This article will discuss some product selection criteria that an entrepreneur or an average business person must consider before selecting a product.
Criteria of selecting a product
Selecting a product in entrepreneurship is not easy. An entrepreneur has to consider various criteria in the product selection process. So let us now discuss some criteria which an entrepreneur must consider before finalizing a product.
Always select a product with good future demand. It does not make a sense to . make a product with negligent market need.
You may use surveys or statistical methods for demand forecasting. I personally recommend you to thoroughly analyse the population, their income level, their needs, luxuries, affordability and at last think like them to estimate the demand because I tested this method personally and it is very accurate and effective.
#2 Raw material Market supply
Market demand is useless if you cannot fulfill it.You need proper supply raw materials for manufacturing the product and fulfilling the demand otherwise your business fail because of the external factors.
Supply depends on various factors. Your competitors may pay suppliers extra money to disturb your supply. One supplier may face bankruptcy and become unable to manufacture raw materials and many more reasons like that.
Before selecting a product make sure to have 4-5 supplier of raw material. So that in case of any problem from the end of one supplier, you can go for the other one.
#3 Scope of Profit
Whether your product is going to be profitable or not in the long run? This is the main question you should answer before making your final decision because it does make sense to choose a loss-making product.
#4 Funds required
You must calculate the fund requirement and cost to acquire them. Analyze all the ways of arranging funds and figure out the best for your business.
#5 Cost of Workforce
In some cases, you need to hire employees and pay them regularly for producing your product. Sometimes for manufacturing a product, you require a skilled man force; for example, if your product is a car, you need qualified mechanics for manufacturing a car and have to pay them a lot of money. So before hiring anyone, you should estimate the cost of the workforce correctly, which will help determine the estimated requirements of funds.
An entrepreneur needs to analyze its competitors properly. A new entrepreneur should never enter a saturated market with big players because your product must be way better than your competitor’s if you want to make profits in a saturated market. It could not be slightly better. It needs to be way better because if it is somewhat better, customers will prefer a trusted branded product in place of yours.
For example, if a new company is offering you a new mobile with a 6000mah battery for $90 and Samsung is offering you mobile with the same specs, but with a 5000mah battery for $100, you will go for Samsung. On the other hand, if a new company offers you a mobile whose battery can easily last for two weeks for $100, then there is a high probability that you may buy that phone in place of Samsung.
#7 Government policy and tax rates
You can never earn profit in a country whose government policy is against your product. So it becomes more and more critical for an entrepreneur to properly analyze government policy and tax rates if he wants to sustain his product in the market for an extended period and earn a lot of profits from it.
Also, tax rates play a vital role in pricing a product. A new entrepreneur should choose a product with a low tax rate because a higher tax rate means a higher price and a higher funds requirement. It is difficult for a new entrepreneur to allocate funds and sell a product to its customer with a higher price tag.
Choice is a very important criteria before selecting a product because afterall you have to work on it for years to make it successful. But again you are making a product for customers not yourself and it is not necessary that you know how to make it.
So find a product which satisfy the below mentioned requirements:
1) The thing I can do2). The thing I like to do3) The thing people wants me to do
If your product satisfy the above three conditions then definitely you can think of going for it otherwise it is just a waste of time spending time and efforts in it.
#9 Break even point
Look, you cannot earn profit from the first day of your business. You need to fund your business from your side to keep it going in the initial years as most probably you will face losses initially.
So it is necessary to accurately estimate the break even point to estimate the future funds requirement. Break even is simply the end of the loss period or the no profit no less situation of a business. In simple words when your net profit or business income less expenses is zero it means you are in break even point.
Some businesses get their break even point in months while the other took years to achieve it. Break even point is highly dependent on the entrepreneur and its product. You should think wisely to accurately estimate the break even point and if it is after long duration then either be ready for a long and a difficult hustle or change your product
Summary and Conclusion
A new entrepreneur must consider several criteria: market demand, market supply, the scope of profit, government policy and tax rates, competitors, cost of workforce, and allocation of funds before selecting a product for its business.
If an entrepreneur considers all factors properly, works with proper dedication, and follows all steps to avoid failure in his business. He can easily make a lot of money from its product after a few years and focus on multiple income streams.
Frequently Asked Questions
Which options should I consider for funds allocation in business?
You can use your savings or consider taking funds from an investor if you do not want to pay any interest on capital, or you can also take a loan from a bank if you don’t have money and cannot find any investor. It is essential to find a way to allocate funds before selecting any investment opportunity.
How to earn profits in a saturated market?
Your product must be way better than your competitor’s if you want to make profits in a saturated market. It could not be slightly better. It needs to be way better because if it is somewhat better, customers will prefer a trusted branded product in place of yours.