Every entrepreneur envisions their business will be success and profitable. Whether you’ve already started your business or you’re just starting out, there’s a lot of work needed to make your dream a reality.
Many new entrepreneurs often mistake their business model for their business plan. However, these are two different things. Your business plan is the future objectives of your business and strategies for achieving them.
Your business model, on the other hand, is them method you will use to make money. It is the template for how your business will operate, target market, and how the business intends on generating revenue. Understanding the differences between and business model and a business plan is important for any entrepreneur.
Choosing the right business model can be vital to your success. Whether you have been in business for years, or if you haven’t started your business yet, understanding your business model is important. Here are four questions to ask yourself about your business model.
Who is your target customer?
Your target customer is the person who is most likely to purchase your product or service. This is a general idea—it isn’t set in stone. For example, if you’re opening a lingerie store, you may think that your target customer is women. But, men will sometimes buy lingerie for their wives or girlfriends. This is where you will need to work to identify your ideal customer. Toward whom would you like to target your product?
When you think about your target customer, think about the need you’re striving to meet. Who will benefit most from your product or service? Who is most likely to buy what you’re selling?
- Is my target customer male, female, or everyone?
- What is their age group?
- Do they have disposable income, or is money tight?
- Does my target customer feel comfortable using technology, or do they feel intimidated by it?
Knowing your customer can guide you to the right business model. For example, if money is tight for your target customer, you might decide to go with a freemium business model. The term “freemium” is a combination of the words “free” and “premium.” It refers to a business model where customers can use a product or service for free, but there’s an option to pay for additional features or access. This would allow your customers to try your product for free. Then, they may choose to upgrade to the paid tier once they decide it’s worth the cost.
If you’re wondering what type of business model aligns best with your business, check out our resource 21 Different Types of Business Models With Examples.
What value are you offering them?
Your customers can be ambassadors for your company, recommending it to their friends and family. How can you ensure your customers are happy? Making your product cheap isn’t the only way to provide a good value. Here some other ways your company could offer value to your customers:
- Our website will be easy for customers to use
- We will respond to customer feedback and act on complaints
- We will create a loyalty program for our current customers
- We will stop selling any product that we ourselves would not feel comfortable using
Are you using any of these strategies to create value in your business? What strategies could you start implementing today?
How are you going to deliver that value?
Customer perception is a great determinator of value. It’s an entrepreneur’s job to answer the question “How can I create the perception that my business is valuable for customers?” Your customers will judge whether your business is worth paying more for, or to go to your competitor down the street who offers a lower price. How will you differentiate yourself?
If you’re not a solopreneur—if you have employees on staff to help you sell your product or your service—you will need to be committed to selecting and hiring people who are committed to your mission. Training and equipping them to do their jobs to the highest level will help you satisfy your customers.
While it’s true that having high-quality marketing and a solid social media strategy is helpful, nothing can replace solid customer relationships day in and day out. Your employees are the lifeblood of your business. It’s critical to your success that you ensure every employee is engaged and empowered to do their job at a high level. This remains true regardless of the business model you choose.
Did you pick the wrong business model? Find out When Is It Time to Change Your Business Model?
Why will the business be profitable?
Knowing who your customer is, what you can offer, and how you plan to offer it are all important questions. However, the most fundamental question that must be answered is the why. Why will your business be successful? Why will it create a profit?
There are many businesses that have found success by disrupting the market in long-established industries. A recent interesting example of this is the Fabletics fashion brand. Fueled by the celebrity power of one of its founders, Kate Hudson, Fabletics has become a formidable force. It has utilized a unique membership model, along with physical stores and an e-commerce presence, to create a growing presence in the fashion industry. Fabletics has created a body-positive tone; the brand is aware and responsive to the needs of women of all sizes. And, its price point is appealing for its customers.
This all goes back to the needs of the marketplace. What needs are being met? What unmet needs have created an opportunity for you, the entrepreneur?
At the End of the Day
There’s a lot of moving parts to a business, and it’s a lot to think about. Don’t forget the who, what, how, and why. Who is your target customer? What value are you offering them? How are you going to deliver that value? Why will the business be profitable? Having answers to these questions will help you select the business model that will guide you to the highest level of success.