The business model explains the comprehensive process used to determine the company’s goods or services, how it intends to sell them, the target market, the cost of production, and how it plans to generate a profit. 

Business models are crucial for both new and existing businesses. They help young and developing organisations attract investors, acquire talent, and motivate employees and executives while helping exiting businesses recognise the potential ahead and the way to position themselves for such. 

Great companies know the role of a business model and are also very adaptive to changing situations. They understand that the long-term success of any business is tied to the company’s ability to project future changes; hence, the need to constantly come up with revised business models.

Value Proposition

Have you ever heard the statement, “What do you have to bring to the table?” That is what the term value proposition refers to. It speaks of a detailed statement of the benefits that the consumers can derive from purchasing goods or getting the services offered by the business. This benefit does not always have to be something that can be seen or touched; it could be a feeling of happiness, boldness or confidence derived by using the product. The company’s value proposition is a vital element of any business model because it sets the marketing edge for the business among many competitors in that business niche. 

Types of Business Models

Business models vary, and this is just because not all businesses can be categorised into one basket. There are all kinds of businesses, from Traditional Market businesses to E-Commerce, Logistics and Tech Businesses. All these can be categorised into different business models. 

Let’s take a look at a few business models and examples of businesses operating that model:  

1. Retailer business model

This is the traditional business model where a company manufactures products or offers services and has physical or virtual retail stores where people can buy and receive the service. All products come from the producer to the wholesaler and then to the retailer. This is the most common business model that everyone interacts with. 

Examples are Vans, Farfetch, Ikea, and TOMS. 

2. Subscription-based business model

This business model is designed to keep customers loyal to the business. Customers continually pay for the product or service (usually service, in most cases). A premium is placed on the service, which is usually monthly or aggregated annually. 

Note: some companies allow their users to choose from a number of bouquets

Examples are Netflix, DSTv, Spotify, and Adobe.

3. Freemium business model 

This business model seeks to serve the consumer first by offering a measure of the company’s value and then proposing that the customer have access to better services provided by the company at a token. Freemium is not uncommon among software companies; it is a way of appealing to customers and making them aware of the value they can get from using the product. 

Examples are Dropbox, Linked In and Canva.

4. Razor and Blades

This business model combines two products with different prices. The goal is to sell one of the products at a lower price and cover that from the sale of the other consumable and renewable products. 

Examples are Gillette, HP Printer, and Sony.

5. Franchise business model

A business with a unique trade secret can leverage its uniqueness to expand across different states and countries. The partnership between the franchiser and the franchisee (usually the one financing) allows the business owner to receive a portion of the revenue generated by the franchisee. 

Examples: Domino’s Pizza, McDonald’s and Subway.

These are just the prominent ones among the many business models; some others are Pay-as-you-go and Reverse Razor Blades. A thorough understanding of your business model positions your business for success and scalability as the business tide changes over time and opportunities surface to ensure the business remains relevant. 

How to create a  business model

Creating an effective business model is not magic, and neither is it a straight-line graph. It involves going back and forth on several considerations until you can point out a strategy that is effective for delivering the required result. There are a few points that lessen the process of coming up with a working business model for your business. 

1. Recognise a problem and Identify the audience.

Recognise an existing problem and identify the people in need of the solution you are able to offer. This is crucial because business is all about solving problems and earning from the problem-solving. 

2. Design a solution that best feats the people you are serving.

This is important because until your audience feels like they need your service, they will only be a one-time buyer or admirer. Is the product or service tailored to the specific needs of the people? This is a question that must be answered. 

3. Identify and record the business needs.

This involves knowing the tools and processes needed to solve people’s problems in the most effective yet least costly way. Any business will thrive if it can keep its costs low enough to keep making profits.

4. Recognise the kind of partners needed.

Knowing the kind of partner you need is very important for the business to take off and thrive in the Long run. Is it supposed to run for the meantime with your funds and angel investors, or do you need professional investors on board? Knowing this is also key to the business’s success. 

5. How does the business plan to generate money? 

Knowing how the business plans to make money is crucial if the business model is to be solid and complete. This is not a single-day strategy, as the client’s needs might change the model that was preconceived for generating money for the business. 

6. Test the model

A few ways to test the model are to reach new customers and take their feedback, find out from buyers what they would love to see improve about the business, and ask what they think about the price of the goods or services. The customers’ feedback is the most important aspect of the test. Hence, ensure that their feedback is considered if any adjustments are made to the business model. 

A business is as successful as the plan it embraces. Hence, having a solid plan is never a waste of time and energy because the plan is what keeps the business easy to change if there is a need for one. It’s not just about selling a product but ensuring that the product is tailor-made for those who truly need it and can afford it. A business model is key to these plans, ensuring that the financial future of the business is not bleak but clear to everyone involved.