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How to Develop a Profitable Business Model

What comes to your mind when you hear the phrase, “business model”? A complex mathematical equation? A flow chart with business jargons that are beyond comprehension? Or just another paperwork that will gather dust?

The truth is a business model is far from any of these and the good news is that it is a simple, easy-to-understand document that if properly implemented will help you build a profitable brand.

What is a business model?

Depending on who you ask, the definition of what a business model will vary from a document that describes how a business will make money to a document that shows the pathway of a successful business to the set of assumptions that will help a business run smoothly.

At Onpoint Success, our definition of a business model is a document that explains in detail how a business solves the problem of its customers or how a business meets the needs of its customers in exchange for money. This means that a business model is a document that details how a business will generate revenue. Any effort or exercise that does not lead to how your business will generate revenue and profits is not worth pursuing.

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Why is it important to develop a business model?

As an entrepreneur, the reason you started your business was that you believed you could fill a need in the marketplace. The need could be a physical product or perhaps a service and because you believed you could provide a solution to that problem, you decided to start your business.

However, starting your business without developing a business model is like hopping on a plane without a flight map. What are the likely consequences of doing that? Not palatable, right? A business model is important because not only does it guide you throughout your journey, but it also makes it easier for others to implement on your behalf should in case something happens along the way.

A business model is important for you to detect when you veer off the path, identify new opportunities, do away with things that are no longer working and help you reach your business goals. In addition to this, it helps your employees have a clear direction of where you are going, gives an opportunity for others to run your business in your absence, and communicates to investors that you are on a mission to a real destination. A business model is a document you cannot afford not to develop if you truly want to build a profitable brand.

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How to Develop a Profitable Business Model

There are many types of business models out there, but the standard ones have seven to ten building blocks. However, for the purpose of this article, you will learn how to develop a profitable business model with eight (8) building blocks.

Block 1: Customer Segments

Your customer segments are the different types of target audience that your business can or can potentially serve. For example, if you have an electronic product for kids. Your real customers are adults because kids cannot afford to buy electronic items themselves.

Even when you know that your target audience are adults, you can still segment your customers into parents, private tutors, libraries, children organizations and even schools. These are examples of customer segments and you must come up with different strategies for reaching these different segments. Why? Because the marketing approach you need for all these segments are different.

If you have the capacity, technical know-how and financial resources, you may decide to serve all these customer segments at once or you may choose to serve one customer segment at a time. Now, it’s time for you to go ahead and list all your current customer or potential customer segments based on the type of business you run or intend to run.

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Block 2: Value Propositions

This simply means what the customers stand to gain by choosing to do business with you instead of choosing your competitors. You must constantly think about what value your business brings to the table and how those values help your customers feel like your business is the missing link to the problem they are trying to find a solution to.

Your value proposition can either be quantitative or qualitative (experiential). An example of quantitative is price while examples of qualitative include ease of use, speed, and reliability, etc. Also, you must consider what you are doing differently than your competitors when developing your value proposition. Think about a competitor you have and come up with three reasons why you think your customer should patronize you instead of your competitors. Record your answers.

Block 3: Revenue Streams

A brand that does not generate revenue and profits will inevitably crash so as an entrepreneur you must constantly do three things regarding your revenue streams. First is, identify how you can increase your returns on your current revenue stream(s), brainstorm new revenue streams you can add to the existing one(s), and assess current revenue streams to know if it’s still worth it to keep going in the same direction.

 For example, if you are a shoe retailer and perhaps your current revenue stream is from the sale of shoes. Instead of just keeping on with the traditional way of selling, you may start looking into, have your customers rent their shoes from you or you can start a shoe subscription service where you ship shoes to your customers’ doorsteps monthly and they sign up for the subscription.

Once a shoe has been worn twice or three, you can still sell for half of the original price you intended to sell. That way you are maximizing your returns on the shoe and customers who don’t really like repeating their shoes are also happy with the fact that they can remain “fashion-forward” without having to spend so much. It’s a win-win situation for all. 

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Block 4: Channels

This is where you need to start thinking of the various ways in which you can deliver your products to your customers. Are your services accessible online or do you need a storefront, or perhaps, all you need are pickup areas in certain locations? Also, do you send the products to the customers directly or are you going to be dropshipping? All these are important because they determine how you can best serve your customers.

While thinking about your channels, you must put your target audience into consideration and be sure that people can reach you wherever you are. It’s not enough to set up a storefront. Ask yourself, is this place easily accessible? What are my customers’ preferences? What’s the traffic like? Taking your time to ask these questions might lead you to determine that your current channels are not helping you to serve your customers in the best way possible.

Block 5: Customer Relationships

Would you like to build a profitable brand? Then you must learn how to build great relationships with your customers. Building a great relationship with your customers requires intentionality and it starts before the “sale” and does not end after the “sale”.  As you develop your business model and are trying to figure out the best type of relationship to build and maintain with your customers, you must count your costs.

Everything great in life comes at a cost and that includes the relationship you build with your customers.

Seun Akinlotan

How much are you willing to pay to build great relationships with your customers? There are many things to consider are a few things you may consider before you adopt the type of relationship to build and maintain with your customers. Some of the things to consider include but not limited to, the type of products you sell, the amount of time you have, your natural preference, the resources available to you in terms of infrastructure, finance and human capital.

For example, as a photographer, do you desire to have a fully automated website where people can schedule a session with you or do you prefer to accept bookings by telephone? If you prefer to accept bookings by telephone, will you hire a receptionist or outsource the job to a freelancer? What happens when a customer wants to pick up the printed pictures? Will the customer call a phone line or perhaps you prefer to communicate by email? All these depend on you and how much you are willing to pay to make things happen.

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Block 6: Key Activities

What are the key activities you need to perform as an entrepreneur that position your brand in front of your target audience? What type of marketing strategy will you adopt? How much time, money and resources do you have at your disposal? These are questions to answer and record in block 6.

Block 7: Key Partners

Building a profitable brand means that you have a network of people whose strengths you leverage to make things happen. Trying to build a business all by yourself without support from others is like using a banana leaf to climb a palm tree. You won’t get very far!

To advance your business and make your dreams come true, you need key partners whose provide services you need to run your business smoothly. Some of these partners may include logistic companies, caterers, maintenance officers, contractors, consultants, etc.

Block 8: Key Resources

This is where you create a list of the key resources you need to create value for the customer. These resources are also considered to be the assets you need to sustain, support and grow the business.

These resources could be human, financial, physical and intellectual. How many people (employees) do you need to get the work done? What physical assets do you need? How much money do you need to run the business? What would you need to expend on fixed assets? What type of technology do you need to keep the business running? Attempt to answer every question to the best that you can. Do not leave any stone unturned. The more detailed you are, the higher the likelihood that things will work out the way you expect them to.

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Putting the pieces together: Now that you’ve completed your eight blocks, it’s time to put the pieces together and start implementing. A business model does not become profitable by itself. It requires you to be intentional about implementing it. One way to put the pieces together is to write out the summary of each block on a business model canvas and post it where you can easily have access to it. Also, remember that your business model is your GPS – it guides and directs you to your desired profitable destination!

Thank you for reading. If you want actual business model samples, get a copy of the UNEQUALED book. It will inspire you to write your own. Get a copy here.

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There are 2 comments

  1. Great read as always.
    My current stream of income is time consuming and a lot of brainstorming is needed.
    How can I increase returns on current revenue streams putting time and energy into consideration ma?
    Thanks so much ma.

    August 21, 2019, 4:44 am
    1. Thank you for your feedback ma. We will send you a response soon

      August 21, 2019, 8:01 pm