Business Model Development

Is the process of designing and refining

the framework that outlines how a
company creates, delivers, and captures
value. It’s the blueprint that guides a
company’s operations, defines its revenue
streams, and determines its sustainability
and profitability.
 IMPORTANCE OF A BUSINESS MODEL
- Serves as an ongoing extension of feasibility analysis.

- Focuses attention on how all the elements of a

business fit together and constitute a working whole.

- Describes why the network of participants needed to

make a business idea viable are willing to work
together.

- Articulates a company's core logic to all stakeholders.

Potential flaws of a business model
1. A complete misread of the customer
A product must have customer to be successful
if a business misreads the needs or preferences
of its customer it can lead to failure.

2. Utterly unsound economics

If a business model's economics don't work out
it won't be able to sustain itself in the long run.
 Key Components of a Business Model
1. Customer Segments: Identifying your target audience is
important for building a successful business. When you
understand who your customers are and what they need, this
helps attract more customers and improves your chances of
success.

2.Value proposition: should clearly communicate the benefits

and advantages your product or service brings to the table. For
instance, a ride-sharing app may emphasize its convenience,
affordability, and safety features as its value proposition.
Key Components of a Business Model
3. Channels: refer to the different ways through which you deliver
your value proposition to your target customers. By utilizing various
channels such as social media, online platforms, and physical
store locations.

4. Customer Relationships: building strong and lasting

relationships with your customers is vital for the long-term success
of your business. This component focuses on how you interact with
and engage your customers. It includes activities such as
customer support, personalized communication, loyalty programs,
and feedback mechanisms.
 Key Components of a Business Model
5. Revenue streams: Refer to the different ways a business
makes money from its value proposition, the product or service
it offers to customers. It includes pricing strategies, revenue
models, and sources of income.

6. Key Resources: Identifying the key resources your business

requires to deliver your value proposition is crucial. For instance,
a manufacturing company may require specialized machinery,
skilled employees, patents, and access to capital to produce
and distribute their products.
 Key Components of a Business Model
7. Key Activities: This component focuses on the key activities your business needs
to perform to deliver your value proposition and generate revenue. It includes
activities such as product development, production, marketing, sales, and
customer support.

8. Key Partnerships: Collaborating with strategic partners can help your business
optimize its operations and create additional value. This component includes
suppliers, distributors, co-creators, or any other external entities that contribute to
your business's success.

9. Cost Structure: Understanding and managing your business's costs is crucial for
maintaining profitability. This component includes all the costs associated with
operating your business, such as production costs, marketing expenses, employee
salaries, and infrastructure costs.
 What is a Business Model?
The term business model refers to a company's
plan for making a profit. It identifies the products or
services the business plans to sell, its identified
target market, and any anticipated expenses.
Business models are important for both new and
established businesses. They help companies
attract investment, recruit talent, and motivate
management and staff.
 Types of Business Models

Retailer
One of the more common business models
most people interact with regularly is the
retailer model. A retailer is the last entity along
a supply chain. They often buy finished goods
from manufacturers or distributors and
interface directly with customers.
 Types of Business Models
Manufacturer
A manufacturer is responsible for sourcing raw
materials and producing finished products by
leveraging internal labor, machinery, and
equipment. A manufacturer may make custom
goods or highly replicated, mass-produced
products and can sell what it makes to
distributors, retailers, or directly to customers.
 Types of Business Models
Fee-for-Service
Instead of selling products, fee-for-service
business models are centered around labor and
providing services. A fee-for-service business
model may charge an hourly rate or a fixed cost
for a specific agreement. Fee-for-service
companies are often specialized, offering insight
that may not be common knowledge or may
require specific training.
 Types of Business Models
Subscription
Subscription-based business models strive to attract
clients in the hopes of luring them into long-time,
loyal patrons. This is done by offering a product that
requires ongoing payment, usually in return for a
fixed duration of benefit. Though largely offered by
digital companies for access to software,
subscription business models are also popular for
physical goods such as monthly reoccurring
agriculture/produce subscription box deliveries.
 Types of Business Models
Freemium
Freemium business models attract customers by
introducing them to basic, limited-scope products.
Then, with the client using their service, the
company attempts to convert them to a more
premium, advance product that requires payment.
Although a customer may theoretically stay on
freemium forever, a company tries to show the
benefit of becoming an upgraded member.
 Types of Business Models
Bundling
If a company is concerned about the cost of
attracting a single customer, it may attempt to
bundle products to sell multiple goods to a
single client. Bundling capitalizes on existing
customers by attempting to sell them different
products. This can be incentivized by offering
pricing discounts for buying multiple products.
 Types of Business Models
Marketplace
Marketplaces receive compensation for
hosting a platform for business to be
conducted. Although transactions could occur
without a marketplace, this business model
attempts to make transacting easier, safer,
and faster.
 Types of Business Models
Affiliate
Affiliate business models are based on marketing
and the broad reach of a specific entity or person's
platform. Companies pay an entity to promote a
good, and that entity often receives compensation
in exchange for their promotion. That
compensation may be a fixed payment, a
percentage of sales derived from their promotion,
or both.
 Types of Business Models
Franchise
The franchise business model leverages existing
business plans to expand and reproduce a company
at a different location. Often food, hardware, or fitness
companies, franchisers work with incoming
franchisees to finance the business, promote the new
location, and oversee operations. In return, the
franchisor receives a percentage of earnings from the
franchisee.
 Types of Business Models
Brokerage
A brokerage business model connects buyers
and sellers without directly selling a good
themselves. Brokerage companies often
receive a percentage of the amount paid when
a deal is finalized. Most common in real estate,
brokers are also prominent in
construction/development and freight.
 Types of Business Models
Pay-as-You-Go
Instead of charging a fixed fee, some companies may
implement a pay-as-you-go business model where
the amount charged depends on how much of the
product or service was used. The company may
charge a fixed fee for offering the service in addition
to an amount that changes each month based on
what was consumed.
Customer Relationship
VALUE PROPOSITION
A value proposition is a statement that explains the
benefits of a product or service to a target audience. It's a
key component of entrepreneurship and marketing.
What is a value proposition?
A value proposition is a short statement that explains
the value of a product or service
It highlights the problem a product solves, its
advantages, and why it's better than competitors
A good value proposition helps a business stand out
from competitors and attract more customers.
How to create a value proposition?
Consider the company's products and services.
Define the target market, Research competitors,
Consider the company's mission statement,
Review past marketing campaigns, Read
customer reviews, Get feedback.
Why is a value proposition important?
A value proposition helps a business stand out
from competitors It helps attract more qualified
customers It answers the question "What's in it
for me?" for potential customers.
CUSTOMER RELATIONSHIP
Customer relationships are a key part of entrepreneurship
and business success. Customer relationship
management (CRM) is the process of building and
maintaining positive relationships with customers.
Why are customer relationships
important?
Customer loyalty or Strong customer
relationships lead to customer loyalty,
which can increase the value of a
business.
Word of mouth
Positive customer experiences can lead to
customers recommending a business to
others.
Customer Satisfaction
Customer satisfaction is a measure of how
happy customers are with a company's
products and services.
Customer Retention
Customer relationships can help businesses
retain customers and attract new ones.
How can entrepreneurs build customer relationships?
Listen to customers
Use feedback to improve business strategy
Communicate regularly
Use technology and social media to stay in touch with customers
Personalize interactions
Use customer data to create a more relevant experience for each
customer
Reward customers
Offer loyalty programs, discounts, or coupons
Acknowledge customers
Recognize significant events like birthdays and anniversaries
What Is a Distribution
Channel?
A distribution channel is the network of businesses or intermediaries
through which a good or service passes until it reaches the final
buyer or the end consumer.
Distribution channels can include wholesalers, retailers,
distributors, and even the internet.
Distribution channels are part of the downstream process,
answering the question "How do we get our product to the
consumer?
"This is in contrast to the upstream process, also known as the
supply chain, which answers the question "Who are our
suppliers?"
Key Takeaways
A distribution channel represents a chain of
businesses or intermediaries through which the
final buyer purchases a good or service.
Distribution channels include wholesalers, retailers,
distributors, and the Internet. In a direct distribution
channel, the manufacturer sells directly to the
consumer.
Indirect channels involve multiple intermediaries
before the product ends up in the hands of the
consumer.
Understanding Distribution
Channels
A distribution channel is a path by which all goods and services travel to
arrive at the intended consumer.
Distribution channels can be short or long, and depend on the number
of intermediaries required to deliver a product or service.

Increasing the number of ways a consumer can find a gond can increase
sales but it can also create a complex system that sometimes makes
distribution management difficult.
Longer distribution channels can also mean less profit for each
intermediary along the way.
Components of a
Distribution Channel
Producer: Producers combine labor and capital to create goods and
services for consumers.
Agent: Agents commonly act on behalf of the producer to accept
payments and transfer the title of the goods and services as it moves
through distribution.
Wholesaler: A person or company that sells large quantities of goods,
often at low prices, to retailers.
Retailer: A person or business that sells goods to the public in small
quantities for immediate use or consumption.
Consumer: A person who buys a product or service.
Types of Distribution
Channels
Direct - Allows the consumer to make purchases from the manufacturer. This direct, or short
channel, may mean lower costs for consumers because they are buying directly from the
manufacturer.

Indirect- Allows the consumer to buy the goods from a wholesaler or retailer. Indirect channels are
typical for goods that are sold in traditional brick-and-mortar stores.

Hybrid- Use both direct channels and indirect channels. A product or service manufacturer may
use both a retailer to distribute a product or service and may also make sales directly with the
consumer.
Special Note: When a manufacturer uses both direct and indirect channels to reach the
consumer, that is called a hybrid channel Suppose a manufacturer sells its product online
directly from its own e-commerce website. Besides that, they also have a relationship with an
intermediary to distribute the same product in the market.
Advantages and Disadvantages of
Direct Channel:
Advantages of direct distribution channels:
The direct distribution channel gives businesses total control over how
their product is marketed and sold
It allows a brand to build genuine relationships with the end users.
Direct channel ensures e-commerce consumers' satisfaction with the
speedy delivery of products.
It eliminates the cost of hiring intermediaries.
It allows companies to distinguish themselves from their competitors.
It allows companies to collect data regarding their customer's buying
habits, demographics, and other important information directly.
Advantages and Disadvantages of
Direct Channel:
Disadvantages:
It requires warehouse management to deal with
the inventory.
Businesses with direct distribution channels miss
the he opportunity to widen their reach.
Setting up its own warehouses, showrooms, and
delivery system can be cost-sufficient and time-
consuming.
Advantages and Disadvantages of
Indirect Channel:
Advantages of indirect distribution channels:
It allows a business to share its shipping and shortage costs.
It reduces startup costs.
Easy for customers to find your product in the market.
Businesses can benefit from third-party's experience,
Salesforce, and infrastructure.
The chances of expanding business are high.
It allows companies to better focus on their core
competencies.
Instant process.
Advantages and Disadvantages of
Indirect Channel:
Disadvantages:
The effective cost of the product increases.
Profit is also very low using this type of distribution
system.
It gives businesses partial control over how their product
is marketed and sold.
It includes the cost of hiring intermediaries.
The delivery process is comparatively slow with this type
of distribution channel.
Distribution Channel Levels
Level 0
This is a direct-to-consumer model where the producer sells its product directly
to the end consumer.
This is the shortest distribution channel possible, cutting out both the
wholesaler and the retailer

Level 1
A producer sells directly to a retailer who sells the product to the end consumer.
This level includes only one intermediary.

Level 2
Including two intermediaries, this level is one of the longest because it includes
the producer, wholesaler, retailer, and consumer.
Distribution Channel Levels
Level 3
This level adds the role of the individual who may
assemble products from a variety of producers, stores
them, sells them to retailers, and acts as a middle-man
for wholesalers and retailers.

A distribution channel, also known as placement, can

be part of a company's marketing strategy, which
also includes the product, promotion, and price.
Distribution Channels in the
Digital Era
Digital technology has transformed the way businesses, especially small
businesses use direct channels of distribution. With increasing consumer
demand for online shopping and easy-to-use E-Commerce tools, direct
selling means more success for businesses.
Online advertising through social networks and search engines targets
specific areas or demographics and social media networks are
increasingly considered the industry standard and changing marketing
strategies.
If a company continues to use indirect channels of distribution, digital
technology also allows them to manage relationships with wholesale
and retail partners more efficiently
Choosing the Right
Distribution Channel
Not all distribution channels work for all products, so companies need to
choose the right one. The channel should align with the firm's overall mission
and strategic vision including its sales goals.
The method of distribution should add value to the consumer. Do consumers
want to speak to a salesperson? Will they want to handle the product before
they make a purchase? Or do they want to purchase it online with no hassles?
Answering these questions can help companies determine which channel
they choose.
Secondly, the company should consider how quickly it wants its product(s) to
reach the buyer. Certain products are best served by a direct distribution
channel such as meat or produce, while others may benefit from an indirect
channel.
What Is a Distribution Channel and
What Components Does It Have?
The term "distribution channel" refers to the methods used by a company to
deliver its products or services to the end consumer. It often involves a network
of intermediary businesses such as manufacturers, wholesalers, and retailers.
Selecting and monitoring distribution channels is a key component of
managing supply chains.

What Is the Difference Between Direct

and Indirect Distribution Channels?
Direct distribution channels are those that allow the manufacturer or service
provider to deal directly with its end customer. For example, a company that
manufactures clothes and sells them directly to its customers using an e-
commerce platform would be utilizing a direct distribution channel. By contrast, if
that same company were to rely on a network of wholesalers and retailers to sell
its products, then it would be using an indirect distribution channel.
How Is Placement Important
in a Distribution Channel?
Placement is the way a company ensures its
target market has access to its products or
service in the location they would be most likely
to look for that product or service.
An effective distribution system ensures
that products are placed in the right
location as needed.
 The Channel Management Process
The channel management process contains five steps.

1. Analyze the Consumer

We begin the process of channel management by
answering two questions.
First, to whom shall we sell this merchandise
immediately?
Second, who are our ultimate users and buyers? The
immediate and ultimate customers may be identical
or they may be quite separate. In both cases, certain
basic questions apply: There is a need to know what
the customer needs, where they buy, when they buy,
why they buy from certain outlets, and how they buy.
 The Channel Management Process
2. Establish the Channel Objectives
Once customer needs are specified, the marketer can decide what the channel
must achieve, which can be captured in the channel objectives, Channel
objectives are based on customer requirements, the marketing strategy, and the
company strategy and objectives.

For example, a small manufacturer wants to expand outside the local market.
An immediate obstacle is the limited shelf space available to this
manufacturer. The addition of a new product to the shelves generally means
that space previously assigned to competitive products must be obtained.
Without this exposure, the product is doomed.
there is wide diversity of channel objectives, The following areas encompass the
major categories:
Growth in sales by reaching new markets and/or increasing sales in existing
markets.
Maintenance or improvement of market share
Achieve a pattern of distribution by a certain time, place, and form.
Reduce costs or increase profits by creating an efficient channel.
 The Channel Management Process
3. Specify Distribution Tasks
After the distribution objectives are set, it is appropriate to
determine the specific distribution tasks (functions) to he
performed in that channel system. The channel manager must
be very specific in describing the tasks and also detail how these
tasks will change depending upon the situation.

For example, a manufacturer might deliget the following tasks as

necessary to profitably reach the target market:

Provide delivery within 48 hours after order placement

Offer adequate storage space.
Provide credit to other intermediaries
Facilitate a product return network
Provide readily available inventory (quantity and type)
 The Channel Management Process
4. Evaluate and Select Among Channel Alternatives.
Determining the specific channel tasks is a prerequisite of the evaluation
and selection process.
There are four considerations for channel alternatives: number of levels,
intensity

at the various levels, types of intermediaries at each level, and

application of selection criteria to channel alternatives.

In addition, it is important to decide who will be in charge of the

selected channels.

Number of Levels
Intensity at Each Level
Types of Intermediaries and Application of Selection Criteria
Who Should Lead?
 The Channel Management Process
5. Evaluating Channel Member Performance
The need to evaluate the performance level of the channel
members is just as important as the evaluation of the other
marketing functions. Clearly, the marketing mix is quite
interdependent, and the failure of one component can cause the
failure of the whole. There is one important difference, though: the
channel member is dealing with independent business firms, rather
than employees and activities under its control, these firms may be
reluctant to change their practices.

All organizations expect to manage some level of behavioral

conflict in the channel. They do this by:
Establishing a mechanism for detecting conflict
Evaluating the effects of the conflict
Resolving the conflict
What are Revenue
Streams?
Revenue streams are the various sources from which
a business earns money from the sale of goods or
the provision of services. The types of revenue that a
business records on its accounts depend on the
types of activities carried out by the business.
Generally speaking, the revenue accounts of retail
businesses are more diverse, as compared to
businesses that provide services.
 Types of Revenues
To classify revenues at a high level, there are operating
revenues and non-operating revenues. Operating
revenues describe the amount earned from the
company's core business operations. Sales of goods or
services are examples of operating revenues. Non-
operating revenues refer to the money earned from a
business's side activities.
Examples include interest revenue and dividend revenue.
Many different revenue accounts are used by businesses in various
industries. For the majority of companies, the following are a few
common revenue accounts:
Revenue from goods sales or service fees: This is the core
operating revenue account for most businesses, and it is usually
given a specific name, such as sales revenue or service revenue.
Interest revenue: This account records the interest earned on
investments such as debt securities. This is usually a non-
operating revenue.
Rent revenue: This account records the amount earned from
renting out buildings or equipment, and is considered non-
operating revenue.
Dividend revenue: The amount of dividends earned from holding
stocks of other companies. This is also non-operating revenue.
Examples of Revenue Streams
Revenue streams categorize the earnings a business generates from
certain pricing mechanisms and channels. To describe it simply, a revenue
stream can take the form of one of these revenue models:
Transaction-Based Revenue: Proceeds from sales of goods that are usually one-time customer
payments.
Service Revenue: Revenues are generated by providing service to customers and are calculated based on
time. For example, the number of hours of consulting services provided.
Project Revenue: Revenues earned through one-time projects with existing or new customers.
Recurring Revenue: Earnings from ongoing payments for continuing services or after-sale services to
customers. The recurring revenue model is the model most commonly used by businesses because it is
predictable and it assures the company’s source of revenue as ongoing. Possible recurring
revenue streams include:
Subscription fees (e.g., monthly fees for Netflix)
Renting, leasing, or lending assets
Licensing content to third parties
Brokerage fees
Advertising fees
Importance of Revenue Streams
1. Revenue is a Key Performance Indicator (KPI) for all businesses
As a financial analyst, analyzing a company’s performance in
terms of revenue is always one of the crucial tasks. Therefore, an
analyst must be able to recognize the different revenue streams
from which the company generates cash and interpret the
revenue figures on financial statements.

When a financial analyst looks at financial statements, the revenue

number reflects the amount recognized by the company when
goods are sold or services rendered, regardless of whether cash is
received at that time.
2. Performance prediction differs between different revenue streams
Out of the four revenue streams discussed, recurring revenue is the most predictable
income to a business because it is expected that the cash inflow will remain
consistent with a stable customer base. In contrast, transaction-based and service
revenues tend to fluctuate with customer demand and are more difficult to foresee.
Seasonality is also often a major factor contributing to the variability in sales of
goods and services.

Project revenue is the most volatile and risky revenue stream out of the four because
it is largely contingent on customer relationships. Therefore, businesses need to
invest a considerable amount of time in managing their relationships to maintain
this revenue source.

Understanding the revenue stream enables a financial analyst to realize the pattern
of cash inflows and, therefore, be able to quickly observe unusual movements or
changes in revenue trends and identify the causes. This is when an analyst performs
financial analysis and provides a meaningful explanation for variances.
3. Different forecasting models are needed for different revenue models
Depending on the type of revenue models a company employs, a
financial analyst develops different forecasting models and carries out
different procedures to obtain necessary information when performing
financial forecasting. For companies with a recurring revenue stream,
a forecast model should have a uniform structure and a similar
pattern in revenue predictions.

For a project-based revenue stream, it is essential for an analyst to

keep track of the latest project opportunities and continuously modify
the forecast model to produce an accurate forecast. The forecast
model might look very different each month, due to the constant
renewal of projects taking place and the inclusion of various risk
factors.
Thank
You