1. Money

Is Your Business Model Broken?

Part 1: A Business Model Needs to Be a Profit-Making Plan

By

If you have enough clients to keep you busy, you must be making a good living, right? Well, not necessarily. Some of the busiest professionals around aren't earning enough to pay their bills. On the other hand, there are some consultants, coaches and other service providers who have plenty of time on their hands but also earn quite a bit of money.

The difference between the income levels of these two groups isn't just because one group is better at marketing than the other. The difference is in their business models.

Simply put, your business model is the answer to the question, "How do you intend to make money?" It's your plan for how you will generate sufficient revenue to meet your expenses and earn a profit. Unfortunately, many independent professionals don't actually have a profit-making plan. And some of those who think they have a profit-making business model are relying a bit more on magic than they are on statistics.

For example, when you first hang out your professional shingle, charging $100 per hour may seem like quite a lot. After all, if you earned as much as $100,000 per year at your last job working a 40-hour week, you were still only making $48 per hour. So perhaps you think that doubling your former hourly rate should be more than adequate to keep your net earnings at their former level.

Let's do some quick math. If your business model is based on working intensively for one major client for weeks or months at a time, such as many corporate consultants do, an hourly rate of $100 could indeed generate $100,000 per year. All you would have to do is keep busy approximately half of the time. $100 per hour times 20 billable hours per week times 50 weeks per year equals $100,000.

But what if your business model is based on working only two to four hours per month for each client, like many coaches, therapists, or healing professionals? Now if you want to earn $100,000 per year, in order to bill those same 20 hours per week, you'll need 20 clients at once if you see them for an hour per week and 40 or more if you see them for less time or meet less often.

In the first business model example above, you only need a handful of clients each year and have large blocks of time left over to market yourself. That's a sensible and realistic business model. In the second example, you need a constant stream of new clients coming in and the time you have available for marketing is likely to be broken into small chunks between appointments. That sort of business model is more likely to lead to stress and struggle than it is to success.

The first place you might look in order to fix business model number two is raising your hourly rate. You could charge $150 per hour, $200 per hour, or more, if your target market will pay it. But rates like these may be out of reach for many potential clients, and difficult for you to justify.

But rate increases aren't the only way to fix a broken business model. Both of the business models we've been examining are fee-for-service models, based on an hourly rate. Instead, you could choose a different type of model altogether.

C. J. Hayden (www.getclientsnow.com) provides business model examples for both service and product-based businesses on the next page of this article. Click to continue reading...

©2014 About.com. All rights reserved.