local competitors and offer to complete the translation within 72 hours, which is 2-3 days faster than other options. Please select the most appropriate business model type that describes this business.
a. Customer Intimacy
b. Product Leadership
c. Operational Efficiency
d. The Marketplace
Answer: c. Operational Efficiency
You are building a company that collects various crops from local farmers, then sells them in bulk at regional processing centers at higher prices than the farmers would be able to get on their own. You do not require that the customers contact you in advance with information about the type or volume of crops because you monitor the farms through a series of mobile assessment teams. At the end of every season you have each farmer fill out a questionnaire about the service, particularly how you can improve the service. Please select the most appropriate business model type that describes this business.
a. Customer Intimacy
b. Product Leadership
c. Operational Efficiency
d. The Marketplace
Answer: a. Customer Intimacy
You developed an e-commerce company for East African textile workers to sell their products on eBay by facilitating payments and taking high-quality pictures. Shortly after beginning operations, some users began creating profiles for entire villages, and also trading among each other before selling on eBay. Please select the most appropriate business model type that describes this business.
a. Customer Intimacy
b. Product Leadership
c. Operational Efficiency
d. The Marketplace
Answer: d. The Marketplace
Seeking to overcome the problems with wind turbines, you develop a new bladeless wind power plant that exceeds existing efficiency limits. You spend great amounts of time testing prototypes of this new design and reference concepts such as sailboats and birds’ wings to develop the best possible product. Please select the most appropriate business model type that describes this business.
a. Customer Intimacy
b. Product Leadership
c. Operational Efficiency
d. The Marketplace
Answer: b. Product Leadership
Unit Economics Survey
Unit Economics sounds like a complex concept, but it is very simple. It is a way of thinking about your company in terms of revenue (money coming in) and cost (money going out) for each unit sold. Looking at things this way helps you understand the financial health of your company, how exactly you are making money, and how the business can change as it grows. Please complete these questions, which give you a basic understanding of how unit economics will help you think about your business.
A digital media business in Kenya spent 100,000 U.S. Dollars developing their software architecture and 25,000 U.S. Dollars building their user interface. They conducted mass marketing campaigns at a cost of 15,000 U.S. Dollars, purchased content for 35,000 U.S. Dollars, and 25,000 U.S. Dollars to maintain their software during the first year of operation. In the same span, 160,000 individuals utilized their software. What is the unit cost for this business?
a. 1 U.S. Dollar
b. 1.15 U.S. Dollars
c. 1.25 U.S. Dollars
d. 1.50 U.S. Dollars
Answer: c. 1.25 U.S. Dollars
The same digital media business described in Exercise #2 received the following revenues: 60,000 U.S. Dollars in subscription fees, 65,000 U.S. Dollars in advertising revenue, 5,000 U.S. Dollars in mobile application downloads, and 30,000 U.S. Dollars in promoted content. As a reminder from the previous question, 160,000 users utilized their software. What is the unit revenue for this business?
a. 0.85 U.S. Dollars
b. 1 U.S. Dollar
c. 1.25 U.S. Dollars
d. 2 U.S. Dollars
Answer: b. 1 U.S. Dollar
A business that has been operating for two years after substantial investment. It currently has a unit cost of 1.25 U.S. Dollars and a unit revenue of 1 U.S. Dollar. Recent marketing efforts have shown there is significant demand that has not yet purchased the product, and the company has the capacity to produce at least twice as many goods without hiring a lot of people or purchasing new equipment. How financially healthy is the business, and what should the CEO's priorities be for the near future?
a. The business is currently spending more money (higher cost) than it is receiving (lower revenue), and there may be some concerns. However, the business faced high up-front costs so if they maintain similar revenue streams next year, they are likely to become financially sound.
b. The business is currently spending more money (higher cost) than it is receiving (lower revenue), producing minor concerns for its future financial health. The investment in marketing appears to have generated considerable interest. The CEO should invest more resources in marketing to draw additional users and greater revenues.
c. The business is currently spending less money (lower cost) than it is receiving (higher revenue), and is therefore in strong health. There is no need to change priorities.
Answer: b. The business is currently spending more money (higher cost) than it is receiving (lower revenue), producing minor concerns for its future financial health. The investment in marketing appears to have generated considerable interest. The CEO should invest more resources in marketing to draw additional users and greater revenues.
Unit Economics sounds like a complex concept, but it is very simple. It is a way of thinking about your company in terms of revenue (money coming in) and cost (money going out) for each unit sold. Looking at things this way helps you understand the financial health of your company, how exactly you are making money, and how the business can change as it grows. Please complete these questions, which give you a basic understanding of how unit economics will help you think about your business.
A digital media business in Kenya spent 100,000 U.S. Dollars developing their software architecture and 25,000 U.S. Dollars building their user interface. They conducted mass marketing campaigns at a cost of 15,000 U.S. Dollars, purchased content for 35,000 U.S. Dollars, and 25,000 U.S. Dollars to maintain their software during the first year of operation. In the same span, 160,000 individuals utilized their software. What is the unit cost for this business?
a. 1 U.S. Dollar
b. 1.15 U.S. Dollars
c. 1.25 U.S. Dollars
d. 1.50 U.S. Dollars
Answer: c. 1.25 U.S. Dollars
The same digital media business described in Exercise #2 received the following revenues: 60,000 U.S. Dollars in subscription fees, 65,000 U.S. Dollars in advertising revenue, 5,000 U.S. Dollars in mobile application downloads, and 30,000 U.S. Dollars in promoted content. As a reminder from the previous question, 160,000 users utilized their software. What is the unit revenue for this business?
a. 0.85 U.S. Dollars
b. 1 U.S. Dollar
c. 1.25 U.S. Dollars
d. 2 U.S. Dollars
Answer: b. 1 U.S. Dollar
A business that has been operating for two years after substantial investment. It currently has a unit cost of 1.25 U.S. Dollars and a unit revenue of 1 U.S. Dollar. Recent marketing efforts have shown there is significant demand that has not yet purchased the product, and the company has the capacity to produce at least twice as many goods without hiring a lot of people or purchasing new equipment. How financially healthy is the business, and what should the CEO's priorities be for the near future?
a. The business is currently spending more money (higher cost) than it is receiving (lower revenue), and there may be some concerns. However, the business faced high up-front costs so if they maintain similar revenue streams next year, they are likely to become financially sound.
b. The business is currently spending more money (higher cost) than it is receiving (lower revenue), producing minor concerns for its future financial health. The investment in marketing appears to have generated considerable interest. The CEO should invest more resources in marketing to draw additional users and greater revenues.
c. The business is currently spending less money (lower cost) than it is receiving (higher revenue), and is therefore in strong health. There is no need to change priorities.
Answer: b. The business is currently spending more money (higher cost) than it is receiving (lower revenue), producing minor concerns for its future financial health. The investment in marketing appears to have generated considerable interest. The CEO should invest more resources in marketing to draw additional users and greater revenues.
