What is a Profit Model?

In order to succeed in any sort of business venture, it is necessary to design and utilize a profit model. Essentially, it is a strategy that addresses all the core elements of the business operating system that go into making the company viable and profitable. Business designs themselves create the basis for the model; without a workable operating structure that addresses production, sales generation, and delivery, there is no working profit model.

Profit models exist as a way of helping any business concern achieve a state where there is money left after all expenses are paid. In short, there is profit made from the business venture. In order to ensure that there is money made above and beyond company expenses, it is necessary to make sure that each component of the company is working at top efficiency and contributing to the financial health of the organization. To this end, there must be a means of publicizing and getting the interest of customers, so sales take place. In addition, the components must be structured so there is a logical chain of events in the production of goods and services and their delivery on the back end.

The foundation of the profit model exists within the production and operating components of the model. Management must be effective, operating equipment and personnel must be efficient, and the product that is produced must be top quality, but manufactured at the lowest possible cost. One way to ensure this component of the model is working properly is to maintain operating equipment properly, make sure personnel are trained and frequently given refresher training, and that management does not become top heavy with too many positions. Attention to these types of detail will help to keep this portion of the profit model running at maximum efficiency.

The sales and marketing component of the model is the creative component that gets the word out about the products and services offered by the company, and piques the interest of consumers in the products. This may be done with the use of ad campaigns, various sales methods, and cultivating strong word of mouth among consumers. Keeping this operating often means being open to new ways to market the products or developing secondary products that will expand the client base.

For example, many companies provide both a full-featured version of their flagship product, while also offering a scaled down version at a lesser cost. Persons who do not want the full version, either due to cost or the lack of interest in the features, often will go for the basic version. This strategy has worked for everything from automobiles to Internet service and provides a compelling example of how sales and marketing can help keep this part of the profit model working at full efficiency.

Last, delivery of goods and services to the end user is extremely important to the profit model. A company may produce excellent products, but if the buyers cannot receive and make use of the goods, the entire effort is wasted. Making sure that customers receive their orders in a timely manner, and that they have a means of contacting the company with any questions or concerns is essential to a working profit model. Without communication between client and provider, there will eventually be no profit.