Your Production Capacity is the maximum amount of work you can produce which ultimately translates into how much money you can make.
Depending on the Products and Services of your company, you will either have Finite Production Capacity or Infinite Production Capacity (or maybe a mixture of both). If the way your business generates income is dependant on the availability of internal resources, such as people power, or constrained by the availability of other resources such as sprockets, then you can only produce a Finite amount of work and this means that your maximum earnings are capped (knee-capped).
If you want to increase your maximum earnings with a Finite Production Capacity model, the only option is to Gear Up and provide more of the constrained resources. Businesses with an Infinite Production Capacity model on the other hand are constrained by different factors, mainly constrained by the source of customers such as market size and saturation.
Both business models are perfectly valid ways to make money. But when you choose your business model, be aware of what will constrain your income, particularly if you are a one or two person start-up.
Real World vs. Virtual Products
If you build a machine to make widgets, and you want to double your output, you need to operate a second machine.
If your product is virtual, for example, when people buy it, they give you £20 and download setup.exe from your server; your costs are purely transactional. Assuming you have setup.exe in the first place. You have fixed costs, writing setup.exe in the first place but then selling 10 or 10,000 makes little difference (depending on the level support you offer).
Examples of Finite Production Capacity
Window Cleaner - can only clean so many windows a day
Contractor - paid by the hour, there's only so many hours in the day
Car Manufacturer - the production line can run 24x7 but has a maximum output
Bespoke Software - requires people to convert specs into code, document and test etc.
Shop - constrained by floor space, shelf space
Examples of Infinite Production Capacity
Music - write and record the song, royalties from radio, sell via downloads or sell it on plastic in shops Online Insurance - build the site, collect peoples money
Microsoft Office - write, sell, sell, sell
Interesting Numbers
In America and the UK alone, there are approximately 370 million people.
If you can reach 1% = 3,700,000 people.
If you can reach 0.1% = 370,000 people.
If you can reach 0.01% = 37,000 people.
If you can reach 0.001% = 3,700 people.
Or, put another way, you only need to sell 1000 x $100 to make $100,000.
That is only 0.00027%
And my favourite statistic: There are more people learning to speak English in China than the total population of America!
Depending on the Products and Services of your company, you will either have Finite Production Capacity or Infinite Production Capacity (or maybe a mixture of both). If the way your business generates income is dependant on the availability of internal resources, such as people power, or constrained by the availability of other resources such as sprockets, then you can only produce a Finite amount of work and this means that your maximum earnings are capped (knee-capped).
If you want to increase your maximum earnings with a Finite Production Capacity model, the only option is to Gear Up and provide more of the constrained resources. Businesses with an Infinite Production Capacity model on the other hand are constrained by different factors, mainly constrained by the source of customers such as market size and saturation.
Both business models are perfectly valid ways to make money. But when you choose your business model, be aware of what will constrain your income, particularly if you are a one or two person start-up.
Real World vs. Virtual Products
If you build a machine to make widgets, and you want to double your output, you need to operate a second machine.
If your product is virtual, for example, when people buy it, they give you £20 and download setup.exe from your server; your costs are purely transactional. Assuming you have setup.exe in the first place. You have fixed costs, writing setup.exe in the first place but then selling 10 or 10,000 makes little difference (depending on the level support you offer).
Examples of Finite Production Capacity
Window Cleaner - can only clean so many windows a day
Contractor - paid by the hour, there's only so many hours in the day
Car Manufacturer - the production line can run 24x7 but has a maximum output
Bespoke Software - requires people to convert specs into code, document and test etc.
Shop - constrained by floor space, shelf space
Examples of Infinite Production Capacity
Music - write and record the song, royalties from radio, sell via downloads or sell it on plastic in shops Online Insurance - build the site, collect peoples money
Microsoft Office - write, sell, sell, sell
Interesting Numbers
In America and the UK alone, there are approximately 370 million people.
If you can reach 1% = 3,700,000 people.
If you can reach 0.1% = 370,000 people.
If you can reach 0.01% = 37,000 people.
If you can reach 0.001% = 3,700 people.
Or, put another way, you only need to sell 1000 x $100 to make $100,000.
That is only 0.00027%
And my favourite statistic: There are more people learning to speak English in China than the total population of America!
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Business, Wednesday, June 29, 2005 05:40
