20 Causes of Failure of your new Business

Today we will discuss the 5th most important reason why many businesses fail. It is worth mentioning that it is very common for small businessmen to establish sales prices without having a basis, since the problem lies in the fact that they do not know their production cost, as well as they do not know how to impact the expenses they carry out in administration, sales expenses and financial expenses to reflect them in the sales price, and therefore the calculation of what they consider should be earned is also incorrect, which generates losses instead of profits.

In many cases that I have had to attend to in my professional life, they fall within this cause, since the cost of operating their companies was higher than their sales price, so in each sale they lost money, and since they did not know it, it became a death foretold in the business, which happened without realizing it, since there was always much movement in the company, it sold many products, delivered many products and there was movement in the accounts, but since it always lost money, the patrimony invested in the business was slowly eroded every day until it reached bankruptcy.

In addition to this, I received customers that once we do the real analysis of the cost of sales and show them that they need to raise prices because they are losing money, they are reluctant to raise prices for fear of losing their customers or even arguing that they would sell less and lose money, however in all cases after raising prices they realized that they were not right, so after adjusting prices, they continued selling but already with profits.

Cause # 5:

Pricing / Cost problems.

Source: The Top 20 Reasons Startups Fail CBINSIGHTS

The analysis indicates that 18% of the ventures fail because they set sales prices that are not sufficient to cover all the costs and expenses that the company generates and therefore fail in their entrepreneurship.

The analysis indicates that 18% of the ventures fail because they set sales prices that are not sufficient to cover all the costs and expenses that the company generates and therefore fail in their entrepreneurship.

Let’s continue with the example of opening a gourmet hamburger business that we discussed in the article of cause #1 to serve as a reference and especially because even today the big companies that sell hamburgers have been adapting to the new economy, as well as learning how to continue selling hamburgers without losing money, since in these times of pandemic costs have increased, including home delivery and digital shopping.

I want to share with you the news that appeared in “Forbes Mexico” last September 21st: “Burger King, the fast food hamburger chain, had to change up to 20 times its digital strategy in its online sales channels due to the constant changes in consumption habits of their customers” …..  if they are a consolidated company with an entire organizational structure, they had to revise their sales strategies “20 TIMES” to recover their sales and have revenues that would allow them to be profitable, imagine everything that MSMEs have to do, but especially adjust and define new sales prices to cover the cost of shipping and digital platforms.

Continuing with Burger King Mexico; its leader in Marketing, Execution and Delivery (Alejandra Guzmán) commented: “Very aggressive offers or promotions that we knew were profitable suddenly were no longer working; without a doubt, having that versatility to always be adjusting the entire improvement plan to not lose the focus of PROFITABILITY and continue strengthening the channel”, ….. See how he emphasizes profitability, a factor that MSMEs in many cases ignore by setting low sales prices that are not enough to cover all the costs and expenses of the new company.

That is why I would like to make some recommendations to new companies to establish the right selling prices and be profitable, in order to avoid failure and be part of the new companies that go bankrupt because they do not have the right selling prices:

The most important thing is that you calculate very well the cost of elaborating a hamburger in your company, for this it is very important to define what ingredients each of your hamburgers will have, since the cost of the same will depend on it, without forgetting the cost of oil, labor, gas, electricity, rent, the proportional part of all your administration expenses (your salary, the accountant, stationery, your cell phone, etc.).

Review the prices of the competition that exists in your city as well as the prices of burgers that are sold on digital platforms, not to set the same prices, but to know the market and its diversity, since there are many types of burgers, of different qualities, sizes and ways of preparation, so I suggest you identify those that are most similar to yours to thereby have the real reference of your direct competition.

Source: Carl’s Junior Irapuato prices in Uber Eats Sunday, Nov 1, 2020.

  1. Once you have in hand the real cost of the hamburger of your business and you have as a reference the prices of your competition, it is time to add your desired profit, which should be based on your specific product, since you can be using a much higher quality meat and a very good service and this consumers are always willing to pay for it, we see it especially with gourmet burger businesses whose price of the hamburger is always higher than the traditional ones; in no case should you set a price lower than your cost, as you will lose money.
  2. Determine a pricing policy and promotions at the time of going to market, since many small businesses put very low prices at the time of opening their business to attract customers and then raise prices much, or reduce the amount of product or quality and in all cases customers feel cheated, so it is very important to have the selling price of the real hamburger, commenting to customers that it is price per opening or something similar.
  3. Sell Experiences, DO NOT sell hamburgers”,,,, hamburgers anyone sells, but very few sell experiences, therein lies the difference where customers pay the right price to satisfy an experience and on the other hand, taste a delicious hamburger … so I recommend you look for consumers to live an experience when buying and tasting your burgers.
  4. Today is the digital market, you must consolidate your sales in social networks or marketplaces, segment very well who your customers are, identify them, attract them through digital strategies and make money selling at the right prices, do not lower the price just because; the best thing is that you sell to the right people, at the right time and in the right place, …., of course making money!

Source: https://enfoquecanaluno.com/20-causas-del-fracaso-de-tu-nueva-empresa-5/