The Best Tool To Evaluate A Potential Business
If you have spent any time researching possible businesses to start, you've likely been exposed to all sorts of claims as to the advantages of each business as the promoters of businesses put high powered and persuasive marketing in front of you.
During this researching process, you have also probably found that there is an almost endless supply of business ideas, types and models out there. And this only adds to the complexity and confusion of trying to pick the best business for you.
So, what's the solution? Well, what would be ideal is to have a way of sifting and sorting through all those choices and all those marketing claims so that you could get to the truth as to whether or not a business will actually work and make you money. A method or a tool you could use to evaluate any business in a logical, unemotional way.
Well, such a tool does exist and I'm going to share with you exactly what that tool is below. We'll start by giving you an example of a common type of "Turn Key" business that you are probably familiar with and then demonstrate how to use this tool to evaluate that business.
Will This Business Pass The Test?
Ok, here's a common business model that can be quite attractive on the surface to new entrepreneurs who want to start their own business without having to do a lot of work setting up the business. This business model is where you have a product or service to sell that already has an extensive business infrastructure in place. An infrastructure that has been created in advance by a large company.
Many companies offer this business model to prospective entrepreneurs by allowing them to become a representative or an affiliate for the company. The products sold can be physical or they can be informational services or systems.
Now, the ideal business infrastructure to have in place would have a comprehensive marketing and sales funnel that looks like this.
The new representative or affiliate would have the ability to tap into a market niche with an opening offer that appeals to their prospects. The funnel then captures the prospect's e-mail through compelling content, sells them the product through a video sales letter and then completes the sale through a shopping cart.
And finally, an automated e-mail follow-up system allows the representative or affiliate to be able to continue to market to those who haven't purchased yet. So far, so good, right?
Why The "Turn Key" Business Won't Start
So, the new entrepreneur climbs into the company's existing business infrastructure "vehicle" and turns the key. But nothing happens. Why? Because we forgot one part. That's adding fuel to the fuel tank. And what is the fuel that makes all businesses run? It's leads. That is, generating leads that they then direct to the marketing and sales funnel process that already exists.
So, where is a good place for the entrepreneur to go to generate leads? Well, a good place to start is where the majority of the eyeballs are. And when it comes to online lead generation, the majority of the eyeballs are on Google (which includes YouTube) and Facebook.
Now, when it comes to online lead generation, the most consistent, reliable and fastest method is to use paid advertising. And in our example we are going to use paid advertising as the starting point of the process. So, just what is this business evaluation tool? Well, it's what we call, "The Math".
It goes like this. Let's say that you are a representative for a company or an affiliate. And you are selling one of the company's products that has a price of $175. When you sell this product you get paid a commission. Now, commission rates for various products can vary quite a bit but let's be generous and use a 50% commission rate. This commission rate is on the high side for selling a product or service as a representative or affiliate.
So, here is "The Math" for the paid advertising marketing campaign you end up doing on Facebook.
Cost Per Click for your ad = $0.90
Click Through Rate = 3% (this is where a person clicks on your ad and goes to your landing page)
Landing Page Conversion Rate = 20% (where the prospect gives you their email address)
Sales Page Conversion Rate = 3% (where you actually make a sale)
Cost Per Customer Acquisition = $153
Now It Gets Interesting...
Here's some more of your results. It took 170 people clicking on your ad to create 1 person to buy your product. So, .90 per click x 170 people equals $153. This means that it cost you, on average, $153 to get a customer to buy your $175 product.
Now, you may be thinking, "Well, okay. That's not much but at least I made $22 on the sale ($175 minus $153)". But wait… remember that you are only getting paid a 50% commission on that $175 product sale. And that's $87.50. So, this means that although you earned $87.50, you had to pay $153 to get it. That means that for each sale you make, you are actually losing $65.50. Ouch!
Ok, so what did we learn here? First, notice what this business evaluation tool called, "The Math" does and what it doesn't do. It doesn't care about how many advantages are given in a promotional video about the business. It doesn't care about glowing testimonials by some of the top earners for the company. And it doesn't care that the market segment that the company and its products serves is growing rapidly or that the people in that market have a lot of money to spend.
But "The Math" does care about one thing. And that's DATA. Unemotional, stone cold data. And by only caring about data, it strips away all the fluff and gets to the truth by asking the most important question of all. That is, "Can this business model make a profit or not?" And with the conversion numbers and the price of the product in this example, the answer is it can't.
How "The Math" Points Us In The Right Direction
Ok, what else did we learn? Well, we learned that "The Math" can reveal the limitations and weak areas of a particular business model. And in this example it revealed that, when it comes to a representative or affiliate business model, selling someone else's product and being paid a commission on the sale of that product can limit where one can do lead generation.
Specifically, using paid advertising on Facebook to generate leads with this business model can mean losing money. So, that may mean that you either need to find other advertising networks where your cost per lead is lower or move your lead generation efforts into a search based format. That is, you create content and Search Engine Optimization to create "Organic Traffic" where people find you after typing keyword phrases into search engines.
Here's another thing that we learned. This "The Math" business evaluation tool points you in the direction of possible solutions to the disadvantage or limitations that the tool reveals. Here's what I mean by this. In our example, we ended up losing money when we tried to make a profitable sale of a $175 product when using paid advertising on Facebook.
So, what problem was revealed? The problem was revenue. We didn't generate enough revenue. So, what could we do to create more revenue in the example we used? Well, one way would be to figure out how to get paid a higher commission rate. But a 50% commission rate is already pretty high.
And The Solution Is...
So, what about this? What if you had an effective marketing follow up system in place that promoted a second product not only to the customers who bought the first product but also to all those people who became leads but didn't buy yet? This would almost certainly get you to the point where you would be able to pay for the full cost of acquiring a customer (that cost was $153) and have some revenue left over for a profit.
And better yet, let's say that you combine both of these strategies together… using other advertising networks that bring your cost per lead down as well as creating an effective marketing follow up system that promotes a second product. You'd have a much better chance of paying for the cost of acquiring a customer and having a nice profit left over. Are you beginning to see how effective a tool "The Math" can be in helping you evaluate a potential business that you are researching?
Summary
Finding, evaluating and then pondering which of the many possible businesses out there is the best choice for you can be a confusing and even an overwhelming process. But it doesn't have to be if you have an unemotional, data driven business evaluation tool like "The Math".
With this in mind, one of the best business choices you can make when looking for your own business is to first learn about the entire process that occurs from the first moment that you attract a prospect all the way through to the sale and beyond. Next, you want to find out what would be considered reasonable conversion rates that can be expected from each step in the process.
Once you do this, you can then use "The Math" to create various scenarios based on the business model you are examining and what it will take for you to create a customer and then make a profit. This process will reveal the limitations and disadvantages of the business and whether or not you can find a solution or a workaround. And if you can't, you simply move on to the next business.
That's the beauty of "The Math" business evaluation tool. It's based on hard data, not on emotion or persuasive marketing messages.
