In an earlier blog we discussed the importance of identifying the things your organization must do and the capabilities you must have in order to deliver your product/ service to customers and impact to beneficiaries. As a result, you have a better sense of your idea and what you are hoping it will look like. As you continue to flesh out your venture, you will need to begin assigning values and costs to the resources you have identified. The goal here is to move from understanding the costs and revenue of each unit of sale and/ or impact to how these things will look on a yearly basis when your venture reaches its stable state (This may or may equal your ultimate goal. It’s the state where most assumptions have been resolved and progress starts being steady. If you have no idea when that would be, imagine five years from now).
By exploring the costs associated with serving the needs of your beneficiaries and customers, you will have a better idea of what your operating expenses will be when you reach your stable state and you can begin forecasting the sales needed to cover expenses. This is a key moment as you have the opportunity to decide whether this venture is feasible and whether it is able to have the financial and social impacts you have laid out for it. Additionally, this process will give you concrete numbers that can then be shared with your board members and to those you would like to get on-side with your venture.
- “Revenue” refers to the total amount of money being brought in by your social enterprise before expenses are accounted for.
- “Profit” refers to the residual amount left from total revenues once all the costs associated with your venture have been removed (Revenue – Expenses= Profit). It is important to identify the annual profit goal desired by your organization from this venture as you plan.
- When added together, these numbers will give you the minimum revenue that your venture must achieve per year to cover expenses and achieve the social and financial goals you have identified.
Gupta, Kavi. “Madhavan Ramanujam Shares 3 Common Pricing Mistakes Companies Make With Products & Services.” Blog. Strategyzer.com, 17 Oct, 2016. Accessed http://blog.strategyzer.com/posts/2016/10/17/madhavan-ramanujam-shares-3-common-pricing-mistakes-companies-make-with-products-services
MacMillan, Ian and James Thompson. The Social Entrepreneur’s Playbook. Wharton Digital Press, 2013.