The business model accurately describes how your business is going to make money. In practice, it boils down to determining what you intend to sell to which clients, for what purpose, how you intend to provide this value to clients and, most of all, whether (and how much) your company can earn on it. In other words, by building a business model, you can ask yourself the right questions about the key elements of your business. In the following article you will learn what an economic model is and how to build it.
The vast majority of companies operate in highly competitive industries and dynamically developing markets. Starting a business in such an environment should be preceded by a reflection on the business model. The lack of a well-thought-out strategy in a competitive market usually leads to price competition, which automatically lowers the profitability of the business and leads to meeting the customer’s expectations without meeting the company’s needs. Creating business models avoids similar situations. So it’s time to take a look at what a business model is.
Business model – what is it? Business model definition
A company’s business model, also known as an economic model, is a plan that creates a company to generate income and maximize operating profit. In other words, it is a document that describes all the logic that will enable a given company to earn money. The business model is therefore central to most business plans and is an opportunity to create a thriving, profitable business.
Elements of the business model
The purpose of the business model is to plan how you will create value for your customers and then how you will deliver it to them. In addition, this plan answers the questions: when should your business start, how can it grow and when will you know you have been successful? Each thoroughly developed business model should consist of four basic elements. Here they are:
WHO is the customer of the company?
Targeting your offer to a wide audience will not allow your company to focus on customers who really need your product or service. Therefore, when creating a business model, it is worth limiting the group of recipients to two or three precisely defined persons. We have prepared some sample questions for you that you can ask yourself to create a clear picture of your customers:
– How old is your client?
– Does she have children?
– What is his profession?
– Where he lives? – What are his passions?
– What do I need?
– How does he make purchasing decisions?
– What social networks does it use?
– Why should he choose your product or service?
– What may prevent him from taking advantage of your offer?
WHAT value do you offer?
The second element of the business model defines the value you intend to provide to your audience to meet their needs and expectations. Think about what product or service you can offer to your target customers and describe it in as much detail as possible.
HOW will you deliver value to your customers?
Think about what methods, tools or technologies you will use to deliver defined value to your clients. Also think about how at this stage you can stand out from the competition that offers similar products or services. This will tell you what you can do differently to more completely meet the needs of your target customers.
WHY should the client take advantage of your offer?
To define the fourth element of the business model, you may consider why your target customer should leave their current supplier and take advantage of your offer. What are the benefits of making him take risks and partner with you? Why should the customer pay you? It is worth considering how he will be able to make this payment.
Of course, business models do not have to (and should not) be limited to just defining the above four elements. In your analysis, you can also include information on how you will implement the developed model to your business, whether you will establish cooperation with some business partners, and what strategic resources your company has at its disposal.
Before starting to build a business model, it is worth getting to know the market and its trends well. The collected data should be real and reliably verified. Otherwise, you risk developing your model based on wrong assumptions.
Business model – how to do?
Building business models is basically asking yourself the right questions to get the necessary information from the four areas defined above. Before that, however, it is necessary to choose the right tool with which you will be able to collect all the necessary data in a way that will allow you to use it in the future for business development. Experts in the field of creating business models use many different methods in their practice. One of the most popular and used is the Canvas model.
The Canvas model allows you to create business models by presenting them on a single page in the form of a table. This quick and synthetic process also helps you prepare for an oral presentation of your project. This tool will work for almost any type of business, regardless of the scale and type of value offered. It enables verification of the consistency between what will be sold and why, to whom, how and for how much. At the same time, Canvas allows you to map key design elements, understand the interactions between them and organize them.
Several methods can be used to create a Canvas business model. The best known and currently widely used method was proposed by Alexander Osterwalder and Yves Pigneur. According to the authors’ assumption, the Canvas model consists of 9 elements:
– customer segments,
– value proposition,
– key partners,
– key activities,
– key resources,
– customer relationship,
– cost structure.
The individual blocks of the Canvas business model form an inseparable whole, which in the final form constitutes the business model of the enterprise.
Business model – an example
There is no one perfect exemplary business model. Business models can be categorized in a variety of ways, based on many different market relationships. Moreover, companies rarely use only one type of model. The most advantageous option is to create your model, which will be a combination of several different types. The most popular classification of business models is based on the relationship between an enterprise and its customers and distinguishes the following types of models:
– B2C (Business-to-Customer): companies target their offer to individual clients,
– B2B (Business-to-Business): the enterprise offers value to other companies,
– C2C (Customer-to-Customer): exchange of goods between consumers,
– P2P (Peer-to-Peer): sharing files on the Internet without the need to transfer them through the main server,
– E- or m-commerce: consists of selling products and making transactions via the Internet and mobile devices.
To inspire you even more, here are some examples of other popular business models.
A. Production and distribution
Production is a classic business model. It consists in transforming raw materials into products intended to be placed on the market. Example: an artisan selling his wares.
In this model, the franchisee adopts the concept of the franchisor who grants permission to use his idea. In exchange for the possibility of using a model whose profitability has been proven, the franchisee is obliged to pay the franchisor a fixed part of his turnover. Example: fast food restaurant chains.
This business model is to charge customers for using a product or service for a specified period of time without making a purchase. As a result, consumers gain access to goods that they may not be able to afford or simply do not want to buy. Example: car rental.
The advertising model is one of the oldest and still developed business models. The customer pays for visibility to disseminate his message through a variety of media. Example: Ads offered by Google on the search results page.
A long but profitable process
A business model is a specific recipe that will become the basis for the success of your future business if well prepared. However, if you already run a business, regardless of whether your company is a startup or rather a business that can be described as traditional, it is important that you thoroughly analyze your model, because thanks to this you can effectively improve the performance of your enterprise. Do you feel that you need support in creating or developing your e-commerce business model? Please do not hesitate to contact us. Thanks to an in-depth diagnosis of the economic model, we effectively help our clients to question their business models and improve them, or to design and implement completely new solutions.