The term business model means the framework that a company establishes for itself that defines the business’s value and profit-making plan. A business model defines the product or service that the business plans to market, identify the target market, and forecast the expenses. Creating a successful model before the commencement of the business is important because it is the foundation of your business and will identify the ways of generating revenue. As well, your business model should be in a constant state of innovation. It needs to be able to change with the times to remain relevant.
Creating a model can be stressful because pre-determining the start and progress of the business, estimating the budget, securing the problematic areas, and finding ways to earn a profit isn’t easy. To create a strong model, you must primarily focus on cost and pricing. Successful businesses work on the fulfilment of clients’ needs at a sustainable cost and competitive price.
Essential components
Business models widely depend on the type of business you are interested in, for example, advertising-based, manufacturing, service industry, direct sale, franchising, and so on. Each business is unique depending on certain essential components of your organization. These components help in deciding the correct model for your business. Here is a list of components that can change your business:
– The target market for your product or service
– Unique feature that makes your product different and attractive to the customers and cannot be easily copied by the competitors
– Cost structure that affects the functioning of the business and pricing of the product
– The profit margin the company plans to generate
– The ways a company plans to generate its revenue
– The issues faced by the target customer with the product and how the company plans to solve them
– The assets and liabilities of the company
These are the essential components that will help you determine your business model and can change as the business grows and matures.
Types of business model
As discussed, various business models depend on the components of business that can be customized or changed based on the industry. Some of these models are discussed below:
Subscription model
With the world getting digital and becoming the most essential part of our day-to-day life, the subscription model has gained its popularity with the prevalence of the internet. This model is relevant to both traditional and modern business methods. The best example for this model is Netflix, where a customer pays a certain amount of money every month to use a product or service. In this model, the company can send the product directly to you or you might take a subscription fee to use an online application.
Bundling model
In this model, companies sell two or more products as a single unit, at a comparatively lower price than the company would have charged if the product was being sold separately. Fast-food chains like McDonald’s use this by offering their clients deals on meals. This model helps the companies in selling the product which is otherwise difficult to market and also increases their volume of sales.
Razor blades model
As the name suggests, in this model companies offer a cheaper high-margin product to promote the sale of low-margin product that compliments the initial product. For example, smartphone companies like Oneplus push the sale of additional products, services and tools like earbuds, or dash chargers which accompany the primary product that is the smartphones or digital TV.
Product as a service model
This business is an alteration of the ‘Buy and Own’ business model. This model allows a client to purchase the service related to the product, rather than buying the product. The best example for this model would be Uber, a person can access the car, use the car to go somewhere but doesn’t have to buy the car. The client is paying just for the service and not for the product.
Leasing model
Under the leasing model, a company purchases a product from the seller and then puts it on the lease to another company in exchange for a consideration known as a periodic fee. Manufacturing units or businesses dealing with medical equipment works best under this business model.
How to choose the one for your business
The right business model for any company depends on the scale of operation and the expenses one is planning to incur. There are other factors like the type of product or service and the target market that affect the model. Finding the right model can be confusing and stressful, therefore taking suggestions from executive peer groups is an ideal solution to this problem.
Executive peer groups are groups made up of business owners, company presidents and CEOs who have vast knowledge about business development, market trends, and customer demand. This group of fellow associates are experienced in their field and know how to handle a company and help it grow. While discussing your business plan in business peer groups don’t miss out on anything and ask questions about every single issue you are facing while deciding on the model.
These associates are an accountable source of information and will stop you from making any wrong decisions. They will also provide you with personal support and will give your ideas that can be a valuable insight for your business. Business peer groups have a collective experience of several years and will provide you practical knowledge regarding the business plan, business model, employees and will help you in making good decisions for the company.
Conclusion
Deciding on a business model can be among the most stressful things you do while you plan to start a company. Always remember your organization goals while deciding your model. There are questions like the kind of product or service you want to sell, how you intend to market your product, expenses that you might face, and the kind of profit you are planning to generate that you must address while planning a business model. You must consider joining a business peer group to help you get through the process and get the right suggestion regarding the working of the business.
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