Business Model

WHAT IS THE BUSINESS MODEL?

• is the way in which a company
generates revenue and makes a profit
from company operations.
• Analysts use the metric gross profit as a
way to compare the efficiency and
effectiveness of a firm's business model.
• Gross profit is calculated by subtracting
the cost of goods sold from revenues.
 How to Develop Business Models
• To develop an effective business model for your
company, draw a picture that establishes a
structure so your employees can produce
products or services for customers in a
profitable way
• A business model typically includes a
description of your customers, how customers
use your product, how you distribute your
product and details about how you promote
your business
• The model also describes key operational
tasks, staffing and other resource
requirements as well as details about how
business is conducted.
• A business model describes your business
using visual images, typically on a single
page, while a business plan describes your
business in a more lengthy document.
1. Collect information about your business and analyze it so that you
can create a visual description of your company. Keep your business
model simple.
2. Define your target market. Summarize how you plan to attract
customers who allow you to charge a profitable price for your
company’s products or services. Successful business models tend to
require minimal marketing expenses by targeting the right
population. These customers may also be resellers or distributors of
your product.
3. Establish your value proposition. An effective business model relies on
clear definition of valuable features and benefits associated with your
product or service. Show how your company intends to get or
maintain a competitive advantage, such as through better
distribution, more innovative solutions to customer problems, lower
pricing or faster delivery.
4.Describe how you intend to run your business
more efficiently and produce higher quality
products than your competition.
5. Use the resources provided by websites, such as
the Small Business Administration Small
Business Planner, Business.gov and the Business
Valuation Resources website to get data on
industry standards that may impact your
business operations.
6. State your strategy for ensuring customer satisfaction.
Operations with extensive technical support and customer service
tend to incur high warranty costs but maintain high levels of
customer satisfaction, retention and loyalty. Depending on your
strategic goals, establishing partnerships with other service
providers may be a more cost effective way to conduct business.
7. Describe how you intend to improve your market position. For
example, list ways you can locate new customers, add new
products or expand your business in other ways. Potential
investors typically want to see details about projected growth in
your business model and associated plan. Estimate the return on
investment. Use the resources provided by the Census.gov website
to locate details about the overall outlook for your industry.
 Why a Business Model is so Important
• Before you start your small business, you need to
create a business model – your roadmap for small
business success. 
• And no, a business model is not a business plan.  You
can’t even begin to write a business plan until you’ve
created a “blueprint” for your success with a business
model.
• Building a business is a lot like building a house – and who can
A business model is a roadmap for small business success

imagine a house built without preliminary sketches? Creating a

small business model means planning – on paper – the
fundamentals of your business.
• It helps you, as an entrepreneur, to put aside the excitement and
make a realistic evaluation of the potential success of your business
idea.
• A proper business model helps you to figure out elements such as:
Your business concept – what problem are you solving for whom;
how you will create customer value; how your product or service
will get to customers; how your business will stay competitive; and
all revenue and costs you can anticipate
 Take your time creating a business model
• You may have a few ideas scribbled down on a sheet of paper – name
ideas, product prices and ideal locations.
• Starting a small business is exciting, but you also need the strongest
foundation possible to ensure small business success.
• Don’t guess what your business’ customer value will be – research!
Survey your friends and work your business network to find the true
value of the solution that your product or service offers to the
marketplace. Taking your time creating your business model will
ensure you don’t underestimate – or overestimate – anything
 Consider all possible areas of concern
• There are many moving parts when it comes to running a business
and you don’t want to be caught unprepared.
• For example, how exactly will your product make its way to your
customers?
• Make sure your business model is thorough and covers all the bases.
Once you’ve proven the feasibility of your new business or your
business expansion plan on paper with a business model, you’re
ready to write a more comprehensive business plan.
• Proper planning takes time and effort, but you’ll see the return on
that investment when your great idea has become the great,
successful small business you envisioned.