Create a business because you have a brilliant idea that appeals to those around you, but which will eventually be reduced to a niche clientele, because you have seen that other companies have been successful in this market and that the number of customers is basically exponential because we have seen that it works like hell in a country and that we want to apply it to our own country can be promising but still requires one to think profitability in depth so as not to regret his investment.
Profitability is the foundation of the business as it determines its survival. Making sales is not enough. It is imperative that after a certain period of time, even as soon as possible, it becomes profitable.
Establish your business model well
By definition, the business model or the economic model indicates the means by which the company will make money. Not to be confused with the more global business plan, which includes an explanation of the strategy or even revenue. This is where the problem often lies, as many entrepreneurs are content to know at what price they can sell their product and in return verify that once the purchase is made, the equation remains positive. But to verify that your business model is working, you need to consider other data. So the more your business grows, the more money your business loses. If you forget to include your salary or the time you want to spend on each of your sales, the consequences can be catastrophic. The ideal, even if you do not pay yourself for a period of time, is to continue to check whether you remain profitable by replacing yourself with an employee. In addition, you need to understand all the costs without forgetting a single one: the cost of your premises, for example electricity, customer acquisition (especially if you are doing advertising). Do not neglect any source of expense. At the end of your analysis, ask yourself how many sales you need to make to break-even or break-even, keeping in mind that if you exceed a certain sales volume, your expenses are very likely to increase proportionally.
An example of restoration
When catering, it is common to take into account rent, electricity and purchases of goods, which increase in relation to sales, in order to determine “breakeven points” or the number of meals to be sold in order to be profitable. . But it is often overlooked in profitability calculations, staff increase, because your restaurant’s earning capacity can not be expanded indefinitely. It is by taking all the expenses into account that you will be able to calculate the number of coverages you need to make to achieve a turnover. Be careful, the price war leads to lower margins. Believing that you will beat your competitors by simply lowering your price omits two crucial points: the need to make a much larger volume to achieve the same gain and the adaptability of your competitors because they may have more kidneys that are strong like you.
Different and varied models
For those who still need to understand the role of a business model, here are some examples (note: this list is not exhaustive). The basic business models, such as the production of products or services and the distribution, which consist of directly addressing the product or service to the consumer or wholesaler; low-cost business models, developed in many business sectors, whose purpose is to reduce the cost to the consumer as much as possible, such as disintermediation. We also note the subscription model or commissioning, which consists of selling a product or service through an intermediary and recovering a commission. Another type of business model is auctions, where customers themselves determine the price for which they are willing to buy the product. A mix of free and paid freemium has been in vogue in recent years, especially for mobile applications. Finally, last example, the printer model. Smart, it consists of selling a product at a low price, such as a printer, and then selling its refills in the long run. In short, there are a wealth of business models, but you still need to know how to choose the one that suits you, depending on your activity.