What's your business model?

When starting a business one very important questions you're going to want to ask right at first, is, "How are we going to bring in money?" It is important to carry a product, it is important to advertise a product, but if you don't know the value of what you are offering the consumer nor have you decided how to market and deliver your product, you are unlikely to be successful in selling your product for long.

Even a child who opens a lemonade stand (though they may not know it) has a business model. The example of a child at a lemonade stand would be a, "Cutting out the Middle Man," business model. Meaning the child, the manufacture, sells directly to its consumer, rather than using a distributor, or sales agent. By thus cutting out the middle man the child can reduce the price of the lemonade making it more affordable (which generally makes it more desirable) to the consumer.

Now maybe this same child is a child very interested in Donald Trumps show, "The Apprentice," and has learned a few techniques. If they are fans of the show they may wish to make a more long term money making scheme by applying what is called the, "Razor and Blades," business model. If so this child will most likely lure their customers in by not charging the customer for the lemonade, but only for the cup. This way the consumer feels they are getting something, which they are, at a greatly reduced price and if they already have the lemonade they are more likely to want to buy the cup. To make money using this business model the child will want to mark up only slightly the price of the cup, so as to make a profit on the cup, and thus by selling more they will eventually wind up with a greater profit than selling both the lemonade and the cup.

Selling lemonade on a hot day can be very effective, but not if no one is coming outside. If this is the case the child may want to put into effect the, "Network Effect," business model. The Network effect business model is created by one person having a certain item that causes need for those around them to have the same item. If the lemonade selling child was to offer one cup of lemonade to a home housing a large family, that one cup won't quite be enough for everyone. So buy giving away freely the one cup, they create for themselves potential numerous customers, generating a larger income than simply, "Cutting out the Middle Man," could do alone.

One last example that a child selling lemonade could implement into their summer job is the, "Subscription," business model. This model would work ideally for the child not only looking for a one day quick profit earning scheme, but for the child looking for a summer job with long term income benefits. To implement the Subscription business model the lemonade selling child would simply offer to their consumers not only one glass of lemonade, but for one set price, a glass of lemonade a day, or a week, for the whole summer. By so doing a one time sale becomes a much larger sale and thus their profit for their summer job is guaranteed.

Now it is unlikely that a child selling lemonade for summer cash is going to contemplate this much which business model to use. But from the examples above you can see that when starting a business there are many different ways to generate client and income, and it is important for your business to know which model it is going to use before entering the market.

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