Business Model Meaning
A business model is a framework that a company uses to operate profitably and deliver customer value.
The model will typically identify the products the company offers, product development, value proposition, the pricing strategy, the target market and the expected costs. In a nutshell, it breaks down what’s needed to make something, what’s needed to sell it and what price the customer pays for it.
Business models are vital to helping enterprises better understand customers, motivate employees, identify growth gaps, make financial projections, gain a competitive advantage and win over investors.
While the business model is not something a company should change too frequently, it is not meant to be static. It is a living document that must be updated on a regular basis to accommodate trends, obstacles and opportunities. Some companies will use a combination of business models.
Common business models include dropshipping, manufacturing, retail, wholesale, print on demand, digital downloads, subscription direct to consumer, affiliate, franchise, freelance and brokerage.
To create a business model:
- Understand your target market including its size, demographics and behavior to devise the most effective strategies.
- Identify what customer needs you are responding to.
- Define a product that will meet this need and who can gain from it.
- Describe the product’s unique value proposition explaining how it differs from the competition.
- Develop a strategy for pricing and marketing.
- Write a business plan that notes the type of model you will use.
- Innovate and change the model as the business evolves.