A business model is the blueprint for how a company creates and delivers value to its customers. It is a framework that allows companies to differentiate themselves from the competition and identify how they will generate revenue. It’s what makes a company unique and how it makes money.
What is a Business Model?
Simply put, a business model is an answer to the question “how does your company make money?”. It is the foundation for how a company plans to generate revenues and profits. A business model typically outlines the structure, strategy, processes, and technology that a company will use to identify and serve its customers. It’s the bridge between the company’s strategic objectives and its revenue generation systems.
The Role of the Business Model
The business model is a core element of any successful business plan. It describes the structure of a business, how it creates and delivers value, and how it earns revenue. A well-defined business model will help a company focus its resources on the customers it wants to attract and the products that it wants to offer. It also serves as a roadmap for growth by setting the company’s pricing and targeted market.
Types of Business Models
A company’s business model should cater to its unique product or service offering. There are a variety of common business models that companies choose from, including:
1. Product/Service Based Business Model
This traditional model is based on the product or service being sold. It is typically used by companies that manufacture or distribute physical products or offer services.
2. Platform Based Business Model
This model is based on a platform or service that allows different users to interact with each other, such as online marketplaces.
3. Advertising or Subscription Based Business Model
With these models, companies make money by either displaying ads or charging customers a fee for access to their products or services.
4. Franchising Business Model
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This model involves getting another company to market and distribute your product or service. It allows a company to expand quickly and minimize risks.
5. Subsidiary Based Business Model
This business model involves having a parent company operate multiple subsidiaries. The parent company owns and operates the various units or subsidiaries that operate in different markets.
6. Licensing Business Model
This model involves granting legal rights to use a company’s trademarks, technologies, or other intellectual property in exchange for a fee.
7. Affiliate Business Model
This model involves relying on other companies to market and sell a product or service. The affiliate earns a commission for each sale that it refers to the company.
Guidelines and Best Practices
As with any business strategy, there are some key guidelines and best practices that a company should adhere to when creating its business model.
1. Analyse the Market: Doing some research and analysis into the market is essential before developing a business model. Companies should understand the current and what potential customers need and what competitors are offering.
2. Identify the Unique Value Proposition: A company should also identify what sets it apart from its competitors and how this strengthens its business model. This could be something as simple as offering better prices or as complex as offering a unique product.
3. Know Your Objectives: It is also important for a company to establish its goals and decide how it will measure success. This will help it track its progress and make changes where necessary.
4. Set Realistic Expectations: Companies should also set realistic expectations for their business model. It can be easy to get carried away and develop a model that is too ambitious, but this could put the company at risk.
5. Test and Iterate: Finally, it’s important to test and iterate the business model. This means testing different elements, such as different pricing schemes, marketing campaigns, and customer segments, to see what works best. This process should be done continuously in order to ensure that the business model remains relevant and effective.