Last time, we discussed the basics of building a small business to augment your retirement fund. To recap, we discussed the requirements for starting a biz: time, capital, research, and balls. I assume that I didn’t have to say that like getting a part-time gig, you’ll also need to put in work into any business venture. Now for this income-boosting episode, we’ll discuss another law of commerce: the Laws of Economics. I know, I know. I’ve been throwing all these important-sounding laws around. Here are the two reasons why learning the laws of Economics are important: you’d need to keep them in mind while you’re choosing the kind of small business you want to go into; and while you’re in the process of pricing your products.
Back in college while learning the basics of commerce, I also put some of the things I learned into practice. I went into building a chocolate empire. It wasn’t all that bad, to tell you the truth and I’m sure some of you have tried selling stuff (like book reports, homework, term papers) to increase your student allowance. I’d make those chocolate lollipops and sell them to my classmates and by the time the last bell rang, I had money to buy an extra large lunch, go home and buy more chocolate. I wasn’t making millions, but I was making enough to be, at some point, self-supporting.
I told you that story to impart a certain lesson that some people don’t seem to get quite right on the first try; you need to be fair in pricing while weighing the demand for your product and the demand of making the product on yourself. Making chocolate lollipops isn’t really all that demanding and considering that 4 out of 5 people in my classroom liked chocolates and couldn’t seem to say no to a paper bag full of the evil little lollipops, 5 pesos each was fair for me and fair for my victims customers.
The Laws of Supply and Demand
High demand, high supply, low price. If there is a great clamor for whatever you are selling, but you have competition in the market (like there’s somebody else selling chocolates in the classroom, but of a different brand), you’ll have to keep your prices as competitive as possible. I’m not telling you to give your products away, just tweak the prices a bit so you still get a profit while keeping your existing customers from jumping ship.
High demand, low supply, high price. These are probably the best conditions for any business, though if you have these conditions you’re probably a monopoly and that is bad for customers. Why? I’ll give you an example: Meralco. If you have a sudden power outage, can you call up their customer service and threaten that if they don’t get their act together you’re going to find somebody else who does? You can’t, because they’re the only ones who supply electricity to Metro Manila. In business, these conditions also mean that customers will have to put up with overpricing; it sounds nice when you’re the one with the supply, but the customers usually get the short end of the stick in this kind of deal.
Low demand, high supply, low price. When there isn’t a clamor for whatever it is you’re selling, but your room is practically bursting with your products and everybody and their dog is selling the same stuff, you’ll have to put up very competitive prices. I know low profit margins can be depressing, especially since the primary goal to your world domination is to supplement your income, but bear in mind that you’ll have to find some way of selling your product and the only way to do that aside from some very clever advertising is to get the prices just right.
Low demand, low supply, low price. I think I read somewhere that whatever it is you’re selling, there’s bound to be somebody out there who needs it. The thing with these conditions is that they aren’t very attractive (you can very well be selling ice in Antarctica or matches in Hell) but you don’t necessarily have to slog through them because you can always choose what you want to sell. The important thing is to choose those products that have high demand so you don’t have a hard time selling them.
Anyway, I have broken my 500-word rule (again) and so I’ll reserve some small business examples for the next episode. Remember the moral of this article though: choose what you’re going to sell. Quoting Google, “Don’t be evil (with pricing).”
