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Chasing the buck

Sales volume or margins? Know which one you should focus on in order to maximize your profits.
By Rocel Ann Junio |

Regardless of the product or service one intends to put on the market, the ultimate goal of an entrepreneur is to earn profit. The key is in how this product or service answers the need—or want—of its target market.


[related|post]How do you look for a target market? Lex Ledesma, serial entrepreneur and the executive director of The ONE School in Makati City, says it starts with understanding your consumers, either through personal experience or indirect exposure, and learning how they spend their money. Only then can you know how to earn it in exchange for what you sell to them.


You can also do it the other way around—create a product or service and point out which type of consumer would most likely patronize it. In either case, a clear and grounded understanding of both your product or service and its target market is one step to chasing the buck.

Priority and Proposition
Entering any market these days often means that a start-up entrepreneur has to deal with competition on so many levels. Let’s assume that you are not the first mover, not the dominant player, and with no brand equity yet in your target market. The common trend in most markets across industries is that those trying to be in the middle—in terms of sales—usually fail. The key is to go extreme—it’s either high sales volume and low margins OR low sales volume and high margins.



For the former, specialize in making your production process efficient enough to lessen expenses and convert the rather low margins to tolerable levels of profits. For the latter, offering products or services that are hard to duplicate often guarantees a steady following in that niche market.  Ledesma says that the nature of the business primarily dictates the kinds of margins that are acceptable. “More often than not, items that are commodities and have plenty of competition have very small margins.


Entrepreneurs in this business are forced to make very little per item sold and compensate for this by selling in volume.“On the flip side, businesses with products or services which are highly differentiated and hard to replicate normally have significantly larger margins.”

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