I am currently a student studying economics and run my own small business. How can studying economics apply to my small business? How does economics relate to small businesses in general? Thank you!
Small business owners who most effectively use economics knowledge to the advantage of their business do so through the lens of unit economics. What are the per-unit expenses of the business and how do those expenses compare to revenues per unit. Small business owners who have a working understanding of unit economics are better able to assess opportunities, identify problems and deal with changes that inevitably occur through time.
One small business owner and former student, for example, markets beef directly to consumers. Their production method differs from many other cattle producers, so one of their challenges was to fully understand their per-pound expenses of raising the beef and getting it processed. But the extra effort in marketing the product directly to consumers also resulted in expenses not typically incurred by beef producers. After they established a more complete understanding of expenses, they did a much better job understanding the prices they needed to charge for different cuts of beef and could weigh alternative marketing channels for pricing opportunities.
Another small business owner and former student runs a coffee shop that serves breakfast and lunch. After getting a firm understanding of facility, labor and ingredient expenses, she could do a better job understanding how to set prices for drinks and food, as well as understand the amount of daily traffic needed to make the business profitable.