How do you turn a profit in business? What are effective profit-making strategies?
Turning a profit can be difficult because many strategies can actually decrease your business’s value. Thankfully, Geoffrey G. Parker, Marshall W. Van Alstyne, and Sangeet Paul Choudary have strategies that will guarantee your business earns more money.
Find out how to earn profit in business below.
How to Turn a Profit
The authors explain that learning how to earn profit in business can be difficult because most of the obvious profit-making strategies, like charging users to join, can lower your platform’s value by impeding easy access and decreasing the size of your network. For this reason, many platform designers elect a free or “freemium” (free with paid premium upgrades) model until the network is sufficiently built up. Then, they can consider implementing profit-making strategies. If you have a similar plan for your platform, note that charging for benefits that were once free—like access to basic features—is a surefire way to make users feel exploited, which could lead to an exodus of users. Instead, create additional value (like exclusive content or an ad-free experience) and charge for that.
(Shortform note: Although the authors warn that charging users for benefits that were once free can spur users to leave your platform, recent data suggests the opposite. In 2023, Netflix introduced measures to prevent password-sharing, which sparked user ire but paid off for the company in the form of nearly 10 million new subscriptions. In 2024, Amazon introduced ads to its streaming service, offering users the option to pay to get rid of them. This move was also unpopular with users, but experts suggest that it will be profitable and other streaming services are likely to follow suit. Users may tolerate such changes if they view a platform as indispensable, as streaming services have become in the entertainment sector.)
Effective profit-making strategies capitalize on user benefits—like producers’ and consumers’ access to each other—without motivating users to leave the platform or use it less frequently. This requires understanding the spending ability of each user market—for example, ultra-profitable producers may have more money to work with than consumers with little disposable income.
(Shortform note: There are several ways to ensure your platform is affordable for users, given their spending ability. For example, you might conduct market research by collecting and analyzing data that capture your targeted users’ spending habits, or you might price-match with competing platforms.)
Effective profit-making strategies include:
- Upgrading selectivity services for a fee. For example, you might offer tiered subscriptions that give users access to higher-quality offerings. (Shortform note: The most common form of this strategy is to offer three tiers: good, better, and best.)
- Billing users for access to each other. For example, you might let producers pay to find out more about consumers’ desires so they can tailor their offerings. (Shortform note: To address users’ data privacy concerns, you might ensure this is opt-in only.)
- Taking a percentage of payouts. For example, you might impose a service fee on consumers or take a share of producers’ profits for each transaction. (Shortform note: To avoid user backlash, experts suggest imposing fees that are sensible and predictable.)
