How can I design a profit model?

The profit model outlines how the business will generate profits. If an entrepreneur prepares a business plan for a new enterprise, it is not only enough to describe how customers are to get added value and what strategy to be used for sales and marketing. The business plan must also include a profit model that deals with products and services in detail, calculates earnings and compares them with the costs incurred. The profit model must include calculations that are realistic enough to convince investors and creditors to support the business. The profit prognosis must be based on realistic assumptions that are supported by research and evidence. For example, an Internet company can sell products online, receive third -party advertising products, or charge an online information service. This information can be combined with details of the price strategy and estimated customer numbers to achieve estimated earnings. In order to come to the business of a viable profit model, they must go further and beforeBuild a realistic estimate of the costs and overhead costs that will participate in the earnings from customers.

Setting the realistic profit model is useful exercise, not only to help raise funds from investors and creditors, but also to help the business plan for the initial years of business. If the enterprise is profitable in the opening years, it should be possible to generate enough cash to continue working. The liquidity position of the company also depends on the need for capital expenditure and the extent that financing is available. In addition to the profit model, a separate forecast of cash flow is required to fulfill business debts as soon as it is repaid.

The

profit model should prove that earnings will be enough to cover the costs and overhead costs of the company. Some businesses can build a customer base in the opening years of losses due to the needFor a suitable marketing before the turnover has grown to a sufficient level to make profits. In this case, the profit model would have to be backed up by estimated results for initial years, which show how soon the company will be able to break even or earn profits.