“Due Diligence” information – What do I need to know. Part 6

We now start getting to the nitty-gritty of how a business makes its money. The Selling Proposition refers to the products or services that a company supplies. Of course this information would be relatively self-evident at the point when one is negotiating for a stake in the business but sometimes there are income (and expense) streams to a business that add significantly to the bottom line but don’t form part of the core business that the company is known for. An example would be an engineering company that owns patents it sells the rights to.

At this level, it is important to ascertain costs that go into producing a product or service and the price at which that offering gets sold. The difference between these two figures is generally called a markup and it’s usually quoted as a percentage. Note that some products or services are complimentary and that the business might have to offer them, no matter what the cost, to help sales of other (hopefully profitable) products. A classic example is offering cheap razors to boost sales of expensive razor blades.

The BusinessPortal range of websites also include a few extra tidbits of information about the products or services that give a better idea of how they are marketed or positioned in relation to competitive products/services. Some of the comparative figures can give an idea of how to tweak the product/service to derive more revenue from it though it should be noted that the data given here is generally based on the sellers’ impression rather than a quantifiable metric. Also note that Marketing Spend often isn’t specific to a product or service but rather aimed at uplifting the whole brand. It does however start looking into the costs of selling a product or service; a topic I’ll broaden in the next blog on Business Processes.

Business Selling Proposition

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