5 simple tips on choosing the right business model

Image by Alexander Stein from Pixabay

By Michelle Laurey

Choosing the right business model requires diligence, the right approach, and skills. It also takes intuition, market know-how, careful research, and a solid business plan for your chosen model to be successful.

When starting a business, you should first validate your business idea and consider how you’ll monetize it. This involves picking the right business model to offer your customers value and help you grow profits.

Common business models

Your business model is the roadmap of how you plan to make money. Many business models have surfaced since businesses got to connect with consumers online. These models allow companies to earn slots in the online marketplace and command a large share of the pie. With the right model, you can achieve the same.

Some standard business models are:

-Product or service model, also known as hook and bait – a broad model that can encompass more than one business model.

-Subscription-based model – common with software and app-based companies.

-Leasing business model – for high-priced products you can only rent for a particular time.

-Franchise model – most common in service industries such as restaurants.

-The brokerage model- you connect buyers and sellers for a fee, like in real estate.

-Coaching/Consulting business model – you make money training or advising people or businesses for a fee.

As you think about which business model to choose, you should formulate a strategy to differentiate your product offering from your competitors’. The tips below will help you choose the business model you need to offer your customers value.

Develop a good business and financial plan

Your business model will depend on your products or services, so you need excellent business and financial plans. This will help you determine how you’ll pay for production costs to cover market demand and remain profitable.

A healthy business plan will set a solid foundation and validate your business model. Whether monetary or non-monetary, costs are a deciding factor in your business model. You may have high costs of running your business, but you can’t channel them to the end consumer.

You can overcome such limitations by including your business model’s strategic relationships.

Investigate your market

You have to investigate your target market before choosing your business model to determine if your idea is viable. Researching your market will give you a scope of your potential customers and their needs, and whether your products or services will satisfy them.

If not many people are interested in what you have to offer, you’ll have to go back and rethink your business model. For example, an online store might be a better idea than a brick and mortar store. Your business model should be able to serve a growing market with people enthusiastic about trying new products.

Delving into an already saturated industry can be challenging. Still, a good strategy with a network effect, freebies, and effective segmenting will help your business model get more customers.

Study existing industry players and use their forums. Gather information to capitalize on and achieve your business objectives.

Check out your competitors and their business models

Before choosing your business model, survey the landscape to know if your competitors have already established their market. This will indicate whether your business model is sensible. Learn from your rivals and differentiate your business by offering more value to your customers. Give them something your competitors haven’t thought of yet.

Although competition is a good thing, don’t enter into an oversaturated market with tough competition, which will cost you more to fight for every available customer.

Consider your supply chain

You should first identify if your business model can serve the industry with a constant demand for your products. Understanding your market and the business cycle should be the defining factor for your supply chain. Your customers’ expectations in terms of product delivery and competitors’ influence are vital.

You can define your business model according to the needs of your supply chain. For example, are you a value-added distributor or reseller? Do you have to maintain maximum or minimum inventory product count to close business sales and increase your market share? Or are you a manufacturer who provides customizable options to customers?

Depending on your choice of business model, you can develop a supply strategy that aligns with your business. Analyze the requirements of your supply chain and choose a plan to suit your product offering.

Consider your sales channels and target audience

Your business model will depend on whether your business is B2C or B2B-oriented. There are differences in how long your sales process is and the methodologies you use, which will significantly affect your model choice.

Depending on your business ideas, and whether you are B2C or B2B-oriented, test your sales channels and target audience to create your ideal consumers’ mental image. You can pitch your business model to a select group of customers with product, pricing, distribution, marketing, and maintenance in mind.

Doing this will help you understand who your business model will be serving. Know their interests, their major pain points, demographics, and their long-term goals. Once you know everything about your potential customers, it’ll be easier to find your target market’s best approach.

Creating your customer persona will help you formulate a proper marketing strategy with the right tone of voice to broadcast your marketing message.

Wrap up

Selecting the right business model is a process that requires you to weigh all your options very carefully and have a good plan ready. Invest in research to make sure your business model choice aligns with your ideas and target market for it to be profitable.

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Michelle Laurey works as a VA for small businesses. She loves talking business, and productivity, and share her experience with others. Outside her keyboard, she spends time with her Kindle library or binge-watching Billions. Her superpower? Vinyasa flow! Talk to her on Twitter @michelle_laurey.

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