The profitability of its activity is the sinews of war. It is up to each entrepreneur to find the formula best suited to his project to transform his idea into success. The choice of the economic model is thus the flagship stage of the creation project.
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Did you say economic model?
The economic model or business model defines how the company will create value, and how it plans to earn money. The economic model must however be put into perspective with a coasted business plan making it possible to precisely imagine the profitability of the business, in this case the actual gain once all the costs inherent in the operation of the activity have been deducted. You can take inspiration from an existing model without necessarily duplicating but you can also start from an innovative model. Everything has probably not been invented yet. The subscription business models are important there.
Who is your target?
No business model without a specific target. Before you think about how to generate income streams, define your customer base precisely. Is it a mass market or a niche? Are the customers with whom you want to create value rather part of a segmented market with different needs and issues? Like the giant Amazon, your market can also be diversified, thus serving two completely distinct customer segments the general public and the developer community in the case of Amazon. Your market can finally be multilateral if your business model is based on the interdependence of several customer segments. In this case, both segments are required for the model to work.
Some examples of proven business models:
The sale of goods: the company is remunerated on the margin of the goods it sells. In the case of services, invoicing may correspond to the notion of time spent.
Subscription: this model consists of delivering a service or a product as part of a subscription for a limited time.
Licensing: this model consists of selling the possibility of using software after acquiring a temporary or permanent license.
Fermium: part of the offer is free, but additional services are chargeable premium. These are the ones that fund free users.
Rental: the user of a service or a good pays in return for a rental over a specific period.
Brokerage: consists of offering an intermediary role in a transaction, by taking an amount from the transaction.
Advertising: often used in B to B, this model consists of charging for visibility on a media medium for a determined format and duration.
Affiliation: consists in advertising websites and in deducting a commission then taken on each click (or action) made by the Internet user.
Flash sales and clearance sales: this consists of selling the end of stock of brands or their collector’s products at discounted prices.
From the printer: either, to sell a basic product at a very attractive price. Then, then, the company sells additional accessories for the product on which the margins will be higher.
Low cost: the offer you offer is reduced to its simplest form. The options then allow you to generate a significant margin.
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This list is not exhaustive. There are many other economic models that have been proven or have yet to be invented. Build yours by keeping in mind the idea of creating value for your client, but also for the company.
Then refine your model with details that can make the difference, such as the price mechanism for example, it can be fixed as in a catalog or mechanical principle of yield management or auctions for example. Knowing the types of business structures are important there.
The business model is key in your entrepreneurial project
You can meet a need without ever finding a way to monetize it. Your business model should explain how you plan to make money with your project, what the different income streams are, and how your way of making money is consistent with your project. The business model can be a source of innovation and there are hundreds of different ones. The business model should not be confused with the business plan. This is why Business Plan has created a specific file on the business model in order to help you find the appropriate business model for your project but also to give you the keys to present it correctly to investors.
The economic model, or business model, allows you to ask yourself the right questions about some key items of your project. How are you going to create enough value for your customers, how will you deliver that value to your customers and can your business make a living from it?
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What is an economic model?
The economic model of a company describes how it is organized to meet a customer need and earn money. More precisely, the economic model presents what the company will sell, to which customers, for what purpose, in what way and for what profit. The success of many companies rests on one of the items of their economic model which influences all the other items in a preponderant way. Detailing the economic model of your future business is a key step for your project. The combination of items will make your business specific.