Kachaje: The law of income

Life is governed by sets of laws. There is the law of gravity for instance and then there is the law of sowing and reaping. There are also laws that governs the process of receiving money legally in the marketplace. Businesses need to make money to stay afloat and to be able to deliver goods and services to their clients. The law of income states that you will be paid in direct proportion to the VALUE you deliver according to the MARKETPLACE.

The value of your goods and services is determined by the market and not you necessarily. If you sell 500ml of water on the streets in a plastic tube, you will be paid a certain price based on the value according to the street market. The same water sold in a bottle at a Petrol Service Station, taken from a fridge, will attract a different and higher price. A similar bottle bought froma hotel will fetch a premium price. Each of the three different markets determines the value your water is worth and how much you can be paid.

Four key factors determine your value in the marketplace, namely supply, demand, quality and quantity.SUPPLY: If the market place has received too much of your type of product, the price will mostly likely fall. If however, the market place has a limited supply of your type of product, the price will go up.

The second factor DEMAND, is directly linked to the first factor. If the market place has ten people looking for your type of product, the price will be lower than if there are 100 people competing to get your product. The more people that demand your product or service, the higher the value attached to your product.

Third factor is QUALITY. Better quality of your products leads to better prices while poor quality leads to lower prices. Beautifully ripe but firm tomatoes fetch better prices than over-ripe tomatoes. A well-crafted cane chair will sell for a high price than a poorly-crafted chair. The last factor that determines the value of your products in the market place is QUANTITY.  How much of your products can you manage to sell? The more you sell, the more money you will make in business. The formula is R = P x Q (Revenue/income in business = Price x Quantity).

Let us suppose you have a product that is priced at K5,000. If you manage to sell 10 units, your revenue will be K50,000. But if you work hard and sell 100 units, your revenue will go up to K500,000. If you manage to sell 1,000 units, you will have a revenue of K5m. What if you developed an effective and efficient production and sales strategy that enables you to produce and sell 10,000 units? Your total revenue will be K50m. This is the law of income at work in the market place.

Think about this: Malawi has about 17 million people. If you targeted only 1% of this population, you will have 170,000 potential customers. Maybe that is too large a market for you to service. Take only 10% of the 1% of the population and you have 17,000 people you can focus on. Call this niche market. Let us assume 7,000 will not be reachable to you, so you have at least 10,000 potential customers for your products or services.

Can you think of a product or service that you could develop and provide to your niche market of 10,000 customers. What if each of the 10,000 customers bought just two of your products every year, at a unit price of K5,000? Your business would have an annual income (turnover) of K100m. If your net profit was 20%, then you would make K20m – this is how the Law of Income operates in the marketplace.

Your challenge is to identify your niche market and serve it with high quality products or services at a reasonable but profitable price. Aim to create and bring VALUE to the market place and let the Law of Income deliver money to you. Remember that money is simply a medium of exchange. You can earn money legally by creating value for others in the marketplace.

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