The Business Model is a description of how a business makes money. It’s an explanation of how you deliver value to your customers at an appropriate cost. According to Joan Magretta in “Why Business Models Matter,” the term business model came into wide use with the advent of the personal computer and the spreadsheet.

A business model is simply an exploration of what costs and expenses you have and how much you can charge for your product or service. A successful business model just needs to collect more money from customers than it costs to make the product.This is your profit—as simple as that.

Decide Your Purpose.

Having a plan to make a profit is important, but it’s far from the only thing that matters when you start a business, experts say. Williams noted that entrepreneurs should take time to identify and articulate their business’s core values and purpose, which will serve as your organization’s compass for decision making at all levels.
“Business plans … encourage entrepreneurs to focus on what they are going to do,” said Alan Williams, co-author of “The 31 Practices” (LID Publishing Inc., 2014). “This overlooks two more important questions: ‘why’ – why it exists and why employees would want to get out of bed in the morning, and ‘how’ – the values of the business, what it stands for, how people representing the business will behave.”

Pinpoint Your Target Area.

Identifying a target market can be a tricky obstacle to get through. To help narrow down your market, Grant Leboff, CEO of Sticky Marketing Club, says to answer the question, “Why am I uniquely placed to solve the problem?”
“If you are unable to answer the question, you either have the wrong target market or the wrong offering,” Leboff wrote in a blog post. “In this case, more work will need to be done before you start targeting your potential customers.”

Analyze Your Business Model.

Alex Muller, Senior Vice President and Chief Product Officer of GPShopper at Synchrony Financial said that a good financial model should include many of the details you would put in your formal business plan – for example, pricing, sales, hiring, cost of acquisition, expenses and growth. As with a business plan, your model should be revised and updated as the realities of your business start to unpack.