WHAT IS THE MINIMUM INVESTMENT IN LFS ?
Lets set a bottom line for a customer's investment in LFS. Deploying Foundations for a server and five users costs about $1,800 in Australia plus another $250 per additional user. Throw in a few days of consulting work spread out over the first month or two and let's decide that the customer is looking at a $5,000 investment. Of course, the customer may decide to do it all of the installing/configuring/tweaking work themselves in which case I'm happy to sell them the licences but then they drop off the radar for the purpose of this particular post.
WHO CAN AFFORD THAT INVESTMENT ?
Lets read what some experts say. The Australian Bureau of Statistics (ABS) defines a small business as one that employs less than 20 people. Australia has 1.88 million small businesses, which represents over 95% of all business. A good indicator of IT penetration in that market is the fact that approximately 80% of small businesses are connected to the Internet. Those Small Businesses generate around 30% of Australia’s economic activity and provide 3.6 million jobs, or 47% of private sector, non-agricultural employment. Australia has a population of just over 20 million and a GDP of $760 billion so readers in the USA could multiply the relevant numbers by 15 for population and 18 for GDP to get a rough approximation for their own country.
LET'S GROUP BUSINESSES BY TOTAL EMPLOYEES ...
My next source document is a presentation given by Professor Michael Schaper, Dean of Murdoch University Business School in Western Australia, on 20th February 2008. Professor Schaper used ABS stats to show the following breakdown of businesses in Australia. The number in [square brackets] is the corresponding figure for the USA.
- Large firms: 200+ staff 5,876 ... (0.3%) ... [0.28%]
- Mediumsized firms: 20-199 staff 78,304 ... (3.9%) ... [0.79%]
- Small firms: 5-19 staff 228,313 ... (11.3%) ... [4.75%]
- Micro-enterprises: 0-4 staff 1,699,277 ... (84.5%) ... [94.18%]
... THEN LET'S REGROUP THEM BY ANNUAL REVENUE ...
Professor Schaper also gives us the breakdown of annual turnover for Australian businesses:
- $0 - $49,999 p.a. 501,467 ... (25%)
- $50,000 - $199,000 p.a. 742,288 ... (37%)
- $200,000 - $1.99 million p.a. 646,458 ... (32%)
- $2 million or more 121,557 ... (6%)
HOW BIG IS THEIR IT BUDGET ?
That question isn't as crass as it sounds. If a potential customer isn't able to allocate the money for the investment then there's no point in wasting their time helping them kick tyres. Far better to be upfront about the size of the ballpark and let them decide if they want to play. These figures show one survey of IT Budget as a percentage of Total Revenue for selected industry groups.
- Education = 1.9%
- Finance = 4.9%
- Government = 9.7%
- Health Care = 4.8%
- Manufacturing = 3.3%
- Retail/Wholesale = 2.4%
- Services/Consulting = 4.5%
- Telecommunications = 8.4%
- Transportation = 3.8%
- Utilities = 3.0%
Multiplying that 4.5% allocated to IT by the $200k turnover mentioned earlier gives that customer an annual IT spend of $9,000 which means there's room for an investment in LFS.
I'm comfortable in seeing the 646,458 businesses in Australia turning over $200,000 - $1.99 million p.a. as the primary market for LFS with additional customers in the $2m. plus group. Maybe half of these businesses can't see an immediate use for the technology (the local BBQ chicken shop, newsagent or florist springs to mind) but there will still be hundreds of thousands of businesses (such as real estate, car yards or financial consultants) who do want centralised file backup and email and possibly a web site.
That's over 300,000 potential customers for LFS in Australia.
Maybe I'd better hire more staff.
My figures here were sourced from the Internet on a lazy Sunday afternoon so I'm certain there's room for improvement. Feel free to tell me if you have better numbers.