Note: This article explains the profit mechanism in the financial system and how it can be applied to the business world by revealing the principles of financial leverage and business models.Banks, as the world's largest financial institutions, seem to have always been seen as unique profit creators. In reality, however, banks do not make money on interest rate differentials. For example, when you deposit $1 million in the bank, you can only get $20,000 in interest a year, but if you borrow $1 million from the bank, you may need to pay $100,000 in interest. If you think that the bank made 80,000 from it, then your understanding of the problem is too superficial. Because in the financial system, whether it is insurance, ** or banks, they all use a common tool, which is financial leverage.
So, what is financial leverage?Let's take a bank's acceptance bill as an example. When you borrow 1 million from the bank, the bank does not directly provide cash, but issues an acceptance draft. You give the bill to Zhang San to pay for the goods, and Zhang San sees that it is issued by the bank, so he accepts the bill. Then, Zhang San handed over the bill to Li Si for settlement, and Li Si saw that it was issued by the bank and accepted it as well. During the whole process, the three parties completed the transaction, however, in reality, the bank did not actually come up with the money. Suppose the bank issues 50 such bills of exchange, the bank will receive 5 million in interest on the loan, but the interest paid on the deposit will still be only 20,000. In short, 5 million minus 20,000 equals 4.98 million. Compared to the 1 million in our hands can earn up to 80,000, the banks in the financial system can earn 4.98 million. This is how financial leverage works.
It is based on this principle of financial leverage that many people apply it to the business field and earn the wealth of others for a lifetime in just one year. Take, for example, the owner of a hairdresser in Wenzhou, who initially had only two stores. When the store opened, he advertised at an ultra-low ** (original price of 128 yuan, current price of 18 yuan), attracting a large number of customers. Then, he guides the customer to apply for a membership card, recharge 2,000 yuan to get an additional 2,000 yuan, and return 2,000 yuan. The measure of store performance is the number of people who apply for membership cards every day, and 15 membership cards are processed every day, and the monthly income of a store reaches 900,000 yuan.
You may say that this is just a pre-deposit for the customer, and in the end there is still a need for a service, and a service comes at a cost. After deducting the cost, the profit of 900,000 yuan is not much. But if you think about it, banks also deposit money, and eventually they need to return it to us. So why didn't the bank fail, but made a lot of money?It's the same thing with this barbershop. After receiving 900,000 yuan, a store immediately used the money to open a second and third store. When the second and third stores also received the money, they opened a business model that broke the mold: the application of financial leverage.
As the core institution in the financial system, banks use financial leverage to achieve rapid accumulation of wealth. While there is a difference between the interest on deposits and the interest on loans, banks do not profit from this difference alone. In fact, banks use the principle of financial leverage.
The core of financial leverage lies in the clever transformation of the difference between the customer's deposit and the loan in the form of acceptance bills. When a customer borrows money from a bank, the bank does not provide cash directly, but issues an acceptance draft. This bill of exchange can be used to pay for the goods, which can then be transferred between different transaction parties. Although the bank did not actually come up with the funds, in the process, the bank was able to receive a large amount of interest on the loan. For banks, this is a relatively low-risk and high-yield business model.
Many business sectors have also begun to apply the principle of financial leverage to quickly accumulate wealth and gain rapid expansion of business.
For example, a hairdresser owner in Wenzhou has successfully achieved rapid business development by using a financially leveraged mindset. In the beginning, he only owned two stores. In order to attract more customers, he advertised ultra-low prices as low as 18 yuan, which attracted the attention of a large number of customers. Subsequently, he guided the customer to apply for a membership card, recharge 2,000 yuan to give 2,000 yuan, and return 2,000 yuan. This event attracts a large number of customers, and the number of people who apply for membership cards reaches 15 per day. Under this model, his monthly income reached 900,000 yuan.
Some people may question that these are just pre-deposits for customers, and ultimately need to provide services and deduct costs. However, we can take a cue from the workings of banks. Just as the bank used customers' deposits for loans and achieved rapid wealth growth, the hairdresser also used customers' deposits for the expansion of the store. When the first store received 900,000 yuan, he quickly opened the second and third stores. With the second and third stores also receiving funding, he expanded again and opened more stores. Of course, not all stores are profitable, but that's not a problem. For stores that are not profitable, he can choose to close, and for customers who ask for refunds, he uses bank deposit and exchange to tell customers that they can go to other stores to make purchases. In this way, he was able to keep the good stores and attract more customers by constantly opening new stores. In this process, he not only made money through the activities of opening stores in the early stage, but also achieved double profits at the front and back end through the drainage of subsequent stores. A store earns 900,000 yuan a month, and 100 stores means a monthly income of 90 million yuan, which is 10 yuan in a year800 million.
A business model is the business strategy and operation mode designed by a business or organization to achieve a profitable goal. A successful business model can bring stable cash flow and consistent profitability to the business.
At the heart of a business model is creating value and turning it into revenue. By offering an attractive product or service and finding a customer base that is willing to pay for it, businesses can be profitable. At the same time, the business model also requires effective cost control and operational efficiency to ensure that revenues exceed costs and achieve sustainable profitability.
A successful business model should also be flexible and adaptable to respond to market changes and competitive pressures. Businesses need to constantly innovate and improve their business models to stay competitive and adapt to changing market demands.
To sum up, both financial leverage and business models are important factors that enable companies to achieve profitability. Financial leverage can help businesses scale up quickly and achieve higher returns, while business models are frameworks and strategies for achieving profitability. By leveraging financial leverage and designing innovative business models, companies can succeed in a competitive business environment.