If you spend any amount of time hanging around with entrepreneurial innovators, visionaries, and reformers, you’ll hear this question frequently. Entrepreneur #1 sketches out his or her brave new idea for making a living while changing the world, and Entrepreneur #2 asks, “What’s your business model?”
It’s an important question to be able to answer. Simply put, your business model is how you intend to generate sufficient revenue to meet expenses and earn a profit. In Part 1 of this series, I discussed how to get clear about your mission. If your mission-driven enterprise is going to be sustainable, it needs to have clearly defined income streams that will be sufficient to fuel your mission, cover your expenses, support you and your family, and provide for the future. That can be a tall order.
Unfortunately, many entrepreneurs on a mission don’t actually have a profit-making plan. And some of those who think they have one are relying more on guesswork than they are on analysis.
There are a wide variety of established business models available. Most service professionals use the billable hours model and request payment for each hour they work. When your enterprise includes not just service, but products, programs, and processes, you expand the possibilities for the type of model, or combination of models, you can use.
Here are some examples of business models used by many of my clients that you can draw from:
Fee for Service Models
Day Rate — Instead of charging by the hour, you can charge by the day or half-day. This imposes a minimum on your clients, avoiding short appointments that fragment your work schedule. Examples:
- Environmental market researcher conducting focus groups
- Massage therapist providing on-site massage for organizations
Project Fee — Charging a flat fee for each project allows you to bill for time you spend planning, researching, or just thinking about your client’s issues. Clients often prefer flat fees because they can budget their funds more accurately. Examples:
- Sustainability consulting firm advising clients on implementing responsible practices
- Psychologist offering psychological testing and assessment
Monthly Retainer — When you ask clients to pay by the month in advance, you can charge for your availability, not just service delivered. Your retainer can guarantee you get paid for a pre-determined number of hours. If the client uses less, you still get paid. If they use more, you can charge extra. Examples:
- Recovery coach offering as-needed calls and e-mails in between sessions
- Political consultant providing ongoing campaign management and advice
Subcontractors/Employees — You can hire or contract with other professionals and have them deliver services on behalf of your company. These may be people who come to you with appropriate skills and experience already, or people you train to use your approach. Clients pay your company for these services and you keep a percentage for yourself. Examples:
- Learning center with multiple teachers on staff
- Diversity training firm with trainers in multiple locations
Product- or Process-Based Models
Flat Fee — A wide variety of items can be sold for a flat fee to increase revenue for your enterprise. “Products” can also include services delivered in a defined package. Your buyers may be either existing clients, or others who can’t afford to hire you individually. Examples:
- Cause marketing consultant packaging her wisdom in a do-it-yourself kit
- Mediator offering public conflict resolution seminars
Subscription/Membership — Providing products or services by subscription, or memberships in your community, can provide a steady source of income and reduce marketing time. A sale made only once can continue to provide revenue. Examples:
- Youth leadership trainer selling an educational CD series by monthly subscription
- Nurse consultant hosting an online community for people with chronic illness
Back-End Sales — Also called the “bait and hook” or “razor and blades” model, where you sell a product or service that requires periodic updates at an additional cost. Examples:
- Vegan weight loss expert offering frozen packaged meals delivered monthly
- Database of sustainable ingredients for cosmetics requiring quarterly updates
Licensing/Franchising — Packaging your approach so that others can replicate it with their own clients or in different locations. Your licensees or franchisees pay you a start-up fee to acquire your package, which may also include training. You may also offer them ongoing training and support in return for an annual renewal fee or a percentage of their earnings. Examples:
- Social enterprise employing homeless workers offers their model to other cities
- Trauma recovery therapist certifies other therapists in his/her approach
Any one of these models can be used to build an entire business, or you can combine different models together. For example, a consultant could charge a flat fee for assessments, then a day rate to deliver services. A coach could charge a subscription fee for group clients and a monthly retainer for clients worked with individually.
As you can see, a sustainable business model can make it possible for your brilliant ideas for changing the world to also provide you with a good living.
Here are some coaching questions to ask yourself to design a better business model:
- How far do you want your mission to reach? Will you be satisfied with the number of clients you can serve yourself, or will you need to expand in order to make the impact you seek?
- How much do you want or need to earn in order to further your mission, cover your business expenses, support you and your family, and provide for your future and that of your enterprise? Is it realistic to expect that level of earnings with your current business model?
- What’s your vision of how you most like to spend your time? Serving clients? Creating new work? Working alone? Participating on a team? Learning and experimenting? Organizing and planning? Hanging out online? Speaking or teaching? Traveling? Hosting others in a place of your own?
- When you read the examples of business models above, which ones sparked your interest? Can you see yourself in any of these models? Which seemed to speak most to your skills, talents, and preferred work style?
I hope you’ve found these ideas valuable. Watch for Part 3 of this series: “Overcome Fear, Procrastination, and Self-Doubt.”