A Simple Business Model that’s Easy to Understand – Really!!

money-treeStartups frequently develop from excellent ideas, enthusiasm, uniqueness, and energy, but oftentimes lack the proper understanding or programs that will make money.  In the 3,000-plus startups and small businesses that I’ve mentored over the years, execution is frequently the biggest challenge.  I have developed a pretty “spot-on” (and flexible) simple business model that quickly establishes a number of “base projections” (aka, early stats of profits and losses) for startup and small businesses. The key unique features are that the model is simple, customized, and dynamic. For example, it allows you to compare the impact of different marketing, pricing, and cost alternatives in one model.  And, while the system is designed for businesses that will have limited capital and a need to show profits in a short period, it can be used to test concepts for larger, long term efforts. These larger businesses typically rely on exponential growth and potential rather than short-term profits to raise capital and increase valuation.

Though it can be customized, the model simply requires inputting estimates of the following parameters:

  • The sales volume goals.
  • The average selling price by product and distribution channel.
  • The cost to produce one unit.
  • The marketing costs to achieve the desired volume.
  • The costs for labor and administrative functions.
  • The profit over different time frames.

I integrate these estimates into a simple, customized, and flexible model.  The model provides an evaluation of alternatives, an understanding of what drives sales and profits, and ways to develop effective strategies to modify estimates in order to develop a more viable business.

It also avoids the complexity of many accounting-based models by using general industry standards for expenses and keeping the focus on the basics. For example, the accounting models frequently include detailed financials with wrong assumptions, and endless lists of expenses like phone charges, and transportation which are generally insignificant and also difficult to estimate.

I have developed and tested  50 or so templates which can be used for different businesses and which focus on variables like multiple products, distribution channels, marketing efforts, cost structures, and selling direct (Amazon versus your own web site).  We then customize the template with input from the entrepreneurs so that we can make accommodations to complete this simple customized model.  Turn-around time for this model is not months, or weeks, but typically within 2 business days.  We can do so because of the years of careful research, and particular expertise.

The following is one of my simplest examples, and one of the most useful.  It’s tailored for entrepreneurs who bill by the hour or project. It shows how variances in “hourly rate” and “hours worked,” and other costs, affect income.  This model was extremely insightful for one of my clients who was a therapist and charged by the hour.  I suggested that she discontinue accepting insurance, thus increasing her hourly rate.  This provided the same income but with fewer hours, which then allowed her to spend more time with her family.

Annual Earnings for Service Professionals

Earnings chart for a 38 hour week/48 weeks a year.  You can change percentage of dollars per hour and total annual hours as you see fit.

% Earning Fees vs. Selling and Administration

 Hours per year  1,824*
Dollars per hour 40% 50% 80% 100%
$15 $10,944 $13,680 $21,888 $27,360
$20 $14,592 $18,240 $29,184 $36,480
$75 $54,720 $68,400 $109,440 $136,800
$100 $72,960 $91,200 $145,920 $182,400
$125 $91,200 $114,000 $182,400 $228,000
$150 $109,440 $136,800 $218,880 $273,600
$200 $145,920 $182,400 $291,840 $364,800

*The average hours per year:  40 hours for 48 weeks.

Example:  at 1,459 hours (80%) at $150 per hour, you will earn about $218,880.

To summarize, I consider the model to be my secret weapon that can be used by virtually any company.   It’s an easy to understand model that focuses on key parameters that affect sales and profit. However, the real secret is that it is also customized; I work hand in hand to help business owners understand the parameters, potential, and challenges their business faces. The system can also estimate parameters and immediately see what might work, and what might not. Finally, after a little help, the client can easily take over and modify and test any changes.

Dr. Bert Shlensky, president of www.startupconnection.net, offers experience and skills and a team devoted to developing and executing winning strategies for businesses of all kinds.  This combination has been the key to client success.  His book, “Passion and Reality for Small Business Success,” is available at www.startupconnection.net

Article Name
A Simple Business Model that’s Easy to Understand - Really!!
Startups frequently develop from excellent ideas, enthusiasm, uniqueness, and energy, but oftentimes lack the proper understanding or programs that will make money.