First identify your current model
Think about the current way your business makes money.
These examples should help:
- A software company’s business model is to sell software programs through computer shops.
- A lawyer sells expertise by charging an hourly rate.
- A publisher sells books through bookstores.
Consider new models to adopt
A change in your business can be relatively minor, or could mean a radical change in direction.
Let’s elaborate on the above examples:
- The software company could start offering ‘software as a service’ on the cloud for a monthly fee.
- The lawyer could offer a monthly subscription service to legal advice instead of charging by the hour.
- The publisher could move away from printed books to e-books sold though Amazon, Kindle, and other online platforms.
These examples all involve changes to an existing business model to produce more revenue.
What you need to look for
Look for a new business model to complement your existing business and see where it takes you. Some business models are outlined below.
Sell unused capacity
Separating each activity in your business into a profit center can show you which activities are profitable and which are marginal. The pay-off can be new insights into your activities that help you focus on necessary changes or innovations.
For example, if you manufacture nuts and bolts, you may identify some unused capacity. How can you change your business model to profit from this? You could:
- Start contract manufacturing for other businesses. This could fill your capacity, increase profitability, and offer leverage to get better buying prices since your volumes have now increased.
- Produce your goods under different brands (for instance, a premium brand and a ‘house brand’) and let other distributors sell them to the market.
- Hire out part of your facilities to others. For instance, a bakery rented its premises and ovens to a start-up cookie business during its ‘slack’ period of 6pm to 2am.
Try to identify any unused space or capacity in your business that could generate income.
Go to the market
Instead of waiting for customers to come to you, can you take your business to them?
- A new business model for a coffee shop was to buy a mobile coffee cart to use at meetings and events. They’re now in the mobile event business.
- A bakery started charging a small fee to download unique recipes from their website. They’re now in the online licensing business.
Can you identify a way to take your business to the market?
Offer prepaid services
If you provide services, can you introduce fixed-rate service agreements rather than charging fees by the hour?
The fixed-rate business model aims for predictable cash flow in advance. Customers paying by direct debit (you pull payments from their bank accounts automatically through your bank) eliminate invoicing costs and debt collection issues.
Some examples include:
- An accounting firm offering accounting services at $500 per month, regardless of the activity level. The firm gains a reliable revenue stream and is betting that many businesses won’t use $500 worth of services each month.
- An IT business is offering 24-hour ‘help desk’ service for $200 per month, regardless of whether the service is used or not. The IT service is now in the insurance business.
It’s also possible to oversubscribe your services. For instance:
- Fitness centers sometimes oversubscribe their memberships. If all their members turned up at the same time, these centers wouldn’t be able to cope, but the owners know this is highly unlikely.
Try to identify possibilities for charging fixed monthly service levels.
Make the move online
Can you earn additional revenue by taking your whole business online rather than just treating a website as another distribution channel?
- A retailer decided to give up her high-rent store front altogether in favor of website selling. She used to hold a large inventory and wait for customers to purchase items, but her new business model doesn’t require inventory – a huge cost saving. She passes orders onto a wholesaler who takes care of shipping. In effect, she’s now a virtual retailer – no inventory, no location.
- A training company built its reputation on running physical workshops for large corporations. The company has now moved all their training online, charging participants a license fee to access the training lessons. This enabled the company to lower its costs and reach a worldwide market.
Can you move more of your business online?
The power of giving away free samples
For years businesses have given away small samples to entice customers. Telecommunications companies give away smart phones to gain data plan subscribers. ‘Buy one get one free’ is a common tactic in retail.
The Internet has greatly expanded this model because its reach is so wide. Businesses now give away significant samples intending that a small percentage of customers will buy additional products. For example:
- Software companies offer free ‘light version’ apps or programs in the hope that a small but significant percentage of customers will go on to pay for an upgrade. It’s a simple numbers game.
- Google gives away many of its products such as Google Search, Maps, Translate and News to attract people to its pay-per-use services. More visitors also enable Google to generate massive advertising revenues.
Think about how you can apply this model to your business. Your ‘give away’ could be some valuable information offered online through various websites which attracts interest and leads to sales opportunities.
Your current business model is the way your business earns money. A change in your business model can bring substantially more income – sometimes for less work and lower overhead costs.
Technologies and markets change at an ever-increasing rate, opening up new growth opportunities that may just require a shift in your thinking.
© Comerica. For more content like this, please visit smallbusiness.comerica.com