What is a Business Model?
Your business model is your plan to create, deliver, and monetize value. It’s a description of all the important things you will do to ensure that your business serves its customers and continues to gain from doing so.
Such a model will cover the structures that will make cost-effective products that your market will love and be willing to pay a fair price for; how you’ll get those products to your ideal consumers; and how you will retain your position in your market.
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In a nutshell, it’s the model for the success of your business.
What a Business Model Contains
A well-designed business model will contain these details:
This describes the unique thing about your products that make your target customers choose it instead of competing brands. Your value proposition lies in your ability to meet your customers’ needs, and do so in a way that’s more impressive to them than other possible alternatives.
Your aim here is to build a business that makes a significant profit. You should have a plan for revenue generation that considers pricing and margins for your various products, and strategies for raising your level of sales.
The Structure of Your Value Chain
Your business’s value chain is the series of processes that your product goes through from creation to distribution. Each stage of the chain should add value to the product.
Your Market Position
It’s one thing to gain entry into a market. It’s quite another to establish a foothold in that market and compete favourably against others in the space. This is something that your value proposition will help you achieve. But you may also have to run campaigns that reinforce the idea of your uniqueness and value in the minds of your customers.
Steps to Building a Business Model that Works
1. Decide the Problem You Will be Solving
Your business should solve a relevant problem. This might be an improvement on an already existing solution, an extension of that existing solution to an underserved population, a modification of a product to new uses, or other, more novel approaches to spotting gaps in the market.
2. Find Out Who Your Customers Will Be
Defining your ideal customer is an interesting but challenging task.
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It involves looking at the problem you have identified to understand what segments of the population it affects the most. They will be more willing than anyone else to pay for a solution.
It’s important to know the basic details about these customers: their age groups, income bracket, the locations they’re likely to live in, and the tastes they share that are relevant to your product. These details will help you grasp how the services you’re rendering fits into their wider lives, and how best you can sell to them.
3. Proffer Solutions
The solutions you provide should
- Adequately address the problem you have noted.
- Be something that your would-be customers will want to pay for.
Ideally, you should come up with a list of these solutions. For instance, you could have various versions of a possible product that addresses your intended customers’ concerns.
Screen the options on the list based on the two criteria noted above. Select one that best meets those criteria.
4. Design an Efficient Value Chain
What production and distribution processes will enable you to minimize costs and maximize value for your products? This should guide your decisions as you determine the form that your product’s value chain should take.
5. Decide How You Will Monetize Your Solution
Again, list a number of possible ways you will make money from your proposed solution: sales, royalties and commissions, lease, etc.
Be specific about how you will grow revenue using any or a combination of the means you have listed. Work out how these are likely to perform in real-world conditions. Take every possible factor into consideration: costs, customer attitudes, and preferences, what is most common in the industry, etc.
Choose one that generates the most revenues while being acceptable to your would-be customers.
6. Define Your Unique Value Proposition
Beyond just building a product, you’ll want to be clear about what makes it stand out from the competition. It may be your affordable prices, the higher quality of your products, the fact that they are trendy, or that they are longer lasting than competing alternatives. Just be sure that it’s something that appeals to your target audience.
7. Test Your Model
The proof of your model’s effectiveness will come as you execute it. You can always tweak aspects of it that you think may need to function better.
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