What is a Business Model?

The business model is simply a working description that includes the general details about the operations of a business. The components that are contained within the model will address all functions of a business, including such factors as the expenses, revenues, operating strategies, corporate structure, and sales and marketing procedures. Generally speaking, anything that has to do with the day to day functionality of the corporation can be said to be part of the business model.

As part of the business model, there is a need to address internal factors that relate to the ongoing operation of the company. This will involve defining the departments and divisions within the company, along with the procedures that govern the creation of positions and job responsibilities within each department. Management of all the departments is also an important component of the model, as is the definitions of the responsibilities of the executives within the organization. Business operations such as manufacturing facilities, defining the production process, and allowing for the labor needs to produce the products are also part of the business model.

External factors also are part of a comprehensive business model. Chief among these elements is defining the target consumer audience for the goods and services produced by the corporation. This one single element of identifying the target audience will influence the form and function of both the marketing and sales efforts of the company, which in turn will impact the overall cost to produce each unit of a product. The business model will take this information into consideration and set retail pricing that will allow the company to operate at a profit, assuming a certain level of sales is realized consistently.

Business operations, sales and marketing concerns and forecasts, labor costs, and organizational structure are all essential components of the business model. Operating with a comprehensive model helps a company to maintain focus on a core mission, while periodic reviews and updates help to keep the model relevant to current economic conditions and consumer demands.