Three steps to testing the feasibility of your business idea

Key points

• Reflect on your market opportunity
• Assess how much money you need to make
• Find your break-even point

Before starting a business or pivoting to a new business idea, taking time to consider a few key factors will help you turn your idea into business success. 

Conducting a business feasibility and market analysis will reveal if there’s a market for your business idea. By closely analysing your target market and a range of external factors, you’ll be one step closer to making your business dreams come true.

Use these three steps to test the feasibility of your current or future business idea.

Step one: Reflect on your market opportunity

To determine whether your business idea is sustainable, identify your target markets and assess their demand for your idea.

What type of customers will buy your products or services?

For example:

• Working parents
• Teenagers
• Young adults
• Business people
• Retirees

Will you reach them exclusively by selling direct in your local area, online or through distributors? How will your target market access your offerings?

Once you know who your customers are likely to be, you will need to establish:

1. if there will be enough of them, and 
2. how often they’ll buy. 

Step two: Assess how much money you need to make

First, be clear on how much money you need to make to:

• cover existing business operating expenses such as wages, utilities, marketing and professional services costs.
• cover personal expenses such as household basics such as food and bills
• add to your savings each month

The ANZ Cash flow forecast template (xlsx 114kB) can help you calculate the money you'll need to pay for essentials and grow your savings. If your business idea can't deliver this, consider what changes you could make to increase revenue or reduce expenses. At this stage you might decide this business idea is not the right one for you.

It’s tempting to reduce the amount you need to make to ‘fit’ a business idea that you really love. Be realistic about what you need to earn and when you need your business income to start flowing. This will help you to understand what your business must deliver to support you day-to-day.

Calculating this figure accurately will be crucial to the success of your business.

Step three: Find your break-even point

Calculating your break-even point is a vital step. To figure out your break-even point you'll need to estimate some business basics like your product, price scenarios and the cost of production and supply.

Your business will reach its break-even point when total costs are equal to total sales. Then if sales continue to climb, you’ll begin to make a profit.

To work out your break-even point, first work out your fixed and variable costs.

• Fixed costs: These costs don’t depend on the amount of goods or services your business produces. They can include rent, rates, power, phone, interest on debt, insurance, repairs and maintenance, stationery and wages of permanent staff.
• Variable costs: Variable costs depend on the number of products or services produced by your business, and fluctuate in proportion to the volume you produce or sell. They can typically include stock, supplies, freight and wages of temporary staff.
• Price determination: What price might customers be prepared to pay for your offerings? Consider the cost of producing and supplying your goods or services – then choose a couple of price scenarios. They could be prices that are ambitious, cautious and most likely.

Once you can reach your break-even point, your business can move onto the next step of creating profit.

Next steps

Download our Business plan template (PDF 591kB)