Guide to Profitable Sales
Business Models
What are they?
If you do a search for ‘business models’ you are going to get so many different answers that your head will spin. Some of the answers are really more about general factors you should consider in any business. Of course you should be clear about who you are selling to, a customer segment, so you can best understand their needs and how you might reach them with your advertising. Talk about a value proposition is a fancy way of assuring you have a crisp way of describing what you are offering; some call it an elevator pitch. The channels they talk about are really the ‘where’ part of reaching customers; like don’t bother trying to sell new cars at the homeless shelter. We will talk more about customer relationships later, but for now just think that for some things you might offer it is not a ‘one and done’ interaction with a potential buyer. Making sure you have identified key activities, resources, and partners is about delivering on the ‘promise’ behind the value proposition you make. While all of those are important, the cost structure of your business is the foundational part of your business model that we will dive into more deeply.
Business Model Ideas
Most people we work with have a business or a basic business idea that they need help optimizing. However, if you landed here looking for both a business idea and how to be successful, here are some idea starters. They are broad categories and you would need to think about how you might uniquely create your own version. One way to move from broad to specific is to use the North American Industry Classification System (NAICS) to drill down in a particular area. For example, if you are an educator and like the broad category of ‘cutting out the middleman’ you might look under the NAICS ‘Educational Services’ code 61, down to ‘Other Schools and Instruction’ code 6116, and further to ‘All Other Miscellaneous Schools and Instruction’ code 611699; where you find examples such as ‘Survival training’, ‘Yoga instruction’, ‘camps’, ‘Charm schools’, etc. If you find one that seems aligned with your interests and skills, search around and see what is available now to determine if you believe you can do better. Maybe your idea could be a service that connects charming people directly with people looking for guidance; cutting out the middleman of a brick and mortar physical charm school.
Profitable Business Models
How Companies Make Money by Investopedia is a very solid overview of the general moving parts of business financials and another list of basic types of businesses. If you aren’t familiar with basic principles it is worth skimming what they have to say.
Here we want you to go a little deeper into different types of business principles that make one business wildly successful and a bunch of other fail. This is critical to understand because nearly 2/3rds of business fail, and nearly half within five years.
Selling more with less is the key to a profitable business. If you are a non-profit, serving more with less is the same deal. Doing this is a measure of your efficiency and even your contribution to the world as a whole. A capitalist at heart! But how do the successful do this?
Sell more $
It can be selling more dollars because you enjoy a high price. However, the challenge here is that you have to offer something highly valued that others can’t easily copy; unique and differentiated. If what you offer isn’t going to sustain a high price-value, you are going to fall to the impact of price elasticity of demand. That basically means as price goes up, less people are willing and able to buy what you offer; they find a substitute offer to spend their money on.
Sell more units
What really works better is selling more units with less cost. How the heck can you do that? If you sell physical goods at retail you might buy more from a wholesaler at a cheaper cost but then you are paying for all the inventory you have to store. You could make your product cheaper and if you are a manufacturer your industrial engineer types will try to shave pennies off the cost of your product; but that is a trap because they don’t understand the value your customers place on each feature attribute in your product and you lose customers.
A couple types of businesses provide very solid answers in terms of how you sell more, often at low prices that attract many customers, and even add more features as you grow. Think about the technical business of software. Once you incur the expense of creating it, you can sell copies again and again with virtually no additional cost. So if you wonder how all those ‘dot com’ types are rolling in cash, they have cracked the code on selling more with less. They use leverage!
Who else levers the low cost of reproducing something you already have of value… how about all those drug companies? It sort of ticks you off how much you pay for that tiny pill and it certainly can’t cost them nearly that much to make. They have cracked the code in terms of both making something you highly value because it saves your life and they can sell many more pills in terms of selling more with less.
Before you ‘hate those businesses’, it is important to understand that their business model is one of extremely heavy upfront costs and high risk that they may never recoup those costs. As noted, there are tons of failures in business and this includes those big fancy companies.
Lessons for me
Ok, so you don’t have eight years, expensive labs and hundreds of smart people you pay big bucks to have a one-in-hundreds chances you will launch a block buster drug. You still need to consider the key 'sell more with less' driver of success. How will you do that?
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Selling Expense