52 Weeks of FOS

Consider Your Business Model – Week #2 of The Financial Operating System®

February 16, 2025 by Calvin Wilder in Articles

Last week we focused on identifying your Why and the high-level financial objectives that you want to achieve as a business owner. This week we will look into the business model that you are using to try to achieve those objectives. A business model is the foundation of a company’s strategy and operations, describing how it generates revenue, delivers value to customers, and sustains profitability. This chapter explores various aspects of defining and refining a business model to align with long-term goals and market dynamics.

Key Elements of a Business Model

  1. Revenue Structure:

    • Do you rely on recurring revenue or need to replace revenue every month?
    • Example: Subscription models provide steady income, while one-off sales require constant new customer acquisition.

  2. Customer Relationships:

    • Is your revenue derived from repeat business with existing customers or one-off sales to new customers?
    • Repeat customers lower acquisition costs and stabilize cash flow, while new customers demand continuous marketing investments.

  3. Target Customer Profile:

    • Who specifically is your ideal customer?
    • A well-defined customer profile helps focus marketing, sales, and product development efforts.

  4. Sales Mix:

    • Do you sell high-volume, low-margin products, or low-volume, high-margin offerings?
    • The approach depends on your operational capabilities and the market’s willingness to pay for value.

  5. Market Positioning:

    • Are you delivering a commoditized service competing on price, or a niche service priced at a premium?
    • Differentiated, high-value services often support higher margins but require effective marketing and branding.

Business Model Alignment with Goals

  • High-growth businesses may prioritize revenue growth at the expense of lower current profit margins, effectively acting as their own venture capitalists.
  • Stable, profitable businesses aim for consistent cash flow and dividends, often requiring different operational and financial strategies.
  • Younger businesses may focus on high growth initially, shifting to a more stable model once they reach a target size.

Key Considerations for Long-Term Success

  1. Strategic Clarity:

    • Align your business model with long-term goals, whether that is maximizing profitability, scaling revenue, or reducing stress and administrative complexity.

  2. Iterative Improvements:

    • Regularly revisit your business model to adapt to market changes or evolving personal and financial goals.

  3. Defining Success Metrics:

    • Use clear metrics like profit margins, customer lifetime value, or recurring revenue percentage to measure the business model’s effectiveness.

Conclusion:

Your business model represents the intersection of strategy and operations. By answering fundamental questions about revenue, customers, and market positioning, you create a foundation for sustainable growth and profitability. The Financial Operating System® provides tools to assess and refine this model over time, ensuring alignment with changing goals and market dynamics​.

Next Step:

Business owners can self-implement The Financial Operating System. Chapters are available to download at smartbooks.com/resources or you can buy the whole book from Amazon (the marketing firm version or the general business version). If you would like assistance with implementation or would like to accelerate results for your business, please contact author Cal Wilder at cwilder@smartbooks.com or book a free consultation with our team directly using this calendar link.