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Reduce Costs to Help Your Beneficiaries Gain More Help

Jan 4, 2008
In considering how to expand your business model's delivery of offerings and benefits, you should be guided by what will be easily understandable and desirable by your stakeholders (those who are affected by what you offer) . . . and where the adjustments will provide more effectiveness for nonprofit organizations.

Business model innovation is something that many organizations struggle with. In this article, I've broken out the elements and added a nonprofit example to make innovative business model thinking and analysis easier to do. This article's material will, however, be clearest to those who have already read about continuing business model innovation.

Expand What You Do Now

Unless you are providing a very small percentage of the needs of each customer or beneficiary, growing by 21-fold requires adding beneficiaries. Because so many organizations can expand to provide 21 times the number of beneficiaries, that's a great place to begin. You should start by considering who you will serve as these added beneficiaries and where those benefits will be delivered to make the expansion more practical.

Who Is Served and Where

Let's begin considering volume-expanding business models by looking at "who" is served. The lesson is to keep it simple. Change as little as possible while becoming more efficient and effective as an organization for your customers and beneficiaries. The simplest way to do this is to put more of the same kind of volume through an existing organizational structure without adding fixed costs or increasing the ratio of variable costs to benefits delivered.

In a nonprofit organization there's a savings incentive to provide more of the same offerings to the same recipients. Let's consider an organization that carries donated food by truck to distribution centers serving needy families. Most such distribution centers provide a small portion of a family's total weekly needs -- perhaps as little as one meal a week. The families may be visiting 10 to 30 different distribution centers weekly to fulfill all their needs. The trucks carrying the goods to a given distribution center are often owned and operated by that center, may be in use for only a few hours a week, and could be operated much more often.

Let's assume that more volunteers can be found to load the food, and drive and unload the trucks. Both the nonprofit organization and the needy families will benefit economically if 21 meals weekly are delivered and distributed at one time to a distribution center.

See Example 1 for a quantification of this point.

Example 1: Adding Trip Volume for an Underutilized Truck to Increase Food Available to Needy Families for Each Pick Up

When a truck isn't driven very much, its capital costs (depreciation of its value from the purchase price) exceed the operating costs. Put that truck into use more often and you are able to divide the capital costs over more miles. As a result, your cost per trip of the same distance will become much smaller.

Truck Beginning Point -- 1 Truck Trip per Week: Annual truck capital costs $52,000 for 5,200 miles per year

Capital cost per trip $1,000

20 Times Truck Volume Increase -- 21 Truck Trips per Week: Annual truck capital costs $109,200 for 109,200 miles per year

Capital cost per trip $100

Note: Annual capital cost is higher because service life is reduced by driving more miles a year.

Recipients' automobile operating costs, by comparison, vary directly with use. Driving 21 times as much results in spending 21 times as much. If they can reduce their driving, however, their operating costs per week go down.

Automobile Operating Costs Beginning Point for Recipients -- 21 Pickups per Week

Weekly gas, oil, and maintenance $21.00

Cost per pickup $1.00

Automobile Operating Cost -- 1 Trip per Week

Weekly gas, oil, and maintenance $1.00

Cost per pickup $1.00
About the Author
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at

http://www.2000percentsolution.com .
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