What are the most important costs essential to your business model? Creating and delivering high, proven value costs time and money. It costs your business something to create a customer experience that produces raving fans. Acquiring and maintaining assets and resources can be very expensive. There are two extreme approaches to cost: a no-frills, low cost model and a high-end luxury model. Your business will likely fall somewhere between these two extremes. Wherever your business is when it comes to expenses, it is important to recognize and track the various types of expenses you face on a weekly, quarterly and annual basis.
Fixed costs are fairly easy to track, as they remain the same regardless of the volume of product or service you sell. Fixed costs include things like rent, salaries, and insurance. Variable costs are dependent on the volume of goods or services produced (not sold). Participation in events, conferences, marketing campaigns, and new product launches would involve variable costs.
Pricing your products and services in a way that creates profitability requires that you know and track your expenses. Timing your work flow may depend on availability of resources and having a clear picture of your expenses. Having an updated tracking system for income and expenses will also serve you at tax time.
Finally, tracking expenses will allow you to see how well you are practicing stewardship over your company assets. Are you giving back? Are you profitable enough to pay your bills and support your lifestyle? Do you have a Proven Profitable Business Model?
Do you need help in developing a tracking system for your income and expenses? Do you need to consult with someone about what type of system would serve you best? Contact me for a complimentary strategy session and free template at firstname.lastname@example.org.
As your business becomes more profitable, it is possible you will find yourself needing to develop four types of partnerships:
- Strategic alliances with non-competitors
- Strategic partnerships with competitors
- Joint ventures
- Independent contractors
There are three key motivations for developing these partnerships. First, a partnership with someone outside your company can help you by reducing cost and sharing assets. If your business is preparing to offer an information product online, partnering with someone with a large following can reduce your expenses for marketing significantly. If your company is hosting an event, partnering with a company that owns space and is willing to share for a small percentage of profit might be more cost effective than renting the space on your own. Another reason for partnering with others is to reduce risk in a competitive environment. Two competitors can come together to share resources on a project in order to leverage their combined assets and present a stronger, more valuable offer than either could provide alone. Finally, your company might want to create partnerships in order to acquire specific resources or services. Rather than try to be all things, keep your focus on what your company does best and outsource the rest to independent contractors who can fill the gap. Solo-entrepreneurs who realize early that they need to utilize virtual assistants, bookkeepers, house keepers, and other service providers will find their business becoming more profitable more quickly.
The key to creating mutually beneficial partnerships is putting roles and responsibilities in writing and regular, clear communication. Need help in developing a written agreement for your suppliers and partners? Contact me for a complimentary strategy session and free template at email@example.com.
In a Proven Profitable Business Model, work flow consists of the key activities your business needs to perform to create your products and services and deliver your value. These activities fall into three categories:
- Problem Solving
If your company creates or manufactures physical objects, production will be a key activity in your work flow. Companies depending on the creation of information products and intellectual property will also rely on production as a key activity. Service providers focus primarily on problem solving, and delivering new and better solutions to increasingly challenging problems for their customers. Platform development is essential to online business models. Platform development includes the development of the tools used (i.e. website) and the connections necessary to make with large numbers of people to drive traffic and create sales. The important thing to remember when looking at work flow is to consider what key activities create the fastest path to profitability for your business.
For example, you might be a service provider, and you have become convinced that you need a website to deliver your products and services to a broader audience. This is a great idea, but websites require resources in the form of time and money. Is creating a website the best use of these resources at this point in your business, or would spending that time and money on serving and building your current client base into raving fans be more profitable? Only you know the answer to this question. Avoid getting caught up in activities that actually interrupt a work flow that creates cash flow.
Once you have identified key activities that create profitability in your business, develop a calendar or work flow chart for yourself and your employees or contractors. Ask your staff for input and review and revise this chart regularly. Your work flow chart should have times marked for when tasks are due, how long they take, and who is responsible. Delegating tasks and creating healthy a work load becomes much easier when you have this information in written form.
Need help in developing a work flow chart to track key activities in your business? Contact me for a complimentary strategy session and a free template at firstname.lastname@example.org.
As you create a Proven Profitable Business Model, you look at your ideal customers, value propositions and delivery systems to determine what resources and assets are required to create raving fans. A manufacturing business that makes widgets is going to require more in the way of physical resources, while a design or development company is going to rely more on human resources. Your company will also have intellectual resources including your brand, proprietary knowledge, patents and copyrights, partnerships and customer databases. It is possible your business model will rely on financial resources such as lines of credit, stock options, or cash on hand.
The challenge in creating a Proven Profitable Business Model is to carefully acquire, manage and maintain these resources and assets. Knowing whether it is good timing to purchase a piece of software or a new machine for your business will be clear when you have determined how quickly you will recover the cost in a return on investment and believe that you can afford to wait for that return. Managing and maintaining your assets and resources means keeping good records on what you have in all four categories (physical, intellectual, human and financial) and consistently evaluating when an asset or resource needs replaced and/or upgraded. Yes, this includes your human assets. When you look at your workforce as a business asset rather than as family or friends, it is much easier to be objective about the value they add to your company. Healthy business boundaries require that you are able to do what will serve your company and customers best while creating a company culture where people love to work. When you hang on to ineffective employees because of friendship, malfunctioning equipment because your grandfather used it, or lose intellectual property because of lax security, you are not going to have the cash flow you want. Create systems and checklists for managing your assets and you will lay another brick on the fastest path to profitability.
Need help in identifying, acquiring and maintaining your business resources and assets? Contact me for a complimentary strategy session and free template at email@example.com.
How do you go about pricing your products and services? It’s been said that if customers are the heart of your business, then income streams are the arteries. The easy formula to pricing is this:
Profit + Expenses = Price
In other words, you must consider what it will cost you to produce your product or service, determine what you need to make in profit after expenses, and that will determine your price.
This unfortunately is not how many small businesses create their pricing, and their lack of cash flow is evidence. The most likely reason you undercharge for products and services is fear and insecurity. You fear that customers will consider your prices too high and go somewhere else. You are insecure about the value you offer and don’t believe you deserve to make a profit. If either of these issues is true, go back to the March 20 post on Value Proposition and work through the questions there until you are clear that you have proof that you offer a true value, in demand, that only you can provide.
What are your customers willing to pay for your offer? What are they currently paying? How are they currently paying? How would they prefer to pay? What other income streams (additional products or services) are they willing to pay for? Bottom line: ask them! Survey your customers to find out the answer to these questions and you will be able to creatively price your products and services in a way that is more attractive to customers.
Struggling with pricing your products or creating revenue streams that create profitability? Contact me for a complimentary strategy session and a free template at firstname.lastname@example.org.
In this series on the 9 Bricks to Build Your Fastest Path to Profit, you’ve read about ideal customers, value propositions, and delivery systems. All too often business owners stop here, and fail to create raving fans. Raving fans are the result of strong customer relationships. When a customer has an amazing experience, they want to tell friends and family about it and become your best marketing agent. You have solved their problem and created undeniable proof— and your raving fan will do three things for you:
- Raving fans stay with you. It is much easier to sell subsequent products and services to an existing customer than to find new customers. Repeat business is cost-effective and profitable.
- Raving fans buy more from you. Not just the original product or service, but the next level you have on offer. This is called up-selling, and when you have created a raving fan, you have uncovered the next need they are experiencing. It is easy to do.
- Raving fans bring new business. Customers who are happy with their experience with you and your products and services buy more, buy higher priced items, and they bring new customers into your business.
There are a number of ways you can create an incredible customer experience and raving fans. Depending on your offer and your customer’s needs, consider how you can create personalized service, self-service, or automated services. Take a look at whether you can build a community where your customers offer mutual support and exchange information, essentially becoming your advocate. You might even enlist customers in co-creating new offers as they share their experiences and ideas with you about new and improved products.
What kind of relationship do you want to have with your customers, and how do you plan to create raving fans? Need help? Contact me for a complimentary strategy session and free template at email@example.com.