Here’s another definition of the business modelLifetime Value [minus] Cost of Acquisition [times] the number of customersDifference between a business model and a business PLAN
A customer is the person who pays.
A customer values what you have to sell more than his money!!Think about the last thing you bought.
People buy a drill because they want a hole!
You should learn the words they use for each of these.
I’m using value in a slightly different way here.
Price CostFrequencyWhat does it cost you to provide value?Cost of GoodsDeliveryClean the bathroom?
This is a very simple model - I bet there are several more stages. Learning the key players Learning the budget Making a proposalAnd there are costs at each stage, and conversion ratios
You have different kinds of customers – they buy different products.Soon you’ll have customers in different markets.Some of you can decrease the cost of getting different kinds of leadsSome of you can increase the conversion ratios at different stages of this process.
GrowthInvesting money to get more capacityMore Customers etc.
Normal accounting tells you what you spend money on – not why.Go through the checks you write and bills you pay. Assign them to one reason or another.Providing Value to CustomersAcquiring New CustomersGrowth
Remember this?To increase profit – increase the LTV – decrease the CA and optimize the numberOptimize = understand the plateaus of profit
I’m sure you’ve either read this book or heard this advice. I’m going to tell you what it means.
If you are working on the letters – you’re working inIf you are working on the arrows – you’re working onIf you’re delivering value to the customer, if you’re acquiring new customers you’re working IN your businessIf you’re improving process, refining the business model, making people more efficient and effective you’re working ON
Optimize your capacity in SaleProviding ValueTo squeeze the juice out of your business model
What’s missing from the previous Formula Is TimeEver worked for someone else? Gotten a pay check?What if you got paid once a year?
Before you get $ from the customer you have to spend money FINDING that customerThen you have to spend money to have value to deliver.This is called start up investment. Then as you grow – you have to do it more and more – this is called working capitalWhere does that money come from?
Is the net smaller or bigger?Depends on NAnd if CA is higher than LTV – it will never work. When is the best time for outside funds?
How to squeeze your business model
How to Squeeze Your Business Model for Fun and Profit<br />NU Supplier Diversity Program Pilot Oct 12, 2011 John Seiffer <br />
Take Away #4<br />Outside funds are NOT free<br />Learn to be profitable before you grow.<br />
Summary<br />Learn the words your customers use for 2 kinds of value.<br />Know why you spend every dollar<br /> (LTV – CA) *N = $$<br />Optimize Capacity<br />Use Outside Funds at the right time<br /> [(LTV – CA) *N] - PB = $$<br />
Squeeze Your Business Model<br />John Seiffer john@BetterCEO.com<br />203-775-6676 www.Blog.BetterCEO.com <br />