BUSINESS MODELLING

A business model is a conceptual structure that supports the viability of the business and
explains how it operates, makes money, and how it intends to achieve its goals.

All the business processes and policies that a company adopts and follows are part of the
business model.

Components Of A Business Model

An ideal business model usually conveys four key aspects of the business –

 Customers – Whom the business serves to (the target market),

 Offerings – What the business provides (the product),
 Infrastructure – How it provides the offering (the operating model),
 Financials – How the business makes money and what are the costs involved (the
revenue model)

The Importance Of Business Model

 The business concept – the market opportunity the business capitalises on.
 The target market the business caters to.
 The problems the business intends to solve.
 The solution the business offers and how it creates customer value.
 How the business gets its customers.
 The operating model the business follows.
 How the business makes money and what are the costs incurred to get the same.

Purpose of Business Modelling

Business modelling is used to design current and future state of
an enterprise. This model is used by the Business Analyst and
the stakeholders to ensure that they have an accurate
understanding of the current “As-Is” model of the enterprise.
It is used to verify if, stakeholders have a shared understanding
of the proposed “To-be of the solution.

Analyzing requirements is a part of business modelling process

and it forms the core focus area. Functional Requirements are
gathered during the “Current state”. These requirements are
provided by the stakeholders regarding the business processes,
data, and business rules that describe the desired functionality
which will be designed in the Future State.

Guiding Principles for Business

Modelling
1.Domain and User variation − Developing a business
model will frequently reveal areas of disagreement or confusion
between stakeholders.

2. Multiple work units perform the same function

3. Multiples users perform the same work
4. Resolution Mechanism 

The 30 Types Of Business Models

Manufacturer
A manufacturer makes finished products from raw materials. It may sell directly to the
customers or sell it to a middleman 

Distributor
A distributor buys products from manufacturers and resells them to the retailers or the
public.

Retailer
A retailer sells directly to the public after purchasing the products from a distributor or
wholesaler.

Franchise
A franchise can be a manufacturer, distributor or retailer. Instead of creating a new product,
the franchisee uses the parent business’s model and brand while paying royalties to it.

Brick-And-Mortar
Brick-and-mortar is a traditional business model where the retailers, wholesalers, and
manufacturers deal with the customers face-to-face

Ecommerce
E-Commerce business model is an upgradation of the traditional brick-and-mortar business
model. It focuses on selling products by creating a web-store on the internet.

Bricks-And-Clicks
A company that has both an online and offline presence allows customers to pick up
products from the physical stores while they can place the order online.

Freemium
This is one of the most common business models on the Internet. Companies offer basic
services to the customers for free while charging a certain premium for extra add-ons. So
there will be multiple plans with various benefits for different customers. Generally, the basic
service comes with certain restrictions or limitations, such as in-app advertisements,
storage restrictions etc., which the premium plans shall not have.

Subscription
If customer acquisition costs are high, this business model might be the most suitable
option. The subscription business model lets you keep customers over a long-term contract
and get recurring revenues from them through repeat purchases. 

Aggregator
Aggregator business model is a recently developed model where the company various
service providers of a niche and sell their services under its own brand. The money is
earned as commissions. 

Online Marketplace
Online marketplaces aggregate different sellers into one platform who then compete with
each other to provide the same product/service at competitive prices. The marketplace
builds its brand over different factors like trust, free and/or on-time home delivery, quality
sellers, etc. and earns commission on every sale carried on its platform. 

Advertisement
Advertisement business models are evolving even more with the rise of the demand for free
products and services on the internet. Just like the earlier times, these business models are
popular with media publishers like Youtube, Forbes, etc.

Data Licencing / Data Selling

With the advent of the internet, there has been an increase in the amount of data generated
upon the users’ activities over the internet. This has led to the advent of a new business
model – the data licencing business model.

Agency-Based
An agency can be considered as a partner company which specialises in handling the non-
core business activities like advertising, digital marketing, PR, ORM, etc. 

Affiliate Marketing
Affiliate marketing business model is a commission-based model where the affiliate builds
its business around promoting a partner’s product and directs all its efforts to convince its
followers and users to buy the same. In return, the affiliate gets a commission for every sale
referred.

Dropshipping
Dropshipping is a type of e-commerce business model where the business owns no product
or inventory but just a store. The actual product is sold by partner sellers who receive the
order as soon as the store receives an order from the ultimate customer. These partner
sellers then deliver the products directly to the customer.

Network Marketing
Network marketing or multi-level marketing involves a pyramid structured network of people
who sell a company’s products. The model runs on a commission basis where the
participants are remunerated when –

 They make a sale of the company’s product.

 Their recruits make a sale of the product.

Crowdsourcing
Crowdsourcing business model involves the users to contribute to the value provided. This
business model is often combined with other business and revenue models to create an
ultimate solution for the user and to earn money. Examples of businesses using the
crowdsourcing business model are Wikipedia, reCAPTCHA, Duolingo, etc.

Peer 2 Peer Catalyst/Platform

A P2P economy is a decentralized internet-based economy where two parties interact
directly with each other to buy or sell goods or to conduct a transaction without the
intervention of any third party. 

Blockchain
The Blockchain is an immutable, decentralized, digital ledger. It is a digital database that no
one owns but anyone can contribute to. Many businesses are taking this decentralised
route to develop their business models. Models based on blockchain are not owned or
monitored by a single entity. 
SAAS, IAAS, PAAS
Many companies have started offering their software, platform, and infrastructure as a
service. The ‘as a service’ business model works on the principle of pay as you go where
the customer pays for his usage of such software, platform, and infrastructure; he pays for
what and how many features he has used and not for what he hasn’t.

High Touch
The High Touch model is one which requires lots of human interaction. The relationship
between the salesperson and the customer has a huge impact on the overall revenues of
the company. The companies with this business model operate on trust and credibility.
Examples – Hair salons, consulting firms.

Low Touch
The opposite of the High Touch model, the low touch model requires minimal human
assistance or intervention in selling a product or service.

Auction-Based
This business model involves the listing of an offering by the seller and the buyers making
repeated bids to buy that offering while fully aware of other bids by other buyers. The
offering is sold to the highest buyer with the auction broker charging a listing fee and/or
commission based on the transaction value.

Reverse-Auction-Based
The reverse-auction-based business model is often used when there are several sellers
selling a similar offering to a single buyer. These sellers lower their price with every bid and
generally the bidder with the lowest bid wins the auction. However, there are cases when
the bidder with a price higher than the lowest bid wins the auction as the buyer likes his
offer

Razor And Blades

Razor and blade model is used by companies which deal in complementary or companion
products like razors and blades.

It involves selling the high-margin root product at a low price to increase the volume sales of
the complementary or related low-margin product.
By using this model, businesses create a stream of recurring income over the life of the root
product.

Reverse Razor And Blades

A business employing a reverse razor and blades model offers the low margin item at a
very less price or below the cost to encourage the sale of the high margin product.

On-Demand
An on-demand model is a model where a customer’s demand is fulfilled by delivering goods
and services on demand (usually immediately).

User Community
Driven by the network effect, this business model involves granting access to a community
or a network in return for a membership fee.