Business Models For Dummies
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Gas stations don’t make money from the sale of gasoline. They make their profit from the sale of higher-margin items like cigarettes and soda. While creating your winning business model, think about which products or services get the customer in the door and which ones keep your business profitable.

The secret to the gasoline, cigarettes, and soda formula lies within buyer psychology. Consumers can’t help but pay more attention to and be more price sensitive toward some items over others. Plenty of people will drive across the street to save two cents on a gallon of gas but have no idea the cost difference of the Snickers bars inside the station.

To capitalize on this dynamic, give consumers the psychological “victory” of winning the pricing game only on the items they pay close attention to. The human mind can only manage so much information, and customers can’t know the best deals on all your offerings. These “cigarette and soda” items offer the best opportunities for high margins.

Other companies using this concept provide a good source of ideas for your business. The following table shows you examples of a few of them.

Type of Business Main product Higher margin products or services
Ad agency Cool idea #1 15% printing markup
Ad specialty company Price of T-shirts Everything but T-shirts
Alarms Bid work Annual inspections, repairs, monitoring
Association property manager $/house/month Mowing, maintenance, legal fees, collection fees
Auto parts Availability, delivery speed Add-on parts, sundries
Brake calipers Cost for top-moving 50 SKU’s Expensive imports, rear calipers
Bridal shop Dress Alterations, hats, tuxedos
Coffee service Delivery frequency and cost/lb Sugar packets, water coolers, fees
Private investigator Background checks Add-on work, equipment intensive work
Software/staffing Low-margin grunt work Shelved code, offshoring

About This Article

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About the book author:

Jim Muehlhausen is the founder and President of the Business Model Institute as well as consultant and speaker to businesses large and small. He is the author of The 51 Fatal Business Errors and How to Avoid Them and a frequent contributor to Entrepreneur, Businessweek, and dozens of other publications.

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