I want to give a very simple illustration of a business model. Most of you in India at least may have seen this business, the Yellow Coin Telephone.
All I knew was, I pay 1 Rupee and talk for a couple of minutes, but how does that owner make money, how does Idea make money, what is the investment, what is the margin, how and when does it break even, are there service levels that are necessary for this, and more questions
Here is how it works,
CAPEX: If I want a phone, I place an order with Idea paying 3500 bucks. Idea installs the phone and gives me free 500 bucks talk time (zero for BSNL).
PRICE: For every call made I get to keep 40 paisa (as against 30 paisa for BSNL payphone)
BREAKEVEN: If 3000/0.40 calls are made, i.e. at 7500 calls I break even, after which anything I get is profit, For 7500 calls to be made it typically takes less than a month in a bus stand (where people run out of charge or do not have a mobile phone), may be more than a year in a not so busy locality.
SLA: My phone has to be up all the time, no excuses, and the operator guarantees this with a penalty clause (not in BSNL)
SELLING: No S G A here
OPEX: Space, and nominal running expenses
When you visualize a business in such real terms, it becomes much clearer, don’t you think?