Identify Business Plan Profit Sources
A great business idea isn’t enough to ensure its long-term success. You must define and develop a workable business plan and business model, or a method that your company uses to generate revenue, earn profits, and protect its position in the marketplace.
In this early planning stage, while you’re defining your business and describing its purpose, do something very basic: “Show me the money.” Not literally, of course. But from the get-go, be clear about how you expect your business to profit.
Way too many businesses start without a clear idea of where the money will come from, or they make general broad-brush assumptions to which they give no second thought or scrutiny. Writing off the question with the flippant answer that customers will give you money in exchange for the products or services you provide is easy. Business models, however, aren’t always that straightforward:
The local movie theater gets revenue from ticket sales, but that’s only the beginning. The theater also makes money by projecting billboard-style ads prior to the movie showings and from its concession stand, where it turns a tidy profit selling candy and buckets of popcorn. It also makes money from game arcades that expand the theater experience.
Large fitness-center chains make money on enrollment fees and monthly dues, but they also rake in cash by selling fitness-related supplements, exercise clothes, gym bags, and the services of personal trainers.
Most magazines earn revenue from subscriptions and newsstand sales, but the lion’s share of their income results from the sale of advertising space. However, you can find an exception to every business model. Consumer Reports declares in its mission that it accepts no advertising. To maintain its independence and impartiality, it supports itself entirely through the sale of information and products, contributions, and noncommercial grants.
Some travel magazines lose money on subscriptions and newsstand sales. They make their profit by sponsoring travel-related conferences and events.
Some companies sell their products at a loss — making their money from the sales of related consumables. Gillette, for example, doesn’t mind selling razors at cost, knowing it will profit from the sale of razor cartridge refills.
Online businesses increasingly work to supplement sales revenue with revenue earned through programs such as Google AdSense, which allows information-rich websites with reasonable traffic counts to earn revenue by displaying ads on their web pages. Every time someone clicks on the ad, the website gets a little money.
Lately, though, that source of revenues has fallen short of expectations for many online ventures. Information-based Internet businesses like The Wall Street Journal and the Financial Times are returning to an older model: charging people to use their sites.
A first step toward defining your business is to detail how it will make enough money to stay in business — for the sake of the owners, the investors, the customers, the employees, and the community of which your business is a part.