Company business model – what it is and how to create it

When setting up your own business, you need to make a number of important decisions on which the future operation of your company will depend. First and foremost, you need to answer the basic questions that will accurately define the nature of the business you are setting up and the objectives you want to achieve with it.

Getting the information right is the key to success. In order to do this, you will need your own business model, which should be used by both beginners and experienced entrepreneurs. In the following article, you will learn what a business model is, why you should create one and what a business model consists of. You will also learn examples of business models, practical tips to help you create a business model for your company and ways to verify that it is actually helpful and effective.

What is a business model for a company and why should you create one?

A business model is one of the main elements on which the smooth running of a company depends. In other words, it is a revenue model and therefore a definition of the sources from which your company will make a profit. Why is it important to create a business model?

A good business model for a company is created primarily to generate revenue. This is because with its help, you will define your company’s values, potential customers and their needs and possible distribution channels for the services you offer. You will also learn about the difficulties that may arise in the process of developing your business. If you implement a business model, you will be able to maintain your competitive advantage and stand out from the competition by your knowledge and awareness of your business goals.

What elements are included in a business model?

The four key elements of a business model are:

• The target group – in other words, the potential customer who will benefit from the service you offer. It is very important to carefully analyse their needs and expectations – this will largely determine the revenue generation of your business. When analysing the potential group of your customers, pay attention to their age, gender, occupation, place of residence, interests, needs, ways of making purchase decisions and any difficulties that may prevent purchase. Reaching a specific customer segment will allow you to generate profit or increase it.
• The value proposition that your business will offer – a set of value-generating products or services. For the business model you have developed to work well, you need to know what you want to sell to your customers. If it is a revolutionary product, think about how to present it. If the product or service is already in the market, think about how you can present it to make it stand out from the competition.
• Distribution channels – how you will communicate the services and products you offer to your customers. In a competitive market, it is important to come up with new solutions so that a person who uses the services offered by another entrepreneur becomes a customer of your company. These are also the communication channels through which you will communicate with your various customer segments.
• Reasons why a prospective customer should choose your company – When developing this element of your business model, think about the strengths of your business. If you want to sell a product or service, you need to know how to show it to a customer so that they choose you.

Business model canvas

The elements of a business model listed above are the basics to start with. However, some business models have more components. One example is the Business Model Canvas. With its help, it is possible to create business models in the form of a table. The best-known method of the business model in question consists of nine components. These are: revenue sources, key resources, value proposition, customer segments, key activities, key partners, distribution channels, cost structure, relationships with representatives of a specific customer segment.

Types of business model by relationships

In order for a business model to function properly, it is necessary to choose the right type of business model to suit the specific market. Keep in mind that it is not worth stopping at one business model – it is recommended to use several models at once. For this reason, it is difficult to point to one exemplary business model that will work in every possible case.

Instead, business models can be divided according to the relationship between the company and its customers. According to this classification, the following types of business models can be distinguished:

B2C – Business to customer

Business to customer is a type of business model in which a company directs its services or products to individual customers. It refers to a situation in which a company sells products/services directly to a customer. This type of business model encompasses both goods and services, sold stationary and via the Internet. In the second case, mobile commerce is very important. This is a branch of e-commerce specifically adapted to mobile devices. If the majority of your customers make their purchasing decisions using smartphones or other mobile devices, mobile commerce will be your ally. Examples of companies operating in the B2C segment:

1. Amazon – a global e-commerce giant offering a wide range of products such as books, electronics, clothing and more.
2. Netflix – a streaming platform offering movies, series and TV shows on a subscription basis.
3. Apple – maker of electronics such as the iPhone, iPad, MacBook and services such as Apple Music and iCloud.
4. Coca-Cola – a multinational company that produces and distributes soft drinks, including the famous Coca-Cola.
5. McDonald’s – a global chain of fast food restaurants offering burgers, fries, drinks and other products.

B2B – Business to business

This business model is based on business to business relationships. It will be suitable for companies that sell their products/services to other companies. This business model can also include land-based and online (e-commerce) activities. Examples of B2B companies:

1. Salesforce – provider of CRM (Customer Relationship Management) software to help companies manage customer relationships.
2. Slack – a communication platform for teams that facilitates collaboration and information sharing between employees.
3. HubSpot – a company offering marketing, sales and customer service management software.
4. SAP – a German company that provides enterprise resource planning (ERP) software.
5. MailChimp – a service for creating and sending email campaigns, managing mailing lists and analysing results.

C2C – customer to customer

This is a business model based on the exchange of goods and services between customers. Typically, these are previously used products that a consumer no longer uses. An example would be Facebook’s Marketplace, where users exchange or sell certain goods. The following are examples of organisations that operate a C2C model

1. eBay – a global e-commerce platform where consumers can sell and buy items in both auction and fixed-price formats.
2. OLX – a classifieds service that allows people to post ads to sell, buy, rent and swap various items and services.
3. Etsy – an e-commerce platform specialising in handicrafts, unique items and vintage products.
4. Vinted – a site for selling, buying and swapping second-hand clothes, shoes and accessories.
5. BlaBlaCar – a ride-sharing platform that connects drivers travelling in a specific direction with passengers looking for a ride.

C2B Customer to business

This type of business model is the sale of value-generating goods or services, led by consumers and targeted at specific businesses. These are, for example, influencers or people who are involved in photography (if they later sell their photos to selected companies). Examples:

1. Upwork – a freelance platform where individuals can offer their services to businesses, such as SEO, design, translation or copywriting.
2. 99designs – a service where graphic designers can participate in competitions for graphic designs for businesses, such as logos, flyers or websites.
3. Fiverr – a platform that allows users to offer services (known as gigs) to businesses in various categories such as design, google ads campaigns, marketing, content marketing or technical support.
4. Shutterstock – a website with graphic resources such as photos, illustrations or videos, where users can sell their work to companies in need of visual material.
5. Foap – an app that allows users to sell photos and videos taken by users to companies looking for original visual material for their marketing campaigns or products.

What to consider when creating a business model for a company?

The first step to creating a company business model is the value proposition. You need to know what you want to offer and how you will communicate with your potential customers. Customer segmentation is also extremely important. Before you communicate your value proposition to your chosen target group, make sure that they will be interested in your offer. Creating several customer segments will allow you to target the people who actually want to benefit from your products/services. This approach will undoubtedly make your company’s revenue structure satisfactory or significantly improved from the start.

Examples of business models

Business models can take many forms. They mainly depend on different forms of production and/or delivery of goods to the chosen market. Below are the most popular examples of business models.

Dropshipping

One example of a business model is dropshipping. The task of an online shop established on the basis of this model is to take an order and pass it on to a supplier, who fulfils it in-house.

This model will be a good solution for future entrepreneurs who want to set up their own business and spend as little as possible. In this case, less attention is paid to margins.

Dropshipping is a suitable business model for B2B or B2C companies. In addition to the low financial outlay, it also stands out for its low risk and efficient sales process.

Production or craftsmanship

This business model applies to the direct sale of the products you produce (B2C). We are talking about both traditional shops and occasional retail sales (pop-up shops – temporary shops or markets).

As a manufacturer or craftsman, you can also sell your products/services in a B2B model. Your customers will then be other businesses.

The main advantage of this business model is a strong relationship with the customer, which enables you to generate profit. By talking directly to your consumer, you have the chance to gather feedback on the product you are offering. In this way, you can improve the quality of the product in the future or adapt its specifications and functionalities to the needs and expectations of your customers.

Wholesale

This example of a business model works well if you want to sell a variety of goods or products from different brands quickly. Wholesale gives you a lot of opportunities. One of them is a very large selection of products that you can sell wholesale. In addition, you can direct your chosen goods to both other businesses (B2B) and individual customers (B2C).

Business models based on wholesaling are primarily trading in well-known, popular goods. This factor increases the chances of sales, which in turn translates into some real profits. Moreover, trading in products from well-known brands will help you to build your own brand.

E-commerce

E-commerce stands for electronic commerce. This means that this business model involves selling products or services online. Why should you include e-commerce in your business?

First of all, the online business model involves much lower maintenance costs. In addition, such a distribution channel allows you to reach a very wide audience. This, in turn, influences a much higher chance of generating profits.

Keep in mind that you can also use e-commerce if you are already using a different business model. Online sales can be a supporting element of a stationary shop.

Printing on demand

The print-on-demand business model is based on the sale of customised products. It can be used in both B2C and B2B environments.

Print-on-demand is a business model that minimises both costs and risk of loss. All you have to do is create a product design that is tailored to your customer’s requirements. For this reason, this model will work well for creative professions.

Digital products

Selling this type of goods means trading in products that do not have their physical form. They are sold and distributed online. What is more, the same product can be sold multiple times.

Digital products include, among others, PDFs, MP3s, videos, plug-ins and templates. It is important that such goods can be downloaded, uploaded or transferred to another server.

This business model reduces the costs associated with running a business. You don’t need to rent a warehouse to store your goods. In addition, you can offer your customers a very wide range of products.

Subscription

Subscription is a business model in which customers pay a recurring regular fee (usually monthly or annually) in exchange for access to a specific product or service.

This business model helps entrepreneurs to create or maintain existing customer relationships. This is because renewing a subscription means that the consumer is fully satisfied with the service you provide and has therefore decided to continue using the products your company offers.

Fee for service

This type of business is based on the service you provide. This is what you charge your customer for.

Fee-for-service can be used in B2C, B2B, C2C and C2B. This business model ensures that you are paid for the time you realistically spend serving your customer. It is different, for example, if you produce a specific product. Then you only make a profit if the customer pays attention to your product and decides to buy it.

Freemium

This model is used when you offer the customer two versions of your product or services: a paid one and a free one. Freemium usually occurs with B2B or B2C activities. It is often used by companies that produce software.

Freemium is a great way to quickly build good relationships with new customers. This is because they usually do not have to pay for the first few months of using the services/products you offer. This way, they can try them out and even if they decide not to go for the paid version – it is possible that they will pass on information about the product, which will influence the popularity of your business and higher profits.

Affiliation

This business model involves earning a commission on a purchase made by a customer from your affiliate partner. This is possible by recommending a product or service from another business with whom you establish an affiliate relationship.

In addition to the financial benefits, the affiliate business model provides the opportunity for a number of interesting partnerships involving a variety of brands.

Razor and reverse razor and blades

Here we have a situation where, at the start of your business, you decide to sell an inexpensive product. However, you then find that the use of your good/service requires the recurring purchase of further products. In this way, you start your business with a small financial outlay and eventually begin to make money from inconspicuous ‘add-ons’ to your service.

The process can also be reversed. Then you invest a considerable amount of money at the beginning, which starts to pay off through cheaper but steadily purchased additional products.

Franchise

To apply this business model to your business, you must first create a product or service and build your brand. The next step is to sell the products to franchisees who will distribute them further – the profit from further distribution goes to them, but the products are still attributed to your brand.

The main advantage of franchising is the support from the franchisee. It works to your advantage, but at the same time helps to market your product. This allows you to increase brand awareness and reach a larger customer base.

Intermediation

A business model based on intermediation is used, for example, in the insurance industry or real estate trade. These are areas that often involve many complex transactions. The role of the intermediary, on the other hand, is to efficiently transfer goods along the supplier-customer path.

It is worth bearing in mind that intermediaries often provide additional services. This is usually professional advice to help the consumer choose a particular product.

Intermediation is particularly beneficial for companies that have a strong and stable position in a specific market, e.g. real estate. Your business will then be associated with the prestige of the chosen company, which will have a positive impact on the opinions associated with your personal brand and increase your customer base.

Business model verification

In order to verify that the chosen business model of a company fulfils its functions, it is necessary to use the appropriate tools. These will allow you to verify your activities. The key activities in this case are:

MVP

This is a product, equipped with all planned functionalities, whose production involves the least possible financial outlay. This keeps the cost structure intact and gives your company the opportunity to check that the value proposition created meets real customer demand.

A/B tests

This method will work particularly well if you want to make changes to the service/produced goods you offer. Then you can check how individual customer segments react to the proposed modifications and whether they are better than previous solutions.

Landing page

Verifying the business model by means of a landing page is a solution that will work well in the e-commerce market. This is because the website will be the place through which you sell your products. It is therefore advisable to create two different pages and check which one generates more traffic. In this way, you can gauge the preferences of potential customers and increase their subsequent satisfaction with your services.

Advertising campaigns

In the e-commerce market, online advertising campaigns will also be helpful. We are mainly talking about Google Ads or Facebook Ads, thanks to which it will be possible to reach a wide audience. How do you check whether the advertising model you have created matches the preferences of your target group? As with the landing page, simply create a pair of ads for the same product or use the same ad in different communication channels (which are used by different users).

Company business model – set yourself up for success!

Do you want the business you are setting up or running to be profitable and financial issues are not your concern? Then a good business model will be extremely helpful. This will allow you to define your values, goals and the needs and expectations of your customers. This in turn will guarantee your business success. Get started!