Choosing a business model is hard... and a lot more important than most business owners believe. It's also a major reason why most businesses don't make much money - or if they do - still have poor cash flow. A lot of this can be avoided before the business is even officially launched.
Retail is an excellent example of this. There are some magic formulas floating around that say you should be charging so much above cost of goods sold blah blah blah. However this usually ignores the fact that you need to sell a lot of stuff to make the formula work.
Anyway... if you want to read my rant on why low prices suck... there you go.
My fancy definition of a business model
Hold on to your seat... here it is:
"How will your business make you lots and lots of money?"
Because that's really why you're in business... isn't it? Sure you might have dreams of changing the world (I sure do) but that's a lot easier to do when you have money. So your first aim and responsibility is to make a lot of money.
The importance of value
Manufacturers and retailers get too hung up on how much it costs to create a product. And service businesses get too hung up on an hourly rate. Instead you need to look at how much value you can provide.
If I created a DVD that taught you how to make $10,000 in the next 3 months would it be worth $29.95 like your average movie DVD or a whole lot more? Personally I'd pay at least a $1,000 for the information if it worked.
And if I looked at your website and saw I could tell you a few quick changes to increase your sales by $500 a day would that be worth only the 10 minutes I spend explaining them to you? Or would you be willing to pay a lot more since I'm unlikely to contract myself out for 10 minutes.
So the simple formula is: Provide more value and make more money.
Back to your business model
The way you sell your products and services has a large effect on how much money you make. Basically you want to use a business model that gives you a lot of leverage over your time. Because it's a lot harder to leverage your time than anything else.
How you package your products is critical
I know a company that sells a magazine for about $5. This is because it's a magazine and that's how much most magazines cost. However this magazine is a learning resource filled with valuable information that people would pay a lot more for.
But because the company is stuck in the magazine mindset they've also made there price so low it's almost impossible to make money. Why? Because most magazines survive by selling lots of advertising (which they barely have any) and selling lots of copies (which they're still working on). So they have huge production costs, a low price... and the break even point is so far in the future it's ridiculous.
Make more money overnight
To make more money from your business sometimes all it takes is a change in business model. By changing the way you package your products and services you can make a huge difference to your bottom line. That's one of the first questions I ask when meeting with a new client... how can we package this more effectively?
Because I know with the right model success becomes a whole lot easier. Instead of fighting against the current suddenly you're swimming with it. And you finally have the cash flow you need to expand.
What you do next
Examine your business model and see if you can't structure it differently. See how other companies from other industries are selling their products and services and see what ideas you can borrow. You don't have to reinvent the wheel... just borrow a wheel from a completely different business and put it on yours.
