Business Question [modified]
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Hello all, I've got a business question I wanted to ask. I wasn't sure if this is the place to ask, but the Business forum didn't help too much. I am thinking about getting into the business of being a bloodsucking parasite (no not a lawyer). Trying to figure out how to calculate the risk so I know what the bottom line is. Anyone know of a table of this sort only for staffing services? http://prosperlending.blogspot.com/2007/06/prosper-hands-on-education-on-risk.html[^] Of course any jokes and anecdotal responses are most welcome.
Wes A picture is worth a thousand words but it takes 3,000 times the disk space. ~Author Unknown My Site
modified on Tuesday, May 19, 2009 11:21 AM
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Hello all, I've got a business question I wanted to ask. I wasn't sure if this is the place to ask, but the Business forum didn't help too much. I am thinking about getting into the business of being a bloodsucking parasite (no not a lawyer). Trying to figure out how to calculate the risk so I know what the bottom line is. Anyone know of a table of this sort only for staffing services? http://prosperlending.blogspot.com/2007/06/prosper-hands-on-education-on-risk.html[^] Of course any jokes and anecdotal responses are most welcome.
Wes A picture is worth a thousand words but it takes 3,000 times the disk space. ~Author Unknown My Site
modified on Tuesday, May 19, 2009 11:21 AM
The principle is the same regardless of the industry. You spread your risks by having a variety of customers who are in diverse markets. So if any one segment of the market crashes you can rely on the other customers to survive. Works well if the problem is industry specific, say if aerospace takes a down turn but consumer spending is still strong. Diversity doesn’t help much if it is like the current general economic crash, although if you are lucky you will have a customer that does well in down turns.
Melting Away www.deals-house.com www.innovative--concepts.com
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The principle is the same regardless of the industry. You spread your risks by having a variety of customers who are in diverse markets. So if any one segment of the market crashes you can rely on the other customers to survive. Works well if the problem is industry specific, say if aerospace takes a down turn but consumer spending is still strong. Diversity doesn’t help much if it is like the current general economic crash, although if you are lucky you will have a customer that does well in down turns.
Melting Away www.deals-house.com www.innovative--concepts.com
Thanks for the reply, Snowman. Any idea on what is an acceptable profit margin so that the long term I'd still make money. Obviously the more the better, but I'm trying to figure out what kind of deal I walk away from based on the credit rating. One of the markets that's good right now is web conferencing. I was lucky enough to be in it right now... It's been doing a lot more business now that the market is down and people aren't wanting to pay as much for travel.
Wes A picture is worth a thousand words but it takes 3,000 times the disk space. ~Author Unknown My Site
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Thanks for the reply, Snowman. Any idea on what is an acceptable profit margin so that the long term I'd still make money. Obviously the more the better, but I'm trying to figure out what kind of deal I walk away from based on the credit rating. One of the markets that's good right now is web conferencing. I was lucky enough to be in it right now... It's been doing a lot more business now that the market is down and people aren't wanting to pay as much for travel.
Wes A picture is worth a thousand words but it takes 3,000 times the disk space. ~Author Unknown My Site
I am not sure what your business model is, so I have no idea what the acceptable returns would be. Your pricing model should be value driven not margin driven. If your costs are higher than your competitors your customer will not pay a higher price (unless you offer more value). Conversely if your costs are lower than your competitors, you want to reap a higher margin while giving the customer competitive value. Your need to look at competitive pricing, evaluate how you stack up and make a judgement of how the customer will rate your offing vs others. If you are new to the market you will have to discount to build a customer base. Once you know what your customer is willing to pay (market price or less) you can evaluate your costs and figure out your margin. If it is poor, you get out of the business. If it is great, you might expand. But either way your costs have virtually nothing to do with the price the customer is willing to pay except as the costs drive the competitive market place. Hope this makes sense.
Melting Away www.deals-house.com www.innovative--concepts.com
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I am not sure what your business model is, so I have no idea what the acceptable returns would be. Your pricing model should be value driven not margin driven. If your costs are higher than your competitors your customer will not pay a higher price (unless you offer more value). Conversely if your costs are lower than your competitors, you want to reap a higher margin while giving the customer competitive value. Your need to look at competitive pricing, evaluate how you stack up and make a judgement of how the customer will rate your offing vs others. If you are new to the market you will have to discount to build a customer base. Once you know what your customer is willing to pay (market price or less) you can evaluate your costs and figure out your margin. If it is poor, you get out of the business. If it is great, you might expand. But either way your costs have virtually nothing to do with the price the customer is willing to pay except as the costs drive the competitive market place. Hope this makes sense.
Melting Away www.deals-house.com www.innovative--concepts.com
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I am not sure what your business model is, so I have no idea what the acceptable returns would be. Your pricing model should be value driven not margin driven. If your costs are higher than your competitors your customer will not pay a higher price (unless you offer more value). Conversely if your costs are lower than your competitors, you want to reap a higher margin while giving the customer competitive value. Your need to look at competitive pricing, evaluate how you stack up and make a judgement of how the customer will rate your offing vs others. If you are new to the market you will have to discount to build a customer base. Once you know what your customer is willing to pay (market price or less) you can evaluate your costs and figure out your margin. If it is poor, you get out of the business. If it is great, you might expand. But either way your costs have virtually nothing to do with the price the customer is willing to pay except as the costs drive the competitive market place. Hope this makes sense.
Melting Away www.deals-house.com www.innovative--concepts.com
Basically, I talked with a recruiter who works for a company that only offers permanent placements. So, he's kinda frustrated that he has to pass up on the contract and contract-to-hire positions he learns about through his contacts. So, he needs a company to front that part of the business and we split the profits. I'l have some loose control over this, but he'll really be driving the business more so to speak. I've set up some processes and tools to use so that I can start maintaining a contact list, etc., but other than providing money and kicking some contacts his way, I'm pretty much leaving it up to him. I do plan to screen the candidates technically to protect the brand (as much as this can, anyhow). Eventually, I'd like to hire someone in house and perhaps have him head up this division, but that's getting way ahead of myself. This kind of makes me more like a financier, so I'm trying to determine the default rates for people who use contractors. Obviously, I'll learn more about the individual clients as I go along, but I'm trying to figure out if there's a 5% profit margin and the default rate is 7%, then over time, I'll lose 2% rather than make 5%. I'm trying to figure out where to draw the line for each credit rating on whether I accept the deal or head for the hills. Maybe I am looking at this wrong, but it seemed to make sense.
Wes A picture is worth a thousand words but it takes 3,000 times the disk space. ~Author Unknown My Site
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Basically, I talked with a recruiter who works for a company that only offers permanent placements. So, he's kinda frustrated that he has to pass up on the contract and contract-to-hire positions he learns about through his contacts. So, he needs a company to front that part of the business and we split the profits. I'l have some loose control over this, but he'll really be driving the business more so to speak. I've set up some processes and tools to use so that I can start maintaining a contact list, etc., but other than providing money and kicking some contacts his way, I'm pretty much leaving it up to him. I do plan to screen the candidates technically to protect the brand (as much as this can, anyhow). Eventually, I'd like to hire someone in house and perhaps have him head up this division, but that's getting way ahead of myself. This kind of makes me more like a financier, so I'm trying to determine the default rates for people who use contractors. Obviously, I'll learn more about the individual clients as I go along, but I'm trying to figure out if there's a 5% profit margin and the default rate is 7%, then over time, I'll lose 2% rather than make 5%. I'm trying to figure out where to draw the line for each credit rating on whether I accept the deal or head for the hills. Maybe I am looking at this wrong, but it seemed to make sense.
Wes A picture is worth a thousand words but it takes 3,000 times the disk space. ~Author Unknown My Site
21concepts.com wrote:
if there's a 5% profit margin and the default rate is 7%, then over time, I'll lose 2% rather than make 5%
I am afraid I don't understand your math. As I see it you make 5% regardless. You may give up a potential 2%, but you don't lose anything. The only time you might say you were losing money would be if you had an alternative investment that would make more. For example if you could put the money in bonds at 9%, you would be losing 4% by investing it for a 5% return. If the bonds were tax free, you might even be losing 5 or 6% after taxes. But absent an alternative investment, the return is what it is. If you are trying to determine the customary margin for an industry, I suggest you do some research using the industry SIC code. There are statistics published for each industry. But use caution in applying them. The numbers may have been generated using a statistically insignificant number of samples or perhaps generated for companies that fall in that SIC, but have no real relation to your situation. And they are by definition several years out of date. The questions you need to ask yourself are; Am I satisfied with this return relative to the risk involved and could I get a better return using the money in a different way?
Melting Away www.deals-house.com www.innovative--concepts.com