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  • When Talking About Business Models, Remember That Profits Equal Revenues Minus Costs

    Good discussion on business models, web enterprises, etc. How many times have you seen "Make $5000 a month at home". Even if that was true more than likely it is revenue and not profit (and even then, there are some easier ways of profiting than others). What if your costs are... more

    Reviewed by earthwormken Feb 01 2009, 04:33pm ( 3 reviews ) • avc.com

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  • Rated by rossdborden on Feb 03 2009, 6:20pm

    great article with great points. i especially agree with the comparison between digg and craigslist.

  • Rated by earthwormken on Feb 01 2009, 4:33pm

    Good discussion on business models, web enterprises, etc. How many times have you seen "Make $5000 a month at home". Even if that was true more than likely it is revenue and not profit (and even then, there are some easier ways of profiting than others). What if your costs are $4000 per month? Ever heard of gross margin (GM), or EBTDA (Earnings before tax, depreciation, and amortization), and other business/financial terms. EBTDA is typically built into costs and taken out later as applicable. Even though I'm environmental-oriented, as a business and as a project manager, my role is to increase revenues and gross margin (i.e. bring in business and generate a profit). GM can vary depending on market conditions, staff effectiveness, etc. In a tight, competitive, hot market, GM's generally are lower than in cases where competition is limited and when a market product is highly desired. So how is GM calculated: GM = (Bill-Cost)/Bill and that's how we track a project. But first, what do you charge someone. Well, rearranging the GM equation above for Bill: Bill = Cost/(1-GM). As an example, if you knew your estimated costs would be $1,000 for a item or project and you wanted a 50% profit margin, then you would need to bill $2,000 to achieve your goal. At times, I've considered doing my own consulting, or other ventures such as making Jewelry for family and to sell, and I would use the same techniques for pricing and tracking. For these website stories, they hope to build a certain amount of fan/advertising base so they can then attempt to sell off the business at a multiplier of 10x or whatever is deemed to be a fair market appreciation above their existing revenues. The buyers then hope that future profits will pay for that market multiplier, or that they'll be able to in turn sell it off the expanded business for a profit later. Anyway, when I read that Facebook for example is trying to get $15 Billion for their business yet hardly even makes a profit, you got to wonder if there is a bunch of suckers out in the business world. Apparently these business models don't apply to Wall Street. I've rarely lost significant amounts of money for the companies I've worked for, yet getting a bonus isn't always a given. For your salary, you are expected to make a certain amount of money. And if it is a losing year for the company, then a bonus isn't a given even if you have done well for your part. That is what Wall Street is claiming now. That if they don't give bonuses even though they lost money, then they will lose people. That can be true in a hotter market, but now isn't exactly a great time to be risking it. Smart or shrewd companies may call your bluff.