A business model is a high-level plan for profitably operating a business in a specific marketplace. It identifies the products or services the business plans to sell, its identified target market, and any anticipated expenses . A primary component of the business model is the value proposition. This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors .
There are dozens of types of business models including retailers, manufacturers, fee-for-service, or freemium providers . The two levers of a business model are pricing and costs . When evaluating a business model as an investor, consider whether the product being offered matches a true need in the market .
A new enterprise’s business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy, a review of the competition, and projections of revenues and expenses . The plan may also define opportunities in which the business can partner with other established companies . Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost . Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .
When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company’s business model . Admittedly, the business model may not tell you everything about a company’s prospects. But the investor who understands the business model can make better sense of the financial data ..