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How do I Evaluate Profitable Business Ideas?

Article Details
  • Written By: Osmand Vitez
  • Edited By: C. Wilborn
  • Last Modified Date: 03 November 2016
  • Copyright Protected:
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Profitable business ideas represent any way an individual can start a business and make money. Entrepreneurs will evaluate many different many ideas before they select one as having the most profit potential. Evaluation processes include quantitative measures, asking current business owners about success levels, forecasting sales from current revenue, and conducting a market analysis. In many ways, there is no right or wrong way to evaluate profitable business ideas, and many different methods will provide the necessary information. The key is to select a method that will provide accurate results and analysis.

Quantitative analyses used when evaluating profitable business ideas include measuring the costs associated with running the business, calculating current profit margins for product lines, or using a decision tree to determine the probability of business success. These methods are often very detailed and require significant amounts of information gathered by the entrepreneur. The information gathered can also be miscalculated or used improperly, resulting in the entrepreneur obtaining results that seem favorable but really are not. Having a second person review the information can confirm the entrepreneur's results or assumptions.

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Seeking information from current business owners is another way to evaluate profitable business ideas. This isn't always easy, as other business owners may be reluctant to divulge this information. Franchise business owners, however, will often discuss information as they may be required to provide some information based on the franchisor's request. An entrepreneur can use this information to determine how her business will be as successful as or more successful than firms currently in the market. This information is usually very specific to location and the current market, making it less reliable when comparing to other areas.

Sometimes, an entrepreneur will have several different businesses running at one time. If he believes one business will overtake the others, he can evaluate the business using past numbers. For example, if one business always has more work than the entrepreneur can complete, it may be among the most profitable business ideas. He can forecast sales revenue by calculating how much money he would make running the business full time.

A market analysis is another common tool for evaluating profitable business ideas. The entrepreneur can review demographics, products available, government regulations, consumer demand, and the level of competition for each business idea. The most profitable one will often score well in these areas. This means competition is low, consumer demand is high, government regulations are few, and a large demographic exists for the business.

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