Your Economic Model

You’ve probably put a lot of thought into how you business model will work. How will you operate and provide services that your customers find valuable? Why will they love you more than your competition? Those are great questions that absolutely need to be answered. What happens after you answer those questions?

For most business owners, the next step is to put that model into action and get to work. The step most businesses miss comes in between the business model and the action.

Once you have your business model outlined, its time to create and evaluate your economic model. What is an economic model? Another great question! Your economic model is how you turn that value that you give to customers into economic return. In other words, its how you make money!

Your economic model includes your revenue sources, pricing, the cost to deliver your products and services and other economic factors.

Before you jump into action, spend time analyzing these economic conditions and how your business will fare in separating your customers from their cash. Here are three action steps to get you started.

  1. Create a list of the product and service lines you offer and their average price points
  2. Figure your item margins by writing down how much each product costs you in terms of purchase price, delivery cost, installation cost and any other cost you incur to get the product to in your customer’s hands.
  3. Figure out how many units you need to sell to pay your overhead and reach your target profit based on your margins.

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