Creating a Revenue Generating Business
Let’s get one thing clear, there are lots of different kinds of businesses. There are huge corporations owned by many people and propelled by a board of directors, there are mid-sized businesses, franchises, service based, online, lifestyle, sole proprietors, partnerships just to list a few. And some businesses in all of these categories make money, some make a lot of money and others in all categories lose money. If you are ready to start or morph your business into a revenue generating business consider the following:
Elements of a Revenue Generating Business
1. They Make Money. Revenue generating businesses have the potential to make a great sum of money. My personal definition of a great sum is anything from $500,000- $1,000,000+ in gross annual sales. When you own a business with that level of revenue you have options. Options to hire a staff, options to have a nice office, work on product development and create an organization that has a life of its own.
2. Good Price Point. In my experience, a revenue generating business is created when you are able to sell a product or service for over $500 and you are able to sell it in large quantities. You’d need a thousand customers to get to your $500,000 but it’s doable. High purchase price and the correct volume of customers make it workable.
3. Recurring Revenue. Your business works best when you are able to establish recurring revenue, meaning your customer makes a purchase that is planned to be made again each month. An example of this is a subscription program. When signing a customer up the intention is to have them as a customer each month for typically a year, or more. This recurring revenue allows for the development of new customers while maintaining your current base of customers.
4. Scalable. The idea of scalability is that you as the business owner aren’t having to do all of the work to get a sale. When you have to “touch” each customer or sell them personally you aren’t able to scale because you only have so many hours in a day. This limits your ability to make higher sales in your business. It also chains you to your company. Ideally, you are setting up a business that has the ability to run in your absence for extended periods of time as you pursue other interests and passions. Google defines scalability as a characteristic of a system, model or function that describes its capability to cope and perform under an increased or expanding workload. A system that scales well will be able to maintain or even increase its level of performance or efficiency when tested by larger operational demands.
5. Sellable. Is the business you own or are starting sellable? If so you can begin with an exit strategy from the start. Keep in mind that businesses are saleable when there’s something to be bought. Ask yourself this question, if I leave my business can it continue without me? If the answer is no, then your business can’t be bought. If the answer is yes, you may be able to find a buyer. Another consideration is the foundation of the product you are selling. If you have a loyal customer base that isn’t attached to you as the owner, but instead is loyal to the product it doesn’t matter who owns the business and this makes it attractive to a buyer.
6. Keep Cost of Goods and Expenses Low. The key to any business isn’t how much money you get, but how much you keep. If your profit margin is 80 percent, it will be difficult to gain traction. After having owned several businesses my mantra is keep expenses as low as possible. Each year examine all expenses and see if you are able to get rid of them or lower them. Request new quotes each year on things such as insurance, telephone and internet service and any other recurring monthly expense. Next, make sure you are keeping your cost of goods as low as possible while still maintaining the integrity of the product. Make sure you are considering your profit margin when adding expenses. Just because something costs $100 doesn’t mean you need to bring in $100 to cover that expense. You need to bring in more to compensate for expenses. Use this as your guide post.
Be diligent and aware of your money. It is your job as the business owner to be aware of money in your business. You need to know how much you have coming in and how much you have going out. Checking your bank account to make sure there’s money in the account doesn’t qualify as doing your best to manage your money. It is your responsibility to the company and to the yourself to be aware of financial goals and work to achieve them.
If you own a business and you’d like it to produce more revenue consider these factors. It’s possible that your business can be transformed, or perhaps you might need to build something different in order to achieve your goals. Be real with yourself. Are you interested in building a business bigger than what you have, or are you happy with the size of your company? Not all business owners need to build an “organization.” Be real about who you are and follow the path to that alignment.