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You may be surprised to hear this, but the majority of businesses that contact us don’t have sustainable business models. You always hear the statistic that 80% of new businesses fail in the first 5 years. Most business actually eat more money than they make, hence the pit of despair title.
There’s a reason for that.
I’m going to tell you a story about a recent client that contacted us that you can use to understand your own business model, or lack there of :). But first, let me give you an easy example:
Apps Are NOT a Business
Everyone wants to make an app. They are not a business.
An app can be a part of your business, but it’s extremely rare that they can be a business in and of themselves. I know this because we do marketing for them.
The average cost it takes to get one person to download a brand new FREE app is $3-$5 running online campaigns. That’s right. To get people to download your free app, you’ll need to cough up $3-$5 per user.
Now, how many of those people that download, will actually use the app? Maybe 30%. And how are you going to make money from the app? In-app purchases? Ads? A subscription service?
Less than 2% of that 30% using the app will probably become a paying customer.
Let’s do the math. At $3-$5 a download, you need to pay $300-$500 to get 100 new users. Only 30 will actually use it and, of that 30, you’ll be lucky to get 1 paying customer (if you do the math, you see that you’d need to get 50 people to use it to get 1 paying customer, so you’d actually need to spend $600-$1,000 to acquire that one paying customer).
How much does an ad click bring in in revenue? Like half a cent. The average subscription for a premium app is about $9 a month. Most people delete new apps after only 3 months. Can you see why apps are not a good business model?
Paying $600 to make a couple cents or, maybe $30 over 3 months, does not a business make.
A Tale of How Business Is Really F-ing Tough
Anyway, getting back to our main story. If you apply this to your own business, you can see whether or not you actually have a working business model or if it is a money-devouring pit of despair instead.
This business sells rides in luxury cars for business men for distances between bigger cities. The value proposition is that it’s much more convenient to be picked up at your door and dropped off at your destination 3-5 hours away having someone drive you than it is to get a taxi to the airport, go through the hell of airport security and delayed flights, and then get another taxi to your final destination
They’ll pick you up at your door, in comfort, with in-car wi-fi, all for the same price as the flight would be. Plus, it’ll take almost the same Go to the full article.
Source:: Business 2 Community