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What is a Business Model?

Malcolm Tatum
Updated May 16, 2024
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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.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
By anon241209 — On Jan 17, 2012

Is a freemium business model outdated? Many freemium users may be freeloaders forever. However, don't some of them eventually buy, but in smaller

percentages? Look at H&R Block going to a freemium business model in the brick and mortar world.

By anon196464 — On Jul 14, 2011

The greatest advantage is to like the challenge, and have stronger enterprise.

By anon126212 — On Nov 11, 2010

i want to know this. what are the factors that govern the operations of a business? can you answer me? Thanks.

By anon94691 — On Jul 09, 2010

What is Walmart's business model?

By anon75263 — On Apr 06, 2010

What is a typical business model for setting up a national franchise office by a government technology office?

By anon54670 — On Dec 01, 2009

I still don't understand. What is the difference between Incorporated and Limited? Help!

By anon53002 — On Nov 18, 2009

Thank you for this article. but what does a business model include? that is i want to know.

By anon48511 — On Oct 13, 2009

How can I relate this business model to an open source software?

By anon15830 — On Jul 22, 2008

Thank-you, for this article. I found just what I needed to know.

By mdt — On Mar 13, 2008

That is an excellent idea. You may want to suggest a topic to wiseGEEK that is related to e-business, perhaps a question about how to market an e-business, challenges of starting up an e-business, etc. I bet a lot of people would be interested in the topic you submit. Make sure to check the database of all current wiseGEEK articles first to see if your topic is already covered.

By alams — On Feb 01, 2008

i want to know more about issues and challengies that are facing e-business

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
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