Understanding your business model
The business model of a company is an important representation of how the company operates. A business model describes how an organization creates and delivers products or services, specific business processes, infrastructure, customer acquisition strategies, and the intended customer base, regardless of the size of the business or the industry in which it operates. Business models come in a variety of shapes and sizes. Among the most common are direct sales, franchise, and subscription models.
Businesses in high-cost customer acquisition industries may choose a subscription or recurring revenue business model. A subscription business model's goal is to keep customers on a long-term contract and secure recurring revenue from repeat purchases of a product or service. Subscription-based revenue models benefit both the company and the customer. As a customer, you have the convenience of automatically repurchasing a product or service that you know you're going to need in the future. As a business, you retain customers for future sales rather than needing to re-engage them on a more frequent basis. You secure monthly recurring revenue (MRR), which can keep your business afloat throughout the worst times.
Subscription models make predicting how much revenue your company will receive each month much easier. Because your customers pay on a regular basis, you know when they'll pay and how much they'll pay. When you incorporate a budget into your business strategy, you will have a more accurate representation of your company's resources. Working with the same customers also allows you to build stronger relationships with them over time. Customers learn to trust your employees and become accustomed to working with your brand when your service team is always available to provide excellent customer support. This is important when customers are deciding whether or not to renew their subscription.
A franchise business model involves business owners purchasing the business strategy of another organization. Instead of developing a new product and the distribution chain to deliver that product to consumers, the franchisee purchases a stake in an already successful business model. The franchisor is the company that provides its proprietary product or service, business processes, and brand, and it benefits from a reduction in capital output used to build new locations. Essentially, you purchase a brand as well as all the processes. Because you are not starting from scratch, there is no need to test the entire business model from the beginning. You essentially buy a ready-made business and adapt its processes and techniques to the location of your choice.
Sales of products or services generate revenue through a network of salespeople who sell directly to customers in a direct sales business model. A direct sales business model typically does not have a fixed retail location. Individual salespeople are instead linked with a large parent company and given the tools to become independent entrepreneurs. Direct sales occur through one-on-one presentations or demonstrations of the product or service, or during a hosted party at a prospect's home or business. Direct sales owners earn a portion of their sales, while the company that provides the product keeps the rest. Multi-level marketing is a method of selling that relies on a network of direct sellers.
You can sell to your customers as a one-person operation, or you can grow your business over time by inviting more people to sell the same products (known as your 'downline'). This opens up additional (multi-level) earning opportunities for you, the "original distributor," who will earn a commission on both your sales and the sales of your downline. The personal connection distributors make with the people to whom they sell their products is one of the most enjoyable aspects of direct selling. Meeting and interacting with new people on a regular basis makes the business opportunity more enjoyable.
A company is more than just a business that sells products. It's an ecosystem that requires a strategy for who to sell to, what to sell, how much to charge, and what value it creates. A business model describes what an organization does to create long-term value for its customers in a systematic manner. After developing a business model, a company should have a clearer idea of how it wants to operate and what its financial future looks like.
