The Economics of One Unit
By: Zayne Hamilton
The Economics of one unit is an essential building block of the business plan. These days, the world is full of get rich quick schemes and ideas that often turn out to be a waste of time. What would happen if your company was focused on selling one product at a time, rather than meeting the goal of millions?
The Economics of One Unit can be a blessing or a burden, depending on how you view it. For small businesses in particular it would be wise to focus on a specific small goal of sales rather than flooding the bank in the first year. Typically, the Economics of One Unit model will have three numbers: the price of the unit, the cost of goods sold (which is subtracted from the price), and the "contribution margin"- or gross profit. This last number is key, as it will be added to the fixed costs per unit. The resulting outcome of these numbers will be your profit (before taxes).
The Economics of One Unit model derives itself from the concept of Unit Economics. Unit Economics are simply the direct revenues and costs associated with a particular business model expressed on a per unit basis. For example: in a consumer internet company, the user is the unit. LTV (Lifetime Value), is the amount of revenue that a single unit, (in this case a user), generates during the duration of their usage of the company's services or goods.
For the sake of reference, I will refer the Economics of One Unit from here on as EOU. This business method is used to determine whether a business model can be successful (profitable), by calculating if an individual unit, (in our case, the user of our internet company), using the good or service would be profitable. In the context of our imaginary company, we would calculate the cost of maintaining a single internet plan, and compare it to what we plan to charge our customers for the plan. If the profit is positive, then our business would be seen as profitable.
Following this process for each and every one of our internet plans would make us an overall profitable business. Further, if we still make a positive profit after taxes are due, then our business is growing well. Over time, if our customer base is steady and we have a steady usage of our internet hosting, then we can think about raising our prices. This means more revenue for our company, and possibly even new services that we can offer our customers as a return gift for their loyalty.
All of this is made possible by EOU. Calculating sales to support your business adequately is important for growth in your business. Focusing on the particulars of sales and how you can boost them is the first step in being able to implement EOU.
Did you like this article? Please subscribe and share for more content!
https://tekoamobile.com/
By: Zayne Hamilton
The Economics of one unit is an essential building block of the business plan. These days, the world is full of get rich quick schemes and ideas that often turn out to be a waste of time. What would happen if your company was focused on selling one product at a time, rather than meeting the goal of millions?
The Economics of One Unit can be a blessing or a burden, depending on how you view it. For small businesses in particular it would be wise to focus on a specific small goal of sales rather than flooding the bank in the first year. Typically, the Economics of One Unit model will have three numbers: the price of the unit, the cost of goods sold (which is subtracted from the price), and the "contribution margin"- or gross profit. This last number is key, as it will be added to the fixed costs per unit. The resulting outcome of these numbers will be your profit (before taxes).
The Economics of One Unit model derives itself from the concept of Unit Economics. Unit Economics are simply the direct revenues and costs associated with a particular business model expressed on a per unit basis. For example: in a consumer internet company, the user is the unit. LTV (Lifetime Value), is the amount of revenue that a single unit, (in this case a user), generates during the duration of their usage of the company's services or goods.
For the sake of reference, I will refer the Economics of One Unit from here on as EOU. This business method is used to determine whether a business model can be successful (profitable), by calculating if an individual unit, (in our case, the user of our internet company), using the good or service would be profitable. In the context of our imaginary company, we would calculate the cost of maintaining a single internet plan, and compare it to what we plan to charge our customers for the plan. If the profit is positive, then our business would be seen as profitable.
Following this process for each and every one of our internet plans would make us an overall profitable business. Further, if we still make a positive profit after taxes are due, then our business is growing well. Over time, if our customer base is steady and we have a steady usage of our internet hosting, then we can think about raising our prices. This means more revenue for our company, and possibly even new services that we can offer our customers as a return gift for their loyalty.
All of this is made possible by EOU. Calculating sales to support your business adequately is important for growth in your business. Focusing on the particulars of sales and how you can boost them is the first step in being able to implement EOU.
Did you like this article? Please subscribe and share for more content!
https://tekoamobile.com/
Comments