What is a Business Model: How does it Work? Definitive Guide (2020)

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A business model is something that defines how the company /startup like yours Creating Value For customers and Creating Revenue itself.

This depends upon Two Parameters, First How you going to generate Profits and the Second one is What values you are providing to your customers through your products/services.

It allows you to differentiate From your Competition. It will also help you to build your Business Logic.

What’s in it For Me?

  1. What is a Business Model? Definition
  2. Most Popular Business Models
  3. How does it work?
  4. Importance of Business Model.
  5. 4 Key Components of Business Model
  6. Disadvantages of business Model.
  7. Conclusion

Key Point- it is the business Logic Of the company.

If you are searching for the best guide to the business model in 2020, then you are in the right place.

I want to know who really you are?

As per My assumptions, you are a Business Folk who thriving for the knowledge or  You are going to Start your Own Venture/startup or you are existing Entrepreneur who running a Company

( comment below)

Yes, this blog is for all of you! I tried to give a brief description of the Business model.

What is Business Model? Definition?

As we discussed in the First section of Blog, it’s all about how you creating and Capturing the Value of Customers and Importantly, how You going to Make Money From it. Having a Business Model gives you Success Path For your business.

Business Model is a conceptualization, how your business operates what are Companies intend to revenue System.  

Every Company has a business Model. From our local  Grocery stores to Google.

All companies need to think about their Offerings, the Value in ends they are Creating For Customers, and how they make money to Getting Sustainable.

Business Model Made With Business Model Canvas

Definition: Business Model Describes how a Company like yours Create Value for its customers and generates Revenue itself.

  • Pay Per Use
  • Subscription
  • Freemium
  • Product cost plus Margin
  • Advertisement Model

These are Most Common  Models widely used by Entrepreneurs and also these are Very Popular Models to Generate Good Revenue For Company.

Let’s Understand one by one.

And how you Can Apply it on your Business.

Pay per Use:

pay-per-use-model

In pay per use business model users only have to pay according to their usage of that particular of products or Services. We can say- specific usage= Profit.

This model is popular within the Consumer media market ( online media services and television).

Benefits of Pay per use business model: (From consumer side)

Different Choices of services.

Customization and Flexible.

Measurable amount.

Pay per download basis.

To elaborate on this I want to give you a practical example- think about how Cyber Cafes and Game Clubs!

This is the Most Common thing Indians use, When I was a kid I used to go to a games club to play Video Games, they do usually Charged me For a specific time  I spend playing games.

They had a detailed rate chart for different games and Time. It gave me a wider choice and flexibility to choose the best service for me.

If you are operating in these types of industry Pay per business model is best For You.

Subscription base business Model:

subscription-model
subscription-model

This is one of the most powerful models in the world. It allows brand and Small Companies to Generate recurring revenue From their customers.

Almost big tech gains to small companies are using the Subscription model.

In this model, you will get a specific amount From your Customer on a monthly basis.

It will also give you sustainable growth, there is less chance to run out of money by using a subscription model because you knew how much you going to get at the end of the month.

If a customer creating recurring revenue For your Company that means he or she is finding your Product worthy and Valuable.

Benefits of subscription model: (From Company side)

Recurring revenue

Sustainable Growth

Customer lifetime value

The biggest Example of the Subscription model is Mobile recharge, to call and use the internet in your mobile you need to pay ( recharge) a specific amount to your telecom operator by the end of every month.

This is a perfect example of a subscription base Model. Every company wants to create a subscription-based model,

For example, think about YouTube, if you noticed YouTube continuously pushing their Users to Purchase their Premium service Why? Because they wanting recurring revenue from us.

They are offering some of the features and things by using the Premium model at 129/ Per month.

Advertisement – Free & Background Play

Download in Offline

YouTube Music Premium.

Now you can analyze how effective recurring the revenue Model is because these tech giants are Also Trying to Apply.

Now you need to think about how you going to apply the subscription model to your business. What specific things you want to add is your Premium model.

Freemium Model:

fremmium-business-model

As you can see it’s the Combination of Free + Premium.

Let me explain, You can use that Particular Product For Free but at the same point time Company will push you to Purchase their Premium Plan to Access all Features they have.

The best Example of the premium Model is Canva.com( Graphics design web app).

There are More brands and Companies who are using Fermium Model but I took Canva because I m engaged with it every day.

The key point is Canva is totally Free to use, you can create an account and start designing, they have a wider collection of graphics, Colors, the illustration.

you can use those totally free but if you want to More specification And Customization you need to Purchase their premium Plan.

That’s how Freemium Model Works.

You Can attract big amount of Customers by using the Freemium model.

They don’t have to spend a single penny on your product/service early, by doing this your customer will get addicted to your product/service Now you Can Push your premium Model.

Product cost plus Margin:

This is a very common Model used by businesses, if you don’t have any strategize to create a different business model for your Company, you can go with This.

It’s all about selling your product to your customers and earn Profit margin out of it.

You Build a product At 500 Rs and you sell it for 600 Rs that’s all, this is how it works.

To understand it better I drew a Picture check out:

cost-plus-margin
Product cost plus Margin

Advertisement Model:

online-Advertisement
online-Advertisement

This Business Model Gaining Popularity day by day,  Big Giants like Facebook and Google are operating their companies with this Model.

Most of the Revenues Comes From Advertisement. They Give access to reach billions of People through their platform and For that they charge for it.

Nowadays AD Model is often using by different organizations and individuals, Think about bloggers like us, we are writing blogs our mainstream income will be Advertising.

We can use Google Adsense to monetize our blog, Google will show Ads to blog readers and we will earn.

That’s how Advertisement Model Works.

If Your Company is something related to Content Creation, Media, and social media Platforms you Can use the Ad model.

How does it work?

To understand How the business model works, before that you need To know  Few Things :

Product /Services

Identify your Right potential customers

Value Proposition

Revenue Diagram

Key Business Partners

Your business process

Pricing Strategy

The business model is a combination of all these things.  A complete Plan and Practical Model will help you to run your business.

Golden statement: The process of Operating Your Business with strategy, value proposition For Customers, and generating revenue itself is the work of the Business Model.

If you are starting A new venture, having a Business model is Important, it will cover up your Expenses, sources of Financing, target market size, Competition, Marketing strategy, and Revenue Projection.

Importance of Business Model

importance of business model

Basically business Model is the Road map to success your business/startup

Think like this, You building your own house, but before the start construction of your building, you need to draw sketches of your house how it’s going to look like. Without knowing anything, You Can’t Even start.

That’s How important is to create a Business Model before starting any business. It’s a blueprint of strategies.

key Points of business Model importance:

What problem you are solving For whom?

It will help you to create and Capture Customer Value Proposition.

This will decide your product/ service reach to the right customers.

It will help to gain Competitive advantage.  And lastly All revenue and Cost Management.

4 Key Components of Business Model. How it will help you?

components of business model

It’s vital to Create and Express our Business Model in a Structured Way it will give Maximum Potential Growth. It makes thinking and Communicating about your business model Much easier and Clearer.

Here are 4 Key Components Of Business Model:

  1. Who?
  2. What?
  3. How?
  4. What’s in it?

You wondering why I mentioned this, it seems simple right? These 4 things are going to Develop a super business model;)

1.Who

It means, who are your Customers that you Create Value For? Maybe there are Different Groups of Customers or segments you need to target! At that point, you, need to find out your right customers.

2.What

What are you going to Offer your Customers?

What the exact Value you want to deliver to Customers. To Clear your thought process I want to provide you an example; Let’s say you have a Product as Collar Mic, What do you think what Value you will able to deliver your customer through that mic.

It may be;

Best Noise Cancellation Mic

Or best quality Mic in terms of build quality or anything else,  this is how you provide actual value to your customer.

Let’s take another example to understand it better:

If you run a restaurant than the food, drinks, the restaurant furnishing and service you are offering.

The value that you create is about the problem that you are solving for your Customer

For a restaurant, the customer problem could be feeling hungry or wanting a special celebration at the restaurant.

The Value that the restaurant creating that may be:

Enjoyable Experience

Tasty meal

Don’t need to cook.

That’s all About   “What”- (Value Proposition)

3.How

How you going to create  Produce and Distribute your offerings?

What you need to actually develop your product/services product will probably need resources like space, Machine, technologies, staff, Process.

Think about Gym centers:

They need a Space, Gym equipment, Cardio machine, dumble, weight lifting machines.

And all Manpower – in the case of gyms there are gym trainers.

Maybe also a website so people May get admission into the gym.

Maybe you will control all these resources your self or distributed to Partners.

 For example, you can hire an agency to develop your website and you can also get Machines From your local vendors.

Possibilities are endless.

Comment below which business you are running currently?

And the last point is

Disadvantages of business Model

The business model may stop you to take some big and important steps into business. Like if you want to change the Whole Process of your business, it will take time because you had the only backup with one business model.

So its better to go with try several business models.

Conclusion

A business model is vital so always plan your model before starting any Company.

If you already have a business try to analyze the current business model, If you getting something wrong in that, Make sure you think about changes.

So that’s all. I hope you got your answer related to the business model! If there anything you can ask me in the Comment Section.

Thanks For reading this. I m grateful .

Stay tune for our other Valuable Blogs.

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