Industry
Part of Profit models compared: eight ways to get paid, and what each costs
6 pointers on ideas by profit model framework that hold up
Six pointers on ideas by profit model framework: what you owe a customer after they pay, for how long, and how obligation and cash timing shape the business.
Ideas by profit model framework often start with business model lists that show how money arrives. That helps, but leaves out what decides how the business feels to run: what you still owe the customer after they pay.
The profit model framework this publication uses has two parts: the profit model pillar sorts models by cash timing, while this page sorts them by obligation. An obligation is a promise with a duration attached, and duration removes or preserves your ability to change your mind. Together, cash timing and obligation tell you what a business idea asks of you after the sale.
Six pointers
- Name what you still owe after payment.For a sold object, a completed piece of work, or a session that ends, the answer is often nothing. For a course, a subscription, or a retainer, the answer has a duration.
- Write down who decides when it ends.A stated term ends on a date. An until-canceled membership or retainer ends when the customer says so. A contingent warranty, guarantee, or refund promise ends only if the condition occurs; a franchise agreement usually sets its own term and duties.
- Match the obligation to the cash timing.Paid in advance with a long obligation is the strongest cash position and the heaviest commitment. Paid afterwards with a discharged obligation is the opposite: your freedom is complete and your cash position is fragile.
- Price the worst plausible case, not the typical one.A generous guarantee is a real liability, and it is sold at the moment you are least able to estimate it. Narrow the promise before you widen it.
- Choose a first venture with a short obligation.A sold object, a finished project, or a single session teaches you the most per month and commits you to the least. You can add duration once you know what you can promise.
- Test the exit before you start.Ask what you would have to unwind if you wanted to stop trading in three months. Cash timing tells you what growth does to your bank balance. Obligation tells you what it does to your freedom to stop.
Four kinds of obligation
Discharged on delivery. You hand over the thing and it is finished. A sold object, a completed piece of work, a session that ends. Whatever else is true, tomorrow you owe nothing.
Continuing for a stated term. A course of sessions, a project with a completion date, a subscription with a fixed period. You owe something for a known length of time, and the end is written down.
Continuing until canceled. A gym membership, a retainer, an ongoing service. You owe something indefinitely, and the customer decides when it stops. Anyone running this shape around another job should read it beside the part-time pillar, because the obligation does not pause when the rest of your life gets loud.
Contingent. You owe something only if a condition occurs: a warranty, a guarantee, a promise to fix, a refund policy that runs for a long period. The obligation is invisible until it is not.
What each does to the business
Feels like
- Discharged on delivery
- Starting from zero every month
- Stated term
- A calendar with an end in it
- Until canceled
- A base you can plan on
- Contingent
- Cheap, until it is not
The risk it carries
- Discharged on delivery
- Selling never gets easier
- Stated term
- Renewal is a fresh sale
- Until canceled
- You are committed while the customer is not
- Contingent
- The cost arrives on someone else's schedule
Where it fails
- Discharged on delivery
- Marketing costs stay permanently high
- Stated term
- Terms all ending at once, in a quiet quarter
- Until canceled
- Slow erosion nobody notices until it is large
- Contingent
- Many claims at once, from a single batch or a single mistake
The fourth row is the one that gets left out of business plans. A generous guarantee is a real liability, and it is sold at the moment you are least able to estimate it.
Obligation types and their risks
Feels like
- Discharged on delivery
- Zero every month
- Stated term
- Calendar with end
- Until canceled
- Base to plan on
- Contingent
- Cheap until not
Risk
- Discharged on delivery
- Selling never easier
- Stated term
- Renewal is fresh sale
- Until canceled
- Committed, customer not
- Contingent
- Cost on their schedule
Where it fails
- Discharged on delivery
- High marketing costs
- Stated term
- Terms end together
- Until canceled
- Slow erosion unnoticed
- Contingent
- Many claims at once
Placing an idea
Answer four questions in plain words.
- After the customer has paid, what do I still owe them, in one sentence?
- For how long, and who decides when it ends?
- What would it cost me if every customer exercised the promise at once?
- If I wanted to stop trading in three months, what would I have to unwind?
The last question is the important one. Cash timing tells you what growth does to your bank balance. Obligation tells you what it does to your freedom to stop.
Obligation against cash timing
These two properties interact, and the combinations are not equally comfortable.
Cash timing vs obligation
Cash position
- Paid in advance + long obligation
- Strongest
- Paid afterwards + discharged
- Fragile
- Paid afterwards + long obligation
- Fragile
Commitment
- Paid in advance + long obligation
- Heaviest
- Paid afterwards + discharged
- Complete freedom
- Paid afterwards + long obligation
- Cannot stop
Paid in advance with a long obligation is the strongest cash position and the heaviest commitment. You hold money you have not yet earned, and you owe work you have not yet done. Growth here funds itself and buries the obligation, which is why it is worth measuring separately.
Paid afterwards with an obligation discharged on delivery is the opposite: your freedom is complete and your cash position is fragile. The startup budget guide covers why that gap between working and being paid closes more businesses than any single cost.
The combination worth avoiding is paid afterwards with a long obligation. You are funding the work, carrying the risk, and cannot stop.
Contractual obligation you did not write
Some models come with obligations set by somebody else. Franchising is the clearest example: the arrangement is defined in a contract, with duties running in both directions for a stated term. The disclosure a seller must provide exists because those duties are hard to see from outside. In the United States, that disclosure is governed by the FTC's Franchise Rule, 16 CFR Part 436.
The FTC's Franchise Rule, 16 CFR Part 436 requires a seller to give a buyer a Franchise Disclosure Document (FDD) before signing. The text is written for the seller, which makes it a clear description of what a buyer is entitled to see. Read it before signing anything of that shape, and treat any offer that will not produce an FDD as having answered your question.
Outside money carries obligations too, of a different kind, and the SBA's overview of how small businesses get funded is a fair description of what each route commits you to. Both are worth reading as obligations rather than as opportunities.
Changing the obligation deliberately
Every model can be moved. A discharged-on-delivery business builds a base by adding a stated-term product, which is what a maintenance visit or a block of sessions actually is. An until-canceled business reduces its exposure by converting to stated terms with explicit renewals. A contingent obligation is limited by writing it down narrowly rather than generously.
None of these requires selling something different. They are choices about what the promise contains, and the skill-based guide covers the packaging side of the same decision.
Common questions
Is a long obligation a bad thing?
No. It is what turns a series of sales into a business with a base. It simply has to be a promise you can keep in a bad month, since the customer's right does not pause when your circumstances change.
How do I price a contingent obligation?
Conservatively, and narrowly written. Estimate the worst plausible case rather than the typical one, because contingent costs arrive together rather than evenly.
Which combination should a first venture choose?
Usually paid on or before delivery, obligation discharged quickly. It teaches you the most per month and commits you to the least, and you can add duration once you know what you can promise.
