As an entrepreneur, one of the most important decisions is your business model. But the choice of business model is not a one-time decision; rather, it evolves. Business owners should consider improving their business model as we go into the new year.
For each business model component, there are questions and important considerations that should be made.
Think about the individuals or companies your business serves. Are there other organizations or groups of people that can utilize your product or service? For example, American Express provides credit and charge cards to individuals, small businesses and large corporations. In addition, they serve merchants who utilize their network.
Some customer segments may be more profitable than others.
Why should a customer choose your company over a competitor?
Think about the products or services that are attractive to your customer base and what value that has to the customer. For example, Apple is known for designing and manufacturing higher quality products and excellent customer service, primarily through the Genius Bar at its stores. In contrast, Android phones sold by competitors are often cheaper, and applications can be installed without the manufacturer’s authorization.
Distribution and Sales Channels
How does your company communicate and deliver products or services to its customer base?
It is important to consider a distribution channel as critical for success and profits. For example, it makes a big difference to the company in the clothing business whether you buy the product at their physical or online store versus a third-party store. For example, shopping on polo.com for a $75 polo shirt results in $75 in revenue for Ralph Lauren, while buying the same shirt from Macy’s for the same retail price results in approximately half the revenue for the company.
Of course, Ralph Lauren and other clothing companies distribute in several ways to maximize revenue and profits. Companies like Macy’s and Neiman Marcus have millions of customers, and this is one reason clothing companies use them as part of their mix in terms of reaching customers with their products.
What type of relationship are you building with your customers?
Companies sometimes spend too much time on acquiring customers but not enough on customer retention and finding opportunities to boost sales.
Maintaining good customer relationships is about managing and meeting (or exceeding) customer expectations. For example, YouTube provides a space for its customers to upload their content. One of the ways YouTube maintains its relationship with customers is that it is reliable and always available. Also, they have years of working with customers by allowing advertising on certain videos and accounts.
Also, it is important to think about ways to upsell customers and provide additional products or services to meet their needs. It is much easier to sell an existing customer at a higher price or additional products or services than find new customers to achieve the same sales growth.
This business model component focuses on the different products and services customers are willing to pay for and how that generates money for your business.
What are customers paying your company for, and how are they paying? For example, Amazon makes money as a percentage of each sale by third parties and the markup on products sold directly, but they also make money for each person that joins Amazon Prime.
Think about the main assets that allow you to deliver the products and services to customers.
For example, larger companies often talk about human capital as one of the most important drivers of their success. But some value to customers can be based on the proper mix of physical assets and financial capital.
What are the most important actions your company needs to take to succeed? These may include the production of products or thinking through customer problems depending on the type of business you are engaged in.
Think about what alliances are crucial to providing desirable products and services to your customers. For example, Apple designs the iPhone in-house but uses subcontractors to manufacture the phone.
Think about the costs that make up your business model. Costs should be minimized where possible, but it is critical to ensure that you deliver what your customers are expecting.
Hopefully, these tips will help you as you think about building and revising your business model.
Teresa M. Lundy is the Principal and Founder of TML Communications, a strategic public relations, crisis communications and community engagement firm serving corporations, nonprofit organizations and government agencies. Follow Teresa on Twitter @TeresaMLundy.