Understanding Operating Leverage

backhoeOperating Leverage is just one part of your Economic Model. Simply put, operating leverage is the relationship between fixed costs and variable costs. A construction business that rents a backhoe when they have a job that needs a backhoe will have higher variable costs, and would be said to have low operating [...]

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Understanding Sales Volume

LamboSales Volume is just one part of your Economic Model and works in concert with margins.  Sales volume is simply the number of units you sell in a specific period of time, say in a month.  You can be just as successful if you have a high-margin low-volume business as you [...]

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Understanding Margins

StarbucksMargins are just one part of your Economic Model.  Margins can be defined simply as the difference between your Direct Cost to deliver a service or a product (often called COGS or Cost of Goods Sold) and the Price you charge the customer for that product or service.  The basic coffee [...]

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Understanding Revenue Drivers

DixieRevenue Drivers are just one part of your Economic Model.  Revenue drivers are how many ways you have to separate your customer from his money.  Last summer I went to the Dixie-Stampede while I was in the Great Smoky Mountains.  The ticket price was a reasonable $45 per person, which is [...]

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Understanding Your Business vs. Economic Models

Bus ModelMost clients I see can clearly articulate their Business Model, but struggle when it comes to describing their Economic Model.  Simply put, an Business Model is customer-focused while an Economic Model is owner-focused. Amazon.com and Wal-Mart share a similar low-cost, wide-selection retail models. However, their Economic Model is quite different, [...]

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