Selecting your business model

Selecting your business model

Selecting your business model

Whether you’re raising funding, or looking to kick-start your business yourself, you need a clear business model to make it happen.

Let’s look at basic business model 101. How is your business going to make sales? What is the unit price for your product or service and your unit cost of sales? The margin between the two is your profit,
assuming you want to make profit straight away. If you’re boot strapping (living on an income you generate from your business), you’ll still need some seed funding to get your business started.

The reality is that there are fixed overheads to get your business off the ground, such as the costs hardware, website design and development, fixed overheads, perhaps legal and accountancy fees, and so on. And this is all before you generate Df take home any income. You should be able to keep these costs fairly minimal, though, with cloud comnputing services and today’s cheaper software-as-a-service products aimed at a tighter budget.

Some companies choose to delay generating profits in order to give away products for free; the intention being to scale a user base and work out how to monetise it later. This is, of course, a higher risk business model.

If it’s a physical product you’re selling, then the price of selling should obviously be higher than the cost you buy it at. Alternatively you could be selling a virtual product, such as software, as we do with Moonfruit. In this case, you should decide whether you want to offer a one-off payment for your product or give the option of an subscription service.

Potentially, you can offer a ‘freemium’ model of your service – as is the case with Moonfruit. Essentially we offer a number of packages to suit different customers. These range from a free, basic version of our product, which may be good enough for some people, to a richer premium version. A percentage of the free customers will upgrade over time to the premium packages; they’ll also contribute to the marketing and awareness of your brand as advocates. Another option is to cross-sell a different paid product to your free customer base.

Whatever your preferred route to success, I advise you to test and evolve your business model, ideally by analysing your business metrics. We’ve varied our business model several times over the years, adjusting to competition and the response of our customers. Today you’ll often hear this referred to as ‘pivoting’ your business.


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