3 factors ensure your enterprise stays social
As a social enterprise, your primary goal is to maintain a triple bottom line. People. Planet. Profit.
It can be a tough gig.
Each business has its own unique opportunities and challenges, but there are three factors to consider in order to ensure your social enterprise stays social, but also earns a profit: Your people; your factors of production or raw materials; and your non-socially based business model.
Your business model is the most important piece of the pie. This may sound obvious, but failed social enterprises usually have one thing in common – an unworkable business model.
Typically, the costs associated with offering a product that benefits people and planet are higher than those faced by regular businesses, but are necessary to ensure that the corporation remains social. Therefore, the only real way to increase your profit is to make the non-socially based items in your business model more efficient.
How to maintain the last P: Profit
It all comes down to this question: Is your business model reasonable?
Before you attempt any business, social or not, you need to ensure that you have a viable business model. You have to ask yourself, if you weren’t attempting to have a positive social and environmental impact, would your business still earn a profit?
Often, social enterprises fail, not because of the factors that make them inherently social, but because their business model is flawed. Look at the non-social aspects of your business first.
Pricing
Price properly. You need a price that allows you to earn a profit, taking into consideration your market and your overhead, not someone else’s, or something that worked in a textbook. You may think that your value proposition is extraordinary, but all too often new entrepreneurs overstate their value added and this doesn’t translate into sales.
First, figure out what your ideal price point is from a financial perspective. A general rule of thumb is to charge a price that allows a gross profit margin of at least 50%.
The equation:
(Revenue – Cost to produce)/Revenue = Gross Profit Margin
For example:
($5.00 selling price – $2.00 cost)/$5.00 = 60% GPM
Secondly, do your market research. This is imperative. Find out what price your target demographic would like to pay for your product or service.
Compare your ideal financial price against your marketing research. Is your ideal price an amount that people will actually pay?
If your ideal price is too high, there’s a problem and you may need to lower it. But, this means you also need to change other aspects of your business model in order to ensure that the price the market will pay will still work for you.
Overhead
Lowering your overhead costs will give you a big bang for your buck. If the social mission of your company is paramount, then you may need to make efficiencies elsewhere. Overhead is one of the only places social enterprises can manipulate costs because there isn’t always a social mission behind these types of expenses.
Look at each cost you incur on a regular basis and see where you can lower those costs. Can you work out of your home? Can you rent a shared workspace to save costs? This may be difficult, and you may need to sacrifice comfort and convenience, but these changes could ensure the survival of your social enterprise.
Economies of scale
Increasing your economies of scale could allow you to purchase your more expensive production materials for less. If your business is starting out and you don’t have enough working capital to purchase in large quantities, try joining forces with a strategic partner. Find out who your supplier’s customers are. Chances are, not all of them will compete with you directly and some may be willing to participate in shared purchase orders that will drop the per-unit cost for each of you!
It’s hard enough to earn a profit as a business, and sometimes, earning profit and being socially and environmentally aware can be a challenge. But, if you’re willing to go that extra mile to ensure that your business makes a difference, the challenges you will face will pay off in the long run.
Want to read more from Shannon?
Choosing the right business structure
Triple Bottom Line: From macro to micro
Shannon Simmons is a financial advisor and founder of The Barter Babes Project. She offers professional financial advice to those who can’t usually access it by providing her financial services in exchange for a bartered good or service instead of a fee.