Derek Sivers

Programmer, writer, avid student of life. I make useful things, and share what I learn.

A business model with only two numbers

Like most people, I had no idea what to charge for my service.

So I went to the local record store in Woodstock, where they had some local musicians’ CDs on the counter.

I asked the woman at the store, “How does it work if I sell my CD here?”

She said, “You set the selling price at whatever you want. We keep a flat $4 cut. And we pay you every week.”

So I went home and wrote, on my new cdbaby.com website, “You set the selling price at whatever you want. We keep a flat $4 cut. And we pay you every week.”

I figured if it worked for her, it was fine for me.

Because it was taking me about forty-five minutes of work to add a new album to the site, I also had to charge $25 per album as compensation for my time. (Shows you how much I thought my time was worth in those days.) A few days later, I realized that $35 feels about the same as $25, so I bumped it up to $35 per album, which left me room to give discounts and still make a profit.

And that’s it! Six years and $10 million later, those same two numbers were the sole source of income for the company: a $35 setup fee per album and a $4 cut per CD sold.

A business plan should never take more than a few hours of work. Hopefully no more than a few minutes. The best plans start simple. A quick glance and common sense should tell you if the numbers will work. The rest are details.

Anything You Want - book cover