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Many companies, both new and well-established, can benefit from creating a business model that outlines a plan for how the company will make money. Here you can see an example of a business model and download a template.
A business model helps you plan how your company will make money. It lets you organize all your ideas clearly. Besides giving you a better picture of your own plans, a business model is also useful for showing your company or ideas to business partners or investors.
Business Model Canvas
One of the most used business models is called the “Business Model Canvas”. It was created by Alexander Osterwalder to help entrepreneurs develop an idea into a fully developed and tested concept.
The model consists of nine boxes with things that might be smart to think through before you start your new company:
- Customer segment
- Value promise
- Channels
- Customer relationship
- Income stream
- Resources
- Core activities
- Partners
- Costs
Here you see an example of a business model based on this method:
Want to try it yourself? Download a business model template here.
The Business Model Canvas is a one-page business plan. Its simple layout is perfect for sharing your company’s plan with others. It also provides a clear overview of what your company will do, so you don’t have to sift through lots of papers and detailed documents.
A business model is always changing
Nothing is set in stone, not even a business model. It captures your initial ideas and plans, but as your company grows and its goals change, the business model should evolve too. It should adapt alongside your business and be updated regularly.
The aim isn’t to create a business model to last for the next five years, but to reflect your current situation. When your company or the market changes, you can revise the model accordingly.
Let’s take a closer look at the steps in creating a business model.
1. Customer segment: Who are your customers?
A business idea often begins with a proposal to solve a problem or make something easier for someone. It’s essentially about creating value for your customers.
Who are you creating value for with your products or services? While there may be many potential customers, it’s helpful to narrow it down by identifying your most important ones. This focus makes it easier to allocate resources and choose the right channels later.
2. Value promise: How does the company provide value to customers?
You’ll notice that the elements of the business model are interconnected. The second major section of the business model focuses on how you plan to create value for your customers.
What problems do your products or services solve? Do they meet a need that’s currently missing in the market?
These first two sections form the core of your business model and lay the foundation for the rest of the components.
3. Channels: Where do you reach your customers?
Once you know who your customers are and how your business can create value for them, you need to figure out how to reach them. How will they learn about your product?
You have many options, so it’s crucial to consider the customers you identified earlier. For example, if your ideal customers are retirees, platforms like TikTok or other new social media might not be the best channels.
Additionally, think about how you will deliver your products or services. For instance, a carpenter needs to be there in person to create and deliver the product, while a graphic designer can send their work via email.
4. Customer relationship: How do you interact with customers?
In this section, note how you plan to interact with your customers and maintain your relationship with them. Decide whether you’ll offer personal service, self-service, or a mix of both.
This choice depends on the type of product or service you’re selling. For example, a grocery store can function well with self-service, while a hair salon requires personal service.
Also, consider how you’ll encourage customers to return, if that’s your aim.
5. Income stream: How does the company make money?
You may have noticed it already? Everything on the right side of the sheet with this business model is things that bring the company revenue, while the left side shows costs.
Under the income stream, you should answer these questions:
- What is the customer paying for when they buy from your company? Is it a one-time product, service, subscription, rental or something else?
- How do you charge? Should you only take payment then and there with cash or card, or should the customers be allowed to shop on credit, i.e. with an invoice?
Download a business model template for free.
6. Resources: What resources do you have and how should they be used?
The next point to consider is resources, which can vary widely. What you need depends on what you’re selling, who your customers are, and what your value proposition is.
Resources can be anything from knowledge and expertise to physical materials. Identify what you need to deliver on your value proposition and note the most important items. It could be a vehicle for delivering goods, or it might be marketing expertise.
7. Core activities: What do you have to do to add value to the company?
Core activities are the tasks you need to do yourself to add value to your products or services.
If you sell goods, the key activity might be producing them. If you sell services, it could be performing those services. Core activities often include marketing and logistics as well.
Once you’ve been operating for a while and need to update your business model, focus on how to make these core activities more efficient.
8. Collaborative partners: Who are your partners?
Core activities are the tasks you need to do yourself to add value to your products or services.
If you sell goods, the key activity might be producing them. If you sell services, it could be performing those services. Core activities often include marketing and logistics as well.
Once you’ve been operating for a while and need to update your business model, focus on how to make these core activities more efficient.
9. Costs: What are the most important costs in the company?
You likely already have these details covered: resources like materials, rent for premises, purchase of supplies, and personnel expenses.
By identifying all important costs, you can avoid surprises when bills start coming in.
Business model — part of a larger business plan
While a business model helps you plan and launch your new business, some companies need a more detailed plan for day-to-day operations.In that case, you can create a business plan. This includes your business model, along with budgets, organizational structure, and an overview of the market and competitors. Learn how to create a business plan.
Download a template for the Business Model Canvas.
