“Business models” may be an esoteric term for most micro enterprises and many small businesses.
Business modeling refers to how you intend to make money from your product.
This may sound like an odd decision at first—won’t it simply be a matter of selling the product for money? Most likely, but that’s not always the most optimal way to make money. Here are some possible business models to consider:
- Straight sale. The most common way to do business, involving offering something for sale at a profit margin, whether it’s a product such as food or a service such as pest extermination. The important thing is to have a clear idea about your costs, so that you can peg a profit margin that safely covers it all.
- Rentals or leases. Sometimes straight sales may not be as marketable as renting out or leasing out your product. This can be especially true if you are selling something that is high-priced, such as heavy machinery—your market may find it difficult to purchase your product outright. It is not generally advisable to go into this route, however, unless you have a lot of cash or financing because it takes a while for rentals or leases to reach payback for your item. If you don’t, then a better idea may be to package your product as a business opportunity: sell to entrepreneurs or businesses that can buy your product outright, and let them make money out of it through rentals or leases.
- Subscription. Usually offered for services, such as utilities (water, electricity, or even newspapers), a subscription model works for products or services that are expected to be consumed with regularity or continuously. The advantage of this business model is that it can give you a reliable, predictable cash flow, especially if you lock in your clients with a long-term contract such as what utilities do. With some creativity, you may be able to package products or services that aren’t traditionally subscribed to into subscription businesses. For instance, pest control can be offered as a regular monthly maintenance rather than just a one-time transaction.
- Advertising and sponsorship. This involves having a sponsor or sponsors pay for or subsidize a transaction in exchange for visibility to your client. If you’re offering a livelihood training program, for instance, and you realize that your audience may not be able to fully pay for the total expenses, then you may consider getting sponsors who can help you cover your costs in return for gaining access to your participants. Advertising can be done via different media, ranging from simple banners or logo placements to opportunities for actually sampling your sponsors’ products. Your client contact list may also be a valuable resource that others will be willing to pay for.
(Excerpted from SERDEF’s upcoming book, Product Development for Small Enterprises by Arturo Ilano)
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