business model définition simple

How Companies Make Money

• Search Search Please fill out this field.

What Is a Business Model?

Understanding business models, evaluating successful business models, how to create a business model.

• Business Model FAQs

The Bottom Line

Learn to understand a company's profit-making plan

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

Investopedia / Laura Porter

The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff.

Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees understand the future of a company they may aspire to join.

Key Takeaways

• A business model is a company's core strategy for profitably doing business.
• Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses.
• There are dozens of types of business models including retailers, manufacturers, fee-for-service, or freemium providers.
• The two levers of a business model are pricing and costs.
• When evaluating a business model as an investor, consider whether the product being offer matches a true need in the market.

A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.

A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.

One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS). Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income . That is gross profit minus operating expenses and is an indication of just how much real profit the business is generating.

The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. If expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.

When evaluating a company as a possible investment, find out exactly how it makes its money (not just what it sells but how it sells it). That's the company's business model.

Types of Business Models

There are as many types of business models as there are types of business. For instance, direct sales, franchising , advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA .

Below are some common types of business models; note that the examples given may fall into multiple categories.

One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.

Example: Costco Wholesale

Manufacturer

A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass produced products. A manufacturer can also sell goods to distributors, retailers, or directly to customers.

Example: Ford Motor Company

Fee-for-Service

Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge by an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.

Example: DLA Piper LLP

Subscription

Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.

Example: Spotify

Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.

Example: LinkedIn/LinkedIn Premium

Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers free version and a premium version.

If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.

Example: AT&T

Marketplace

Marketplaces are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business models attempts to make transacting easier, safer, and faster.

Example: eBay

Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.

Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni.

Razor Blade

Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component of that product. Also referred to as the "razor and blade model", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.

Example: HP (printers and ink)

"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.

Reverse Razor Blade

Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.

Example: Apple (iPhones + applications)

The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.

Example: Domino's Pizza

Pay-As-You-Go

Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.

Example: Utility companies

A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development or freight.

Example: ReMax

There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:

• Identify your audience. Most business model plans will start with either defining the problem or identifying your audience and target market . A strong business model will understand who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
• Define the problem. In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need, your business may struggle to find its footing if there isn't a demand for your services or products.
• Understand your offerings. With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you're able to provide.
• Document your needs. With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future.
• Find key partners. Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.
• Set monetization solutions. Until now, we haven't talked about how your company will make money. A business model isn't complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.
• Test your model. When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so.

Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .

For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

• Productivity and Business Processes: Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based off product usage (i.e. the amount of data being uploaded to SharePoint).
• Intelligent Cloud: Microsoft offers server products and cloud services for a subscription. This also provide services and consulting.
• More Personal Computing: Microsoft sells physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.

How Do I Build a Business Model?

There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.

Harvard Business Review. " Why Business Models Matter ."

Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."

Microsoft. " Annual Report 2021 ."

• How Companies Make Money 1 of 23
• How IBM Makes Money 2 of 23
• How Micron Makes Money 3 of 23
• How Snapchat Makes Money 4 of 23
• How Spotify Makes Money 5 of 23
• How X (Formerly Twitter) Makes Money 6 of 23
• How Uber Makes Money 7 of 23
• How Alibaba Makes Money 8 of 23
• How Amazon Makes Money 9 of 23
• How Lockheed Martin Makes Money 10 of 23
• How Nike Makes Money 11 of 23
• How Starbucks Makes Money 12 of 23
• How Bank of America Makes Money: Consumer Banking 13 of 23
• How Berkshire Hathaway Makes Money 14 of 23
• How BlackRock Makes Money 15 of 23
• How JPMorgan Makes Money 16 of 23
• How Square (Block) Makes Money 17 of 23
• How Visa Makes Money 18 of 23
• How Does Robinhood Make Money? 19 of 23
• How Acorns Makes Money 20 of 23
• How Chime Makes Money 21 of 23
• How Credit Karma Makes Money 22 of 23
• How Reddit Makes Money 23 of 23

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices

By clicking “Accept All Cookies”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.

• Micro-Entreprise
• Association
• Choix Statut
• Services B2B
• SASU et EURL
• Bilan et liasse fiscale
• Déclarations de TVA
• Devis et Facturation
• Services Conseils
• Synchoronisation bancaire
• Tableau de bord et pilotage
• Domiciliation Entreprise Votre adresse prestigieuse à Paris
• Modifications de Statuts Procédure 100% en ligne
• Dissolution d'entreprise Traitement sous 24h

• Agent commercial
• Agent immobilier
• Bâtiments et Travaux Publics
• Boulanger, pâtissier, biscuitier
• Chauffeur de taxi et VTC
• Coach sportif et fitness
• Développeur web
• Métiers de la santé
• Restauration
• Services à la personne
• Transport de marchandises
• Webdesigner
• Autres activités
• 100 conseils pour créer
• La création d’entreprise
• Réflexion préalable
• Idée de création
• Business model
• Construire son projet
• Analyser l’entreprise
• Négocier le rachat
• Location-gérance
• Commerce organisé
• Se faire accompagner
• Étude de marché
• Préparer son business plan
• Prévisionnel financier
• Valider son Business Plan
• Faire son Business Plan en ligne
• Préparer son dossier
• Aides à la création
• Apports en capital
• Compte courant d’associé
• Financements bancaires
• Outils de trésorerie
• Investisseurs
• La micro-entreprise
• L’entreprise individuelle
• L’EURL
• L’association
• Régimes fiscaux
• Sécurité sociale
• Choix du statut juridique
• Local professionnel
• Autres choix de création
• Statuts de société
• Annonces légales
• Dépôt du capital social
• Immatriculation
• Création en ligne
• S’implanter en France
• Contrats commerciaux
• Conditions commerciales
• Communication
• Comptabilité
• Facturation
• Gestion financière
• Comptes annuels
• Assemblées générales
• Modification de capital
• Transfert de siège
• Transformations
• Autres modifications
• L’impôt sur le revenu
• L’impôt sur les sociétés
• Les crédits d’impôts
• La CFE et la CVAE
• Autres impôts et taxes
• L’embauche du salarié
• Les contrats de travail
• La gestion de la paie
• La mutuelle d’entreprise
• La rémunération du dirigeant
• La rupture du contrat de travail
• Groupes de sociétés
• Cession de fonds
• Cession de titres
• Fiscalité des cessions
• Fermer son entreprise

Comment construire et valider un business model (modèle économique) ?

Le business model , ou modèle économique , occupe une place centrale dans tout projet de création d’entreprise . L’entrepreneur doit définir comment son entreprise va créer de la valeur et générer des revenus . Ensuite, il doit tester et valider son offre. Ce travail est important afin de maximiser les chances de succès de la nouvelle entreprise.

Ce dossier vous explique en quoi consiste un business model , puis comment le construire et le valider :

Qu’est qu’un business model ? Définition

Comment construire son business model , comment tester et valider son business model .

Le business model est le modèle économique d’une entreprise, c’est-à-dire son mécanisme de création de valeur . Il s’agit d’un élément central du business plan de l’entrepreneur. Tout ce qui se trouve dans ce document s’articule autour du modèle économique.

Trouver une idée de création d’entreprise est simple. Par contre, construire un modèle économique est plus compliqué. Cela revient à définir et expliquer comment générer des revenus à partir de l’idée de création d’entreprise. Ensuite, le modèle doit être validé par des tests pour vérifier que l’offre séduit la clientèle ciblée.

En pratique, l’échec d’une création d’entreprise provient souvent d’un business model mal conçu. Sa construction et sa validation sont des réflexions d’importance majeure pour optimiser ses chances de réussite.

Pour réussir à construire un business model, le créateur d’entreprise doit se mettre à la place de ses clients .

Connaître parfaitement son marché

Avant de commencer à construire un business model, il faut avoir une connaissance approfondie du marché et de ses tendances. Les données collectées doivent être réalistes et validées. À défaut, le créateur d’entreprise risque de développer son modèle économique sur des éléments erronés.

Déterminer le positionnement de l’entreprise

Ensuite, le créateur d’entreprise doit réfléchir au positionnement de son entreprise sur le marché. Pour cela, il doit se poser plusieurs questions :

• Quels seront les caractéristiques des produits ou services par rapport à la concurrence ?
• À quoi servent-ils ?
• Quelle est la réelle valeur apportée aux clients ?
• Sur quels avantages concurrentiels compte-t-il capitaliser ?

Valider le positionnement de l’entreprise

Une fois que le premier positionnement est établi, le créateur d’entreprise doit le confronter aux clients. Pour cela, il doit établir une enquête de validation , qui consiste à interroger directement des futurs clients.

Les résultats de l’enquête de validation permettront d’adapter le premier positionnement et de la valider. Parfois, il peut remettre en cause le projet lorsque les résultats sont négatifs.

Expliquer comment l’entreprise va générer des revenus

Dès que les caractéristiques de l’offre de produits ou services sont clairement définies, le créateur d’entreprise doit expliquer la façon dont il compte générer des revenus. Il doit dévoiler la stratégie déployée pour s’implanter sur son marché .

La présentation d’un business model doit être courte et précise. Elle doit être correctement préparée pour que le créateur d’entreprise puisse communiquer efficacement sur son projet. Lorsque la présentation est claire, le créateur d’entreprise pourra convaincre plus facilement ses partenaires. Cette présentation figure notamment dans le business plan .

Réaliser un business model canvas

Le business model canvas est une méthode qui permet de construire facilement son modèle économique et de le présenter avec clarté. Nous vous expliquons tout au sujet de cette méthode dans ce dossier : le business model canvas .

Une fois que le business model est construit, il doit ensuite être testé et validé. Pour cela, le créateur d’entreprise doit l’expérimenter auprès d’un échantillon le plus représentatif possible de sa future clientèle. L’analyse des retours clients peut aboutir à plusieurs conclusions :

• L’offre séduit les clients, le modèle économique est bon et le créateur d’entreprise pour avancer dans la mise en de son projet.
• L’offre présente des limites, le modèle économique a besoin d’adaptation. Par exemple, il peut s’agir d’un prix à réviser.
• L’offre n’a pas plu aux clients, le modèle économique n’est pas bon. À défaut, le créateur d’entreprise a un risque d’échec important.

Un bon business model est :

• Basé sur un savoir-faire maîtrisé,
• Orienté sur une clientèle ciblée,
• Générateur d’une réelle valeur ajoutée pour les clients.

Enfin, le modèle économique a vocation à évoluer. Il doit évoluer en fonction des attentes des clients et des nouvelles tendances du marché. D’ailleurs, son évolution est un enjeu stratégique pour les start-up , qui adapte sans cesse leur modèle par apprentissage.

Poster un commentaire

Nous ferons de notre mieux pour vous répondre dans des délais raisonnables. Vous pouvez demander à tout moment la rectification ou la suppression de vos informations à caractère personnel : Nous contacter

Prénom (obligatoire)

Mail (non affiché) (obligatoire)

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Avertissez-moi de la publication de nouveaux commentaires par mail. Vous pouvez également souscrire sans laisser de commentaire.

• Création d’entreprise, les étapes clés
• Réaliser son étude de marché
• Faire son business plan
• Le guide de l’EURL
• Le guide de la SARL
• Le guide de la SASU
• Le guide de la SAS

• Construire son projet d’entreprise en ligne
• Création d’entreprise en ligne
• Comparateur de statut juridique
• Outil de business plan en ligne
• Prévisionnel financier sur Excel
• Evaluer et tester son idée de création
• Bien préparer son projet de création
• Faire un business model canvas
• Valider son projet de création d’entreprise
• Tout comprendre sur le business plan
• Bien préparer son business plan
• Établir les tableaux financiers
• Faire un prévisionnel financier
• Créer une EURL : tout ce qu’il faut savoir
• Créer une SARL : tout ce qu’il faut savoir
• Créer une SASU : tout ce qu’il faut savoir
• Créer une SAS : tout ce qu’il faut savoir
• Tableau comparatif des statuts juridiques
• Choix d’un statut juridique pour l’entreprise
• Choix du régime fiscal de l’entreprise
• Choix d’un statut social pour le dirigeant
• Formalités à accomplir pour créer son entreprise
• Procédure à suivre pour immatriculer sa société
• Solutions pour créer son entreprise
• Créer son entreprise en ligne, choisir et comparer

Navigation :

• Partenariats et publicité
• Nous contacter
• Mentions légales et CGU
• Politique de confidentialité
• Plan de site
• Plan du site

Nos autres sites :

• Notre application
• Entreprises et Droit
• Compta-Facile

Le coin des entrepreneurs :

Le coin des entrepreneurs est un média online de référence pour les créateurs d'entreprise, les repreneurs d'entreprises et les chefs d'entreprises. Nous vous proposons sur notre site internet des centaines de dossiers sur les thèmes de la création, la reprise et la gestion d'entreprise, dans le but de vous informer et de vous conseiller dans toutes les étapes de votre projet entrepreneurial (de l'idée de projet jusqu'au lancement de votre nouvelle activité).

En plus du média, Le Coin des Entrepreneurs vous propose également une application digitale pour vous accompagner dans vos projets entrepreneuriaux. Notre application vous propose une multitude de fonctionnalités pour vous guider dans votre projet de création ou de reprise d'entreprise

Notre mission est simple : proposer aux entrepreneurs un éco-système complet qui leur permet de construire leur projet et de se lancer dans leur nouvelle activité

• Search Search Please fill out this field.
• Building Your Business

What Is a Business Model?

PeopleImages / Getty Images

A business model is a plan describing how a business will make money. It is an outline that explains the company’s revenue and cost structure, and how it expects to turn a profit—or at least sustain itself as a going concern.

Key Takeaways

• A business model is an outline of how your business will generate a profit. The plan includes important information like target market, market need, and details on business expenses.
• There are lots of types of business models, and models can be combined as well. You’re probably familiar with some of the more common ones like manufacturer, distributor, retailer, and franchise. 
• When creating a business model, you should be clear about who your target customer is and how you’ll reach them. You’ll also want to know specifics about what you’re selling, and what sets you apart from your competition.

Definition and Examples of a Business Model

A business model is an outline that breaks down the ways that a company makes its profit. It identifies the target market, the market’s need, and how the business will serve its customers. The plan also includes the costs incurred from expenses like producing and marketing the product. There are multiple types of business models, each tailored to fit the unique needs of various businesses.

An example of a business model is one in which the concepts are split into two categories—business ideas and business resources. Under the business idea category lies products and services, target audience, competition, differentiation, advertising, and sales. Business resources, meanwhile, are what’s needed to make the idea work and can be divided into ownership, staffing, facilities, financial model, funding, and balance sheet.

A business is unlikely to be successful unless all facets of the business model provided in the example above allow it to be competitive in its marketplace. 

Types of Business Models

Here are a few commonly used business models that you’re probably familiar with. 

Manufacturer

This type of business model is when a company makes a product from raw materials or assembles prefabricated items to create new merchandise. The business can sell the items directly to consumers itself, which is a business-to-consumer (B2C) model, or it can use a business-to-business (B2B) model in which it sells to other businesses. 

An example of a B2C manufacturer would be a shoe company that sells its products directly to customers. A B2B manufacturer would be a business that sews dresses and only sells its products wholesale to other businesses, which then sell the dresses to the general public. 

Distributor

The distributor business model is when a company purchases inventory from a manufacturer and sells it to either a retailer or directly to the public. A common challenge that distributors face is picking the right price point that allows them to make a profit on the sale, but still offers competitive pricing. An example of a distributor would be a company that buys soft drinks from a manufacturer and sells those beverages to restaurants at a higher price.

There are many different types of business models and multiple models can be combined to create a new approach.

Retail business models are those used by companies that buy inventory from a manufacturer or distributor and sell those products to the public. Retailers can range from a single mom-and-pop shop to huge chain stores—they often have brick-and-mortar locations, an online store, or both. 

An example of a retailer would be a hat store that buys the products from a distributor. A limited selection of the hat store’s products is available at its brick-and-mortar storefront, but its full inventory can be purchased online. 

The franchise business model can be applied to other business models, like the ones we just discussed. The franchisee takes on the business model of the franchise and with it, the latter’s pre-established processes and protocols. Examples of popular franchises include McDonald’s, KFC, Burger King, and 7-Eleven.

When developing your business model, identify your target customer and how you’ll reach them. You’ll also want to familiarize yourself with what you’re selling (costs, margins, features, benefits, etc.) and what your competitive advantage is .

SCORE. “ Do you have a Successful Business Model? ”

SCORE. “ Develop Your Business Model by Answering These 4 Questions .”

By clicking “Accept All Cookies”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.

• Gartner client? Log in for personalized search results.

Gartner Glossary

Business model.

A business model is a description of how an organization creates, delivers and captures value. It has a formal structure that consists of four basic components: the value proposition, customers, a financial model and capabilities.

Recommended Content for You

Top Finance Trends and Priorities for 2023

Download Report

CFO Strategy in Times of Change

Shared Services Model

Leadership Vision for 2023: Chief Financial Officer

Leadership vision for 2023: corporate controller.

What Will Finance Focus on in 2023?

Experience Gartner conferences

Master your role, transform your business and tap into an unsurpassed peer network through our world-leading virtual and in-person conferences.

Gartner Webinars

Expert insights and strategies to address your priorities and solve your most pressing challenges.

Recommended Webinars for You

Impactful storytelling: tell your unique cxo story.

October 06 | 9:00 a.m. CDT

Register Now

Attract & Retain Top Talent With a Compelling Employee Value Proposition

October 20 | 9:00 a.m. CDT

Unlock The Future of Finance With AI

October 25 | 10:00 a.m. CDT

Related Terms

Free newsletter for executives get objective, actionable insights – plus invitations to events. sign up now..

By clicking the "Continue" button, you are agreeing to the Gartner Terms of Use and Privacy Policy.

Contact Information

All fields are required.

Please provide the consent below

I have read, understood and accepted Gartner Separate Consent Letter , whereby I agree (1) to provide Gartner with my personal information, and understand that information will be transferred outside of mainland China and processed by Gartner group companies and other legitimate processing parties and (2) to be contacted by Gartner group companies via internet, mobile/telephone and email, for the purposes of sales, marketing and research.

By clicking the "Submit" button, you are agreeing to the Gartner Terms of Use and Privacy Policy.

By clicking the "" button, you are agreeing to the Gartner Terms of Use and Privacy Policy.

Ce site requiert une version plus récente d’internet explorer ...

Partagez cet article par email

Votre message a bien été envoyé!

Accéder aux fiches-pratiques.chefdentreprise.com

Déjà abonné ?

• Login (e-mail ou n° d'abonné)
• Mot de passe
• Rester connecté ?

Pas encore abonné ?

900 fiches accessibles immédiatement ! Cliquez vite sur "Je m'abonne" !

Qu'est-ce qu'un business model ?

Le business model, ou modèle économique, est l'élément clé d'un business plan. C'est lui qui détermine comment une entreprise pourra engendrer des gains. Il est donc indispensable de bien comprendre cette notion afin de choisir le business model le plus adapté à l'activité de l'entreprise.

1. business model : définition.

Le business model est le coeur d'un business plan. C'est le point de départ, l'idée originale qui permet à une entreprise de se démarquer de la concurrence et d'espérer pouvoir gagner de l'argent. L'entrepreneur mène d'abord un travail de réflexion, de synthèse et de diagnostic afin d'établir son propre business model. À partir de celui-ci, il peut décliner son idée dans son business plan , qui inclura divers éléments : bilan prévisionnel, compte de résultat prévisionnel, plan de trésorerie, tableau de financement.

2. Business model : un choix primordial

Faire un état des lieux de la concurrence s'impose afin de se positionner pour apporter une innovation au projet d'entreprise. C'est grâce à cette valeur ajoutée que l'entrepreneur peut espérer des gains financiers et le développement de son activité commerciale. Si le business model n'est pas bien défini, ou s'il ne se démarque pas suffisamment du concept des entreprises concurrentes, les chances de réussite sont moindres. Cela ne veut pas dire qu'un business model est figé. Une stratégie entrepreneuriale peut évoluer, voire totalement changer si l'idée initiale ne paraît pas ou plus adaptée au marché.

3 . Comment construire un business model ?

Le business model constitue un prérequis au lancement d'une entreprise . Pour mettre cette dernière à flot, il est important de répondre aux questions suivantes :

• Que comptez-vous vendre et pourquoi ? (la proposition de valeur) ;
• À qui ? (vos clients) ;
• Avec quels moyens ou ressources ? (les ressources-clés et les partenaires) ;
• Comment procédez-vous ? (relation-clients et canaux) ;
• À quel prix ? (structure de coûts et flux de revenus).

4. L'utilité du business model

S'il ne garantit pas la réussite infaillible du projet entrepreneurial, un business model bien établi met toutes les chances du côté de l'entrepreneur. En effet, cela permet de rendre l'offre claire, tant pour lui que ses partenaires (fournisseurs, investisseurs, prescripteurs...). Le segment de marché et la cible de la clientèle sont définis, ce qui évite la dispersion. Le facteur innovant par rapport à la concurrence est mis en exergue avec la rentabilité escomptée. Un business model permet également à l'entrepreneur de présenter de façon synthétique et efficace son projet entrepreneurial et sa stratégie auprès des banques et autres partenaires. Ainsi, ces derniers auront une vision globale et une lecture rapide et concise de la valeur qui sera créée.

5. Les exemples de business model

Les business models ne sont pas nouveaux. Au-delà des modèles économiques traditionnels, certaines stratégies comme le low-cost ou la désintermédiation se sont développées. Et dans le monde de plus en concurrentiel de l'Internet, de nombreux business models ont émergé :

• SAAS (Software As A Service) : principe de l'abonnement ;
• peer to peer : l'entreprise prélève une commission sur une mise en relation ;
• freemium : l'entreprise offre une prestation gratuite et un accès payant pour des contenus plus riches ;
• partage de revenu : l'entreprise partage les revenus avec des ayants droit (exemples des plateformes de streaming) ;
• tout gratuit : la prestation est gratuite, mais la publicité génère des gains ;
• affiliation : l'entreprise prélève une commission en cas de clic sur une bannière publicitaire.

Télécharger le guide gratuitement Choisir le bon business model

• Votre guide est en cours de téléchargement.
• Si le téléchargement n'a pas débuté, cliquez sur le bouton ci-dessous.
• Télécharger le dossier

What is a business model? Types and examples

Few things are as important to a company as its business model. Your business model serves as a template and guide for just about every part of your business. It's essential to not only create a business model that reflects how you will make money, but also adapt it over time as the needs of your market change.

How does a business model work? What are some common types of business models? This guide will introduce you to business models and provide a helpful guide so you can create your own.

Business model definition

A business model explains an organization's core strategy for running a profitable operation. It describes what will be sold, how revenue will be generated and how the customers will pay.

Business models capture the rationale and the plan for creating and delivering value. Business models also reflect the company's unique value proposition, which is the essential way in which the company meets the market’s needs.

Key components of a business model

While every company's business model will look different, a successful business model will contain the following key components:

• A description of the products or services (including the cost of manufacturing)
• A strategy for distributing that product (marketing, delivery, merchandising)
• How the customer pays (pricing structure, payment methods)

Your business model integrates all of the components of your business and organizes them into a cohesive structure.

Business model vs. business plan

The term "business model" is sometimes used synonymously with "business plan." However, the two documents serve slightly different purposes.

A business model is a holistic portrait of how the company operates. Think of a business model as an aerial photograph of your organization, giving you a comprehensive view of your current and future operations.

A business plan refers to the specific strategy for accomplishing a particular goal. A business plan is more like the turn-by-turn directions you receive on your GPS device.

The business model and business plan must be in alignment, but the business model explains how you will succeed while the business plan shows how you’ll get there.

Why choosing the right business model is important

Writing for the Harvard Business Review, Joan Magretta explains that business models matter because they tell a specific story about your company. Your company's "story" explains how all the pieces come together and connects this narrative to your raw financial numbers.

Business modeling is, therefore, important for at least three groups of people:

1. Your company's employees

Your business model determines the scope and strategy of your business processes. It's important for you and your employees to understand your existing business model, as well as how it translates into your day-to-day activities.

But more than that, a successful business model will also provide a vision for the future, which empowers established businesses to improve their cash flow and make expansion plans.

2. Your target customer groups

Successful business models also create value for your business and help you communicate this value to your target customer segments. While your key customers will likely never read your business model, it should help you strategize ways to communicate your unique value proposition to your customers.

3. Investors

Investors will also need to understand your business model. Ideally, your business model describes a clear strategy for meeting a market need, establishing your goals, and setting a long-term vision. A clear business model will help you gain the confidence of investors and secure funding.

What are common types of business models?

There are many different types of business models, with new models emerging as entire industries adapt and grow. The following list is not exhaustive but represents some of the more common business models in use today, along with some business model examples to illustrate how they work in the real world:

Manufacturing business model

A manufacturing business model focuses on the production of goods by sourcing raw materials and using a standardized production process. Manufacturers typically sell their finished products to retailers and other distributors, though some manufacturers also sell directly to consumers.

Examples include Ford Motor Company, Frito-Lay, and Whirlpool.

Retail business model

Retail is likely the most familiar business model for most American consumers. A retailer purchases finished goods from a manufacturer or distributor, then sells these products directly to customers.

This setup usually takes place inside brick-and-mortar stores, though many companies are adapting their business framework to offer online options.

Some of the most common retail business model examples include stores such as Target or Wal-Mart.

Franchise business model

A franchise business model might overlap with other business models, though the key difference is how the business is structured. In the franchise business model, a franchisee purchases the rights to a business from the franchisor or parent company.

The franchisee then operates under the established brand, which gives them more stability than if they'd launched their own business from scratch.

Common franchise business model examples include McDonald's, Ace Hardware, and Planet Fitness.

eCommerce business model

An eCommerce business model functions similarly to a retailer, though it relies on online platforms to advertise products and conduct transactions. eCommerce companies also utilize delivery companies to transport products to their customers.

The most common eCommerce business model example is Amazon.com, though retailers like Target and Wal-Mart have also launched eCommerce segments.

Freemium business model

The freemium business model is popular among technology companies. Freemium business models blend free and paid features on the same platform. The idea is simple: customers who enjoy the free service can be encouraged to sign up and pay for access to premium features.

Flickr, the online photo app, is a good example freemium business model, though many companies offer introductory services before promoting their premium features.

Advertising business model

Advertising companies are third-party organizations that help connect other businesses to their core customer segments. Essentially, the business’s users and customers are two different groups. Strategies can vary widely, especially when digital companies offer print ads, internet marketing, and content for social media platforms to help their clients expand their advertising reach.

Facebook, Instagram, and TikTok all fit into this business model.

Affiliate business model

An affiliate business model is similar to an advertising model, though an affiliate business strategy is more subtle. Instead of clear, overt advertisements, an affiliate business will embed links into other content to drive sales.

For instance, an affiliate business might link to Hulu when writing a review of popular streaming platforms.

How to create a new business model

Creating a new business model is important when launching a startup, but many companies create entirely new business models to adapt as they grow. Here's how to create a new business model that works for your unique industry:

1. Define the problem

First, determine the problem or need that your company can uniquely address. Identifying the problem can ensure that there is a demand out there for your products or services.

Every business idea should start with the question, "Why?" Why does your business exist? What need does it fill? Why will customers want to purchase your product? Keeping this understanding center of mind will help you stay focused throughout the process.

2. Identify your target market

A good business model will focus on specific customer segments. Who are you trying to reach? This insight will help you refine your marketing efforts and product features based on the demographic groups you seek to build relationships with.

3. List your products or services

The next step is crucial. You want to list and describe your products and services and explain clearly how these satisfy the need you defined in step 1. It's important to ensure that your team’s expertise matches the products and services that solve these needs.

For example, if you have a background in personal finance, you might consider how a new accounting software system might assist certain types of established businesses. This stage tends to be iterative, meaning you'll come back and redefine your product offerings based on feedback and adapt them to new market needs.

4. Determine your business needs

Once you zero in on your products, you'll want to determine what you'll need to connect them to your customer base. This calculation can include costs incurred from

manufacturing/product development, as well as the need for personnel, marketing, and other expenses.

5. Build a network of key partners

Depending on the nature of your business, you may want to network with other professionals. For example, if you're relying on a retail business model, you may want to start networking with distributors, manufacturers, and other industry players.

You may want to consider if there's an eCommerce platform you'd like to use in conjunction with retail sales or if there are business tools that can help you run your business more efficiently.

6. Create a financial strategy

Successful businesses use their business model as a financial model to calculate their overall profitability. You'll need to determine how you intend to make money, including things like cost structure, profit formula, pricing, and other core considerations.

A successful business model will ensure that you satisfy the need you identified in step 1 while generating profits that help maintain and grow your operations.

7. Test and refine your model

The most successful companies will test their existing business models to determine how well they're performing. This work might reflect things like customer feedback, financial performance, or the need to adapt to new market conditions.

Here's a tip: conduct a "soft launch" of your business for a select group of customers. Offer discounts in exchange for honest feedback. Incorporate their feedback into your business model design, then proceed to a full-scale launch once you've refined your model.

How to improve your business model

If you've had the same business model for years, it may be time for a review. Improving your current business model can help you adapt to new technology, changing costs, and new customer demands. For example, if an advertising firm's business model doesn't take into account new social media platforms, the company may miss out on opportunities to connect with its audience.

Here are some strategies for business model innovation and improvement:

Listen to customer feedback

Turn your existing customers into coaches. Product and company reviews can be a gold mine for information about current client needs and how well your company meets those needs. You may discover new ways to innovate and adapt.

Lower your overhead

If your company struggles to make a profit, you may want to rethink some of your overhead costs. For example, automating some of your core business processes through technology can help your employees work more efficiently, reducing the number of hours you spend on back-office tasks.

Introduce a new product or service

When your company has been offering the same products and services for years, it might be time to shake things up. Introduce a new product or service to demonstrate your value to your customers, or use this as an opportunity to gain a whole new set of customers.

Reconsider your revenue model

Your current revenue model may be based on an outdated price structure. It may be that the cost of manufacturing or rising inflation warrants an increase in the price of your core products and services.

If you operate a subscription-based service (or a freemium model), you may offer discounts to existing customers while raising the price of a product or service for new customers.

Change your marketing message

Your marketing campaign is how you tell your story. If your story changes, so should your marketing message. Refine your marketing strategy by adapting to new digital channels, or consider developing content that directly impacts your target audience.

How BILL can help improve your business model

Creating and refining your business model is just one way to run a successful business. BILL can help small and mid-size businesses save 50% of the time they spend on accounts payable. Learn more about how to pay smarter.

What is a business model? (Plus, how to define yours)

Business models distill the potential of a business down to its essence. Companies across every industry and at all stages of maturity need business models. Some rely on lengthy processes to build complicated models, while others move quickly to articulate the basics and take action. Either way, having the discipline to work through this planning tool forces internal alignment.

You must build something that real people with real needs will find value in and pay for — otherwise you do not have a lasting business. Brian de Haaff Aha! co-founder and CEO

For established enterprises, a business model is often a living document that is reviewed and adapted over the years. For companies launching products and services or entering new markets, a business model helps ensure that decisions are tied back to the overall business strategy . And for early-stage startups, a simple one-page business model enables founders to explore the mechanics of a business and how you anticipate it will be successful.

Defining and documenting a business model is an essential exercise. Whether you are starting a new venture, expanding into a new market, or shifting your go-to-market strategy , you can use a business model to capture fundamental assumptions about the opportunity ahead and tactics to addressing challenges.

Unfortunately, many companies fail to integrate their business model into all aspects of the organization — from recruiting talent to motivating employees. Part of the issue is accessibility. That is why forward-thinking companies choose tools that make it possible to quickly build and share your business model. The Aha! business model canvas, for example, gives you a collaborative space to explore concepts and connect your model to everyday work.

Build a business model in Aha! Notebooks. Sign up for a free trial .

Start using this template now

You can access the business model template shown above using Aha! Notebooks . You can also try a similar template that is built into the product strategy section of Aha! Roadmaps . Or you can download these free Excel and PowerPoint business model templates .

This guide covers the basics of business models, from core concepts to best practices. Jump ahead to any section:

Definition of a business model

Business model components

Business model vs. business plan.

Different types of business models

Pros and cons of different models

Analyzing competitor business models

Business model templates

How to build a business model

What is the definition of a business model?

A business model defines how a company will create, deliver, and capture value.

A business model answers questions that are crucial for strategic decision-making and business operations. Creating a business model for your startup or product means identifying the problem you are going to solve, the market that you will serve, the level of investment required, what products you will offer, and how you will generate revenue. Pricing and costs are the two levers that affect profitability within a given business model.

A business model is part of your overall business strategy. Some business models extend beyond economic context and include value exchange in social or cultural terms — such as the intangible impact the company will have on a community or industry. The process of constructing and changing a business model is often referred to as “business model innovation.”

15 elements of a brilliant business strategy

This is why innovation programs fail

There are three main areas of focus in a business model: value proposition, value delivery, and value capture. The proposition outlines who your customers are and what you will offer. The delivery details how you will organize the business to deliver on the proposition. And the capture is a hypothesis for how the proposition and delivery will align to return value back to the business.

Below are some components to include when you create a business model:

Vision and mission : Overview of what you want to achieve and how you will do it.

Objectives: High-level goals that will support your vision and mission, along with how you will measure success.

Customer targets and challenges: Description of target customers (written as archetypes or personas ) and their pain points.

Solution: How your offering will solve customer pain points.

Differentiators: Characteristics that differentiate your product or service.

Pricing: What your solution will cost and how it will be sold.

Positioning and messaging: How you will communicate the value of your offering to customers.

Go-to-market: Proposed approach for launching new offerings and services.

Investment: Resources required to introduce your offering.

Growth opportunity: Ways that you will grow the business over time.

Positioning vs. messaging

• What is value-based product development?
• What is a go-to-market roadmap?

Business models and business plans are both elements of your overall business strategy. But there are key differences between a business model and a business plan.

A business model is seen as foundational and will not usually be reworked in reaction to shorter-term shifts — whereas a business plan is more likely to be updated based on changes in the economy or market.

Related: Business plan templates

What is the benefit of building a business model?

Innovation is about more than the products or technologies that you build. The way that you operate your business is a critical factor in how you stand apart in a crowded marketplace. The benefit of building a business model is that you can use the exercise to expose and exploit what makes your company unique — why choosing your offering is better for customers than any alternatives and how you will grow the business over time.

Many people associate business models with lengthy documents that describe a company’s problem, opportunity, and solution in the context of a two-to-five-year forecast. But business models do not need to be a long treatise.

A one-pager is just as effective for distilling and communicating the most important elements of your business strategy. The concise format is useful for sharing with broader teams so that everyone understands the high-level approach. Done right, a business model can become a touchstone for the team by outlining core differentiators to promote and defend in the market.

Related: A more comprehensive business model builder

What are the different types of business models?

There are many different types of business models. Below are some of the most common business models with example companies for reference (take note of the companies that appear in several categories):

Did you keep track of the companies that appeared in several of the business model examples? Good. You now have a grasp of how complex enterprises with vast portfolios of products and services often employ many business models within the same organization.

Consider a company like Apple, which manufactures and sells hardware products as well as offering cloud-storage, streaming subscriptions, and a marketplace for other applications. Amazon, whose offerings range from retail (with the acquisition of Whole Foods) to marketplace (Amazon.com) to subscription services (Amazon Prime and Amazon Music) to affiliate, also features in different categories. Each division or vertical will have a distinct business model that reflects the nuances of how it operates while also supporting the corporate business model.

Related: The product manager vs. the portfolio product manager

Pros and cons of different business models

Some types of business models work better for certain industries than others. For example, software-as-a-service (SaaS) companies often rely on freemium business models. This makes it easy for potential users to experience the value of the product and incentivizes paid conversions via access to additional features.

Many social media platforms make money through advertising. By providing full access to the platform for free, these companies attract more users. In turn, this creates a more valuable audience for advertisers and increases revenue for the business.

How do you analyze a competitor’s business model?

Business analysts and investors will often evaluate a company’s business model as part of due diligence for funding or market research . You can apply the same tactics to analyze a competitor’s business model — with a few caveats.

Public companies are subject to reporting requirements. This means that the business must regularly disclose financial and performance data to the public — these disclosures occur quarterly and annually. The data includes everything from gross revenue, operating costs and losses, cash flow and reserves, and leadership discussions of business results. Designed to protect and inform investors, these reports can provide you with the information you need to understand the basics of the company’s business model and how well it is performing against the model.

Private companies are not required to reveal business data publicly. Investors or partners may be privy to certain aspects of the company’s performance, but it can be difficult to understand exactly what is happening from the outside. Some analysts or business websites will attempt to “size” a business or market by looking at a variety of factors — including the number of employees, volume of search terms related to the core offering, estimated customer base, pricing structure, partnerships, advertising spend, and media coverage.

Once you have identified relevant alternatives to your offering and gathered all of the information that you can find, a good way to analyze a competitor’s business model is to conduct a competitive analysis.

Related: Competitor analysis templates

You do not want to spend too much time thinking about other companies when you could be focused on your own. A simple SWOT analysis is a helpful way to map out strengths, weaknesses, opportunities, and threats that were revealed during your research.

Below are three types of business model example layouts you can use to succinctly and objectively assess what is possible and what challenges could arise for your business.

Aha! Notebooks business model template

Articulate the foundation of your product or service in a flexible whiteboard-style format with the Aha! Notebooks business model template.

The focus is on capturing key elements like why the solution is worth buying (messaging), pain points of the buyers (customer challenges), and ways you will grow the business (growth opportunities).

Aha! Roadmaps business model canvas

The Aha! Roadmaps business model is the most complete template in this guide — based on our team's decades of experience building breakthrough products and software companies.

You can drag and drop each component within a custom layout. And once you have completed your business model, it is easy to share with your team via a live webpage or exported PDF. This business model builder is included with the free 30-day trial of Aha! Roadmaps.

Aha! Roadmaps lean canvas

Similar to the business model canvas, this model in Aha! Roadmaps takes a problem-focused approach to create an actionable business plan. It is most commonly used by startups and entrepreneurs to document business assumptions. The focus is on quickly creating a concise and effective single-page business model. It documents nine elements, including customer segments, channels used to reach customers, and the ways you plan to make money.

How to build a business model in 10 steps

Crafting a business model is part of establishing a meaningful business strategy. But a business model is essentially a hypothesis — you need to test yours to prove that it will actually provide value. Many startup founders especially underestimate the costs and timeline for reaching profitability.

1. Identify your target market Who will benefit from your offering? What characteristics do prospective customers share?

2. Define the problem you will solve What is the problem that you are solving? What are the pain points of your potential customers?

3. Detail your unique selling proposition (USP) What will you build and how will you support it?

4. Create a pricing strategy How much will you charge for your offering? What factors will go into choosing your price point?

5. Develop a marketing approach How will you market your product and reach target customers? What channels will you choose for go-to-market?

6. Establish operational practices How will you streamline processes and procedures to reduce overhead and fixed costs?

7. Capture path to profitability How will your business generate revenue? What level of investment will be required and what fixed costs exist?

8. Anticipate challenges Who are your competitors? What opportunities and threats exist for your business?

9. Validate your business model Was your hypothesis correct? Does your business model solve a problem the way you thought it would?

10. Update to reflect learnings What can you do differently in the future to ensure greater success?

Your business model will ultimately guide your organization and influence your product roadmap. Give it the deep thought it deserves — questioning your core assumptions about how you will generate value and how your team will work towards achieving shared goals.

Deliver more with Aha! — try it free for 30 days .

Additional strategy resources

Using Aha! software

Aha! Roadmaps — Strategy overview

Aha! Roadmaps — Strategic models

Strategic blogs and guides

• How to price your product
• How to position your product

Have we forgotten what SaaS stands for?

• What is a business model?
• What is customer experience?
• What is the Complete Product Experience (CPE)?
• What is a customer journey map?
• What is product-led growth?
• What are the types of business transformation?
• What is enterprise transformation?
• What is digital transformation?
• What is the role of product management in enterprise transformation?
• What is a Minimum Viable Product (MVP)?
• What is a Minimum Lovable Product (MLP)?
• What is product vision?

How to set product strategy

• What is product-market fit?
• What is product differentiation?
• What are product goals and initiatives?
• How to set product goals
• How to set product initiatives
• What is product value?
• Introduction to marketing strategy
• Introduction to marketing templates
• What is a marketing strategy?
• How to set marketing goals
• Marketing vs. advertising
• What is a creative brief?
• How to define buyer personas
• Understanding the buyer's journey
• What is competitive differentiation?
• 10Ps marketing matrix
• 2x2 prioritization matrix
• Business model
• Customer journey map
• Decision tree
• Lean canvas
• Marketing strategy
• Porter's 5 forces
• Product positioning
• Product vision
• Segment profile
• Strategic roadmap
• SWOT analysis
• Collections: Business model
• Collections: SWOT
• Collections: Objectives and key results (OKR)
• Collections: Product positioning
• Collections: Market positioning
• Collections: Marketing strategy
• Collections: Marketing messaging
• What is product discovery?
• How to do market research
• How to define customer personas
• How to research competitors
• How to gather customer feedback
• Asking the right questions to drive innovation
• Competitive analysis
• Customer interview
• Customer research plan
• Pros and cons
• Target audience
• Collections: Customer research
• Collections: Competitor analysis
• Collections: Marketing competitor analysis
• How to brainstorm product ideas
• Brainstorming techniques for product builders
• What is idea management?
• 4 steps for product ideation
• How to estimate the value of new product ideas
• How to prioritize product ideas
• What is idea management software?
• Introduction to marketing idea management
• How to gather marketing feedback from teammates
• Brainstorming new marketing ideas
• How to estimate the value of new marketing ideas
• Brainstorming meeting
• Brainstorming session
• Concept map
• Data flow diagram
• Fishbone diagram
• Ideas portal guide
• Process flow diagram
• Sticky note pack
• User story map
• Workflow diagram
• Roadmapping: Your starter guide
• Business roadmap
• Features roadmap
• Innovation roadmap
• Marketing roadmap
• Product roadmap
• Product portfolio roadmap
• Project roadmap
• Strategy roadmap
• Technology roadmap
• How to choose a product roadmap tool
• What to include on your product roadmap
• How to visualize data on your product roadmap
• What milestones should be included on a roadmap?
• How often should roadmap planning happen?
• How to build a roadmap for a new product
• How to build a brilliant roadmap
• How to build an agile roadmap
• Product roadmap examples
• How to customize the right roadmap for your audience
• How to report on progress against your roadmap
• How to communicate your product roadmap to customers
• What is a content marketing roadmap?
• What is a digital marketing roadmap?
• What is an integrated marketing roadmap?
• What is a portfolio marketing roadmap?
• How to choose a marketing roadmap tool
• Epics roadmap
• Portfolio roadmap
• Release roadmap
• Collections: Product roadmap
• Collections: Product roadmap presentation
• Collections: Marketing roadmap
• What is product planning?
• How product managers use Gantt charts
• Introduction to release management
• How to plan product releases across teams
• What is a product backlog?
• Product backlog vs. release backlog vs. sprint backlog
• How to refine the product backlog
• How to estimate team capacity
• What is requirements management?
• What is a market requirements document (MRD)?
• How to manage your product requirements document (PRD)
• What is a product feature?
• What is user story mapping?
• How to prioritize product features
• Common product prioritization frameworks
• JTBD prioritization framework
• Introduction to marketing plans
• What is a marketing plan?
• How to create a marketing plan
• What is a digital marketing plan?
• What is a content marketing plan?
• Why is content marketing important?
• What is a social media plan?
• How to create a marketing budget
• 2023 monthly calendar
• Kanban board
• Market requirements document
• Program board
• Product requirements document
• Timeline diagram
• Collections: Product development process
• Collections: MRD
• Collections: PRD
• Collections: Gantt chart
• Collections: User story
• Collections: User story mapping
• Collections: Feature definition checklist
• Collections: Feature prioritization templates
• Collections: Marketing plan templates
• Collections: Marketing calendar templates
• What is user experience design?
• What is the role of a UX designer?
• What is the role of a UX manager?
• How product teams use wireframes
• Wireframe vs. mockup vs. prototype
• Collections: Creative brief
• Common product development methodologies
• Common agile development methodologies
• What is agile product management?
• What is agile software development?
• What is waterfall product management?
• What is agile transformation?
• Agile vs. lean
• Agile vs. waterfall
• What is an agile roadmap?
• What is an agile retrospective?
• Best practices of agile development teams
• What is a burndown chart?
• What is issue tracking?
• Introduction to agile metrics
• Agile glossary
• What is kanban?
• How development teams implement kanban
• How is kanban used by product managers?
• How to set up a kanban board
• Kanban vs. scrum
• What is scrum?
• What are scrum roles?
• What is a scrum master?
• What is the role of a product manager in scrum?
• What is a sprint?
• What is a sprint planning meeting?
• What is a daily standup?
• What is a sprint review?
• Product release vs. sprint in scrum
• Themes, epics, stories, and tasks
• How to implement scrum
• How to choose a scrum certification
• What is the Scaled Agile Framework®?
• What is the role of a product manager in SAFe®?
• PI planning
• PI retrospective
• SAFe sprint planning
• Sprint planning
• Sprint retrospective
• Sprint retrospective meeting
• Collections: Sprint retrospective
• How to test your product before launch
• What is a go-to-market strategy?
• How to plan a marketing launch
• Product updates
• Collections: Product launch checklist
• Collections: Marketing launch checklist
• How to measure product value
• What is product analytics?
• What are product metrics?
• What is a product?
• What is product development?
• What is product management?
• What is portfolio product management?
• What is product operations?
• What are the stages of product development?
• What is the product lifecycle?
• What is a product management maturity model?
• What is product development software?
• Why product teams need virtual whiteboarding software
• Introduction to marketing methods
• What is agile marketing?
• What is digital marketing?
• What is product marketing?
• What is social media marketing?
• What is B2B marketing?
• Collections: Product management
• What is the role of a product manager?
• 10 skills to succeed as a product manager
• Common product management job titles
• What does a product manager do each day?
• What is the role of a product operations manager?
• How to become a product manager
• How to prepare for a product manager interview
• Interview questions for product managers
• Typical salary for product managers
• Tips for new product managers
• How to choose a product management certification
• Introduction to marketing
• What are some marketing job titles?
• What is the role of a marketing manager?
• What is the role of a product marketing manager?
• How are marketing teams organized?
• Which tools do marketers use?
• Interview questions for marketing managers
• Typical salary for marketing managers
• How to make a career switch into marketing
• Job interview
• Negotiating an offer
• Product manager resume
• Collections: Product manager resume
• How to structure your product development team
• Best practices for managing a product development team
• How to structure your product team meeting
• 15 tips for running effective product team meetings
• Which tools do product managers use?
• Tips for effective collaboration between product managers and engineers
• How do product managers work with other teams?
• Creative brief
• Daily standup meeting
• Marketing calendar
• Meeting agenda
• Meeting notes
• Organizational chart
• Presentation slides
• Process improvement
• Sprint planning meeting
• Collections: Product management meeting
• Collections: Diagrams, flowcharts for product teams
• Collections: Whiteboarding
• Collections: Templates to run product meetings
• Product development definitions
• Marketing definitions

Build a winning strategy with your team

Competitive analysis template

• Privacy policy
• Terms of service

Top Business Ideas, Start-Ups, Entrepreneurs

The start-up stories of some of the best businesses and entrepreneurs that ever existed

• Entrepreneur School / How to Start a Business / Uncategorized / Writing a Business Plan

What Is a Business Model? A Simple Definition For Dummies

I bet that everybody has heard about business models and even many use these words. Many think of them as beautiful sweeties dressed in suits (okay, probably I just do…), others think about handsome guys in suits 🙂 … But most probably very few of you fully understand the real meaning… So, here you will have the chance to go through a simple explanation answering the question: “ What is a business model? “. Let’s start with a

As I promised to give you a very simple explanation, I would not go through the details here. I want to write a “dummies” type of article. I want neither to confuse anyone here nor to hold a complex business lecture (I am not that smart anyway…). I like simple and straight stuff so, here is a simple definition of this term:

A business model is a way a business creates, manages, and delivers value. This is basically the way an organization is doing its business, or the way it finds sells to, and retains its customers.

That’s it! No fancy and complicated stuff. And here are some more detailed things you should know about business models.

Such a model consists of nine different components or parts. So, to build one, you have to describe these parts. Here they are:

What Is a Business Model

Components of a Business Model

So, to make a business model, one should gather the answers to the following questions:

1. Customers – For whom we are creating value – this is the fundamental of every business, customers are the most needed part, no matter if you sell vegetables or luxury cars for millions of dollars. which are the important customers and customer segments.

2. Value proposition – How is the value in the business created? – Every business has to add value for its customers. This is a basic economic law. What exactly is this value? How is it created? Which customer’s needs are satisfied and how. This part consists of the answers to all of these questions.

3. Channels for reaching our customers – I call these “marketing channels” because the market for a business consists of its clients and these are the channels for reaching them. To build this part of the model, we have to answer the questions: “What are the ways the different segments of clients are reached?”, “How exactly are the clients reached?”, “Which are the most effective ways and why?”.

4. Customer Relationships – What are the relationships with our customers? – Customer relationships are a really important part of every business. Many of the greatest businesses out there rely on really strong relations with their clients. They try to build such and make them as stronger as they can.

5. Key Resources – What are the key resources that are needed for the business to operate and grow? Why are these resources so important and how? A key resource is something that the business can’t operate without.

6. Key Activities – Which are the key activities needed for the business to run successfully?

7. Streams of income – What are the income streams of the business? What do the customers want to pay for? Which are the most important ones and which are the most profitable ones?

8. Key Partners – Who are the key partners and what are the key resources the business acquires from them? – Every business relies on its partners, more on some of them and less on others. And few of them are key partners, which means that the business would hardly operate without them. They could be key suppliers, key customers, key subcontractors, etc.

9. Cost Structure – What are the most important expenses and costs in the business and why? This part should be explained the cost structure coming from the business model.

These are all of the main parts. Knowing them, you should be able to create a simple business model for an organization.

Did you understand the matter? Share your comments and questions below and we will shed some more light if needed. Also, don’t forget to give our social buttons a try and help our site provide more cool content like this.

You may also like:

• Next story  What Is SOPA and How Can It Be Stopped?
• Previous story  How To Make Money On the Side, From Home, On The Internet

Friend's Email Address

Your Email Address

• Cambridge Dictionary +Plus

Meaning of business model in English

Your browser doesn't support HTML5 audio

Examples of business model

Word of the Day

to express something with a particular choice of words

Scarce, scant and sparse (Ways of saying ‘not enough’)

Learn more with +Plus

• Recent and Recommended {{#preferredDictionaries}} {{name}} {{/preferredDictionaries}}
• Definitions Clear explanations of natural written and spoken English English Learner’s Dictionary Essential British English Essential American English
• Grammar and thesaurus Usage explanations of natural written and spoken English Grammar Thesaurus
• Pronunciation British and American pronunciations with audio English Pronunciation
• English–Chinese (Simplified) Chinese (Simplified)–English
• English–Chinese (Traditional) Chinese (Traditional)–English
• English–Dutch Dutch–English
• English–French French–English
• English–German German–English
• English–Indonesian Indonesian–English
• English–Italian Italian–English
• English–Japanese Japanese–English
• English–Norwegian Norwegian–English
• English–Polish Polish–English
• English–Portuguese Portuguese–English
• English–Spanish Spanish–English
• Dictionary +Plus Word Lists
• Business    Noun
• All translations

Add business model to one of your lists below, or create a new one.

{{message}}

Something went wrong.

There was a problem sending your report.

Business Model Canvas: Explained with Examples

Got a new business idea, but don’t know how to put it to work? Want to improve your existing business model? Overwhelmed by writing your business plan? There is a one-page technique that can provide you the solution you are looking for, and that’s the business model canvas.

In this guide, you’ll have the Business Model Canvas explained, along with steps on how to create one. All business model canvas examples in the post can be edited online.

What is a Business Model Canvas

A business model is simply a plan describing how a business intends to make money. It explains who your customer base is and how you deliver value to them and the related details of financing. And the business model canvas lets you define these different components on a single page.   

The Business Model Canvas is a strategic management tool that lets you visualize and assess your business idea or concept. It’s a one-page document containing nine boxes that represent different fundamental elements of a business.  

The business model canvas beats the traditional business plan that spans across several pages, by offering a much easier way to understand the different core elements of a business.

The right side of the canvas focuses on the customer or the market (external factors that are not under your control) while the left side of the canvas focuses on the business (internal factors that are mostly under your control). In the middle, you get the value propositions that represent the exchange of value between your business and your customers.

The business model canvas was originally developed by Alex Osterwalder and Yves Pigneur and introduced in their book ‘ Business Model Generation ’ as a visual framework for planning, developing and testing the business model(s) of an organization.

What Are the Benefits of Using a Business Model Canvas

Why do you need a business model canvas? The answer is simple. The business model canvas offers several benefits for businesses and entrepreneurs. It is a valuable tool and provides a visual and structured approach to designing, analyzing, optimizing, and communicating your business model.

• The business model canvas provides a comprehensive overview of a business model’s essential aspects. The BMC provides a quick outline of the business model and is devoid of unnecessary details compared to the traditional business plan.
• The comprehensive overview also ensures that the team considers all required components of their business model and can identify gaps or areas for improvement.
• The BMC allows the team to have a holistic and shared understanding of the business model while enabling them to align and collaborate effectively.
• The visual nature of the business model canvas makes it easier to refer to and understand by anyone. The business model canvas combines all vital business model elements in a single, easy-to-understand canvas.
• The BMC can be considered a strategic analysis tool as it enables you to examine a business model’s strengths, weaknesses, opportunities, and challenges.
• It’s easier to edit and can be easily shared with employees and stakeholders.
• The BMC is a flexible and adaptable tool that can be updated and revised as the business evolves. Keep your business agile and responsive to market changes and customer needs.
• The business model canvas can be used by large corporations and startups with just a few employees.
• The business model canvas effectively facilitates discussions among team members, investors, partners, customers, and other stakeholders. It clarifies how different aspects of the business are related and ensures a shared understanding of the business model.
• You can use a BMC template to facilitate discussions and guide brainstorming brainstorming sessions to generate insights and ideas to refine the business model and make strategic decisions.
• The BMC is action-oriented, encouraging businesses to identify activities and initiatives to improve their business model to drive business growth.
• A business model canvas provides a structured approach for businesses to explore possibilities and experiment with new ideas. This encourages creativity and innovation, which in turn encourages team members to think outside the box.

How to Make a Business Model Canvas

Here’s a step-by-step guide on how to create a business canvas model.

Step 1: Gather your team and the required material Bring a team or a group of people from your company together to collaborate. It is better to bring in a diverse group to cover all aspects.

While you can create a business model canvas with whiteboards, sticky notes, and markers, using an online platform like Creately will ensure that your work can be accessed from anywhere, anytime. Create a workspace in Creately and provide editing/reviewing permission to start.

Step 2: Set the context Clearly define the purpose and the scope of what you want to map out and visualize in the business model canvas. Narrow down the business or idea you want to analyze with the team and its context.

Step 3: Draw the canvas Divide the workspace into nine equal sections to represent the nine building blocks of the business model canvas.

Step 4: Identify the key building blocks Label each section as customer segment, value proposition, channels, customer relationships, revenue streams, key resources, key activities, and cost structure.

Step 5: Fill in the canvas Work with your team to fill in each section of the canvas with relevant information. You can use data, keywords, diagrams, and more to represent ideas and concepts.

Step 6: Analyze and iterate Once your team has filled in the business model canvas, analyze the relationships to identify strengths, weaknesses, opportunities, and challenges. Discuss improvements and make adjustments as necessary.

Step 7: Finalize Finalize and use the model as a visual reference to communicate and align your business model with stakeholders. You can also use the model to make informed and strategic decisions and guide your business.

What are the Key Building Blocks of the Business Model Canvas?

There are nine building blocks in the business model canvas and they are:

Customer Segments

Customer relationships, revenue streams, key activities, key resources, key partners, cost structure.

• Value Proposition

When filling out a Business Model Canvas, you will brainstorm and conduct research on each of these elements. The data you collect can be placed in each relevant section of the canvas. So have a business model canvas ready when you start the exercise.  

Let’s look into what the 9 components of the BMC are in more detail.

These are the groups of people or companies that you are trying to target and sell your product or service to.

Segmenting your customers based on similarities such as geographical area, gender, age, behaviors, interests, etc. gives you the opportunity to better serve their needs, specifically by customizing the solution you are providing them.

After a thorough analysis of your customer segments, you can determine who you should serve and ignore. Then create customer personas for each of the selected customer segments.

There are different customer segments a business model can target and they are;

• Mass market: A business model that focuses on mass markets doesn’t group its customers into segments. Instead, it focuses on the general population or a large group of people with similar needs. For example, a product like a phone.  
• Niche market: Here the focus is centered on a specific group of people with unique needs and traits. Here the value propositions, distribution channels, and customer relationships should be customized to meet their specific requirements. An example would be buyers of sports shoes.
• Segmented: Based on slightly different needs, there could be different groups within the main customer segment. Accordingly, you can create different value propositions, distribution channels, etc. to meet the different needs of these segments.
• Diversified: A diversified market segment includes customers with very different needs.
• Multi-sided markets: this includes interdependent customer segments. For example, a credit card company caters to both their credit card holders as well as merchants who accept those cards.

Use STP Model templates for segmenting your market and developing ideal marketing campaigns

Visualize, assess, and update your business model. Collaborate on brainstorming with your team on your next business model innovation.

In this section, you need to establish the type of relationship you will have with each of your customer segments or how you will interact with them throughout their journey with your company.

There are several types of customer relationships

• Personal assistance: you interact with the customer in person or by email, through phone call or other means.
• Dedicated personal assistance: you assign a dedicated customer representative to an individual customer.  
• Self-service: here you maintain no relationship with the customer, but provides what the customer needs to help themselves.
• Automated services: this includes automated processes or machinery that helps customers perform services themselves.
• Communities: these include online communities where customers can help each other solve their own problems with regard to the product or service.
• Co-creation: here the company allows the customer to get involved in the designing or development of the product. For example, YouTube has given its users the opportunity to create content for its audience.

You can understand the kind of relationship your customer has with your company through a customer journey map . It will help you identify the different stages your customers go through when interacting with your company. And it will help you make sense of how to acquire, retain and grow your customers.

This block is to describe how your company will communicate with and reach out to your customers. Channels are the touchpoints that let your customers connect with your company.

Channels play a role in raising awareness of your product or service among customers and delivering your value propositions to them. Channels can also be used to allow customers the avenue to buy products or services and offer post-purchase support.

There are two types of channels

• Owned channels: company website, social media sites, in-house sales, etc.
• Partner channels: partner-owned websites, wholesale distribution, retail, etc.

Revenues streams are the sources from which a company generates money by selling their product or service to the customers. And in this block, you should describe how you will earn revenue from your value propositions.  

A revenue stream can belong to one of the following revenue models,

• Transaction-based revenue: made from customers who make a one-time payment
• Recurring revenue: made from ongoing payments for continuing services or post-sale services

There are several ways you can generate revenue from

• Asset sales: by selling the rights of ownership for a product to a buyer
• Usage fee: by charging the customer for the use of its product or service
• Subscription fee: by charging the customer for using its product regularly and consistently
• Lending/ leasing/ renting: the customer pays to get exclusive rights to use an asset for a fixed period of time
• Licensing: customer pays to get permission to use the company’s intellectual property
• Brokerage fees: revenue generated by acting as an intermediary between two or more parties
• Advertising: by charging the customer to advertise a product, service or brand using company platforms

What are the activities/ tasks that need to be completed to fulfill your business purpose? In this section, you should list down all the key activities you need to do to make your business model work.

These key activities should focus on fulfilling its value proposition, reaching customer segments and maintaining customer relationships, and generating revenue.

There are 3 categories of key activities;

• Production: designing, manufacturing and delivering a product in significant quantities and/ or of superior quality.
• Problem-solving: finding new solutions to individual problems faced by customers.
• Platform/ network: Creating and maintaining platforms. For example, Microsoft provides a reliable operating system to support third-party software products.

This is where you list down which key resources or the main inputs you need to carry out your key activities in order to create your value proposition.

There are several types of key resources and they are

• Human (employees)
• Financial (cash, lines of credit, etc.)
• Intellectual (brand, patents, IP, copyright)
• Physical (equipment, inventory, buildings)

Key partners are the external companies or suppliers that will help you carry out your key activities. These partnerships are forged in oder to reduce risks and acquire resources.

Types of partnerships are

• Strategic alliance: partnership between non-competitors
• Coopetition: strategic partnership between partners
• Joint ventures: partners developing a new business
• Buyer-supplier relationships: ensure reliable supplies

In this block, you identify all the costs associated with operating your business model.

You’ll need to focus on evaluating the cost of creating and delivering your value propositions, creating revenue streams, and maintaining customer relationships. And this will be easier to do so once you have defined your key resources, activities, and partners.  

Businesses can either be cost-driven (focuses on minimizing costs whenever possible) and value-driven (focuses on providing maximum value to the customer).

Value Propositions

This is the building block that is at the heart of the business model canvas. And it represents your unique solution (product or service) for a problem faced by a customer segment, or that creates value for the customer segment.

A value proposition should be unique or should be different from that of your competitors. If you are offering a new product, it should be innovative and disruptive. And if you are offering a product that already exists in the market, it should stand out with new features and attributes.

Value propositions can be either quantitative (price and speed of service) or qualitative (customer experience or design).

What to Avoid When Creating a Business Model Canvas

One thing to remember when creating a business model canvas is that it is a concise and focused document. It is designed to capture key elements of a business model and, as such, should not include detailed information. Some of the items to avoid include,

• Detailed financial projections such as revenue forecasts, cost breakdowns, and financial ratios. Revenue streams and cost structure should be represented at a high level, providing an overview rather than detailed projections.
• Detailed operational processes such as standard operating procedures of a business. The BMC focuses on the strategic and conceptual aspects.
• Comprehensive marketing or sales strategies. The business model canvas does not provide space for comprehensive marketing or sales strategies. These should be included in marketing or sales plans, which allow you to expand into more details.
• Legal or regulatory details such as intellectual property, licensing agreements, or compliance requirements. As these require more detailed and specialized attention, they are better suited to be addressed in separate legal or regulatory documents.
• Long-term strategic goals or vision statements. While the canvas helps to align the business model with the overall strategy, it should focus on the immediate and tangible aspects.
• Irrelevant or unnecessary information that does not directly relate to the business model. Including extra or unnecessary information can clutter the BMC and make it less effective in communicating the core elements.

What Are Your Thoughts on the Business Model Canvas?

Once you have completed your business model canvas, you can share it with your organization and stakeholders and get their feedback as well. The business model canvas is a living document, therefore after completing it you need to revisit and ensure that it is relevant, updated and accurate.

What best practices do you follow when creating a business model canvas? Do share your tips with us in the comments section below.

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

FAQs About the Business Model Canvas

• Use clear and concise language
• Use visual-aids
• Customize for your audience
• Highlight key insights
• Be open to feedback and discussion

More Related Articles

Amanda Athuraliya is the communication specialist/content writer at Creately, online diagramming and collaboration tool. She is an avid reader, a budding writer and a passionate researcher who loves to write about all kinds of topics.

• SUGGESTED TOPICS
• The Magazine
• Newsletters
• Managing Yourself
• Managing Teams
• Work-life Balance
• The Big Idea
• Data & Visuals
• Reading Lists
• Case Selections
• HBR Learning
• Topic Feeds
• Account Settings
• Email Preferences

Reinventing Your Business Model

• Mark W. Johnson,
• Clayton M. Christensen,
• Henning Kagermann

Why is it so difficult for established companies to pull off the new growth that business model innovation can bring? Here’s why: They don’t understand their current business model well enough to know if it would suit a new opportunity or hinder it, and they don’t know how to build a new model when they need it.

Drawing on their vast knowledge of disruptive innovation and experience in helping established companies capture game-changing opportunities, consultant Johnson, Harvard Business School professor Christensen, and SAP co-CEO Kagermann set out the tools that executives need to do both.

Successful companies already operate according to a business model that can be broken down into four elements: a customer value proposition that fulfills an important job for the customer in a better way than competitors’ offerings do; a profit formula that lays out how the company makes money delivering the value proposition; and the key resources and key processes needed to deliver that proposition.

Game-changing opportunities deliver radically new customer value propositions: They fulfill a job to be done in a dramatically better way (as P&G did with its Swiffer mops), solve a problem that’s never been solved before (as Apple did with its iPod and iTunes electronic entertainment delivery system), or serve an entirely unaddressed customer base (as Tata Motors is doing with its Nano—the $2,500 car aimed at Indian families who use scooters to get around). Capitalizing on such opportunities doesn’t always require a new business model: P&G, for instance, didn’t need a new one to leverage its product innovation strengths to develop the Swiffer.

A new model is often needed, however, to leverage a new technology (as in Apple’s case); is generally required when the opportunity addresses an entirely new group of customers (as with the Nano); and is surely in order when an established company needs to fend off a successful disruptor (as the Nano’s competitors may now need to do).

One secret to maintaining a thriving business is recognizing when it needs a fundamental change.

In 2003, Apple introduced the iPod with the iTunes store, revolutionizing portable entertainment, creating a new market, and transforming the company. In just three years, the iPod/iTunes combination became a nearly $10 billion product, accounting for almost 50% of Apple’s revenue. Apple’s market capitalization catapulted from around $1 billion in early 2003 to over $150 billion by late 2007.

This success story is well known; what’s less well known is that Apple was not the first to bring digital music players to market. A company called Diamond Multimedia introduced the Rio in 1998. Another firm, Best Data, introduced the Cabo 64 in 2000. Both products worked well and were portable and stylish. So why did the iPod, rather than the Rio or Cabo, succeed?

Apple did something far smarter than take a good technology and wrap it in a snazzy design. It took a good technology and wrapped it in a great business model. Apple’s true innovation was to make downloading digital music easy and convenient. To do that, the company built a groundbreaking business model that combined hardware, software, and service. This approach worked like Gillette’s famous blades-and-razor model in reverse: Apple essentially gave away the “blades” (low-margin iTunes music) to lock in purchase of the “razor” (the high-margin iPod). That model defined value in a new way and provided game-changing convenience to the consumer.

Business model innovations have reshaped entire industries and redistributed billions of dollars of value. Retail discounters such as Wal-Mart and Target, which entered the market with pioneering business models, now account for 75% of the total valuation of the retail sector. Low-cost U.S. airlines grew from a blip on the radar screen to 55% of the market value of all carriers. Fully 11 of the 27 companies born in the last quarter century that grew their way into the Fortune 500 in the past 10 years did so through business model innovation.

Stories of business model innovation from well-established companies like Apple, however, are rare. An analysis of major innovations within existing corporations in the past decade shows that precious few have been business-model related. And a recent American Management Association study determined that no more than 10% of innovation investment at global companies is focused on developing new business models.

Yet everyone’s talking about it. A 2005 survey by the Economist Intelligence Unit reported that over 50% of executives believe business model innovation will become even more important for success than product or service innovation. A 2008 IBM survey of corporate CEOs echoed these results. Nearly all of the CEOs polled reported the need to adapt their business models; more than two-thirds said that extensive changes were required. And in these tough economic times, some CEOs are already looking to business model innovation to address permanent shifts in their market landscapes.

Senior managers at incumbent companies thus confront a frustrating question: Why is it so difficult to pull off the new growth that business model innovation can bring? Our research suggests two problems. The first is a lack of definition: Very little formal study has been done into the dynamics and processes of business model development. Second, few companies understand their existing business model well enough—the premise behind its development, its natural interdependencies, and its strengths and limitations. So they don’t know when they can leverage their core business and when success requires a new business model.

After tackling these problems with dozens of companies, we have found that new business models often look unattractive to internal and external stakeholders—at the outset. To see past the borders of what is and into the land of the new, companies need a road map.

This article also appears in:

The Clayton M. Christensen Reader

Ours consists of three simple steps. The first is to realize that success starts by not thinking about business models at all. It starts with thinking about the opportunity to satisfy a real customer who needs a job done. The second step is to construct a blueprint laying out how your company will fulfill that need at a profit. In our model, that plan has four elements. The third is to compare that model to your existing model to see how much you’d have to change it to capture the opportunity. Once you do, you will know if you can use your existing model and organization or need to separate out a new unit to execute a new model. Every successful company is already fulfilling a real customer need with an effective business model, whether that model is explicitly understood or not. Let’s take a look at what that entails.

Business Model: A Definition

A business model, from our point of view, consists of four interlocking elements that, taken together, create and deliver value. The most important to get right, by far, is the first.

Customer value proposition (CVP).

A successful company is one that has found a way to create value for customers—that is, a way to help customers get an important job done. By “job” we mean a fundamental problem in a given situation that needs a solution. Once we understand the job and all its dimensions, including the full process for how to get it done, we can design the offering. The more important the job is to the customer, the lower the level of customer satisfaction with current options for getting the job done, and the better your solution is than existing alternatives at getting the job done (and, of course, the lower the price), the greater the CVP. Opportunities for creating a CVP are at their most potent, we have found, when alternative products and services have not been designed with the real job in mind and you can design an offering that gets that job—and only that job—done perfectly. We’ll come back to that point later.

Profit formula.

The profit formula is the blueprint that defines how the company creates value for itself while providing value to the customer. It consists of the following:

• Revenue model: price x volume
• Cost structure: direct costs, indirect costs, economies of scale. Cost structure will be predominantly driven by the cost of the key resources required by the business model.
• Margin model: given the expected volume and cost structure, the contribution needed from each transaction to achieve desired profits.
• Resource velocity: how fast we need to turn over inventory, fixed assets, and other assets—and, overall, how well we need to utilize resources—to support our expected volume and achieve our anticipated profits.

People often think the terms “profit formulas” and “business models” are interchangeable. But how you make a profit is only one piece of the model. We’ve found it most useful to start by setting the price required to deliver the CVP and then work backwards from there to determine what the variable costs and gross margins must be. This then determines what the scale and resource velocity needs to be to achieve the desired profits.

Key resources.

The key resources are assets such as the people, technology, products, facilities, equipment, channels, and brand required to deliver the value proposition to the targeted customer. The focus here is on the key elements that create value for the customer and the company, and the way those elements interact. (Every company also has generic resources that do not create competitive differentiation.)

Key processes.

Successful companies have operational and managerial processes that allow them to deliver value in a way they can successfully repeat and increase in scale. These may include such recurrent tasks as training, development, manufacturing, budgeting, planning, sales, and service. Key processes also include a company’s rules, metrics, and norms.

These four elements form the building blocks of any business. The customer value proposition and the profit formula define value for the customer and the company, respectively; key resources and key processes describe how that value will be delivered to both the customer and the company.

As simple as this framework may seem, its power lies in the complex interdependencies of its parts. Major changes to any of these four elements affect the others and the whole. Successful businesses devise a more or less stable system in which these elements bond to one another in consistent and complementary ways.

The Elements of a Successful Business Model

Every successful company already operates according to an effective business model. By systematically identifying all of its constituent parts, executives can understand how the model fulfills a potent value proposition in a profitable way using certain key resources and key processes. With that understanding, they can then judge how well the same model could be used to fulfill a radically different CVP—and what they’d need to do to construct a new one, if need be, to capitalize on that opportunity.

How Great Models Are Built

To illustrate the elements of our business model framework, we will look at what’s behind two companies’ game-changing business model innovations.

Creating a customer value proposition.

It’s not possible to invent or reinvent a business model without first identifying a clear customer value proposition. Often, it starts as a quite simple realization. Imagine, for a moment, that you are standing on a Mumbai road on a rainy day. You notice the large number of motor scooters snaking precariously in and out around the cars. As you look more closely, you see that most bear whole families—both parents and several children. Your first thought might be “That’s crazy!” or “That’s the way it is in developing countries—people get by as best they can.”

When Ratan Tata of Tata Group looked out over this scene, he saw a critical job to be done: providing a safer alternative for scooter families. He understood that the cheapest car available in India cost easily five times what a scooter did and that many of these families could not afford one. Offering an affordable, safer, all-weather alternative for scooter families was a powerful value proposition, one with the potential to reach tens of millions of people who were not yet part of the car-buying market. Ratan Tata also recognized that Tata Motors’ business model could not be used to develop such a product at the needed price point.

At the other end of the market spectrum, Hilti, a Liechtenstein-based manufacturer of high-end power tools for the construction industry, reconsidered the real job to be done for many of its current customers. A contractor makes money by finishing projects; if the required tools aren’t available and functioning properly, the job doesn’t get done. Contractors don’t make money by owning tools; they make it by using them as efficiently as possible. Hilti could help contractors get the job done by selling tool use instead of the tools themselves—managing its customers’ tool inventory by providing the best tool at the right time and quickly furnishing tool repairs, replacements, and upgrades, all for a monthly fee. To deliver on that value proposition, the company needed to create a fleet-management program for tools and in the process shift its focus from manufacturing and distribution to service. That meant Hilti had to construct a new profit formula and develop new resources and new processes.

Hilti Sidesteps Commoditization

Hilti is capitalizing on a game-changing opportunity to increase profitability by turning products into a service. Rather than sell tools (at lower and lower prices), it’s selling a “just-the-tool-you-need-when-you-need-it, no-repair-or-storage-hassles” service. Such a radical change in customer value proposition required a shift in all parts of its business model.

The most important attribute of a customer value proposition is its precision: how perfectly it nails the customer job to be done—and nothing else. But such precision is often the most difficult thing to achieve. Companies trying to create the new often neglect to focus on one job; they dilute their efforts by attempting to do lots of things. In doing lots of things, they do nothing really well.

One way to generate a precise customer value proposition is to think about the four most common barriers keeping people from getting particular jobs done: insufficient wealth, access, skill, or time. Software maker Intuit devised QuickBooks to fulfill small-business owners’ need to avoid running out of cash. By fulfilling that job with greatly simplified accounting software, Intuit broke the skills barrier that kept untrained small-business owners from using more-complicated accounting packages. MinuteClinic, the drugstore-based basic health care provider, broke the time barrier that kept people from visiting a doctor’s office with minor health issues by making nurse practitioners available without appointments.

Designing a profit formula.

Ratan Tata knew the only way to get families off their scooters and into cars would be to break the wealth barrier by drastically decreasing the price of the car. “What if I can change the game and make a car for one lakh?” Tata wondered, envisioning a price point of around US$2,500, less than half the price of the cheapest car available. This, of course, had dramatic ramifications for the profit formula: It required both a significant drop in gross margins and a radical reduction in many elements of the cost structure. He knew, however, he could still make money if he could increase sales volume dramatically, and he knew that his target base of consumers was potentially huge.

For Hilti, moving to a contract management program required shifting assets from customers’ balance sheets to its own and generating revenue through a lease/subscription model. For a monthly fee, customers could have a full complement of tools at their fingertips, with repair and maintenance included. This would require a fundamental shift in all major components of the profit formula: the revenue stream (pricing, the staging of payments, and how to think about volume), the cost structure (including added sales development and contract management costs), and the supporting margins and transaction velocity.

Identifying key resources and processes.

Having articulated the value proposition for both the customer and the business, companies must then consider the key resources and processes needed to deliver that value. For a professional services firm, for example, the key resources are generally its people, and the key processes are naturally people related (training and development, for instance). For a packaged goods company, strong brands and well-selected channel retailers might be the key resources, and associated brand-building and channel-management processes among the critical processes.

Oftentimes, it’s not the individual resources and processes that make the difference but their relationship to one another. Companies will almost always need to integrate their key resources and processes in a unique way to get a job done perfectly for a set of customers. When they do, they almost always create enduring competitive advantage. Focusing first on the value proposition and the profit formula makes clear how those resources and processes need to interrelate. For example, most general hospitals offer a value proposition that might be described as, “We’ll do anything for anybody.” Being all things to all people requires these hospitals to have a vast collection of resources (specialists, equipment, and so on) that can’t be knit together in any proprietary way. The result is not just a lack of differentiation but dissatisfaction.

By contrast, a hospital that focuses on a specific value proposition can integrate its resources and processes in a unique way that delights customers. National Jewish Health in Denver, for example, is organized around a focused value proposition we’d characterize as, “If you have a disease of the pulmonary system, bring it here. We’ll define its root cause and prescribe an effective therapy.” Narrowing its focus has allowed National Jewish to develop processes that integrate the ways in which its specialists and specialized equipment work together.

For Tata Motors to fulfill the requirements of its customer value proposition and profit formula for the Nano, it had to reconceive how a car is designed, manufactured, and distributed. Tata built a small team of fairly young engineers who would not, like the company’s more-experienced designers, be influenced and constrained in their thinking by the automaker’s existing profit formulas. This team dramatically minimized the number of parts in the vehicle, resulting in a significant cost saving. Tata also reconceived its supplier strategy, choosing to outsource a remarkable 85% of the Nano’s components and use nearly 60% fewer vendors than normal to reduce transaction costs and achieve better economies of scale.

At the other end of the manufacturing line, Tata is envisioning an entirely new way of assembling and distributing its cars. The ultimate plan is to ship the modular components of the vehicles to a combined network of company-owned and independent entrepreneur-owned assembly plants, which will build them to order. The Nano will be designed, built, distributed, and serviced in a radically new way—one that could not be accomplished without a new business model. And while the jury is still out, Ratan Tata may solve a traffic safety problem in the process.

For Hilti, the greatest challenge lay in training its sales representatives to do a thoroughly new task. Fleet management is not a half-hour sale; it takes days, weeks, even months of meetings to persuade customers to buy a program instead of a product. Suddenly, field reps accustomed to dealing with crew leaders and on-site purchasing managers in mobile trailers found themselves staring down CEOs and CFOs across conference tables.

Additionally, leasing required new resources—new people, more robust IT systems, and other new technologies—to design and develop the appropriate packages and then come to an agreement on monthly payments. Hilti needed a process for maintaining large arsenals of tools more inexpensively and effectively than its customers had. This required warehousing, an inventory management system, and a supply of replacement tools. On the customer management side, Hilti developed a website that enabled construction managers to view all the tools in their fleet and their usage rates. With that information readily available, the managers could easily handle the cost accounting associated with those assets.

HBR’s 10 Must Reads on Strategy

Rules, norms, and metrics are often the last element to emerge in a developing business model. They may not be fully envisioned until the new product or service has been road tested. Nor should they be. Business models need to have the flexibility to change in their early years.

When a New Business Model Is Needed

Established companies should not undertake business-model innovation lightly. They can often create new products that disrupt competitors without fundamentally changing their own business model. Procter & Gamble, for example, developed a number of what it calls “disruptive market innovations” with such products as the Swiffer disposable mop and duster and Febreze, a new kind of air freshener. Both innovations built on P&G’s existing business model and its established dominance in household consumables.

There are clearly times, however, when creating new growth requires venturing not only into unknown market territory but also into unknown business model territory. When? The short answer is “When significant changes are needed to all four elements of your existing model.” But it’s not always that simple. Management judgment is clearly required. That said, we have observed five strategic circumstances that often require business model change:

1. The opportunity to address through disruptive innovation the needs of large groups of potential customers who are shut out of a market entirely because existing solutions are too expensive or complicated for them. This includes the opportunity to democratize products in emerging markets (or reach the bottom of the pyramid), as Tata’s Nano does.

2. The opportunity to capitalize on a brand-new technology by wrapping a new business model around it (Apple and MP3 players) or the opportunity to leverage a tested technology by bringing it to a whole new market (say, by offering military technologies in the commercial space or vice versa).

3. The opportunity to bring a job-to-be-done focus where one does not yet exist. That’s common in industries where companies focus on products or customer segments, which leads them to refine existing products more and more, increasing commoditization over time. A jobs focus allows companies to redefine industry profitability. For example, when FedEx entered the package delivery market, it did not try to compete through lower prices or better marketing. Instead, it concentrated on fulfilling an entirely unmet customer need to receive packages far, far faster, and more reliably, than any service then could. To do so, it had to integrate its key processes and resources in a vastly more efficient way. The business model that resulted from this job-to-be-done emphasis gave FedEx a significant competitive advantage that took UPS many years to copy.

4. The need to fend off low-end disrupters. If the Nano is successful, it will threaten other automobile makers, much as minimills threatened the integrated steel mills a generation ago by making steel at significantly lower cost.

5. The need to respond to a shifting basis of competition. Inevitably, what defines an acceptable solution in a market will change over time, leading core market segments to commoditize. Hilti needed to change its business model in part because of lower global manufacturing costs; “good enough” low-end entrants had begun chipping away at the market for high-quality power tools.

Of course, companies should not pursue business model reinvention unless they are confident that the opportunity is large enough to warrant the effort. And, there’s really no point in instituting a new business model unless it’s not only new to the company but in some way new or game-changing to the industry or market. To do otherwise would be a waste of time and money.

Pursuing a new business model that’s not new or game-changing to your industry or market is a waste of time and money.

These questions will help you evaluate whether the challenge of business model innovation will yield acceptable results. Answering “yes” to all four greatly increases the odds of successful execution:

• Can you nail the job with a focused, compelling customer value proposition?
• Can you devise a model in which all the elements—the customer value proposition, the profit formula, the key resources, and the key processes—work together to get the job done in the most efficient way possible?
• Can you create a new business development process unfettered by the often negative influences of your core business?
• Will the new business model disrupt competitors?

Creating a new model for a new business does not mean the current model is threatened or should be changed. A new model often reinforces and complements the core business, as Dow Corning discovered.

How Dow Corning Got Out of Its Own Way

When business model innovation is clearly called for, success lies not only in getting the model right but also in making sure the incumbent business doesn’t in some way prevent the new model from creating value or thriving. That was a problem for Dow Corning when it built a new business unit—with a new profit formula—from scratch.

Dow Corning Embraces the Low End

Traditionally high-margin Dow Corning found new opportunities in low-margin offerings by setting up a separate business unit that operates in an entirely different way. By fundamentally differentiating its low-end and high-end offerings, the company avoided cannibalizing its traditional business even as it found new profits at the low end.

For many years, Dow Corning had sold thousands of silicone-based products and provided sophisticated technical services to an array of industries. After years of profitable growth, however, a number of product areas were stagnating. A strategic review uncovered a critical insight: Its low-end product segment was commoditizing. Many customers experienced in silicone application no longer needed technical services; they needed basic products at low prices. This shift created an opportunity for growth, but to exploit that opportunity Dow Corning had to figure out a way to serve these customers with a lower-priced product. The problem was that both the business model and the culture were built on high-priced, innovative product and service packages. In 2002, in pursuit of what was essentially a commodity business for low-end customers, Dow Corning CEO Gary Anderson asked executive Don Sheets to form a team to start a new business.

The team began by formulating a customer value proposition that it believed would fulfill the job to be done for these price-driven customers. It determined that the price point had to drop 15% (which for a commoditizing material was a huge reduction). As the team analyzed what that new customer value proposition would require, it realized reaching that point was going to take a lot more than merely eliminating services. Dramatic price reduction would call for a different profit formula with a fundamentally lower cost structure, which depended heavily on developing a new IT system. To sell more products faster, the company would need to use the internet to automate processes and reduce overhead as much as possible.

Breaking the rules.

As a mature and successful company, Dow Corning was full of highly trained employees used to delivering its high-touch, customized value proposition. To automate, the new business would have to be far more standardized, which meant instituting different and, overall, much stricter rules. For example, order sizes would be limited to a few, larger-volume options; order lead times would fall between two and four weeks (exceptions would cost extra); and credit terms would be fixed. There would be charges if a purchaser required customer service. The writing was on the wall: The new venture would be low-touch, self-service, and standardized. To succeed, Dow Corning would have to break the rules that had previously guided its success.

Sheets next had to determine whether this new venture, with its new rules, could succeed within the confines of Dow Corning’s core enterprise. He set up an experimental war game to test how existing staff and systems would react to the requirements of the new customer value proposition. He got crushed as entrenched habits and existing processes thwarted any attempt to change the game. It became clear that the corporate antibodies would kill the initiative before it got off the ground. The way forward was clear: The new venture had to be free from existing rules and free to decide what rules would be appropriate in order for the new commodity line of business to thrive. To nurture the opportunity—and also protect the existing model—a new business unit with a new brand identity was needed. Xiameter was born.

When the Old Model Will Work

You don’t always need a new business model to capitalize on a game-changing opportunity. Sometimes, as P&G did with its Swiffer, a company finds that its current model is revolutionary in a new market. When will the old model do? When you can fulfill the new customer value proposition:

• With your current profit formula
• Using most, if not all, of your current key resources and processes
• Using the same core metrics, rules, and norms you now use to run your business

Identifying new competencies.

Following the articulation of the new customer value proposition and new profit formula, the Xiameter team focused on the new competencies it would need, its key resources and processes. Information technology, just a small part of Dow Corning’s core competencies at that time, emerged as an essential part of the now web-enabled business. Xiameter also needed employees who could make smart decisions very quickly and who would thrive in a fast-changing environment, filled initially with lots of ambiguity. Clearly, new abilities would have to be brought into the business.

Although Xiameter would be established and run as a separate business unit, Don Sheets and the Xiameter team did not want to give up the incumbency advantage that deep knowledge of the industry and of their own products gave them. The challenge was to tap into the expertise without importing the old-rules mind-set. Sheets conducted a focused HR search within Dow Corning for risk takers. During the interview process, when he came across candidates with the right skills, he asked them to take the job on the spot, before they left the room. This approach allowed him to cherry-pick those who could make snap decisions and take big risks.

The secret sauce: patience.

Successful new businesses typically revise their business models four times or so on the road to profitability. While a well-considered business-model-innovation process can often shorten this cycle, successful incumbents must tolerate initial failure and grasp the need for course correction. In effect, companies have to focus on learning and adjusting as much as on executing. We recommend companies with new business models be patient for growth (to allow the market opportunity to unfold) but impatient for profit (as an early validation that the model works). A profitable business is the best early indication of a viable model.

Accordingly, to allow for the trial and error that naturally accompanies the creation of the new while also constructing a development cycle that would produce results and demonstrate feasibility with minimal resource outlay, Dow Corning kept the scale of Xiameter’s operation small but developed an aggressive timetable for launch and set the goal of becoming profitable by the end of year one.

What Rules, Norms, and Metrics Are Standing in Your Way?

In any business, a fundamental understanding of the core model often fades into the mists of institutional memory, but it lives on in rules, norms, and metrics put in place to protect the status quo (for example, “Gross margins must be at 40%”). They are the first line of defense against any new model’s taking root in an existing enterprise.

• Gross margins
• Opportunity size
• Unit pricing
• Unit margin
• Time to breakeven
• Net present value calculations
• Fixed cost investment
• Credit items

Operational

• End-product quality
• Supplier quality
• Owned versus outsourced manufacturing
• Customer service
• Performance demands
• Product-development life cycles
• Basis for individuals’ rewards and incentives
• Brand parameters

Xiameter paid back Dow Corning’s investment in just three months and went on to become a major, transformative success. Beforehand, Dow Corning had had no online sales component; now 30% of sales originate online, nearly three times the industry average. Most of these customers are new to the company. Far from cannibalizing existing customers, Xiameter has actually supported the main business, allowing Dow Corning’s salespeople to more easily enforce premium pricing for their core offerings while providing a viable alternative for the price-conscious.

Established companies’ attempts at transformative growth typically spring from product or technology innovations. Their efforts are often characterized by prolonged development cycles and fitful attempts to find a market. As the Apple iPod story that opened this article suggests, truly transformative businesses are never exclusively about the discovery and commercialization of a great technology. Their success comes from enveloping the new technology in an appropriate, powerful business model.

Bob Higgins, the founder and general partner of Highland Capital Partners, has seen his share of venture success and failure in his 20 years in the industry. He sums up the importance and power of business model innovation this way: “I think historically where we [venture capitalists] fail is when we back technology. Where we succeed is when we back new business models.”

• Mark W. Johnson is co-founder and senior partner of the strategy consulting firm Innosight and author of  Lead from the Future   (HBR Press, 2020).
• Clayton M. Christensen was the Kim B. Clark Professor of Business Administration at Harvard Business School and a frequent contributor to Harvard Business Review.
• HK Henning Kagermann ( [email protected] ) is the co-CEO of SAP AG, in Walldorf, Germany. Johnson is the author of Seizing the White Space: Business Model Innovation for Transformative Growth and Renewal (Harvard Business Press, 2009).

Partner Center

• Basic Finance
• Financial Planning
• Fundamental Analysis
• Technical Analysis
• Marketshala
• Miscellaneous

Business Models – Example, Types, Importance & Advantages

Listen to this:

Every business or company makes a plan for generating profit. They create a model for identifying products and services to sell, the market they want to target and also take into account anticipated expenses. This is known as business models.

Even if the business is already established or even if it is a new business, a plan needs to be made. Businesses need to regularly update their plans and strategy as they need to take into account the challenges and trends for future models.

Table of Contents

What are the business models.

The strategy a business uses to turn a profit is referred to as its business model. It lists any estimated costs as well as the goods or services the company intends to sell, as well as its chosen target clientele.

Both new and established businesses need strong business models. They aid young, developing businesses in luring capital, hiring talent, and inspiring management and personnel.

Established companies must continuously alter their business models if they are to stay abreast of emerging trends and problems. Business models also assist employees in understanding the future of an organisation they might want to work for and investors in evaluating companies that interest them.

Related Posts

How to Identify Thief Companies in the Stock Market?

Everything you should know about Dividend Investing

7 rules of Growth Investing

How to evaluate succesful business models.

When developing their business concepts, many organisations frequently underestimate the costs of financing the venture until it turns a profit. It is not sufficient to calculate the costs of a product’s launch. A corporation must continue operating until revenues outweigh expenses.

The company’s gross profit can be used as one indicator for analysts and investors to determine whether a business strategy is successful. A company’s gross profit is its total revenue less its cost of goods sold (COGS).

The efficiency and efficacy of a company’s business model can be determined by comparing its gross profit to that of its main rival or its sector. However, relying only on gross profit can be misleading. Analysts also request access to net income or cash flow. This shows how much actual profit the company is making by taking gross profit and subtracting operating expenses.

Importance of Business Models

The business model helps to target the customer base of the company. It helps in making marketing strategies, and projections of revenues and expenses taking into account the type of Business models and clientele.

Every investor needs to review the business model in order to get knowledge about the company’s competitive edge . Understanding the business model helps investors to have a better sense of financial data.

Evaluating the business model helps the investors to get an overall view of the company’s products, its business strategies and future prospects.

Business Model Examples

For example, let’s take company A which rents and sells video games. So the company is in the business of video games. The company used to make a profit of 5 million after spending 3 million on their inventories for video games. So, the total gross profit margin is 2 million.

The Internet arrived in the market and the company now has to alter its business model by taking into consideration the Internet in order to survive in the market. So as a result the cost of holding inventory and distribution cost also gets reduced. Since expenses reduce profit increases.

Even though with the arrival of internet sales get reduced but the company was able to expand its business as technology helped it to change course.

In a similar way, there are various business models types-

What are Business Models Types?

We will discuss here 4 business models types:

1. Business -To- Business Models (B2B)

When dealings or transactions take place between two companies or businesses then this type of business model is known as business to the business model.

It has good market predictability and more market stability . Since under B2B sale is made in bulk amount this model leads to lower cost for the businesses.

The best example of this type of business model in India is IndiaMart InterMesh which is a wholesale B2B marketplace. It offers millions of products to its customers which includes consumer electronics, machinery, apparel and many more.

2. Business -To-Consumer Models (B2C)

The business-2-consumer business model is a model that refers to businesses that sell their services or products directly to the consumer who are the end users of the products or services.

There is an ongoing demand for the products as it provides the essential items. This thus eliminates the risk of fluctuation in demand and helps in maintaining consistency in the business. Since direct contact is there with the customers so information is shared with them directly and easily.

Customers are given products at a low price compared to their competitors for the business to run smoothly.

An example of business to consumer model is Avenue Supermart which provides goods directly to its customers.

3. Subscription-Based Models

Any application-based businesses or software companies have subscription-based business models. They offer their product as a one-time purchase, in return company earns monthly or annual revenues.

This type of business model allows the company to earn regular income by giving the client the opportunity to pay for the cost of the purchase in 12 equal payments rather than asking them to pay the wholesome amount in one go.

One of the leading examples is Infoedge for this type of business model.

4. On-Demand Business Model

It is the most recent form of model which is made out on the need by answering immediately. This type of business model is prepared in such a way that all the questions will be answered by just a click of a button in seconds.

It is very much convenient and easy for customers as even before customers have visited a particular city they get their hotels or places booked.

One of the examples is making my trip which allows customers to plan the holidays and make the bookings in advance.

Advantages of Business Models

• A good business model gives the company a competitive edge in the industry.
• A strong business model provides the company good reputation in the market place encouraging investors to remain invested in the company.
• Making the business model strong leads to an ongoing business profit leading to an increase in cash reserve and new investments.
• A proven business model brings financial stability to the organization.

Business models have disadvantages as well.

Disadvantages of the Business Model

• Once a business model is created, then it restricts to implementation new ideas for the product.
• Creating a business model is time-consuming as a lot of factors need to be considered.
• There might be a chance that the business model may turn out to be inaccurate.

Apart from the disadvantages, the business model is mandatory to be prepared before starting of a new project.

To know more about Fundamental Analysis, you can join our course on Stock Valuation Made Easy

A business is more than just a place where things are sold. It’s an ecosystem, therefore it needs a plan for who to sell to, what to sell for, how much to charge, and how much value it’s producing.

What an organisation does to consistently produce long-term value for its clients is described by its business model. A company should have a clearer understanding of how it intends to function and what its financial future looks like after developing a business model.

While preparing business and revenue models, one of the most important skills that is required is Ms Excel. Wish to learn it ? That also in Hindi? Then join our ms excel in hindi full course now!

Frequently Asked Questions

What is a good business model.

A good business model is one that provides the company with a competitive edge in the industry-leading to good business profits.

Why is a business model important?

The business model is important because it provides the investors with knowledge about the competitive edge of the company and provides better insight into the workings of the company. A strong business model leads to cash generation and future expansion.

How do you create a business model?

The business model is created by identifying the products and services that will be sold in the market to be targeted like B2B, B2C, subscription-based model or on-demand market.

What are the components of the business model?

The business model includes information about the company’s products, its target market and its future prospect related to its business type.

To get the latest updates about Financial Markets, visit  StockEdge

Discover the Power of Smart Investments

How to invest in shares with only rs. 5000.

Your Ultimate Guide to Transform Your Savings into Wealth

Understanding the Head and Shoulders Pattern

A comprehensive guide: 4 ways to pick best stocks for long term investments, elearnmarkets.

Elearnmarkets (ELM) is a complete financial market portal where the market experts have taken the onus to spread financial education. ELM constantly experiments with new education methodologies and technologies to make financial education effective, affordable and accessible to all. You can connect with us on Twitter @elearnmarkets.

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Register on Elearnmarkets

Continue your financial learning by creating your own account on Elearnmarkets.com

Download App

• Derivatives

Popular On Elearnmarkets

© 2023 elearnmarkets. all rights reserved, get elearnmarkets app.

© 2020 Elearnmarkets All Rights Reserved

To revist this article, visit My Profile, then View saved stories .

The Vogue Shopping Report: 11 Trends to Incorporate Into Your Fall Outfits

Edited by Madeline Fass

All products featured on Vogue are independently selected by our editors. However, when you buy something through our retail links, we may earn an affiliate commission.

When designers presented their fall collections earlier this year, several trends were born. Now, ’tis finally the season to see how these fresh ideas are fully ready to be integrated into your fall outfits for 2023. 

Quiet luxury may have been the buzzword(s) heard round the world and shouted through the multiverse (not so quietly) on TikTok, and designers embraced the spirit of the social media movement by putting craft at the forefront of their wonderfully wearable collections. Still, that’s not to say there’s no fun for the maximalists. From metallics to polka dots , brands embraced a new point of view on print, texture, and color ; all of which work strikingly well with the more neutral basics that are so ubiquitous right now. Fall is a time for new ideas and cozy dressing , and the runway certainly gave us range. Ready to go shopping? These are the 11 key trends to incorporate into your fall outfits 2023.

Real Clothes for the Real World 

Fashion has set its sights on the every day, with pieces that are incredibly wearable and intrinsically easy to incorporate into your wardrobe. Think: wear-anywhere freshened-up staples that shine bright and make the rest of your wardrobe happy. Opt for Prince of Wales wool dresses from Gucci, or maybe comfortable cashmere from The Row. Either way: think of it as elevating the basics. Denim maxi skirts from Victoria Beckham and draped crepe t-shirts from Proenza Schouler make real-world minimalism exciting.

the peak-lapel blazer

Victoria Beckham

asymmetric paneled denim maxi skirt

NET-A-PORTER

Callan turtleneck sweater

SAKS FIFTH AVENUE

brushed jersey jacket

Prince of Wales wool dress

single-breasted coat

Badva hooded trench coat

Archetypes ribbed paneled jeans

Pinstripe Power Dressing

Power dressing has returned, and on the top of everyone’s list is the once humble pinstripe, now reinvented with modern shapes that are so effortless to wear. This trend is also a classic and never tires. Saint Laurent went all out with the pinstripe–but a midi skirt version is an incredibly fresh way to add a little bit of power play to your closet. Rule of thumb says there’s a pinstripe for everyone. Choose a tailored vest or an oversized blazer ; throw it over anything, and you’re good to go.

Dries Van Noten

double-breasted distressed blazer

NEIMAN MARCUS

Annette mini skirt

double-breasted pinstripe waistcoat

Saint Laurent

pinstriped wool shirt

waisted wool shirt

Loulou Studio

pinstriped wide-leg pants

Rag & Bone

Charles pinstriped blazer

Stella McCartney

pinstriped wool vest

Fall Classics

Back to school or back to fashion—either way, the hallmark fabrics, textures, and classics that come calling each fall have never felt as prevalent on the runways as they do now. Dries Van Noten’s luscious padded corduroy button-downs are a good place to start. But you can also load up on Burberry’s checked wool skirts, or a tried-and-true buffalo check shirt. These sorts of things look equally as stunning worn for picking apples as they do in the office.

Matthew shirt

MODA OPERANDI

Rubin plaid mini skirt

check wool skirt

Banana Republic

the relaxed flare pants

BANANA REPUBLIC

padded shirt

Florence corduroy flare pants

tartan-checked lyocell shirt

Boy pleated pants

If you invest in one color for fall, make it a regal sort of deep gray. The hue was seen everywhere from Prada to Loewe, and it looks especially chic when worn in monochromatic doses. For starters, try an oversized cashmere sweater . Paired with a little wool midi skirt in a matching color gives it a sweet and subversive sort of schoolgirl vibe. Or, you could also always make power moves in an oversized gray suit.

long draped coat

cashmere and silk cardigan

embroidered ribbed wool sweater

Plank midi skirt

brushed knitted pants

Dany merino midi dress

pure cashmere sweater

pleated straight pants

Everyday Metallica 

The runways have been singing the praises of bold metallics from Coach to Gucci. You don’t have to pick a side with this trend; any color will do. Are you gilded gold, sensual silver or more of a copper or bronze fan? Start with a pair of metallic jeans and layer on the charm with shining sweaters. Top it off with a silver trench coat. The more metallic accessories you add, the better.

Tezzi cable-knit sweater

Proenza Schouler

metallic leather pants

metallic jeans

Marfa booties

Pierre trench coat

Uma metallic Mary Jane ballerina flats

The Frankie Shop

Metz sweatshirt

metallic leather long skirt

From Marni to Miu Miu, polka dots are on the mark for fall. This once slightly sweet and retro print has now become subversively chic through cool silhouettes and unexpected textures. An airy, light, and sheer Miu Miu skirt is an instant hit for colored tights worn underneath. Elsewhere, a button-up or turtleneck top scattered with polka dots makes a style statement. For an op-art effect, pair polka dot pieces of different sizes and hues together. 

tailored polka-dot top

polka-dot chiffon skirt

BERGDORF GOODMAN

polka-dot shirt

high-rise polka-dot pants

polka-dot mini dress

puff-sleeve top

Zoe polka-dot silk pumps

polka-dot midi skirt

Long and Lean Dresses

The maxi dress has returned. But instead of the once-loved bohemian shapes and silhouettes, the new look is longer, leaner, more minimal, and ultimately, more streamlined. Take a cue from Chloe, Gabriela Hearst, or Rabanne and choose a dress made of cashmere or merino wool with minimal adornments. A pleat or two here or there adds a hint of romanticism, if it’s all too minimal for you. All you need is a good book and a great fireplace.  

wool maxi dress

Perkins-neck ribbed dress

Africa maxi dress

Jardin des Orangers

wool and cashmere sweater dress

Mélange ribbed midi dress

ice-dyed velvet shirt dress

chain-embellished maxi dress

long knit dress

Futurist Florals

Florals were deconstructed, blurred, and made into delicate 3D forms on the fall runways. Embrace them with open arms in floaty textured tops by Comme des Garcons paired with purple Dries Van Noten slip skirts covered in a collage of watercolor florals. Printed mesh tops from Jean Paul Gaultier are the perfect layering assist to transform sleeveless dresses or to add a bit of texture play to a chunky knitted cardigan.

Comme des Garçons

floral-motif textured top

floral slip skirt

Alexander McQueen

Orchid midi shirt dress

Jean Paul Gaultier

floral-print mesh top

printed stretch-mesh midi dress

Aline twisted top

floral brushed sweater

Dolce & Gabbana

floral micro mini skirt

Layerable Lace

Layer on the lace and textured embroidery for ornate dressing that feels totally opulent and feminine, but not overdone. Whether you choose a white lace maxi dress from Rabanne or a black lace midi skirt from Sea New York, this look is one that incorporates grunge, girlishness, and bohemian simplicity. Not ready to take the plunge with head-to-toe lace? Add it to your outfit in small flourishes with lace-detailed trousers.

lace maxi dress

Dion midi skirt

turtleneck smocked lace top

Dalia corded lace midi skirt

Anonlychild

floral lace turtleneck

lace hem detail trousers

& Other Stories

slim-fit lace shirt

& OTHER STORIES

3.1 Phillip Lim

cady chiffon combo midi dress

Glam Rebellion

Thom Browne, Marni, and Valentino all explored the dark side of punkish glamor with wayward plaids, ripped denim, and even schoolboy-esque ties. The secret lies in the juxtaposition of styling here. Distressed denim mini + a tailored Vivienne Westwood top with the label’s signature draping = a new punk love story . Cropped blazers and dark flower dresses are also a few essentials to consider. 

cropped wool blazer

checked viscose sheath skirt

floral shirred midi dress

Marc Jacobs

reflective midi skirt

Chopova Lowena

Palooza mixed-print fitted mesh top

Favorite Daughter

First Wife check mini skirt

Vivienne Westwood

Norbury denim mini skirt

The roar of red took the fall 2023 runways by storm. It’s a very particular shade of red too–bright, not too blue, with just a touch of orange, like a ripe tomato. TikTok crowned it Tomato Girl Summer for a reason. Trade your wardrobe staples in neutral hues for a bright tomato red upgrade, like Toteme’s crepe maxi dress or a distressed wool tank top in this surprisingly bright pop of color, which works just as well (if not better!) for fall. 

distressed wool tank

double pleat pants

belted gathered maxi dress

logo-embossed leather loafers

Horsebit chain shoulder bag

wool-blend sweater

lyocell fluid shirt

Magda Butrym

oversized wool blazer

More Great Stories From Vogue Shopping

Shop Fall’s Standout Pieces —All for Under $300

The Best New Arrivals to Shop Now

The Fall Dress Shop Is Here—100+ Best Styles of the Season

Vogue Essentials: Shop Wardrobe Staples That Will Never Go Out of Style

The Modern Workwear Edit: Shop 80+ Stylish Pieces of Office-Approved Fashion

Sign up for Vogue’s shopping newsletter to receive the insider’s guide to what to shop and how to wear it

Sign up for our weekly Vogue Shopping newsletter!

By signing up you agree to our User Agreement and Privacy Policy & Cookie Statement .