Select a profitable business model before embarking on an adventure

Build a business because you have a great idea that appeals to those around you but will eventually be scaled down to niche clients, because you’ve seen that other companies have been successful in this market and basically the number of clients is big, because we’ve seen that it works like hell in a country and we want to apply it to ours It can be promising but still requires deep thought about profitability so that you don’t regret your investment.

Profitability is the foundation of a business because it determines its survival. Making sales is not enough. It is necessary that after a certain time, even as quickly as possible, it becomes profitable.

Establish your business model well

By definition, a business or economic model determines the means by which a company will make money. Not to be confused with the more universal business plan, which includes an explanation of strategy or even turnover. This is where the problem often lies, since many entrepreneurs are content with knowing the price at which they can sell their products and in return verifying that once the purchase of goods is made, the equation remains positive. However, to verify that your business model is working, you must take other data into account. Therefore, the more your business grows, the more money your business loses. If you forget to include your payroll or the time you’ll spend on each of your sales, the consequences can be dire. Ideally, even if you have not paid yourself for a while, it remains to check whether you will still be profitable by replacing you with a salaried person. In addition, you should understand all the costs without forgetting one: the cost of your building for example, electricity, customer acquisition (especially if you are advertising). Do not neglect any source of expenses. At the end of the analysis, ask yourself how many sales you must generate to break even, bearing in mind that if you exceed a certain amount of sales, it is very likely that your expenses will increase proportionately.

Restoration example

In the case of catering, it is common practice to consider rent, electricity and purchase of goods, which increase in proportion to sales, in order to determine the “break-even point” or the number of meals that must be sold to be profitable. But it is often overlooked in the calculations of profitability, and staffing because the earning capacity of your restaurant is not infinitely expandable. By taking into account all the expenses, you will be able to calculate the number of covers you will have to make to achieve a turnover. Be careful, the price war leads to lower profit margins. Thinking that you will beat your competitors by simply lowering your price misses two important points: the need to do much more volume to get the same gains and your competitors’ ability to adapt because they may have more powerful kidneys like you.

Diverse and varied models

For those who still need to understand the role of the business model, here are some examples (note: this list is not exhaustive). Basic business models such as those of product or service production and distribution, which consist of direct dealing with the product or service to the consumer or wholesaler; Low-cost business models, which have been developed in many sectors of activity, the goal of which is to reduce the cost price to the consumer as much as possible, such as non-intermediation. We also note the subscription or commissioning model, which consists in selling a product or service through an intermediary and getting a commission back. Another type of business model is auctions, where customers decide for themselves the price at which they want to buy the product. A mix between free and paid, freemium has been popular in recent years, especially for mobile applications. Finally, the last example, the printer model. Smart, it consists of selling a product at a low price, such as a printer, and then selling its packaging for the long term. In short, there are many business models, but you still need to know how to choose the one that works for you, depending on your business.

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