Every Major Business Model Ranked by What Actually Works

00:22:09
https://www.youtube.com/watch?v=l_cTrajgK4U

Summary

TLDRThe video ranks various business models from F tier (worst) to S tier (best) based on startup costs, profit margins, time to profitability, and success rates. It highlights multilevel marketing and life coaching as F tier due to high failure rates and low profitability. D tier includes restaurants and traditional retail, which have high startup costs and low margins. C tier features drop shipping and print-on-demand, which are easy to start but face stiff competition. B tier includes freelancing and local services, which are more reliable and profitable. A tier covers franchises and digital products, which have strong margins but require expertise. Finally, S tier includes software as a service and marketplaces, which can scale rapidly and generate high recurring revenue.

Takeaways

  • 🚫 F Tier: Multilevel marketing is a guaranteed failure.
  • πŸ’Ό D Tier: Restaurants have high costs and low margins.
  • πŸ“‰ C Tier: Drop shipping is easy but highly competitive.
  • πŸ’° B Tier: Freelancing offers high margins and quick profits.
  • πŸ† A Tier: Franchises provide proven systems and high success rates.
  • πŸ“ˆ S Tier: SaaS and marketplaces can scale rapidly and generate recurring revenue.

Timeline

  • 00:00:00 - 00:05:00

    The video introduces a ranking of business models from F tier (worst) to S tier (best) based on factors like startup cost, profit margin, time to profitability, and success rate. It begins with F tier, highlighting multilevel marketing (MLM) as a guaranteed failure due to its structure and low success rate, followed by life coaches without experience, emphasizing the lack of credentials and high failure rate in this field.

  • 00:05:00 - 00:10:00

    Moving to D tier, the video discusses business models that can work but are difficult to sustain, starting with restaurants, which have high startup costs and low profit margins, leading to a high failure rate. Traditional retail stores are also mentioned, facing challenges from online competition, and small-scale manufacturing is noted for its variable costs and low success rates, requiring niche markets or exceptional quality to succeed.

  • 00:10:00 - 00:15:00

    In C tier, the focus shifts to businesses that rely on trends or low margins, starting with drop shipping, which has low startup costs but high competition and low profit margins. Print on demand is discussed next, highlighting its low barrier to entry and low profitability. Lastly, ad-based apps are mentioned, which can scale but often fail to generate significant revenue, placing them in C tier due to their challenges.

  • 00:15:00 - 00:22:09

    B tier features more reliable and profitable models, beginning with freelancing and consulting, which have low startup costs and high profit margins. The agency model is introduced next, requiring some investment but offering similar success rates. Local services are also highlighted for their consistent demand and profitability, making them a solid choice for entrepreneurs looking to start a business.

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Mind Map

Video Q&A

  • What are the key factors for ranking business models?

    The key factors are startup costs, profit margins, time to profitability, and success rates.

  • Why are multilevel marketing schemes ranked in F tier?

    They have a very low success rate (less than 1%) and often result in financial losses for participants.

  • What is the average profit margin for restaurants?

    The average profit margin for restaurants is between 3% and 10%.

  • What business model is considered the most scalable?

    Software as a service (SaaS) is considered one of the most scalable business models.

  • What is the startup cost range for franchises?

    Startup costs for franchises can range from $50,000 to millions of dollars.

  • How long does it typically take for a digital product to become profitable?

    Time to profit for digital products can range from immediately to over 3 years.

  • What is the success rate for freelancing?

    About 1 in 4 US-based freelancers earn six figures or more per year.

  • Why is drop shipping in C tier?

    Drop shipping has low barriers to entry but faces intense competition and low profit margins.

  • What are the average margins for direct-to-consumer e-commerce brands?

    Margins for direct-to-consumer brands typically range from 30% to 60%.

  • What is the main challenge for fintech businesses?

    Fintech requires regulatory knowledge and has a low success rate due to its complexity.

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  • 00:00:00
    In this video, we're going to be ranking
  • 00:00:01
    every business model that exists, okay?
  • 00:00:04
    From absolute garbage to empire building
  • 00:00:07
    machines. And we're going to judge them
  • 00:00:08
    based on four key factors. How much does
  • 00:00:11
    it cost to start? The profit margin,
  • 00:00:13
    meaning how much profit you'll actually
  • 00:00:15
    keep, the average time it takes for it
  • 00:00:18
    to be profitable, and the success rate
  • 00:00:20
    along with our personal input. We're
  • 00:00:22
    going to rank them starting from the F
  • 00:00:24
    tier with the ones that are basically
  • 00:00:26
    trash and a waste of time all the way
  • 00:00:28
    down to the most profitable ones that
  • 00:00:30
    generate hundreds of millions of dollars
  • 00:00:32
    a year. So without further ado, welcome
  • 00:00:35
    to Alux. Let's dive in. Now we're
  • 00:00:37
    starting off today at F tier. These are
  • 00:00:39
    the ones that are almost guaranteed to
  • 00:00:41
    fail. And we first got multilevel
  • 00:00:44
    marketing. Probably no surprises there
  • 00:00:46
    right now. Now, the main idea of an MLM
  • 00:00:49
    is that you're paid commissions from the
  • 00:00:50
    sales of the people you bring in and the
  • 00:00:53
    people they bring in and so on and so
  • 00:00:55
    on. And that is mathematically doomed to
  • 00:00:58
    fail. Let's say you join an MLM and
  • 00:01:01
    bring in five people and each of them
  • 00:01:02
    brings in five more and so on. If only
  • 00:01:06
    100 people do this in parallel, you'll
  • 00:01:08
    run out of people on Earth in like 13
  • 00:01:10
    steps. So, let's look at the numbers.
  • 00:01:12
    The startup cost is usually between $100
  • 00:01:16
    up to like five grand because you have
  • 00:01:18
    to buy a starter kit or inventory or
  • 00:01:20
    whatever nonsense that particular MLM is
  • 00:01:23
    selling. As for the margin, well, in
  • 00:01:26
    most cases, it's around 0% for pretty
  • 00:01:29
    much everyone because most people not
  • 00:01:31
    only don't make a profit, but they
  • 00:01:33
    actually lose money in unsold inventory.
  • 00:01:36
    According to the Federal Trade
  • 00:01:38
    Commission, the success rate of your
  • 00:01:39
    average MLM enjoyer is less than 1%. So
  • 00:01:43
    MLMs go straight into F tier, total
  • 00:01:46
    garbage avoid at all costs. Next on our
  • 00:01:49
    list, and still in the F tier, are life
  • 00:01:52
    coaches with no actual experience. Okay,
  • 00:01:55
    go on Instagram and search for #life
  • 00:01:58
    coach and you'll find millions of posts.
  • 00:02:01
    No credentials, no proven results, no
  • 00:02:03
    case studies, just people giving generic
  • 00:02:06
    advice and calling it a business. The
  • 00:02:08
    model is simple, okay? They charge by
  • 00:02:10
    the hour based purely on their personal
  • 00:02:13
    brand. And if you've got no brand,
  • 00:02:15
    you've got no business. Let's look at
  • 00:02:17
    the numbers, though. For the startup
  • 00:02:19
    cost, you've got a few hundred for a
  • 00:02:21
    website and a logo. The profit margin is
  • 00:02:23
    technically above 90% because it costs
  • 00:02:26
    you nothing to be on a call. The time to
  • 00:02:28
    profit is technically between 1 and 6
  • 00:02:31
    months if you can get leads, but the
  • 00:02:33
    success rate is under 5%. And that's
  • 00:02:36
    because people think becoming a life
  • 00:02:37
    coach means taking a course on how to be
  • 00:02:39
    a life coach. It's actually ironic. The
  • 00:02:42
    way that most life coaches make money is
  • 00:02:45
    by teaching other people to be life
  • 00:02:47
    coaches so they can teach others how to
  • 00:02:49
    be life coaches. There's a night and day
  • 00:02:52
    difference between someone who's coached
  • 00:02:53
    executives under pressure, built real
  • 00:02:56
    businesses, and spoken on real stages,
  • 00:02:58
    and someone with a motivational caption
  • 00:03:00
    and a ring light. That's why on the Alux
  • 00:03:03
    app, we only work with coaches with
  • 00:03:05
    actual results, with real careers,
  • 00:03:07
    entrepreneurs, authors, investors,
  • 00:03:09
    people who've actually done the work and
  • 00:03:11
    can help you do the work, too. We've
  • 00:03:13
    already helped hundreds of thousands of
  • 00:03:15
    people make their dreams a reality, and
  • 00:03:17
    we'd love you to join them. Okay? So,
  • 00:03:19
    scan this QR code on screen and you'll
  • 00:03:20
    get 25% off the annual membership on the
  • 00:03:23
    Alux app. I'll see you on the inside.
  • 00:03:26
    Moving on, though, to Dtier. These are
  • 00:03:28
    business models that can work, but just
  • 00:03:31
    are hard to pull off because it costs a
  • 00:03:33
    lot to keep them running and the profit
  • 00:03:34
    margins are extremely low. The first
  • 00:03:37
    model here is restaurants. Now,
  • 00:03:40
    restaurants operate on transactional
  • 00:03:42
    sales, right? You exchange time,
  • 00:03:44
    ingredients, and staff labor for single
  • 00:03:47
    orders. It's laborheavy, inventory
  • 00:03:49
    heavy, and location dependent. If volume
  • 00:03:52
    and consistency are not extremely high,
  • 00:03:54
    every restaurant bleeds money until it
  • 00:03:57
    closes. So, let's look at the numbers.
  • 00:03:59
    For startup costs, we've got anywhere
  • 00:04:01
    between 100K and 500K. It's quite
  • 00:04:04
    expensive to open a restaurant. You've
  • 00:04:06
    got the rent, which can be extremely
  • 00:04:08
    high if the location is good, and you
  • 00:04:10
    need it to be good. Then, you've got the
  • 00:04:12
    actual kitchen, staff, equipment, raw
  • 00:04:15
    materials, and so on. As for your profit
  • 00:04:18
    margin, you're looking at something
  • 00:04:19
    between 3% and 10%, which is pretty low.
  • 00:04:23
    This makes the time where you become
  • 00:04:24
    profitable to be more like 2 to 3 years
  • 00:04:27
    out. So, it makes sense that more than
  • 00:04:29
    half of restaurants close within 2 to 3
  • 00:04:32
    years, and around 80% fail within 5
  • 00:04:34
    years. For a restaurant to work, either
  • 00:04:37
    the location has to be absolutely
  • 00:04:39
    amazing, or the community around it is
  • 00:04:41
    great and keeps it going. And those
  • 00:04:44
    things are pretty hard to find, which
  • 00:04:46
    puts restaurants in D tier on our list.
  • 00:04:49
    Now, next up, but still on the D tier,
  • 00:04:52
    we've got traditional retail stores. So,
  • 00:04:54
    think of the souvenir shop at your local
  • 00:04:56
    mall. The business model is simple,
  • 00:04:58
    right? Buy in bulk, sell in person, and
  • 00:05:01
    hope enough people walk in. You carry
  • 00:05:03
    inventory, you pay rent, but you're
  • 00:05:05
    locked into one physical location.
  • 00:05:08
    Startup costs range from 50K to 250K and
  • 00:05:11
    the average margin is just 5 to 20%. As
  • 00:05:15
    for profit, honestly, nobody knows. We
  • 00:05:18
    still don't understand how some of these
  • 00:05:19
    stores are still standing. Almost every
  • 00:05:22
    major retailer is closing physical
  • 00:05:24
    locations or going online only. So, good
  • 00:05:27
    luck trying to compete with sameday
  • 00:05:28
    delivery and constant online discounts.
  • 00:05:31
    And lastly on the D tier, we've got
  • 00:05:33
    smallcale manufacturing, or in other
  • 00:05:35
    words, almost anything handmade. Think
  • 00:05:39
    custom furniture, artisan food products,
  • 00:05:41
    in-house clothing production. Basically,
  • 00:05:43
    anything where you are making the
  • 00:05:45
    product yourself instead of drop
  • 00:05:47
    shipping it. We'll get to drop shipping
  • 00:05:49
    soon, don't worry. So, this model means
  • 00:05:51
    that you are the founder and the
  • 00:05:54
    factory. As for the numbers, well, they
  • 00:05:56
    vary a lot because there are so many
  • 00:05:58
    businesses in this category, but here's
  • 00:06:00
    the average. Startup costs range from
  • 00:06:03
    10K to six figures depending on tools,
  • 00:06:06
    space, and materials. Profit margins are
  • 00:06:09
    typically 10 to 30% because
  • 00:06:11
    manufacturing, logistics, and supply
  • 00:06:12
    chain issues are very real and very
  • 00:06:15
    expensive. Time to profit at least 1 to
  • 00:06:19
    two years. As for the success rate, it's
  • 00:06:22
    fairly low, and that's because you're
  • 00:06:24
    competing with a similar model in a
  • 00:06:26
    tier, which we'll get to soon. Now,
  • 00:06:29
    there are two ways to make this business
  • 00:06:31
    model work, though. One, you own a hyper
  • 00:06:34
    niche market, okay? You're the only
  • 00:06:36
    person making that one specific thing,
  • 00:06:38
    and people come to you for it. Think of
  • 00:06:40
    niche hobbies like, I don't know,
  • 00:06:43
    falconry. High prices, pretty much zero
  • 00:06:46
    competition. Or secondly, what you make
  • 00:06:49
    is literally the best in the world.
  • 00:06:51
    Think handmade Japanese chef knives
  • 00:06:53
    crafted over weeks. The ones that chefs
  • 00:06:56
    wait months to get and happily pay
  • 00:06:58
    thousands of dollars for in advance.
  • 00:07:01
    Now, moving on to C tier, we've got
  • 00:07:03
    businesses that usually rely heavily on
  • 00:07:05
    trends or razor thin margins. And we're
  • 00:07:08
    starting off with everyone's favorite
  • 00:07:10
    pastime side hustle, drop shipping. Now,
  • 00:07:13
    the only reason we're putting drop
  • 00:07:14
    shipping here and not in D tier is
  • 00:07:16
    because unlike small-cale manufacturing
  • 00:07:19
    where you have to actually know how to
  • 00:07:21
    make the stuff, drop shipping requires
  • 00:07:23
    like zero skill. You sell products
  • 00:07:25
    you've never seen, to customers you will
  • 00:07:28
    never meet. And the process goes like
  • 00:07:29
    this, okay? You list products online,
  • 00:07:32
    usually from China. When someone buys,
  • 00:07:35
    the supplier ships it directly. You
  • 00:07:37
    never handle the inventory. All you have
  • 00:07:39
    to do is ads. lots and lots of ads. So,
  • 00:07:44
    let's run the numbers. Startup cost is
  • 00:07:46
    $500 to $5,000 with most of that going
  • 00:07:49
    into advertising. The average margin,
  • 00:07:52
    well, 5 to 10% unless you go viral on
  • 00:07:54
    Tik Tok with your one product store,
  • 00:07:56
    which in that case it might be 30%. As
  • 00:07:59
    for time to first profit, you're looking
  • 00:08:01
    at around 3 to 6 months if any at all.
  • 00:08:04
    After that, if what you're selling is
  • 00:08:06
    profitable, it is 100% going to get
  • 00:08:08
    copied a million times, and it's a race
  • 00:08:10
    to the bottom from there. On paper, drop
  • 00:08:13
    shipping looks like easy pocket money,
  • 00:08:15
    and it can be if you're good at running
  • 00:08:17
    ads and finding a product market fit.
  • 00:08:20
    But if that's the case, there are better
  • 00:08:22
    models to use those skills with. Now,
  • 00:08:25
    next up in our C tier list, we've got
  • 00:08:27
    print ondemand. So, the process looks
  • 00:08:29
    like this. Okay, you create art that can
  • 00:08:31
    go on clothing, mugs, prints, whatever.
  • 00:08:34
    You upload said art to platforms that
  • 00:08:37
    handle production and shipping. You earn
  • 00:08:39
    a commission per sale, often pennies.
  • 00:08:42
    So, let's run these numbers quickly,
  • 00:08:44
    okay? Startup cost is non-existent or
  • 00:08:47
    whatever you use to create your designs.
  • 00:08:49
    Average margins 10 to 30%, but we're
  • 00:08:52
    talking about very cheap products here.
  • 00:08:55
    Time to profit depends entirely on your
  • 00:08:57
    designs and niche. Could be a few
  • 00:08:59
    months, could be never. The reason this
  • 00:09:02
    sits in C tier is because it has zero
  • 00:09:05
    barrier to entry, okay? Anyone can
  • 00:09:07
    upload a design, which means millions
  • 00:09:09
    already have. It's a race to the bottom
  • 00:09:11
    on pricing and originality. It's less of
  • 00:09:14
    a business and more of a college side
  • 00:09:16
    hustle that makes $30 a month, if that.
  • 00:09:20
    And lastly on Ctier, we've got adbased
  • 00:09:23
    apps. So, we're talking about literally
  • 00:09:25
    every free app in the app store. Okay,
  • 00:09:27
    the business model looks like this. You
  • 00:09:29
    build an app, could be a basic game, a
  • 00:09:32
    productivity tool, or some novelty
  • 00:09:33
    concept, and you make it free to
  • 00:09:35
    download. You rely on inapp ads and high
  • 00:09:38
    user volume. Let's run the numbers.
  • 00:09:40
    Okay, startup cost is surprisingly high.
  • 00:09:43
    You're looking at a couple of grand to
  • 00:09:45
    over $100,000. And that's because even a
  • 00:09:48
    basic app that does literally nothing
  • 00:09:50
    still needs development time, server
  • 00:09:52
    costs, maybe even a bit of UX design. So
  • 00:09:55
    for the average margin, well technically
  • 00:09:57
    it's high because software is cheap to
  • 00:09:59
    deliver. However, the real net margin is
  • 00:10:02
    often between 5 to 15% because you make
  • 00:10:05
    low ad revenue per user compared to
  • 00:10:07
    housing costs and people don't usually
  • 00:10:09
    stick around for too long. That also
  • 00:10:11
    means that if you don't make a profit in
  • 00:10:13
    your first year or two, it's pretty much
  • 00:10:15
    bye-bye, which makes the success rate
  • 00:10:18
    below 5%. Most free apps never make
  • 00:10:21
    meaningful money and die quietly with
  • 00:10:23
    1,000 downloads and like six bucks in ad
  • 00:10:26
    revenue. So why isn't this an F tier?
  • 00:10:30
    Well, because of scalability. In theory,
  • 00:10:33
    if you build an app that attracts
  • 00:10:35
    millions of users, even small revenue
  • 00:10:37
    can turn into real money. Flappy Bird
  • 00:10:39
    was making like 50K per day at its
  • 00:10:41
    height. So even if it's not a great
  • 00:10:43
    business model, it's not necessarily a
  • 00:10:46
    dead end either. All right, with that
  • 00:10:48
    we're now on to B tier. So from this
  • 00:10:51
    point forward, every model is reliable,
  • 00:10:53
    profitable, and often the fastest way to
  • 00:10:56
    start making money when you're starting
  • 00:10:57
    from scratch. And we're starting off
  • 00:10:59
    with freelancing and consulting. You
  • 00:11:02
    sell your time or skills either per
  • 00:11:04
    project or a recurring basis, and you
  • 00:11:06
    land ongoing clients. Let's run the
  • 00:11:08
    numbers. Okay, so startup cost is zero
  • 00:11:11
    because it doesn't cost anything to make
  • 00:11:12
    an account on a freelancing website. As
  • 00:11:15
    for margins, you're looking at easily
  • 00:11:17
    above 90% because you have very little
  • 00:11:19
    overhead besides whatever software
  • 00:11:21
    license you might need. Time to first
  • 00:11:24
    profit is immediate to up to 3 to 6
  • 00:11:26
    months. As for success rate, well, this
  • 00:11:29
    is where things become interesting.
  • 00:11:31
    Okay, so according to a recent Adobe
  • 00:11:33
    study, 1 in four US-based freelancers
  • 00:11:36
    earn six figures or more per year.
  • 00:11:39
    That's pretty good. We actually worked
  • 00:11:41
    with dozens of freelancers over the
  • 00:11:43
    years, and we still do. These
  • 00:11:44
    illustrations, along with a couple of
  • 00:11:46
    our courses, were designed by the same
  • 00:11:48
    freelancer. We've even got a course
  • 00:11:50
    called Freelance Mastery, specially
  • 00:11:52
    designed to help you start your
  • 00:11:53
    freelancing journey, which you can find
  • 00:11:55
    at alux.com/freelance
  • 00:11:57
    if you're interested. Now, still on this
  • 00:11:59
    B tier and a step above freelancing,
  • 00:12:01
    we've got the agency model, which is
  • 00:12:04
    essentially still freelancing, but now
  • 00:12:06
    you've got employees. So, some
  • 00:12:08
    freelancers like to remain solo for
  • 00:12:10
    better flexibility and not having to
  • 00:12:12
    deal with people. Others opt to go a
  • 00:12:14
    step further and start building a team
  • 00:12:17
    either for straight up manpower or to
  • 00:12:19
    add complimentary skills for a more
  • 00:12:21
    complex project. Let's run the numbers
  • 00:12:23
    real quick. So, startup cost is $1,000
  • 00:12:26
    to $10,000 because now you may need an
  • 00:12:29
    office, some extra tools, and other
  • 00:12:32
    expenses. As for the average margin
  • 00:12:34
    rate, you're looking at 20 to 40% after
  • 00:12:37
    costs because now you've got to pay your
  • 00:12:39
    team as well. Time to profit should be
  • 00:12:41
    similar to the solo freelancer. So
  • 00:12:43
    immediate to up to 3 to 6 months time.
  • 00:12:45
    As for success rate, still pretty
  • 00:12:48
    similar to the solo freelancer. And
  • 00:12:50
    lastly on the B tier, we've got local
  • 00:12:53
    services. Things like cleaning,
  • 00:12:54
    landscaping, repairs, and so on. Because
  • 00:12:57
    here's the thing, okay? We've got too
  • 00:12:59
    many podcasters and not enough people
  • 00:13:00
    who can wire a house without burning it
  • 00:13:03
    down. Local services offer
  • 00:13:05
    location-based physical services, often
  • 00:13:07
    with a recurring element. It's labor and
  • 00:13:10
    logistic heavy, but the demand is
  • 00:13:11
    evergreen. All right, so let's run the
  • 00:13:13
    numbers. Startup costs between $2 and
  • 00:13:16
    $15,000 for gear, transportation, tools,
  • 00:13:19
    and marketing stuff. The average margins
  • 00:13:22
    20 to 50% depending on scale. Time to
  • 00:13:25
    profit, one to two months depending on
  • 00:13:27
    the services offered. As for success
  • 00:13:30
    rate, medium to high, especially in
  • 00:13:33
    underserved cities. You see, boring
  • 00:13:35
    businesses like these often quietly do
  • 00:13:38
    six figures a year once they're
  • 00:13:40
    established, especially if they're good
  • 00:13:41
    at marketing, because people with actual
  • 00:13:44
    skills, well, they're becoming pretty
  • 00:13:46
    rare. And with that said, we're now
  • 00:13:48
    entering the A tier. Now, these business
  • 00:13:51
    models have massive potential, strong
  • 00:13:53
    margins, and in many cases, recurring
  • 00:13:55
    revenue. This is where you can get rich
  • 00:13:57
    if you know what you're doing, but as
  • 00:14:00
    you might expect, they're not exactly
  • 00:14:02
    beginner friendly, okay? They often need
  • 00:14:04
    capital, expertise, and audience
  • 00:14:06
    building upfront. And we're going to
  • 00:14:08
    start off with franchise ownership. Now,
  • 00:14:11
    you pay to operate under a proven brand,
  • 00:14:14
    usually with exclusive territory and
  • 00:14:16
    support. and you get everything you need
  • 00:14:18
    from systems, supply chains, and
  • 00:14:20
    marketing tools. Let's run the numbers.
  • 00:14:22
    So, startup cost, as you would expect,
  • 00:14:25
    extremely high, like 50K up to millions
  • 00:14:28
    of dollars. As for margins, well, on
  • 00:14:31
    average, a franchise will net you around
  • 00:14:33
    10 to 20% and it's going to take around
  • 00:14:35
    1 to two years for it to become
  • 00:14:37
    profitable depending on your location
  • 00:14:39
    and category. Now, as for success rate,
  • 00:14:42
    well, more than 85% of them will survive
  • 00:14:45
    5 plus years, which sounds almost too
  • 00:14:47
    good to be true, but in this case, it
  • 00:14:50
    actually is true. But here's the fine
  • 00:14:52
    print. You can't just buy 10
  • 00:14:55
    Chick-fil-As and print cash. Top tier
  • 00:14:57
    franchises approve fewer than 1% of
  • 00:15:01
    applicants. They check for operational
  • 00:15:03
    experience, management capability, and
  • 00:15:05
    whether your proposed location even
  • 00:15:07
    makes strategic sense. and you can even
  • 00:15:09
    get fired if your performance drops. But
  • 00:15:12
    still, high success rate, built-in
  • 00:15:15
    systems, and the power of brand trust
  • 00:15:17
    makes a franchise ownership a solid A
  • 00:15:20
    tier model. Next up, digital products.
  • 00:15:24
    Now, this is one of the most scalable
  • 00:15:25
    and profitable business models in the
  • 00:15:27
    world, okay? And it typically comes in
  • 00:15:29
    two forms, each with its own level of
  • 00:15:32
    complexity and path to success. First,
  • 00:15:35
    let's talk about audience-based digital
  • 00:15:37
    products. things like courses,
  • 00:15:39
    subscription content, paid communities,
  • 00:15:42
    anything where you're packaging
  • 00:15:43
    knowledge, access or insight, and
  • 00:15:45
    selling it to people who trust you. And
  • 00:15:48
    to make this work, you need a loyal
  • 00:15:50
    audience, a clear value promise, and a
  • 00:15:54
    product that's genuinely worth paying
  • 00:15:56
    for. So, let's run the numbers real
  • 00:15:58
    quick. The startup cost. This is kind of
  • 00:16:00
    hard to pinpoint because there are two
  • 00:16:02
    parts. First of all, audience building,
  • 00:16:04
    which takes years of consistent content
  • 00:16:07
    and engagement, and then product
  • 00:16:09
    creation, which can range from a few
  • 00:16:11
    thousand to a few hundreds of thousands
  • 00:16:13
    of dollars, even millions, depending on
  • 00:16:15
    scale. As for margins, 80 to 95% for
  • 00:16:20
    things like courses or ebooks. For more
  • 00:16:22
    complex ongoing platforms like our Alux
  • 00:16:25
    app, margins are lower due to continuous
  • 00:16:27
    development and operational costs. time
  • 00:16:30
    to profit? Well, anywhere from
  • 00:16:32
    immediately to 3 plus years, depending
  • 00:16:34
    on how strong your audience and value
  • 00:16:36
    propositions are and how complex your
  • 00:16:38
    product is. It's obviously much easier
  • 00:16:41
    to make an ebook profitable than it is
  • 00:16:43
    to make an app. The success rate, well,
  • 00:16:46
    it's directly correlated to trust and
  • 00:16:48
    reach. If your audience trusts and
  • 00:16:50
    values what you're doing, the success
  • 00:16:52
    rate is high. Then you've got
  • 00:16:54
    technology-based digital products.
  • 00:16:56
    Things like plugins, automations,
  • 00:16:59
    add-ons, essentially digital tools that
  • 00:17:01
    people use in their work. Think of
  • 00:17:03
    things that save time or improve
  • 00:17:05
    workflow. But the numbers here, well,
  • 00:17:08
    they look a little bit different. The
  • 00:17:09
    startup cost is usually low, between $2
  • 00:17:12
    to $3,000, because in most cases, you
  • 00:17:15
    are building these things yourself. The
  • 00:17:17
    margins are about the same, about 90%,
  • 00:17:20
    so extremely high. The time to profit?
  • 00:17:23
    Well, if you build for an existing niche
  • 00:17:25
    or audience, 1 to 3 months. If you're
  • 00:17:27
    going more broad, well, expect 6 months
  • 00:17:30
    to a year to gain traction. A great
  • 00:17:33
    example are creators and photography of
  • 00:17:35
    video who sell their own lots. Preset
  • 00:17:37
    packs or After Effect plugins, digital
  • 00:17:40
    products are always going to be A tier
  • 00:17:42
    because you build them once and sell
  • 00:17:43
    them forever. High margin, low overhead,
  • 00:17:46
    high scalability. And lastly on our A
  • 00:17:49
    tier list, we've got direct to consumer
  • 00:17:52
    e-commerce brand. This is where you
  • 00:17:55
    manufacture or white label a product,
  • 00:17:57
    build a brand, and sell it directly via
  • 00:17:59
    your own website. It's inventory-based,
  • 00:18:02
    but allows customer loyalty, repeat
  • 00:18:04
    business, and premium pricing. This is
  • 00:18:06
    the better version of the small-cale
  • 00:18:08
    manufacturing from Dtier. So, how is
  • 00:18:11
    this one different? Well, you outsource
  • 00:18:14
    production which unlocks scalability
  • 00:18:16
    while you focus on branding and
  • 00:18:18
    marketing. When you outsource like 99%
  • 00:18:21
    of production, you get something called
  • 00:18:23
    white labeling. So essentially, you buy
  • 00:18:25
    the finished product from the same
  • 00:18:27
    factory in Asia and then you stick your
  • 00:18:29
    logo on top of it and call it your own.
  • 00:18:32
    That's how every influencer has their
  • 00:18:33
    own lipstick, protein bar, and clothing
  • 00:18:36
    line. When you outsource most of the
  • 00:18:38
    production and finish the product
  • 00:18:40
    inhouse, you call it high fashion.
  • 00:18:42
    That's how a $12 bag from China becomes
  • 00:18:45
    a $4,000 bag made in Italy after the
  • 00:18:48
    final stitching. So, let's run the
  • 00:18:50
    numbers, okay? Startup costs as low as
  • 00:18:52
    10,000 if you're a solo founder or well
  • 00:18:55
    into six or even seven figures if you're
  • 00:18:57
    a global brand. Margins between 30 to
  • 00:19:01
    60% depending on pricing, power, and
  • 00:19:03
    supply chain. Time to first profit?
  • 00:19:06
    Well, typically 6 to 12 months depending
  • 00:19:08
    on product market fit and spend, but
  • 00:19:10
    only about 10 to 20% of these businesses
  • 00:19:13
    will reach long-term profitability.
  • 00:19:15
    However, take all of these numbers with
  • 00:19:17
    a grain of salt, alux, because the
  • 00:19:19
    reason direct to consumer brands are so
  • 00:19:21
    powerful is because they have huge
  • 00:19:23
    marketing behind them. And finally, the
  • 00:19:26
    S tier stuff. These are the business
  • 00:19:28
    models of the ultra wealthy and top
  • 00:19:30
    entrepreneurs. They scale fast, have
  • 00:19:33
    really high margins, and usually
  • 00:19:35
    generate recurring revenue. So, we're
  • 00:19:37
    going to start off with software as a
  • 00:19:40
    service. So, code it once and license it
  • 00:19:43
    forever. In a way, it's similar to
  • 00:19:44
    digital products, but these ones stop
  • 00:19:47
    working if you stop paying. The startup
  • 00:19:49
    cost is between $10,000 to $500,000
  • 00:19:53
    up to hundreds of millions of dollars
  • 00:19:55
    depending on the complexity. The average
  • 00:19:57
    margin 70 to 90% time to first profit 12
  • 00:20:01
    to 24 months. The success rate well
  • 00:20:04
    about 10% higher if bootstrapped and
  • 00:20:08
    really niched. Essentially, if you can
  • 00:20:10
    solve a real problem and price it
  • 00:20:12
    monthly, you're building a money
  • 00:20:14
    printing machine. Quick side story here,
  • 00:20:17
    Amazon makes more than half of its money
  • 00:20:19
    from their Amazon Web Services division,
  • 00:20:21
    which is a software as a service model.
  • 00:20:24
    Next up, we've got marketplace. Now,
  • 00:20:27
    this is where you don't own the product,
  • 00:20:29
    but the traffic. You connect buyers and
  • 00:20:32
    sellers, taking a cut from every
  • 00:20:33
    transaction. Think Airbnb, Uber, and
  • 00:20:36
    again, Amazon. Let's run the numbers on
  • 00:20:39
    average, but again, they do vary a lot.
  • 00:20:41
    The startup cost between $50,000 and $1
  • 00:20:44
    million plus. UX, security, liquidity,
  • 00:20:48
    you get it. Average margin 40 to 70%.
  • 00:20:52
    First time to profit between 1 and 3
  • 00:20:54
    years. The success rate pretty low, but
  • 00:20:57
    there is a massive upside. They're very
  • 00:20:59
    hard to pull off. You need huge traffic
  • 00:21:01
    to make it profitable, but they can also
  • 00:21:03
    be done at smaller, more niche scales.
  • 00:21:07
    And finally, we've got fintech. Now, you
  • 00:21:10
    build the infrastructure, payments,
  • 00:21:12
    wallets, investing tools. You profit via
  • 00:21:15
    small fees at scale, often recurring or
  • 00:21:18
    baked into usage. requires regulatory
  • 00:21:20
    knowledge but offers insane upside. Now,
  • 00:21:24
    if all of these models can technically
  • 00:21:26
    be done with a very small team, fintech
  • 00:21:28
    is a bit of a different beast because
  • 00:21:30
    it's not exactly easy to build such a
  • 00:21:33
    thing. It has a very low success rate,
  • 00:21:35
    takes years and years to be profitable,
  • 00:21:37
    and you need a huge infrastructure
  • 00:21:39
    behind it to make it work. But we had to
  • 00:21:42
    add it here, okay? Because when it's
  • 00:21:43
    done well, it's so good. And this is our
  • 00:21:46
    tier list for almost every business
  • 00:21:48
    model out there. There are a few more
  • 00:21:50
    things like SVODs, which stands for
  • 00:21:53
    subscription video on demand like
  • 00:21:55
    Netflix, but we're talking literally
  • 00:21:57
    billions of dollars in startup costs
  • 00:21:59
    alone. So yeah, maybe for another video.
  • 00:22:03
    But until then, we hope you found this
  • 00:22:05
    one valuable. We'll see you back here
  • 00:22:06
    next time. Take care, my friend.
Tags
  • business models
  • ranking
  • profit margin
  • startup costs
  • success rate
  • freelancing
  • digital products
  • franchises
  • drop shipping
  • software as a service