Business Model: How Your Business Makes Money

A business model is the way in which a company operates. By definition it is how a business creates, delivers, and captures value. In basic terms:

What value you are selling- Notice I did not state “what product or service you are selling”. You need to focus on what problem are you solving. It could be peace of mind (insurance, financial products), freeing up time by providing a faster product (technology industry), a customer experience (Disney or Ritz Carlton), and on and on.

How will you sell it in the marketplace- How you make customers aware of your product, how you get your product or service into their hands, and how you provide support after the purchase.

What profit will you make- The difference between your revenue streams and your cost structure. Are you selling a product, charging a subscription fee, renting an asset, or licensing property to your customers? Would it be beneficial to have more than one revenue stream?

Your business model should be made up of nine basic blocks. You should be able to define each one. This short video provides a great summary.

 Business Model Canvas

Business Model Canvas

(Note: This is a great exercise to complete when deciding if you need to change your model or when you want to offer a new product line or service)

As you can see, each business has a unique model. The importance of your model is to define how you operate differently and what you will do better than your competition. In my experience, new business owners tend to want to compete on price because they see that as the only option. But if you plan out your business model, you will see that there are many more ways to compete than price.

We work through a business model with customers when we are developing a strategic plan, solving a problem, defining concerns, or looking at new opportunities. We’ve also found it beneficial to do when talking to a new customer so we will have a better understanding of their business.

If you want to know more about this topic, email Joy at joy@lizottecpa.com

Our next segment will dive into Value Propositions and the importance of defining what yours is.