In this multi-part article, I address the three most crucial ways donors can think like business people to help ensure the success of enterprise development projects. Now that you know who you are selling to, and you’ve given thought to how you will let these buyers know about your product and make them want to buy it, the question is . . .
How much will you sell the product for?
POINT 3 – Pricing.
When selecting a price for the product, you have to find the sweet spot where buyers will buy but the business still makes enough money to be sustainable and (dare we even hope?) profitable.
In the case of the clay pots, I purchased a 10” high vase in Dili for $5. When I visited the group in the rural area, I could have purchased that same 10” high vase again for $5. What this tells me is that the cost of transporting the fragile products from the rural area, over extremely rough roads, into the capital where they can be sold is not in any way accounted for in the price. No wonder the clay pot women aren’t making any money.
Pick a Price that’s Real and that Works
What needs to be done is a financial analysis of all of the costs associated with making and selling the product. Before the project starts, one must question whether the product can be made and sold for a price and at quantities that will make the undertaking worthwhile. What did your survey say about where people will buy it and for how much? Can the product be sold for a price that includes all of the costs associated with producing, transporting and selling it, plus enough to pay the people that made it?
Hope for this Small Business – A Plan for Pots
All is not lost for the clay pot ladies, if they can get some business development assistance. Personally, I think they can increase their prices a bit and find more creative ways to reduce transportation costs, such as by sharing the cost of a truck with other businesses in the area that also need to get their goods to market. A new product line has also been identified that will use their skills and facilities but will produce smaller products that can be integrated into fashion items and will be easily and cheaply transported. And they can increase the volume of goods sold by partnering with other businesses that will use their products to add value to existing products (in this case, flower sellers who wish they had nice pots in which to put their plants).
In this case, business plans and systems were not established so that the enterprise could succeed. The interventions the pot ladies need now are business solutions. Any donor or government money for this project should be focused on providing business development services that will turn this donor project into a true livelihood initiative.
The Key to Creating Livelihoods
Livelihoods come from business enterprises, not from donor projects. Thus, business considerations, including but not limited to those that I’ve discussed here, should be integrated into project planning and development for all enterprise development projects. Donors need to think like business people and/or include business-consulting services in the project budget. This is the only way that we will get sustainable business enterprises.
See Part I, Part II, and Part III for more tips.
Michelle A. Pinkowski is an attorney and business specialist consulting on market-based approaches to enterprise development.