Business Model Focus on the Top Line - Revenues

This entry for Manage Your Money Mondays focuses on the top line of your income statement: REVENUES. 
You have probably read and heard about the need for a good business model for your company.
It isn't as mysterious as it could sound. That's just a strategist's way of saying to ask yourself a key question: 

How will you make money?

A business model describes how an organization creates, delivers, and captures economic value  or social value.

Wikipedia

Typically, for-profit businesses focus on adding economic value and not-for-profit organizations focus on adding social value. The case can also be made that the ideal position for each lies in a hybrid entity; i.e.: profits with social consciousness and social missions with fiscal responsibility.

Viable Business Model must come before you install that great marketing cotter pin: Visibility. Too often, a business has a great product or service, coupled with reasonable pricing, but little or no business modeling. It leaves a big gaping hole in the viability of the business. 

What do I mean by that? You, business owner, have identified a marketable product that you believe will sell -- there is need in the marketplace. You have calculated your income needs, factored that into your pricing, and decided this can work. You venture out into the sales jungle and do "all the right things" -- or so you thought. The results are disappointing, however. Thus, a piece of the planning puzzle is missing. You can only conclude that your business model and key parts of your strategies are flawed.

The easiest way to build a Business Model is to 
Ask and answer the 5Ws -- the ones you learned in English or Language Arts class: Who, What, When, Where, Why. Apply the answers to your Business Model. Then make sure that your price points, your packaging and presentation [branding], and your placement match up accordingly.

For example: If you provide high-end bathroom remodeling, you need to market your services in venues and to prospects that are likely to spend upwards of tens of thousands of dollars on that set of products. Develop plans for finding and connecting with those prospects so that your time -- and marketing dollars -- are invested well. Find people who are already connected to your market niche; that makes a great starting point.




If you would like a little help with strengthening the viability of your business, E-mail us with your questions, or leave Comments below, about your challenges in reaching your business goals.

© 2010 DMMI Associates LLC – All rights reserved

---

Micro Business School - How to Calculate Your Hourly Rate

The thinkVAULT Micro Business School Step Two: Calculate Your Hourly Rate.  

In Step One, you determined exactly what business to go into. You met the first basic criterion: You're good at it. The second key factor: Someone else will pay you to do it. Keep in mind that if you wouldn't pay you for it, odds are that few other people would either.
There are a few exceptions to this, but your mindset about your product or service will affect your ability to market and sell it.

The next critical question for you to answer is:

---

How much revenue do I need?

This is the "quick and dirty" rule is this: You must cover all of your living expenses. If you have no savings - a common shortcoming in this society - then you must plan to cover your expenses quickly. This may mean incorporating a Plan B into your strategy.

Calculate your annual financial needs by starting with your pre-business-owner family budget:

1. Include housing, food, household supplies, and utilities.
   
2. Next, add transportation expenses - car payment, gasoline/fuel, maintenance, parking, etc.
   
3. Remember your "hidden paycheck" as well.
• health and dental insurance.
  
• life insurance.
  
• formerly reimbursed expenses, such as cell phone, internet access, etc. 
4. Do you have growing children? 
• They'll need clothes and shoes. 
• Are they under the age of 12? Include childcare costs.
  
5. Add in other essentials and discretionary expenditures. 
• Savings - emergency fund and retirement. 
  
• Clothing for you - over the course of a year. 
• Cash donations to church and charities.
  
• Vacation - plan for it, whether or not you get to take one.
• What else do you need? Record and plan for it.
6. Total the numbers and multiply it by 1.30 - about what you'll need to cover taxes.
   

The list can get long and detailed. I recommend using a spreadsheet for the process. Remember not to cross-mix weekly, monthly, and annual numbers. You are calculating what you need for an entire year.   

Your Real Hourly Rate:
It's higher than you think.

You should now have a total amount for the year that may scare you a bit.

1. Calculate the number of days you will work.
   
• On average, start with 240 days. Or... 
• If you checked the calendar for exact Monday - Friday working days, then subtract your planned vacation days.
  This may be 5 or 10; remember this in Year One. 
  
• Decrease the number further by 5 more days - a "fudge" factor. 
  
2. Now... divide the financial needs amount by the number of days above. That's your minimum DAILY rate. 
3. NOTE: You have yet to calculate the needs of the BUSINESS. 
4. This first number is just what YOU need to live.
   

If you have not already begun, immediately gather and record what your necessary business expenses will be. Carefully managing your revenues and business expenses will govern the availability of the cash you calculated above as family needs. 

Necessary business expenses, and exactly what to include, will be covered in another entry -- Step Four!

Step Three: The first 5 tasks you must do to gain momentum. Check the next blog entry.



E-mail us if you have a question about calculating your hourly rate. 
This Micro Business School series is for new and emerging business owners: Those people who neither have the time nor an immediate need for a formal business plan.

---

Costs Management 101.

Sales Revenues Minus Costs Equals: PROFITS.

Fear not. Cost Accounting is not the formidable beast in the real world that it was in business school. Well, okay; maybe it is. The painful truth is: To stay in business, you cannot avoid it, at least at a basic level. There is only one way to know if you are pricing your product or service correctly. Costs must be reasonably estimated before you sell anything. Detailed knowledge of the three main factors listed below should drive all your pricing decisions. 

1. Labor - That part of the cost of goods and services attributable to wages, especially for direct labor. For more details on Labor Costs use this resource at Answers.com.
   
2. Materials - the cost of the raw materials that go directly into a product. From the BNET Dictionary.
   
3. Overhead - expenses that are not directly tied to making or delivering a specific product or service. See this page at BNET for more details.
   

So, start your business on the right path. Get a handle on your costs from Day One and monitor them closely.

DMMI Associates can help you with measuring your costs, if you need it. 


E-mail us for help getting started.
DMMI can help you to set a course for stable business growth.

---