Understand Your Business Model and Revenue Model | Free Online MBA Chapter 3On February 8, 2020 by Raul Dinwiddie
Welcome to the third video of this series In the last video, we have talked about how to choose an idea Every day we have come up with different ideas so how to choose one perfect idea. If you haven’t seen that video so go and see that video first In today’s video, we will talk about how to make a business model and understand the revenue model of the idea we choose Today we will talk about how to understand the revenue model so will decide should we work on it or not? Before watching this video I would recommend you one more video which is on Porter five forces. After that video, you will get to know even your business does exist or not Exists means will your business idea work or not. AAfter deciding the business idea we have to check the feasibility In the last video, I told you we will talk about feasibility but I have already made a video on it so there is no sense of making a video on that topic again. So that’s why I am telling you to see that video So today let’s talk about your business model The first thing to understand what will be your revenue model In the revenue model, you have to make a list of all the sources from how you will make money For example, your business model is blogging so you have to write down that you will make money from Adsense If you are thinking you will make money from affiliate marketing also so you have to write down that you will make money from Adsense and Affiliate marketing If you have any recurring business model in which a person gives you a monthly or yearly subscription amount for your service it might be the gym or anything so in that case you have to write a Recurring revenue model If you are thinking that you will make money from a transition in which you will get money from every product sale So you have to think wisely on which revenue model you are working If your idea doesn’t have any revenue model so change the idea In that idea, we won’t work In starting there are high chances that you don’t know how this idea will make money But if you think you will be able to make money from this idea after 1 year then you can work on it but if it takes more than it then drops that idea As I personally don’t believe in external funding. I always say that a person should invest his own money in starting only then he will put efforts and hard work So till yet, we have understood the revenue model so I hope you will work on it for at least half an hour Now in second place, you have to write what is your fixed cost Fixed cost means the cost you have to bear every even when your sale is zero Or if you are doing blogging so no traffic will come to your website but still there would be some expenses that you have to bear Fixed cost like rent, employees salary, bill, etc . which you have to pay every month at any cost Sit for atleast half an hour and write down all the fixed expenses doesn’t matter how small or big it is Next on is a variable cost Variable cost means that cost which you have to pay at the time of every sale, Without sales variable cost, will be zero For example, whenever I am selling a product so the real cost of that product is a variable cost for me or whenever I manufacture large units so that cost will be also a variable cost If I am selling one product so the variable cost will be according to one single product but if I am selling 1000 products so the variable cost will be according to 1000 units Even electricity and wages also comes under the variable cost because sometimes we use machines for long hours at peak season so the electricity bills increases Somewhere people give money to employees according to their work hours so this is also a variable cost Water can also come under the variable cost if the bill is not fixed Like in Delhi up to 4000 liters is free but if you use more than that then you have to pay per unit so this cost also comes under a variable cost If your internet connection is not unlimited so whenever you crossed the specific band limit then you have to pay price according to that so it also comes under the variable cost next thing you have to write is a one-time investment One time investment means how much money do you need to start your business. It might be 5k, 10k, 1cr or 5cr Now how we will calculate this? If you are taking a location on the rent so you have to deposit a security amount so that amount will come under one-time investment Along with that you will spend money on renovation or buy some assets like furniture, fridge, etc You will also need some working capital to make some expenses on packaging, manufacturing or trading of products which you are going to sell. So all these expenses will come under one-time investment Again give at-least 10-15 minutes to write down all the one-time investment cost I took a long break for making this video if you noticed because I have given many assignments and I know if somebody is genuinely working on this thing then at-least it will take one week for research Half an hour is for those who are Pro but if you doing for the first time then it might take one day also. That’s why I am uploading one video every week. From today onwards we will upload the video on every Saturday at 9’o clock and I will reply to every comment between 9-10 Now comes to the most important thing that is profitability It means how much profit margin we will operate at. Some people operate at 2-5% or some people will say they want to operate at 100% profit margin so it all depends on you Some people want the market to differentiate or some people want to sell their products by lowering the product. So you have to decide your profit margin at this moment and dodn’t fluctuate it later If you choose a 20% profit margin so you have to cover all of your expenses within that amount at any cost One more assignment yet to come and it will be hard so you have to watch one more video for that but we will talk about this later One more cost that comes under the variable cost but we didn’t talk about that Marketing cost also comes under the variable cost so we have to decide how much money I am ready to spend on marketing each month and how much units will be sell In starting let’s take only 2% conversion rate so if you reach 100 people only two of them will buy your product. SO you have to find out how many products will be sold from 2% conversion rate According to this, you have to decide the project sales. Which means how many sales will be done in the first month, second month and so on After this you have to add up all the cost for example – x amount of sale will be done and then less all the cost related to fixed, variable, etc to find out your profit or loss Then you have to analyze on which month your business will be at the break-even point break-even point means no profit or no loss In the starting days, your expenses will be more than your revenue Now let’s take an example – our fixed cost is 10k and our variable cost is we have to give 1k on every product sold or let’s say we are operating at 100% profit margin 100% profit margin is the real cost of the product is 1k and I am selling that product or 2k. The real cost of the product includes all the fixed cost and the variable cost If I have to cover all the fixed cost, variable cost, and the one-time investment Many people don’t take one-time investment while calculating the cost. But suppose if you couldn’t have that money then you will have to borrow from somebody and give interest rate. So I will also add interest in my costing So you have to identify from after how many months your business will be at the break-even point. By doing this you will get to know how much money do you need to run your business until the break-even point For example, you got to know that you have to suffer at-least 10 lakh rupees and one-time investment to run this business. So if you have only then validated this idea All the things that I am telling you are in-depth after understanding it you will get to know should you do this business or not The things that I am sharing you are only available in the paid course but I am offering you for free But don’t treat this like a free one but try these things to change your life Now let’s say after 10 months you have come to the break-even point and now you looking for investment stage. In starting you shouldn’t look for investment but after some time to take your business to the next level you can take investment There are so many business ideas that require investment to go to the next level. But you have to decide how much money do you need and how many equities you are ready to dilute For this, I have already made a series on investing in which I have talked about how to approach investors and how to talk to them and etc, etc. 5 videos are there in that series and after that, you will understand how to take investment and how to evaluate your company Those videos are lil bit technical but I don’t want to repeat the same thing again and again but I will keep recommending you my old videos so you can understand better I am also giving you my videos link you can also watch them But Assignments will be given only every week This is what all you need to do to evaluate your whole idea like how much money do you need, what will be your profit margin and every question related to finance will come to an end after analyzing this Because nobody knows you better about your idea. So do research and keep moving forward So that’s it I won’t make this video long because many people don’t like it. I hope you will complete the whole assignment this week And please watch all the videos that I recommended because it will help you to understand the upcoming concepts better Like, share and comment if you have any problem. Good night and good morning whenever you are watching this video.