A business model explains how an organization creates value for a customer, delivers that value, and captures enough revenue to sustain the work. It is more than a price list or a pitch deck. A useful model makes its assumptions explicit so the team can test them.
Five questions every model should answer
Who is the customer?
Identify the buyer, user, and decision-maker. They may be different people.
What problem is solved?
Describe the job the customer needs done and the alternative they use now.
How is value delivered?
Map the product, sales channel, partners, service, and support needed to deliver the promise.
Where does revenue come from?
Distinguish one-time sales, recurring subscriptions, transaction fees, licensing, and other streams.
What must it cost?
Include acquisition, delivery, staff, technology, returns, and other costs needed to keep the promise.
A simple example
Imagine a company selling original lesson-planning software to schools. The user is a teacher, while the buyer may be a school administrator. The company charges a recurring school license, provides onboarding and support, and pays for development, hosting, sales, and customer service. The model fails if a school cannot see enough value to renew, even if many teachers sign up for a free trial.
Test the assumptions with interviews, a small pilot, pricing research, and actual costs. A business-model canvas is useful for organizing these questions, but it is not evidence that customers will pay.
Keep the model current
- Separate revenue from profit and cash flow.
- Review which customers are costly to serve and why.
- Update the model when distribution, regulation, customer behavior, or supplier costs change.