In the simplest terms, a business model is a company’s plan for turning a profit. But the model itself is made up of various components that all lead to impacting the bottom line. And though each component of a business model may operate differently, each is driven by this same goal. But what exactly makes up a business model—and a strong one, at that? Below, we outline some of the vital components of a company business model.
One of the key differentiators a company can create is a unique and thoughtful value proposition. This proposition should succinctly define why someone should do business with your company. Not only that, but it should tell prospects why they should do business with your company rather than your competitors. This means your products and services—and how they can benefit the prospect—should be clear from the onset. It’s an opportunity to stand out and explain in a compelling way why there is value in choosing your company, and exactly what this value is.
To identify your target demographics, you must use customer segmentation—a helpful practice that divides your prospect base into subgroups. This is done so you can target specific audiences more accurately and effectively. For instance, say you started a skateboard company. You wouldn’t just market your product—skateboards—to the general public. Instead, you would conduct research to discover your customer base. If the research showed that teenagers ages 13–17 and parents age 45 and older were your two biggest markets, would you sell to them in the same way? Chances are, the teenagers are interested in purchasing a skateboard for their own use, whereas the parents are interested in purchasing a skateboard as a gift.
For your company to be as successful as possible, you must understand how to utilize customer segmentation in order to market to prospects in a personalized way, which in turn sets the stage for other parts of your business model to be more effective.
Once you understand your customer segments, you can more effectively position your brand. This positioning is the conceptual place you want to “own” in your target consumer's mind and the benefits you want them to think of when they think of your brand. Even though your brand represents the quality of your company’s products and services consistently, how your brand sits in a customer’s mind will vary. That’s why it’s important to create the most effective brand associations for each customer segment. The positioning of your brand strategically leverages unique and productive variables to maximize your reach and address the diverse needs and behaviors of consumers in the marketplace.
Identifying the best ways to reach customers and expand your company—referred to as distribution channels—is a core component of a successful business model. Companies can sell through single or multiple distribution channels depending on their needs and goals. These channels can include wholesalers, direct/internet sales, sales teams, consultants, retailers, and more. The best distribution channels focus on the needs of end users—your customers. It’s vital to a company’s business model because without these channels, there is nothing to bring your products and services to market. The success of a business relies on more than just knowing who to sell to effectively—you also must know how to deliver your message in the first place.
This is not an exhaustive list of all the components that make up a strong company business model. However, it is a solid foundation for companies to build from and must be incorporated for a business to be as successful and profitable as possible.
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1Source: Data for this analysis of 998,716 job postings for professionals with a bachelor’s degree in business administration from January 1, 2017, to November 30, 2018, was retrieved using Burning Glass Technologies: Labor Insight™. Results for job postings are at the national level and may not reflect local and/or short-term job conditions and are subject to change.
Walden’s BS in Business Administration, Master of Business Administration (MBA), Doctor of Business Administration (DBA), and PhD in Management programs are accredited by the Accreditation Council for Business Schools and Programs (ACBSP). The MS in Accounting and BS in Accounting programs are also accredited by the ACBSP and have earned the organization’s Specialized Accounting Accreditation.
Walden University is accredited by The Higher Learning Commission, www.hlcommission.org.