What is a business model?
A business model refers to a company’s plan to ensure successful operation and profitability. A good business model will detail and identify sources of revenue, the intended customer base, products and services to push and sell and any other details of financing.
It's important to always have a business model set regardless of whether you are a small or big business, newly founded or a well-established business. The business model will help set out your commercial plans, stay ahead of any changes that may need to be implemented, recruit new talent if needed, attract investment, anticipate upcoming trends and challenges, and much more. Business models also help investors to easily evaluate any companies that interest them.
Key takeaways from this section:
- At its core, a business model is a company’s strategy for profitably and successful operation.
- Business models will generally vary for different companies and industries, but generally will include the same elements such as information about the products and services the business intends to sell, target markets, anticipated expenses etc.
- The main two levers of a business model are pricing and costs.
- Business models helps businesses to understand, design and test business assumptions and decisions in the marketplace, and can help to unlock long-term value.
- There are over 50 different types of business models that can be used, so find the one that is best suited to the nature and the needs of your specific company.
Understanding business models
There are a wide variety of business models a company can use and set out. Each model and plan will differ for individual businesses and the actual aims and objectives they have in mind.
Essentially, business models are high level plans for profitability and a plan to operate a business successfully in a specific industry and marketplace. Each business model can be broken down into three main parts:
- What it takes to make something (design, raw materials, manufacturing, labour etc).
- What it takes to sell what you have made (marketing, distribution, service delivery, processing the sale and so on).
- What and how the customer will pay for what your produce (pricing strategy, payment methods, payment timing etc).
For a new business or enterprise, business models should also include aspects such as projected start-up costs, financing sources, targeted customer base for the business, marketing strategy, review of the competition and also projections of revenues and expenses.
Business Model FAQs
What are the main components of a business model?
The main components of any business model will include a value proposition, target market/s, competitive advantages, cost structure, key metrics for measuring success, resources and assets of your company, and main problems and pain points and their correlating solutions.
What are the most common types of business models?
There are a very wide variety of different business models that can be used for different companies in varying sectors and industries. Some of the most common ones include a subscription model used by companies such as Netflix, bundling model for companies that sell multiple products together for example fast-food companies selling meal deals etc, freemium models that offer a free tool to use but also limits certain features that can only be accessed if you pay for a subscription – similar to what Spotify does. Other business models include product to service model, leasing model, crowdsourcing model, one-for-one model, franchise model, distribution model, retailer model, manufacturer model and many more.
Have you thought about Invoice Finance as a cash flow solution for your business?
Invoice finance allows you to release cash quickly from your unpaid invoices.
As your lender, we can release up to 90% of your invoices within 24 hours. On payment of the invoice from your customers, we will then release the final amount minus any fees and charges. There are different types of invoice financing options available to businesses depending on the situation and the level of control they require in collecting unpaid invoices.
With Novuna as your factoring company, your payments are collected on your behalf and managed by our team of expert credit controllers so you can focus on running your business.
Our confidential invoice discounting solution is offered to businesses who want to maintain their own credit control processes, therefore this remains strictly confidential so your customers are unaware of our involvement.
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