After some time, your business will begin to generate income for you. As you start generating more income, you will begin to turn your mind to deciding at what point it becomes uneconomic to continue your day job. This is because, at a certain point, your business will reach 'critical mass', level at which it becomes uneconomic to continue your day job because return you get for your time and effort is greater from your home business. This is because your salary doesn't vary according to effort and results (at least not directly), but your home business income does.

As a general rule, you will need to wait until your business is consistently generating same level of income on a proportionate basis to time you spend on it before you start seriously considering quitting your day job. Once you get to that point, test elasticity of your income. If you double number of hours a week you spend on your business does your income increase commensurately? If so, your income is elastic. If you double your time input but your income only increases by half, then your income is somewhat inelastic. You need to calculate how much time and effort you need to expend to generate in form of business income what you are currently generating from your paid job. If this is 'reasonable' by your standards then you can begin to seriously consider quitting your day job. If not, you need to find ways to leverage your business so you can generate more income from a more acceptable commitment of time and effort.

Only when you have satisfied yourself that you can generate from your business sufficient income on a CONTINUOUS and REGULAR basis, should you consider quitting your day job.

That's only threshhold question, though. Behind it are a whole host of other issues to think about before making break. For example, how will you fund time off? As a self-employed person you can forget about paid vacations.

Even if this doesn't concern you financially, consider what will happen to your business if you're not around for two weeks. Also, as a corporate employee, you probably enjoyed comprehensive medical benefits at your employer's expense. Again, these are gone. Be sure you take out your own insurance and think about income protection insurance as well. If you contract an illness that puts you out of action for a month, again, what happens to your business? You will need to take out normal business insurances as well such as public risk. Consider here whether clients will be visiting you at home. If so, ensure your insurances cover injuries to business clients. This is something that probably won't be covered under your general homeowner's policy.

Build up a network of contacts before you quit your day job. Not only will they be an important asset to your business in longer term, they can also help alleviate feelings of isolation that you can expect to experience early in your home-based career. Something else to do before you quit your day job is to prepare yourself mentally for realities of working from home such as need for self- discipline, feelings of isolation, your tendency to procrastinate to name a few. Educate yourself by reading about what running a home business is REALLY like to minimize culture shock when it happens to you.

Prepare your family too for changes that they can expect. They need to understand that although you are at home, you are still working and they need to respect your limits during worktime. Of course, set up your home office as if it were a corporate office. Make sure you have two telephone lines and dedicate one to your business telephone and other to your fax/internet connection.

And one final piece of advice, when you first start working from home, establish a "going to work" routine, at least to start. This will get you into routine of working even though you are not leaving house and you won't develop bad habits (such as procrastination or lack of direction) that will be difficult to break later on.

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** Reprinting of this article is welcome! ** This article may be freely reproduced provided that: (1) you include following resource box; and (2) you only mail to a 100% opt-in list.

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Elena Fawkner is editor of A Home-Based Business Online ... practical business ideas, opportunities and solutions for work-from-home entrepreneur. http://www.ahbbo.com

Elena Fawkner is editor of A Home-Based Business Online ... practical business ideas, opportunities and solutions for the work-from-home entrepreneur. http://www.ahbbo.com

RELATIONSHIP BETWEEN PRICES AND PROFITS

The easiest way to increase your profit is to raise your prices. But you can’t just raise prices indiscriminately. Look for ways to manipulate niche pricing instead. This means looking for specific areas of your business where you have some latitude to increase prices.

The way to do this is to identify areas where perceived value of what you are offering is higher than price you are currently charging. Start by carrying out a competitive analysis of your business. Find out how your product compares with your competitors’ on basis not only of price but costs as well.

If you are going to source this information by approaching competitors directly, a word of caution ... DON’T. The Sherman Act in US (and similar legislation in many other jurisdictions) prohibits businesses of any size from entering “contracts, combinations or conspiracies” in restraint of trade. In other words, it’s illegal to make deals with competitors about what price you’ll charge or what services you’ll offer. Merely discussing prices with competitors can be construed as an attempt to conspire on prices. This is one area where you just don't want to give even *whiff* of an impression of doing anything of sort.

So, be circumspect in your research. Never discuss prices with competitors and avoid frequent communications with them at all if possible. Instead, to keep tabs on what your competition is up to, read their ads, talk to their suppliers, engage mystery shoppers or send an employee to make observations.

Once you have completed your competitive intelligence, analyze your competitive advantages and disadvantages. If, as a result of your analysis, you learn than you have an advantage over your competition because your business is website design and you know how to do cgi-scripting but your competition has to outsource this function and this means a delay of one to two weeks, then this advantage is something your customers will likely pay more for. Adjust your prices accordingly.

WHEN YOU'RE THE PRODUCT

Some businesses don’t offer tangible products at all. Sometimes, YOU are product. So, how do you price yourself if you’re, say, an ecommerce consultant and your business is assisting brick and mortar businesses make transition to ecommerce?

One perfectly reasonable approach is to start with a calculation of your actual expenses and your salary needs and then divide total by a reasonable estimate of billable hours. An article entitled "Setting Fees" by David Dukoff gives a good overview of how to go about doing this.

Let’s say your expenses and salary needs mean that your business needs to be generating $100,000 a year. Let’s also say you prefer to charge clients by hour rather than by quoting on projects. How much do you need to charge per billable hour to generate $100,000 per year?

Dukoff uses following approach. To start with, how many billable hours do you have? Let’s start with 2,080 work hours in a year. Deduct 100 hours for vacation time (2 weeks), a further 80 hours for popular holidays, 40 hours personal time and sick leave and 20-40% of time for marketing and administration. This leaves you with around 1,000 billable hours in a year. You therefore need to charge $100 per billable hour to achieve your goal of $100,000 income.

OTHER PRICING STRATEGIES

Other pricing strategies to include in your structure include discounts to encourage prompt payment or quantity purchases, seasonality issues (for example, end of season “sales”), offering senior citizen and student discounts and other promotional incentives.

As you can see, setting "right" price for your products and services is absolutely crucial to profitability (read survival) of your business in longer term. But with careful analysis and a methodical approach, you should be able to arrive at reasonable pricepoints without too much difficulty. Then it's just a matter of monitoring demand in response to price changes to settle on optimum pricing for your business.

But don't rest there. Your prices operate within a constantly changing environment and you need to be ever-vigilant to ensure that your prices remain at their competitive maxima.

One final piece of advice: if in doubt, price high rather than low. It is much easier to discount prices than it is to increase them.

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** Reprinting of this article is welcome! ** This article may be freely reproduced provided that: (1) you include following resource box; and (2) you only mail to a 100% opt-in list.

Here's resource box to use if reprinting this article:

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Elena Fawkner is editor of A Home-Based Business Online ... practical business ideas, opportunities and solutions for work-from-home entrepreneur. http://www.ahbbo.com

Elena Fawkner is editor of A Home-Based Business Online ... practical business ideas, opportunities and solutions for the work-from-home entrepreneur. http://www.ahbbo.com