A business model, also known as business design, is a company’s planning regarding the revenue and benefits it seeks to obtain. Business models establish guidelines for attracting customers, defining product offerings, and implementing advertising strategies, among many other issues related to the configuration of company resources.
When establishing the business model, it is essential that the person in question analyzes the business in depth and answers a series of questions, because, based on the answers, one or another type of business model can be implemented.
What is a business model?
A business model outlines how your business plans to make money. In over-all, a business model explains four things:
- What product or service will a business sell?
- How do you plan to market this product or service?
- What type of expenses will the company face?
- How the company hopes to make a profit.
There are different types of business models.
The most basic and oldest is known as the merchant model, which involves locating the business where potential customers should be and displaying the product and service offering there.
The bait and hook model, developed in the early 20th century, involves providing a commodity product at low cost, or even incurring losses (the bait), and then charging excessive prices for parts, spare parts, or associated inputs (the hook). ).
This economic model is prevalent in the printer sector, and printing costs are meager compared to ink cartridges.
In some cases, companies appear to be operating successfully, but their business model is unclear. Therefore, how these companies will obtain their revenues and be profitable is not precisely defined.
This is the case for many websites, which receive millions of visits and become very popular, but do not have the necessary model to guarantee their financial success.
How To Design A Business Model
There is no single economic model. Many businesses incorporate elements of multiple models: the yoga studio that offers blended classes may also sell retail products in its lobby, for example.
To design your own commercial model, start by answering the following questions:
How are you going to make money?
Describe one or more revenue streams representing how your business plans to generate profit.
What are your key indicators?
A profitable business is great, but it usually doesn’t happen immediately. You will want to identify other ways that your business will measure its success, such as how much it costs to acquire a purchaser or how many repeat customers you will have.
Who is your target customer?
Your product or facility should solve a specific problem for a particular group of consumers. Your business model must consider the size of your potential customer base.
How will your product or service benefit these customers?
Your business model should have a clear value proposition, which makes it particularly attractive to customers. In an ideal world, your value proposition should be specialized enough that competitors cannot easily copy it.
What expenses will you consume?
Make a list of the fixed and variable incidentals your business needs to operate, then determine what prices you need to charge so that your revenue exceeds these costs. Consider the costs of your business’s physical, financial, and intellectual assets.
Why are business models important?
Business models allow you to create value from new ideas. While it’s important to have ideas for your products and services, you must also answer critical questions about taking those ideas to the next stage, all of which can help you with a business model.
A business model also helps you think about a business and highlight its critical components to teams and stakeholders. Additionally, business models allow companies to manage their strategies and generate new growth.
Having a business model also allows you to determine how a company does things now and how it can do them better in the future.
What is value in business?
A successful business creates something of value. The world is a whole of opportunities to satisfy people’s wants and needs, and your job as a businessperson is to find a way to capitalize on these opportunities.
A viable business model allows a company to charge a price for the value it creates, so that it generates enough money to be worth it and continue operating over time. Everything the company offers must also meet the customer’s needs and quality expectations.
It is essential to keep in mind that value is subjective. What is valuable to one person may not be helpful to another.
Furthermore, the notion of value excludes any moral judgment on the intrinsic value of an offer. For example, although most agree that human life is more appreciated than sports, some professional athletes make significantly more money than the average neurosurgeon.
