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Low Cost Business Model
How to create no-frills low cost business model and kill the competition
2
Successful companies after achieving the product-market fit manage
to start growing almost exponentially
 Well executed business
hacks, tricks and tactics
3
One of such business hack was the low
cost business model that required total
change of approach to specific industry
4
Low cost model has been quite successful in many
industries
Airlines
Furniture
Buses
Retail
Hotels
Fitness Clubs
5
In this presentation you will learn how low
cost business model works and how to
apply it to your business
6
Click to check my course
What I will show you in this presentation is a part of extensive on-line
course where you can find also other useful business hacks
Business hacks, tactics and tricks -
practical guide
$90
$15
7
Low Cost Model-
introduction
8
In low cost model you have important pillars that fuel the
model
Simplified product and
services
1 type of assets
Better asset utilization
Efficient process
You target only 80/20
Scale matters
Simplified operations
9
Low Cost Business Model -
examples
10
IKEA
11
IKEA has been very successful in implementing low cost
model in furniture
Model „big box” built outside the city
center
Design
Consistent message
Diversified revenue streams
Operational excellence
Business scale
Retail
Acquisition
Activation
Retention
Revenue
Referral
12
Raynair
13
Raynair is an example of a great execution of the low cost
model in airlines
B2C Services
Acquisition
Activation
Retention
Revenue
Referral
14
They have used 1 type of aircrafts and increased their capacity
B2C Services
Acquisition
Activation
Retention
Revenue
Referral
1 type of aircraft
No classes
No reserved places
More places in the plane
Better Loading factor
15
They do only point-to-point and use cheap airports
B2C Services
Acquisition
Activation
Retention
Revenue
Referral
Point-to-point
Regional airports
No waiting for passenger
16
Raynair is also master of operational excellence
B2C Services
Acquisition
Activation
Retention
Revenue
Referral
Shortest taxi time and turn around time
More courses per day
Shortest time of preparing
Better usage of people
17
Raynair has been also very creative on the revenue side
B2C Services
Acquisition
Activation
Retention
Revenue
Referral
Dynamic pricing and not so low prices
Unbundling
Charge for everything
Alternative revenue stream
18
Biedronka
19
Biedronka keeps it simple on the operational side
Retail
Acquisition
Activation
Retention
Revenue
Referral
Narrow range – they used to have just 1000
SKUs
1 retail format
Optimize supply chain and in-store process
Scale
Expansion model similar to Walmart and
Starbucks
20
They went deep into product management
Retail
Acquisition
Activation
Retention
Revenue
Referral
Gradual move from discounter to
supermarket
Quality and origin obsessed
Own brands & selected premium brands
(often powered by)
No e-commerce
For long time excepting only cash
21
Fitness clubs
22
There are plenty of examples of successful low cost fitness clubs
B2C Services
Acquisition
Activation
Retention
Revenue
Referral
Get rid off things that do not generate sales:
reception, sauna, solarium, café, relax room
Unbundling (shower, fitness classes require
additional fee)
Low on staff; much more self service
Higher density of machines and usually
bigger format
Usually more technologically advanced
Available 24 /7
UK Germany USA
0
20
40
60
80
100
Price Join Online Opening
Hours
Club Design Technology Hospitality # of staff
Low cost gym Mid-market gym
23
Hotels
24
There are plenty of examples of successful low cost hotels
B2C Services
Acquisition
Activation
Retention
Revenue
Referral
Targeted at people who just want to sleep well
(sales reps) – extremely comfortable beds
Limited non-core space: reception, kitchen
Very small, densely located rooms with big king-size
beds.
Very limited breakfast; no proper restaurants;
vending machines available
Very clean and with great smell
Unbundling of services
0
1
2
3
4
5
6
7
8
9
10
Eating Design Room size 24-hour
reception
Furniture Bed
quality
Hygiene Silence Price
Ibis Budget 1-star 2-star
25
Math behind the Low Cost
Business Model
26
What drives the profitability
of low cost model?
27
Just let’s have a quick look at the pillars of low cost model
Simplified product and
services
1 type of assets
Better asset utilization
Efficient process
You target only 80/20
Scale matters
Simplified operations
28
Low Cost Models are great at optimizing the Profit to Assets Ratio
Better and longer
usage of assets
1 type of assets
Optimized processes
Quicker change of
assets
Using purchasing
power to get assets
Fewer processes
Reduce the complexity
and limit the choice
Profit
Assets
Unbundling
Dynamic pricing
Creating big
purchasing power
Innovative revenue
streams
Reduce the
dependence on people
Reducing non-core
assets
29
Compound effect
30
There are 2 types of compounding effect. The first one is related to
time
Time related
 Even if the growth is small applied over long period of
time gives big end-results
31
Even if the start is modest with time you have the snowball effect. If you
grow 10% every period after 10 periods you have 2.6x what you had in
the beginning
Time related
 Even if the growth is small applied over long period of
time gives big end-results
= 2.6 x StartStart x (1+10%)^10
32
Second type of compounding is related to operations. By having small
improvements in many areas you are generating big difference
Time related Operations related
 Even if the growth is small applied over long period of
time gives big end-results
 A lot of small changes in many areas may produce a
big end-results
= 2,6 x StartStart x (1+10%)^10
33
Have a look for example on the effect you would have in retail if you
improved number of customers by 15% and the average revenue per
customer by 20%
Time related Operations related
 Even if the growth is small applied over long period of
time gives big end-results
 A lot of small changes in many areas may produce a
big end-results
# of customers Average revenue per
customer
Revenues
x
+15%
+20%
+38%
= 2,6 x StartStart x (1+10%)^10
34
In low cost model you use both effects extensively
Time related Operations related
 Even if the growth is small applied over long period of
time gives big end-results
 A lot of small changes in many areas may produce a
big end-results
# of customers Average revenue per
customer
Revenues
x
+15%
+20%
+38%
= 2,6 x StartStart x (1+10%)^10
35
For more business hacks check my on-line course. Below specially for you a
big discount. You will find there a lot of additional resources
Click to check my course
Business hacks, tactics and tricks -
practical guide
$90
$15
36
Check also business modeling in Excel
Business models
Practical guide for startups and entrepreneurs
presentation
37
I recommend also looking at some techniques to improve
your business. Click on the cover below to go to the
presentation
How to become world class
analyst
A practical guide
presentation
38
….and how to perform market research
Market research
Practical guide for startups and entrepreneurs
presentation
39
Subscribe to our channels:
www
40
Check my extensive presentation on productivity hacks to see
how you can me 10x more productive
Management consultant
productivity hacks
How to be lazy and still get things done
presentation
41
If you need more detailed version on productivity hacks you
can check our course on productivity hacks
Click to check my course
Management Consulting Productivity hacks
42
Check my presentation on restaurant business model to
understand it properly
How to open a successful
restaurant
A practical guide
presentation
43
Check my presentation on on-line models to understand
them properly
On-line Business Modesl
A practical guide
presentation
44
For more check also my on-line course
Click to check my course
45
Check my presentation on starting and running consulting
company
Start and run consulting
company
A practical guide
presentation
46
You can also find useful some tips on Excel
Essential Excel for Business
Analysts and Consultants
A practical guide
presentation
47
There is an interesting summary of ways to test cheaply
businesses
MVP – how to test your business
idea without building the
product
A practical guide
presentation

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Low cost business models - overview

  • 1. 1 Low Cost Business Model How to create no-frills low cost business model and kill the competition
  • 2. 2 Successful companies after achieving the product-market fit manage to start growing almost exponentially  Well executed business hacks, tricks and tactics
  • 3. 3 One of such business hack was the low cost business model that required total change of approach to specific industry
  • 4. 4 Low cost model has been quite successful in many industries Airlines Furniture Buses Retail Hotels Fitness Clubs
  • 5. 5 In this presentation you will learn how low cost business model works and how to apply it to your business
  • 6. 6 Click to check my course What I will show you in this presentation is a part of extensive on-line course where you can find also other useful business hacks Business hacks, tactics and tricks - practical guide $90 $15
  • 8. 8 In low cost model you have important pillars that fuel the model Simplified product and services 1 type of assets Better asset utilization Efficient process You target only 80/20 Scale matters Simplified operations
  • 9. 9 Low Cost Business Model - examples
  • 11. 11 IKEA has been very successful in implementing low cost model in furniture Model „big box” built outside the city center Design Consistent message Diversified revenue streams Operational excellence Business scale Retail Acquisition Activation Retention Revenue Referral
  • 13. 13 Raynair is an example of a great execution of the low cost model in airlines B2C Services Acquisition Activation Retention Revenue Referral
  • 14. 14 They have used 1 type of aircrafts and increased their capacity B2C Services Acquisition Activation Retention Revenue Referral 1 type of aircraft No classes No reserved places More places in the plane Better Loading factor
  • 15. 15 They do only point-to-point and use cheap airports B2C Services Acquisition Activation Retention Revenue Referral Point-to-point Regional airports No waiting for passenger
  • 16. 16 Raynair is also master of operational excellence B2C Services Acquisition Activation Retention Revenue Referral Shortest taxi time and turn around time More courses per day Shortest time of preparing Better usage of people
  • 17. 17 Raynair has been also very creative on the revenue side B2C Services Acquisition Activation Retention Revenue Referral Dynamic pricing and not so low prices Unbundling Charge for everything Alternative revenue stream
  • 19. 19 Biedronka keeps it simple on the operational side Retail Acquisition Activation Retention Revenue Referral Narrow range – they used to have just 1000 SKUs 1 retail format Optimize supply chain and in-store process Scale Expansion model similar to Walmart and Starbucks
  • 20. 20 They went deep into product management Retail Acquisition Activation Retention Revenue Referral Gradual move from discounter to supermarket Quality and origin obsessed Own brands & selected premium brands (often powered by) No e-commerce For long time excepting only cash
  • 22. 22 There are plenty of examples of successful low cost fitness clubs B2C Services Acquisition Activation Retention Revenue Referral Get rid off things that do not generate sales: reception, sauna, solarium, café, relax room Unbundling (shower, fitness classes require additional fee) Low on staff; much more self service Higher density of machines and usually bigger format Usually more technologically advanced Available 24 /7 UK Germany USA 0 20 40 60 80 100 Price Join Online Opening Hours Club Design Technology Hospitality # of staff Low cost gym Mid-market gym
  • 24. 24 There are plenty of examples of successful low cost hotels B2C Services Acquisition Activation Retention Revenue Referral Targeted at people who just want to sleep well (sales reps) – extremely comfortable beds Limited non-core space: reception, kitchen Very small, densely located rooms with big king-size beds. Very limited breakfast; no proper restaurants; vending machines available Very clean and with great smell Unbundling of services 0 1 2 3 4 5 6 7 8 9 10 Eating Design Room size 24-hour reception Furniture Bed quality Hygiene Silence Price Ibis Budget 1-star 2-star
  • 25. 25 Math behind the Low Cost Business Model
  • 26. 26 What drives the profitability of low cost model?
  • 27. 27 Just let’s have a quick look at the pillars of low cost model Simplified product and services 1 type of assets Better asset utilization Efficient process You target only 80/20 Scale matters Simplified operations
  • 28. 28 Low Cost Models are great at optimizing the Profit to Assets Ratio Better and longer usage of assets 1 type of assets Optimized processes Quicker change of assets Using purchasing power to get assets Fewer processes Reduce the complexity and limit the choice Profit Assets Unbundling Dynamic pricing Creating big purchasing power Innovative revenue streams Reduce the dependence on people Reducing non-core assets
  • 30. 30 There are 2 types of compounding effect. The first one is related to time Time related  Even if the growth is small applied over long period of time gives big end-results
  • 31. 31 Even if the start is modest with time you have the snowball effect. If you grow 10% every period after 10 periods you have 2.6x what you had in the beginning Time related  Even if the growth is small applied over long period of time gives big end-results = 2.6 x StartStart x (1+10%)^10
  • 32. 32 Second type of compounding is related to operations. By having small improvements in many areas you are generating big difference Time related Operations related  Even if the growth is small applied over long period of time gives big end-results  A lot of small changes in many areas may produce a big end-results = 2,6 x StartStart x (1+10%)^10
  • 33. 33 Have a look for example on the effect you would have in retail if you improved number of customers by 15% and the average revenue per customer by 20% Time related Operations related  Even if the growth is small applied over long period of time gives big end-results  A lot of small changes in many areas may produce a big end-results # of customers Average revenue per customer Revenues x +15% +20% +38% = 2,6 x StartStart x (1+10%)^10
  • 34. 34 In low cost model you use both effects extensively Time related Operations related  Even if the growth is small applied over long period of time gives big end-results  A lot of small changes in many areas may produce a big end-results # of customers Average revenue per customer Revenues x +15% +20% +38% = 2,6 x StartStart x (1+10%)^10
  • 35. 35 For more business hacks check my on-line course. Below specially for you a big discount. You will find there a lot of additional resources Click to check my course Business hacks, tactics and tricks - practical guide $90 $15
  • 36. 36 Check also business modeling in Excel Business models Practical guide for startups and entrepreneurs presentation
  • 37. 37 I recommend also looking at some techniques to improve your business. Click on the cover below to go to the presentation How to become world class analyst A practical guide presentation
  • 38. 38 ….and how to perform market research Market research Practical guide for startups and entrepreneurs presentation
  • 39. 39 Subscribe to our channels: www
  • 40. 40 Check my extensive presentation on productivity hacks to see how you can me 10x more productive Management consultant productivity hacks How to be lazy and still get things done presentation
  • 41. 41 If you need more detailed version on productivity hacks you can check our course on productivity hacks Click to check my course Management Consulting Productivity hacks
  • 42. 42 Check my presentation on restaurant business model to understand it properly How to open a successful restaurant A practical guide presentation
  • 43. 43 Check my presentation on on-line models to understand them properly On-line Business Modesl A practical guide presentation
  • 44. 44 For more check also my on-line course Click to check my course
  • 45. 45 Check my presentation on starting and running consulting company Start and run consulting company A practical guide presentation
  • 46. 46 You can also find useful some tips on Excel Essential Excel for Business Analysts and Consultants A practical guide presentation
  • 47. 47 There is an interesting summary of ways to test cheaply businesses MVP – how to test your business idea without building the product A practical guide presentation