Why should you have a business model, and which one should you use? A business model is the design and framework of your enterprise. It factors your target customer or customer base, revenue streams, financing, and whether you are focused on products or services.
Flexibility is vital to any business, and if you’re not attracting enough customers or meeting sales quotas, it’s important to know how to adapt your business model to succeed.
But how do you change gears? First, it’s important to identify what type of model best fits your business so that you can ascertain how to create customer value. If your business doesn’t fall under any of the established categories, it may be a sign that you haven’t properly defined what makes your business stand out in an oversaturated market.
To set your business up for long-term gain and sustainability, let’s take a look at the various business models, determine what model best fits your company, and resolve the best way to change trajectory and ensure a success in your business goals.
Types of Business Models
Regardless of the vision you have for your business, its success depends on how it relates to possible customers. For example, does your company have the resources to bring a product or service to the market that addresses their needs? Your business model should guide operations toward meeting the needs of customers and consumers, as well as establishing how your business will make money.
These several types of business models out there. Here are just a few:
- Advertising –In this case, your company offers potential clients a solution to a specific problem.
- Affiliate and Direct Sales-This model involves a middle man, who brings the supplier and customer together and makes a commission from referred sales, such as an insurance broker. Contrary to this model would be businesses that sell directly to consumers, which makes their offering more affordable because there aren’t any third-party costs.
- Customization-If your business offers tailor-made products or services, such as personalized travel packages depending on client needs, then it falls under this model.
- Franchise –An example of this type of model is a restaurant business (such as McDonald’s), where different branches of the same brand exist and operate in the same way.
- Razorblade –If your company operates in a highly competitive industry where the only way it will generate revenue is by selling its product or services cheaply, and it relies on volume sales to make a profit, then your company would fall under this model.
- Technology-related models-Freemium and Subscription models, for example, are business models in which customers either use a platform for free and pay for advanced options, or where clients are charged a monthly or yearly fee for access. An alternative model in this field is when a business licenses their tech product or service and make money directly through use, or when a product is Open Source and the offering is free so a business generates revenue through advertising.
It’s possible that your business falls into more than one business model. However, your company will have an increased chance of success if it streamlines its operations and has a clearly defined strategic direction. It is also important that you understand the key elements of a business model when deciding whether or not your current business model is working.
When Is It Time to Change Your Business Model?
Let’s look at the reasons why it would be necessary to modify the way your business operates, depending on both internal and external factors.
You aren’t reaching enough customers.
In this instance, your business is trying to address a problem that is not an issue for your target audience. That is, you’re aiming your efforts toward the wrong customer. This results in your business not growing and leads to the inability to retain resources.
Your intentions aren’t specific.
Although business diversification is good—or where you offer more than one product or service to various audiences and in different locations—it can lead to your products and services becoming generalized.
In the wake of the COVID-19 pandemic, a significant number of companies gone online to stay in business. One of many examples of this is training companies that have set up e-learning platforms.
Your costs are too high.
If the expenses associated with making your product or service available to the market exceeds the money you make in return, you need to reconsider your offering. An important question to ask yourself is: Does my business offer solutions that are nice to have, or need to have? The latter is the less risky option of the two and would justify the amount you invest in generating your offering.
This is where the market matures and sales decline. For example, when the English government announced that face coverings were no longer required by law, the sale of masks inevitably fell.
In all of these instances, there is little or no room for growth and expansion as a result of having few clients, a generic and/ or costly product, and not adapting to a changing environment.
How to Change Your Business Model
Once you’ve made an informed decision that it’s time to alter the course of your company, you’ll need to set realistic goals. Then, you can put them into action by revisiting your company’s current practices and modifying operations where necessary.
These are some of the ways to do this:
1. Define your audience and offering.
Decide what makes your company’s product or service unique and define who is most in need of it. Once you have a clear picture of what your business is bringing to the table that others aren’t, you’ll be able to make the most of your business’s strengths and the market opportunities that are out there.
2. Adapt management and train employees.
Now that your energies are more focused, you’ll need the resources to achieve your business’s objectives. That means you’ll need a team of dedicated individuals whose values align with your company’s goals and are willing to be flexible and change.
3. Seek external help if necessary.
Having a great business idea and having an entrepreneurial spirit doesn’t necessarily translate to being good at finances or knowing how technology can help simplify operations. It’s worth investing in professional help with, for example, effective cost analysis or setting up your business’s IT processes.
4. Market your business differently.
In addition to remaining informed of market trends, as a business owner, you’ll have to find ways of promoting your reinvented product or service to potential customers.
5. Cut costs.
This step requires you to think of ways that your products can be used otherwise to generate income. For example, if you have surplus stock, can you create brand visibility by donating it to create a favorable public image and potentially increase sales?
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