E-commerce is a tough world. One moment you’re on top, everything is falling apart the next second. If you want to succeed, you must equip yourself with sufficient knowledge of handling unexpected occurrences. You must know how your country’s economy works and provide yourselves with a set of backup plans if things go south. If you are looking for bright ideas and hacks on surviving the eCommerce industry, this blog is for you.
This eCommerce post will introduce one of the most important aspects you should master before entering an online business—understanding market value.
What is Market Value?
Market value, sometimes called open market valuation, refers to how much a specific asset or business is currently worth inside a financial market. For some financial market experts, market value can also be described as one particular company’s overall “financial health” within a specific sector of the economy it belongs to. Understanding market value also comes with learning how investors see your company’s overall potential to become one of their business partners.
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Market value is considered the highest price a potential customer can give to purchase a specific product or service. On the seller’s end, market value is the lowest price they can willingly sell their items to a customer.
Why is Market Value Important?
As a business belonging to an unstable economy, knowing what is market value is a big help. Why? When you master how to calculate market value for your products or services, dealing with a product’s right market price becomes easier. Market value helps provide companies with a concrete method in determining how much an asset is worth on a financial market.
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We can’t deny that buyers and sellers have different beliefs on how a specific product or service should cost. Buyers seek a lower market price, while sellers want to increase sales. A fair assessment is made between both parties with the proper knowledge about market value. Generally, market value eliminates doubts and uncertainties for the business and its audience.
Advantages of Market Value
Understanding how market value works does give benefits. Among those, we listed below our top two advantages that will benefit you a lot once you’ve mastered how to calculate market value.
1. Product’s Sales Cycle
One advantage market value can assure you is that it can help you study the selling cycle of a specific item. Understanding market value can help you know when is the perfect time you can earn a lot from your products or services. One best example of this is summer outfits and wearables. During the summer season, businesses often set a higher market price for their summer-related products due to their high demand. Right after the summer season, they return it to its original market price. This is one tactic that many retail stores do to increase their sales and set a good position in the economy’s financial market. With market value, you and your business can take every opportunity to market your products more effectively and claim good revenue.
2. Helps in Making Improvements
Another advantage of understanding market value is that it helps businesses know the areas they need to improve. Take, for example, apartments on sale. Many apartments nowadays are being sold to the public. Each has its own unique character, catching a potential buyer’s attention. With the right knowledge of market value, a seller can know what measures he should take to get more attention than his competitors. He can remodel his unit and add more furniture, which can help increase its market value and top his competitors. This idea alone secures better results not just for the seller but also for the potential buyer who seeks a fully-furnished apartment. Market value does play an essential role in ensuring that a business does what it needs to do to fit a customer’s needs and wants.
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Disadvantages of Market Value
Though learning the art of market value helps your business, it also has its own weak points. Below are two of the most common disadvantages one can expect about what is market value.
1. Requires Precedence
To establish a substantial market value, a solid and reliable sort of historical pricing data is needed. It is unknown to many, but new products in the financial market, or even rare, often do not have specific market value. This can be quite discouraging, especially for people who find rare items. They thought they had already made a good amount of money, but then, they were forced to lower the market price to get potential buyers for that specific product.
2. Fluctuations
Fluctuations are inevitable in whichever type of economy you belong to. A product’s market value can either rise or drop in just a blink of an eye, depending on its demand in the financial market. Once a product experiences a temporary rise in demand, market value also increases. But then, as soon as the supply reaches its demand, the financial market value will drop. This is one main reason businesses should watch out for fluctuations within their market. They need to be aware of the “Ins” and “OUTs” within the type of economy they have and make advance strategies just in case things go out of control.
Factors that Affect Market Value
After getting to know the advantages and disadvantages of market value, let’s now move on to another important idea—factors that can affect a financial market value.
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1. Supply and Demand
Supply and demand are among the most important factors affecting market value. Using the bid-ask method, stocks and supplies are usually bought on an open financial market. In this type of system, the bid price is the highest price a buyer is willing to give just to pay for a specific stock. On the other hand, the asking price is the lowest market price business owners will allow selling their own financial market shares. Once more buyers are present to bid for a single financial market stock, the ask prices will be removed, resulting in an increase in the stocks’ market value.
2. Business’ Financial Performance
It may not seem like it, but a company’s overall performance does affect their own market value. In what way? When a business’ stocks get more revenue, their value to consumers also increases. If a company consistently reports good results on their monthly earnings, they tend to become more protected from unexpected conflicts. They also got the chance to earn a perfect market value in their designated marketplace. Consistency and stability in a company’s performance usually create a good stream of willing buyers for stocks, keeping the market price higher.
3. Economic Trends
There are specific eCommerce trends that businesses need to deal with to achieve a good market value. Despite having a good management system, many companies today still encounter market value conflicts due to sudden changes in their economic system. Some even lose tremendous amounts of savings or, worse, experience bankruptcy. In this economic environment, the demand for market value stocks tends to decrease. When a company’s stock supply exceeds the current demands, market prices go south. Eventually, such occurrence may result in severe damage to a business’s market value.
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How to Calculate Market Value?
Market value is simply calculated by multiplying a company's outstanding shares with its current market price and we will show you how it’s done.
Market cap of a company = {Current market price (per share)} x {Total number of outstanding shares}
Market value often changes due to per-share price changes. However, many private business companies do not disclose their financial market status. This makes it harder for them to assess their own market value. Why? Simple—because market value is better understood through comparing a company’s market value to publicly-traded businesses in the same industry.
No need to worry, though. There are still other ways financial market experts developed to help calculate a business’s market value—and we listed two of them down just for you!
1. Income Approach
Income approach comes in two known types:
a. Discount Cash Flow
This market value method is often used to help assess and measure a company’s investment value using its own future cash release.
b. Capitalized Earning Method
This type of market value computation method is used to know a company’s market value by computing the worth of its anticipated profits. It both involves a company’s current profits and their predicted earnings.
2. Market Approach
This market value computation method determines an asset’s market value based on matching an asset’s market price.
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Start Your Online Store Today!
It is a must to equip yourself with the right knowledge about what market value is and how it works. Aside from that, you also need the right amount of online marketing tools and the best partner to start your online business with.
Entering the world of business means taking risks. You have to be realistic about what could happen once you start to engage in such a field. You cannot always rely on what you see from others and learn how to do it in your own way. It’s okay to feel scared sometimes as long as you know how to get up and be consistent in trying and trying until you succeed.
Want to learn more tips on how to ace eCommerce? Chat with us and let’s work together.
