﹕business I review

1st step of business

ideas to products

2nd step of business

products to money

3rd step of business

money to more products

profit

difference between production costs + selling price

revenue

total money from sales / “top line”

costs

money spent to run business

profit

what’s left / “bottom line” / “net income”

b2c (business to consumer)

relies heavily on market and brand, shorten sales cycles

b2b (business to business)

relationship driven, requires sales teams, longer sales cycles

subscription model

customer pays recurring fee for product access, predictable recurring revenue, fast-growing model

marketplace model

connects buyers + sellers, takes a cut for profit through commission fees

freemium

basic product given away for free, charged for premium features, profit from converting a percentage of free users to paid

d2c (direct to consumer)

sell directly to customers online, higher profit margins, no cut to retailers

COGS

cost of good sold, direct costs of making the goods

lower COGS

higher gross profit margin

opex

operating expenses, every cost besides COGS

fixed costs

costs that stay no matter what you sell (ex. rent, salaries)

variable costs

costs that change depending on sales value (ex. shipping)

gross profit margin formula

revenue - cogs divided by revenue x 100

operating profit margin formula (shows how efficiently a business is run)

operating profit divided by sales revenue x 100

net profit margin formula (bottom line)

net income divided by revenue x 100

4Ps of marketing

product, price, place, promotion

product

what you sell, what need it meets and it’s appeal to an audience

price

how much it costs, how much customers pay

place

how customers get a product, distribution channel of a product

promotion

how people find out about it, all methods used to promote a product to a target or general audience

retailers can take cuts if you sell through their stores or distribution channels

how price affects profit margins

value-based pricing

charging what customers are willing to pay

competitive pricing

matching or undercutting competitor’s prices

dynamic pricing

changing prices based on demand

marketing

gets customers

operations

delivers the product

supply chain

the entire process of getting raw materials, turning into products and delivering to customers

more efficient supply chain

higher profit

too much inventory

money tied up in unsold products

too little inventory

failure to fulfill orders, lost sales

just in time inventory

only ordering what you need when you need it

benefits of just in time inventory

reduces waste, CAC

customer acquisition cost formula (cac)

total sales + marketing expenses divided by # of new customers

lifetime value formula (ltv)

total revenue divided by total # of purchases per year x average customer lifespan

ltv (lifetime value)

how much money one customer generates over their entire relationship with a business

cac

ltv must be at least 3x higher than

organic growth

growing by selling more to existing customers or attracting new ones through marketing

pros of organic growth

sustainable, anti-debt

cons of organic growth

slow

funding + investment

taking money from investors, venture capital, and private equity to grow faster

trade-off

giving up ownership and equity in exchange for cash

acquisitions

buying other companies to grow faster

franchising

allowing others to open locations of your business for a fee, franchisees run business and the business collects fees

brand loyalty

a customer’s consistency with a brand

ecosystem lock in

when a customer buys multiple different products from one brand

reinvestment

putting profits back into a business for growth