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What Is a Business Model?

Understanding business models, evaluating successful business models, how to create a business model.

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Learn to understand a company's profit-making plan

how to write a good business model

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

how to write a good business model

Investopedia / Laura Porter

The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff.

Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees understand the future of a company they may aspire to join.

Key Takeaways

  • A business model is a company's core strategy for profitably doing business.
  • Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses.
  • There are dozens of types of business models including retailers, manufacturers, fee-for-service, or freemium providers.
  • The two levers of a business model are pricing and costs.
  • When evaluating a business model as an investor, consider whether the product being offered matches a true need in the market.

A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.

A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.

One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS). Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income . That is gross profit minus operating expenses and is an indication of just how much real profit the business is generating.

The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. If expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.

When evaluating a company as a possible investment, find out exactly how it makes its money (not just what it sells but how it sells it). That's the company's business model.

Types of Business Models

There are as many types of business models as there are types of business. For instance, direct sales, franchising , advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA .

Below are some common types of business models; note that the examples given may fall into multiple categories.

One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.

Example: Costco Wholesale

Manufacturer

A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass produced products. A manufacturer can also sell goods to distributors, retailers, or directly to customers.

Example: Ford Motor Company

Fee-for-Service

Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge by an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.

Example: DLA Piper LLP

Subscription

Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.

Example: Spotify

Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.

Example: LinkedIn/LinkedIn Premium

Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers a free version and a premium version.

If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.

Example: AT&T

Marketplace

Marketplaces are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business model attempts to make transacting easier, safer, and faster.

Example: eBay

Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.

Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni.

Razor Blade

Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component of that product. Also referred to as the "razor and blade model", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.

Example: HP (printers and ink)

"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.

Reverse Razor Blade

Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.

Example: Apple (iPhones + applications)

The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.

Example: Domino's Pizza

Pay-As-You-Go

Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.

Example: Utility companies

A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development or freight.

Example: ReMax

There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:

  • Identify your audience. Most business model plans will start with either defining the problem or identifying your audience and target market . A strong business model will understand who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
  • Define the problem. In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need, your business may struggle to find its footing if there isn't a demand for your services or products.
  • Understand your offerings. With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you're able to provide.
  • Document your needs. With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future.
  • Find key partners. Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.
  • Set monetization solutions. Until now, we haven't talked about how your company will make money. A business model isn't complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.
  • Test your model. When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so.

Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .

For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

  • Productivity and Business Processes: Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based off product usage (i.e. the amount of data being uploaded to SharePoint).
  • Intelligent Cloud: Microsoft offers server products and cloud services for a subscription. This also provide services and consulting.
  • More Personal Computing: Microsoft sells physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.

How Do I Build a Business Model?

There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.

Harvard Business Review. " Why Business Models Matter ."

Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."

Microsoft. " Annual Report 2023 ."

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how to write a good business model

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What is a business model? (Plus, how to define yours)

Last updated: September 2023

Business models distill the potential of a business down to its essence. Companies across every industry and at all stages of maturity need business models. Some rely on lengthy processes to build complicated models, while others move quickly to articulate the basics and take action. Either way, having the discipline to work through this planning tool forces internal alignment.

You must build something that real people with real needs will find value in and pay for — otherwise you do not have a lasting business. Brian de Haaff Aha! co-founder and CEO

For established enterprises, a business model is often a living document that is reviewed and adapted over the years. For companies launching products and services or entering new markets, a business model helps ensure that decisions are tied back to the overall business strategy . And for early-stage startups, a simple one-page business model enables founders to explore the mechanics of a business and how you anticipate it will be successful.

Defining and documenting a business model is an essential exercise. Whether you are starting a new venture, expanding into a new market, or shifting your go-to-market strategy , you can use a business model to capture fundamental assumptions about the opportunity ahead and tactics to addressing challenges.

Unfortunately, many companies fail to integrate their business model into all aspects of the organization — from recruiting talent to motivating employees. Part of the issue is accessibility. That is why forward-thinking companies choose tools that make it possible to quickly build and share your business model. The Aha! business model canvas, for example, gives you a collaborative space to explore concepts and connect your model to everyday work.

Build a business model in Aha! Notebooks. Sign up for a free trial .

Business model large

Start using this template now

You can access the business model template shown above using Aha! Notebooks . You can also try a similar template that is built into the product strategy section of Aha! Roadmaps . Or you can download these free Excel and PowerPoint business model templates .

This guide covers the basics of business models, from core concepts to best practices. Jump ahead to any section:

Definition of a business model

Business model components

Business model vs. business plan.

Different types of business models

Pros and cons of different models

Analyzing competitor business models

Business model templates

How to build a business model

What is the definition of a business model?

A business model defines how a company will create, deliver, and capture value.

A business model answers questions that are crucial for strategic decision-making and business operations. Creating a business model for your startup or product means identifying the problem you are going to solve, the market that you will serve, the level of investment required, what products you will offer, and how you will generate revenue. Pricing and costs are the two levers that affect profitability within a given business model.

A business model is part of your overall business strategy. Some business models extend beyond economic context and include value exchange in social or cultural terms — such as the intangible impact the company will have on a community or industry. The process of constructing and changing a business model is often referred to as “business model innovation.”

15 elements of a brilliant business strategy

This is why innovation programs fail

There are three main areas of focus in a business model: value proposition, value delivery, and value capture. The proposition outlines who your customers are and what you will offer. The delivery details how you will organize the business to deliver on the proposition. And the capture is a hypothesis for how the proposition and delivery will align to return value back to the business.

how to write a good business model

Below are some components to include when you create a business model:

Vision and mission : Overview of what you want to achieve and how you will do it.

Objectives: High-level goals that will support your vision and mission, along with how you will measure success.

Customer targets and challenges: Description of target customers (written as archetypes or personas ) and their pain points.

Solution: How your offering will solve customer pain points.

Differentiators: Characteristics that differentiate your product or service.

Pricing: What your solution will cost and how it will be sold.

Positioning and messaging: How you will communicate the value of your offering to customers.

Go-to-market: Proposed approach for launching new offerings and services.

Investment: Resources required to introduce your offering.

Growth opportunity: Ways that you will grow the business over time.

Positioning vs. messaging

  • What is value-based product development?
  • What is a go-to-market roadmap?

Business models and business plans are both elements of your overall business strategy. But there are key differences between a business model and a business plan.

A business model is seen as foundational and will not usually be reworked in reaction to shorter-term shifts — whereas a business plan is more likely to be updated based on changes in the economy or market.

Related: Business plan templates

What is the benefit of building a business model?

Innovation is about more than the products or technologies that you build. The way that you operate your business is a critical factor in how you stand apart in a crowded marketplace. The benefit of building a business model is that you can use the exercise to expose and exploit what makes your company unique — why choosing your offering is better for customers than any alternatives and how you will grow the business over time.

Many people associate business models with lengthy documents that describe a company’s problem, opportunity, and solution in the context of a two-to-five-year forecast. But business models do not need to be a long treatise.

A one-pager is just as effective for distilling and communicating the most important elements of your business strategy. The concise format is useful for sharing with broader teams so that everyone understands the high-level approach. Done right, a business model can become a touchstone for the team by outlining core differentiators to promote and defend in the market.

Related: A more comprehensive business model builder

What are the different types of business models?

There are many different types of business models. Below are some of the most common business models with example companies for reference (take note of the companies that appear in several categories):

Did you keep track of the companies that appeared in several of the business model examples? Good. You now have a grasp of how complex enterprises with vast portfolios of products and services often employ many business models within the same organization.

Consider a company like Apple, which manufactures and sells hardware products as well as offering cloud-storage, streaming subscriptions, and a marketplace for other applications. Amazon, whose offerings range from retail (with the acquisition of Whole Foods) to marketplace (Amazon.com) to subscription services (Amazon Prime and Amazon Music) to affiliate, also features in different categories. Each division or vertical will have a distinct business model that reflects the nuances of how it operates while also supporting the corporate business model.

Related: The product manager vs. the portfolio product manager

Pros and cons of different business models

Some types of business models work better for certain industries than others. For example, software-as-a-service (SaaS) companies often rely on freemium business models. This makes it easy for potential users to experience the value of the product and incentivizes paid conversions via access to additional features.

Many social media platforms make money through advertising. By providing full access to the platform for free, these companies attract more users. In turn, this creates a more valuable audience for advertisers and increases revenue for the business.

How do you analyze a competitor’s business model?

Business analysts and investors will often evaluate a company’s business model as part of due diligence for funding or market research . You can apply the same tactics to analyze a competitor’s business model — with a few caveats.

Public companies are subject to reporting requirements. This means that the business must regularly disclose financial and performance data to the public — these disclosures occur quarterly and annually. The data includes everything from gross revenue, operating costs and losses, cash flow and reserves, and leadership discussions of business results. Designed to protect and inform investors, these reports can provide you with the information you need to understand the basics of the company’s business model and how well it is performing against the model.

Private companies are not required to reveal business data publicly. Investors or partners may be privy to certain aspects of the company’s performance, but it can be difficult to understand exactly what is happening from the outside. Some analysts or business websites will attempt to “size” a business or market by looking at a variety of factors — including the number of employees, volume of search terms related to the core offering, estimated customer base, pricing structure, partnerships, advertising spend, and media coverage.

Once you have identified relevant alternatives to your offering and gathered all of the information that you can find, a good way to analyze a competitor’s business model is to conduct a competitive analysis.

Related: Competitor analysis templates

You do not want to spend too much time thinking about other companies when you could be focused on your own. A simple SWOT analysis is a helpful way to map out strengths, weaknesses, opportunities, and threats that were revealed during your research.

Below are three types of business model example layouts you can use to succinctly and objectively assess what is possible and what challenges could arise for your business.

Aha! Notebooks business model template

Articulate the foundation of your product or service in a flexible whiteboard-style format with the Aha! Notebooks business model template.

The focus is on capturing key elements like why the solution is worth buying (messaging), pain points of the buyers (customer challenges), and ways you will grow the business (growth opportunities).

Aha! Roadmaps business model canvas

The Aha! Roadmaps business model is the most complete template in this guide — based on our team's decades of experience building breakthrough products and software companies.

You can drag and drop each component within a custom layout. And once you have completed your business model, it is easy to share with your team via a live webpage or exported PDF. This business model builder is included with the free 30-day trial of Aha! Roadmaps.

Business model in Aha!

Aha! Roadmaps lean canvas

Similar to the business model canvas, this model in Aha! Roadmaps takes a problem-focused approach to create an actionable business plan. It is most commonly used by startups and entrepreneurs to document business assumptions. The focus is on quickly creating a concise and effective single-page business model. It documents nine elements, including customer segments, channels used to reach customers, and the ways you plan to make money.

Lean canvas example in Aha!

How to build a business model in 10 steps

Crafting a business model is part of establishing a meaningful business strategy. But a business model is essentially a hypothesis — you need to test yours to prove that it will actually provide value. Many startup founders especially underestimate the costs and timeline for reaching profitability.

1. Identify your target market Who will benefit from your offering? What characteristics do prospective customers share?

2. Define the problem you will solve What is the problem that you are solving? What are the pain points of your potential customers?

3. Detail your unique selling proposition (USP) What will you build and how will you support it?

4. Create a pricing strategy How much will you charge for your offering? What factors will go into choosing your price point?

5. Develop a marketing approach How will you market your product and reach target customers? What channels will you choose for go-to-market?

6. Establish operational practices How will you streamline processes and procedures to reduce overhead and fixed costs?

7. Capture path to profitability How will your business generate revenue? What level of investment will be required and what fixed costs exist?

8. Anticipate challenges Who are your competitors? What opportunities and threats exist for your business?

9. Validate your business model Was your hypothesis correct? Does your business model solve a problem the way you thought it would?

10. Update to reflect learnings What can you do differently in the future to ensure greater success?

Your business model will ultimately guide your organization and influence your product roadmap. Give it the deep thought it deserves — questioning your core assumptions about how you will generate value and how your team will work towards achieving shared goals.

Deliver more with Aha! — try it free for 30 days .

Additional strategy resources

Using Aha! software

Aha! Roadmaps — Strategy overview

Aha! Roadmaps — Strategic models

Strategic blogs and guides

  • How to price your product
  • How to position your product

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20 Business Model Examples (And How To Pick The Right One)

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If you’ve heard the term “business model,” but don’t know exactly what it means,  you’re not alone .

It’s used all the time by business analysts, and even they disagree on the exact definition of a business model.

But you know  a business model is important.

And it is. Your model  sets your business on the path to success or failure , so you need to get it right.

How Does This Article Serve You?

This is a practical guide to:

  • What a business model is
  • Why it’s important
  • How to create one.

It doesn’t require any previous experience or knowledge and will leave you with everything you need to know to  pick the right business model  for your next venture or reevaluate your current model.

What is a Business Model?

As mentioned, there’s no single definition of a “business model,” so let’s look at the  most common interpretations .

Long ago, the concept of a business model was simple –  how will your business make money .

It wasn’t until the 1990s or so where people started realizing that  your business model can make or break your company.

So it evolved from that basic definition.

While he didn’t specifically mention business models, Peter F. Drucker’s  theory of business  is often cited as the start of a shift. Instead of  just  focusing on monetization, he proposed that businesses should also consider customers, goals, and strategy.

Verifying Your Business Model

A modern business model should at the very least answer Drucker’s famous  five questions :

  • What is your mission?
  • Who is your customer?
  • What does your customer value?
  • What results do you seek?
  • What is your plan?

Still, that’s a bit open-ended.

Finally, Alex Osterwalder developed a  comprehensive system to define a business model .

His view of a business model was that a business model is a combination of assumptions and guesses.

The Business Model Canvas

He developed the Business Model Canvas, which we’ll be looking at in more detail later.

It  divides a model into 9 main sections  that provide an organized way to break down all the important assumptions you have about a business.

Video: Alex Osterwalder provides a brief overview of the Business Model Canvas

What’s the Difference Between Business Models and Business Strategy

They both seem similar at first but have  different scopes .

Business Model

A business model covers  how a business will operate , but a business strategy defines  how that business will carve out a position in its market.

In other words, a business model gives you a  set of limitations . It might tell you how much you’ll charge, and what customers you’ll target.

Business Strategy

However, your business strategy will focus on  how you actually reach those customers  and distinguish yourself from competitors.

You’ll see both terms used interchangeably (incorrectly), but it’s good to know the difference.

Why Do Business Models Matter in the Modern Economy?

The right business model can catapult you to glory or collapse, and that’s not an exaggeration.

Business model innovation is  arguably the biggest form of competition  that exists in modern business.

Clay Christensen, a professor of business administration at Harvard sums it up well:

Most managers think the key to growth is developing new technologies and products. But often this is not so. To unlock the next wave of growth, companies must embed these innovations in disruptive new business models.

IBM’s Institute for Business Value conducted a study in 2009 and found that  70% of companies are actively engaging in business-model innovation.

They also found that 98% of businesses were continually modifying their model to some extent.

Core Values and Competitive Advantage

You’ve seen examples of this, perhaps without realizing it.

Consider taxis and Uber, which both have essentially  the same core value  to customers of providing flexible, on-call transportation.

Uber has a drastically different business model. When they started up, their business model was their  main competitive advantage .

Fast forward to today, and Uber and other similar businesses have  overtaken taxis .

3 Traits of a Good Business Model

Before we look at specific models you may want to consider using, let’s briefly go over the  attributes of a solid business model .

1. They Match Up With Company Goals and Values

Your business model comes after you define what your company is trying to do.

Certain models will  match up with your goals and values , and some won’t. If you start a diamond shop but try to implement a freemium model, there’s essentially no way you’ll succeed.

Pick a model that complements your  mission  and the  way you want to accomplish it .

2. A Business Model Should be Robust

You don’t want to base your entire business off a model that might not be effective after a year or two.

Your business model needs to consider:

  • Resources available –  If your business model requires an upfront investment, but you have limited access to funding, you’re in trouble.
  • Imitators –  Can competitors easily copy or improve upon your business model?
  • Consumer trends –  Will customers still want your solution in the future? Can they substitute it for another?

Taking time to think of these when picking a business model may save you from a big mistake.

3. They Leave Opportunity for Innovation

You’re likely not going to get everything in your business model right the first time.

As Osterwalder noted, business models are based on assumptions. Things rarely go as planned.

If your business model depends heavily on all your assumptions being correct, it’s too rigid. Create a  business model that you can re-evaluate and improve upon  over time.

The 20 Types of Business Models (with Examples)

Mark W. Johnson has a great book called  How to Seize the White Space for Transformation .

In it, he covers 20 types of potential business models that you can choose from and their primary method of monetization.

I’ll summarize them here and provide examples of each, but if you’d like more detail, it’s a good book to pick up.

Affinity Club

An affinity club model is based on  partnerships with other organizations.  By buying or using your products, customers also get special access to other perks, giving them extra incentive.

Of course, you’ll need to provide an incentive to those partners to get them on board.

This is best used in competitive fields where products are all similar.

A great example of this is MBNA, who uses this model with their credit cards.  Different cards come with different perks , so they can target a wide audience.

MBNA screenshot of the affinity mastercard program.

For example, one card is targeted towards football (soccer) fans. If you sign up for a Manchester United card, you get points that can be exchanged for their merchandise.

There are also  monthly draws and other perks .

Automation-Enabled Services

This model relies on technological advancement and is tough to use unless you have a good deal of specific technical knowledge yourself.

The goal is to  automate services that typically use human labor , so your operating costs are reduced.

For example, instead of going to a financial advisor, you can go to  Betterment . It’s an automated online financial advisor that gives you a similar quality of advice as most financial advisors would.

A broker  connects buyers to sellers  and  gets a small fee  for each transaction.

There are many examples of this:

  • Kickstarter.

Any marketplace that allows others to sell on it, and focuses on bringing in customers for those sellers is using a brokerage model.

A bundling business model  packages related products  together to make a more convenient and enjoyable experience for customers.

A classic example of this is the fast-food value meal, but that can be replicated fairly easily.

A better example is the combination of iPod and iTunes. You can’t use an iPod without iTunes, so each new iPod customer results in a new iTunes user (and potential customer).

Screenshot of iTunes landing page.

Bundling is very effective when a company is launching a new business and can  leverage existing success  as Apple has done.

Crowdsourcing

Don’t confuse a crowdsourcing business model with crowdsourcing funding from sites like Kickstarter.

A crowdsourcing business model relies on  user-generated content . The business focuses on making contributions easy and providing an incentive for users to contribute (usually money or a charitable goal).

YouTube is one example of a crowdsourcing model, where users upload videos, and most hope to generate revenue from those videos.

Wikipedia is another great example, where all the content on the site has been  created for free by willing users  who want to spread knowledge.

Data-Into-Assets

The idea behind a data-into-assets is to obtain valuable data that can be sold to willing buyers.

This is one of the few that can run into real ethical dilemmas.

For example, this is the business model that Facebook uses. The site is free for users, but in return, Facebook collects massive amounts of data about users and uses that to generate revenue through advertisers.

The Dangers of Data

They are facing  large privacy lawsuits  that could set a precedent for other businesses.

It’s hard to know where to draw the line, as Google is another data-into-assets business that most have no big issues with. They scrape data from just about all sites and transform that into search results that users desire.

Then they  sell ads to advertisers  on the search results.

Digital Platforms

Since the beginning of the Internet, creating a digital platform has been a viable business model for some companies.

For example, OpenTable started in 1998, which is a site that provides an online restaurant-reservation service.

OpenTable homepage.

There are still opportunities to be innovative in an industry simply by providing a useful product online.

To use this, you can  apply modern technology to outdated industries , or apply new technology to any industries ready for it.

We’re also seeing new digital platforms innovate upon old ones by leveraging new technology like machine learning and blockchain technology. These could almost be considered business models of their own.

Disintermediation

This mouthful simply means directly  delivering a service or product instead  of through a middleman.

Tesla is a great modern example of this. Instead of selling cars through a dealership, you buy online and skip the salesman. Not only is it more convenient, but it  reduces costs for consumers .

Fractionalization

Fractionalization consists of letting customers buy a portion of a product or service.

A good example of this is a time-sharing condo. People buy  part  of the condo and can use it during a certain time of the year that they purchased it from.

It’s a great model when your target  customers only want your product or service part of the time . They get the full benefits but don’t have to pay full price.

Freemium is a modern business model that is often used by software companies.

Because there’s very little overhead in serving data, businesses can choose to provide a portion of their service or product for free, but  requiring payment for full access .

Spotify and Dropbox

Dropbox gives you a small amount of free cloud storage and asks you to upgrade to a paid plan if you need more space.

DropBox plan choices.

Spotify offers free music but has ads. If a user buys a paid plan, they get rid of the ads.

Freemium lets you reach a wider audience, and often get more referrals, which can lead to a steady stream of customers.

Leasing is nothing new and has been used by car dealerships for many years. It works best for expensive products.

When a customer often can’t afford to pay cash or only needs a product one time, you offer them use of the product for a  rental fee .

A low-touch model takes a  high-end offering and reduces the cost  (and quality) of that product or service.

Competing on cost is a difficult business model to succeed with, but can work if you get enough customer volume.

Walmart is a great example of this, who sell lower-quality products than most competitors, but at a better price.

Negative Operating Cycle

This is a business model popularized by Amazon.

It’s especially popular with online retail businesses and allows businesses to  sell products at a low-profit-margin  (or even at cost), and still be highly profitable.

How Does It Work?

By maintaining a low inventory and getting payment upfront. Of course, you need a reliable and fast fulfillment process for this to work effectively.

The profits then come from the volume of sales that are attracted through low prices, or by utilizing the money sitting around before having to pay suppliers.

That  money generates interest  or can be used to fund long-term investments or research and development.

Pay-As-You-Go

This business model is exactly what it sounds like, customers pay as they use your service.

This can only be used in certain industries where customers regularly consume varying amounts.

For example, car2go lets you pay for car rentals by the minute, hour, or day.

Some web hosts, like  Cloudways , let’s you  pay only for the resources  your websites  actually use .

Cloudways homepage.

Razors and Blades

Razors and blades can be interpreted literally or symbolically.

This business model consists of bundling 2 products together that require each other. Then, you sell the main component (razor) at no profit or even a loss but recoup that because the  complementary product has high margins  (blades).

Another good example of this is the personal printer. They’re cheap to buy, but the ink is very expensive and high margin.

Reverse Razors and Blades

This is the same as above, but the two products are split.

You offer the “blades” at a very low cost in order to get people to buy the expensive and high margin “razor.”

One example of this is Amazon Kindle books, which are very cheap, and may tempt consumers into purchasing an expensive Kindle to read the books on.

Kindle Books landing page.

Product-To-Service

There are many times that people want to use a product, without buying it. A product-to-service model lets people pay a service fee to have access to a product.

It’s  similar to leasing and fractionalization .

A good example of this is Zipcar, which is a car-sharing company. Members pay a monthly or annual fee to have access to car reservations as needed.

Standardization

If you can take something that has a lot of variabilities and create a consistent, standardized product, you stand out from competitors.

Dominos did this with their “30 minutes or it’s free” offer for pizza delivery, which at the time was unheard of.

Subscription Club

A subscription club lets customers buy a product on a regular basis.

This is a popular model for software businesses that most SAAS (Software As A Service) platforms fall under.

Netflix and Dollar Shave Club also would be subscription clubs.

User Communities

Finally, some businesses create paid user communities that generate revenue from fees and possibly advertising.

The most famous example of this is Angie’s List, a home services review community that required payment until a little while ago.

It’s a tough model because  most people prefer free forums  and other types of communities, but good if people will pay for higher quality information.

How to Design Your Business Model

We can finally get to some practical work on your business model.

As mentioned before, monetization methods are not enough on their own.

There are 2 main approaches that you can take if you would like to create a new business model or refine an existing one.

Business Model Canvas

The Business Model Canvas comes from Alexander Osterwalder.

It’s a chart that includes the  9 important elements  of a business model.

Business Model Canvas.

You can download a  business model canvas pdf here , or see it  as an image here .

9 Sections of The Business Model Canvas

Let’s go through the 9 sections, each one includes questions to prompt you if you get stuck:

  • What value do we deliver to the customer?
  • Which one of our customer’s problems are we helping to solve?
  • What bundles of products and services are we offering to each Customer Segment?
  • Which customer needs are we satisfying?
  • For whom are we creating value?
  • Who are our most important customers?
  • Through which channels do our Customer Segments want to be reached?
  • How are we reaching them now?
  • How are our Channels integrated?
  • Which ones work best?
  • Which ones are most cost-efficient?
  • How are we integrating them with customer routines?
  • What type of relationship does each of our Customer Segments expect us to establish and maintain with them?
  • Which ones have we established?
  • How are they integrated with the rest of our business model?
  • How costly are they?
  • What are the most important costs inherent in our business model?
  • Which Key Resources are most expensive?
  • Which Key Activities are most expensive?
  • What Key Activities do our Value Propositions require?
  • Our Distribution Channels?
  • Customer Relationships?
  • Revenue streams?
  • What Key Resources do our Value Propositions require?
  • Who are our Key Partners?
  • Who are our key suppliers?
  • Which Key Resources are we acquiring from partners?
  • Which Key Activities do partners perform?
  • For what value are our customers really willing to pay?
  • For what do they currently pay?
  • How are they currently paying?
  • How would they prefer to pay?
  • How much does each Revenue Stream contribute to overall revenue?

Lean Business Model Canvas

The Business Model Canvas is a general model that works well in most cases.

However, the Lean Canvas has been  created by Ash Maurya  as an adaption that’s more suited to startups and small businesses with lots of uncertainty. You can find an  image file to print out here .

Lean Canvas Sections Explained

Again, there are 9 sections, but it’s “easier” to fill out for these types of businesses.

Here’s a brief description of each section:

  • Problem (P) –  What are the main 3 problems that your business solves?
  • Solution (S) –  What are the essential features of your product(s)?
  • Unique Value Proposition (UVP) –  What’s your business’ differentiating factor from competitors that make you better for your customers?
  • Unfair Advantage (UA) –  What part of your business can’t easily be copied by competitors?
  • Customer Segments (CS) –  Who are your target customers? Be as specific and niche as possible.
  • Key Activity (KA) –  What are the key interactions that lead to revenue? For example, creating their first blog post on a blogging platform.
  • Channels (CH) –  What channels will you be using to acquire customers?
  • Cost Structure (C$) –  List both your fixed and variable costs, estimate if needed.
  • Revenue Streams (R$) –  Specify your revenue model (refer to the previous section of this guide).

If you got this far, you understand business models more than most entrepreneurs.

I’d highly recommend spending just another ten minutes or so and quickly  work through either the Business Model Canvas or Lean Canvas .

Even if you can’t fill it out completely, you’ll quickly realize which areas of your business models need more attention and strengthening.

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How to make a great Business Model Canvas

how to write a good business model

Most of us are familiar with business models, which are a company’s plan for making a profit. A typical business model identifies the products or services that the company intends to sell, the target market, and any possible expenses.

Since a business model is so high-level, it can be hard to visualize how it might work in practice. It can be even harder to connect an organization’s everyday roles, responsibilities, projects, and functions to the overall business model. That’s where the business model canvas comes in.

This blog will introduce you to the business model canvas, a strategic tool that allows you to visually develop and display your business model. By the end of the blog, you’ll have a deeper understanding of what makes a business model canvas so important and how to create your own.

  • What is a Business Model Canvas?

The business model canvas was first developed by Alexander Osterwalder in his book Business Model Ontology . Osterwalder broke down the segments that form a basic business model into a one-page canvas.

A business model canvas is a strategic tool that enables you to look systematically at your business model, understand how it works, and keep everyone in your organization aligned. Think of it as a North Star that outlines everything that makes your business tick: key partners and activities, your value proposition, customer relationships and segments, resources, distribution channels, cost structures, and revenue streams.

The Business Model Canvas Explained

Whether you’re at a new business or an established one, a well-thought-out business model is crucial for success. Business models help developing businesses attract investors, recruit talent, onboard new hires, and align employees. They help established businesses stay ahead of trends and anticipate challenges. A good business model can compel investors or partners to work with a company they’re interested in supporting.

The problem, though, is that a business model is a lot to digest. That’s why the business model canvas is such a useful tool.

The business model canvas is a snapshot of all the key components of a business model. It enables you to take those key components and organize them into a format that’s easily digestible. A business model canvas zooms in on a particular product or service to break down how exactly the company expects to derive value from it.

  • Business Model Canvas or Lean Canvas?

People often use “business model canvas” and “lean business model canvas” interchangeably, but there are a few differences. The business model canvas focuses on a specific product or service that generates revenue. A lean canvas focuses on a specific problem that the organization is looking to solve.

Lean canvases are popular with startups because they enable you to zoom in on a problem, iterate on potential solutions, and move quickly to the next challenge. Whereas the business model canvas defines the infrastructure, costs, and revenue streams that go into running a business, the lean canvas focuses on the channels that enable you to troubleshoot a specific problem. The broader business model canvas pays close attention to customer segments, channels, and relationships, while the lean canvas deemphasizes these elements.

  • What is Included in a Business Model Canvas?

Although you can adapt the business model canvas to your needs, they generally contain nine core components. Here are the building blocks of a business model canvas.

  • Key partners. Every business model canvas lists the partners and suppliers that your business leverages for success. The canvas includes any motivations for the partnerships — i.e. what exactly you get out of them.
  • Key activities. The canvas summarizes the activities that your business must undertake in order to support your value proposition. It lists the activities that are most important for distribution channels, customer relationships, and revenue streams.
  • Value proposition. The value proposition is the core value you aim to deliver to your customer. Think of it as two key components: the need you are serving for your customer, and how that’s different from what your competitors are doing.
  • Customer relationships. These include any relationships you have with customers, including how you interact with them, how interactions differ between customers, what needs your customers have, and how you integrate those needs into your business in terms of cost and format.
  • Customer segments. These are the ideal customer personas that your value proposition is designed to benefit. A basic business model canvas outlines the potential differences between segments and steps in the customer journey.
  • Distribution channels. The canvas details how you reach customers, provide services, and deliver your value proposition. This portion of the canvas answers crucial questions about your customers, such as: Which channels work best for reaching them? How much do they cost? How can you integrate these channels into your workflows and your customers’ routines?
  • Cost structures. A business model canvas identifies the primary costs that go into operating your business and providing services. It shows the relationship between those costs and other business functions, including which resources or activities are the most expensive.
  • Key resources. These are the resources that your business uses to operate distribution channels, provide services, maintain customer relationships, and build revenue streams.
  • Revenue streams. The canvas describes how your business generates revenue by delivering on your value proposition. How do your customers pay? How much does each revenue stream contribute to your overall revenues? And what are you customers willing or unwilling to pay for?
  • How to Create a Business Model Canvas

To create a business model canvas, start with your overall business model. At its core, a business model is simply:

  • The products and services you plan to sell,
  • the expenses you will incur in delivering those products and services, and
  • how you expect to make a profit.

Once you have those core components in place, you can break them down even further in your business model canvas. Spell out the partners, activities, resources, and propositions that define your business and allow you to offer your products or services. From there, articulate the relationships you have with your customers, including your customer segments and the channels you use to reach them. Finally, you can spell out the cost structure and revenue streams associated with your business.

  • Creating Your Own Business Model Canvas

Want to get started on your own business model canvas? Miro’s free template makes it easy to customize and share a business model canvas with your collaborators. Get started today!

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Business Model Canvas: Explained with Examples

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Got a new business idea, but don’t know how to put it to work? Want to improve your existing business model? Overwhelmed by writing your business plan? There is a one-page technique that can provide you the solution you are looking for, and that’s the business model canvas.

In this guide, you’ll have the Business Model Canvas explained, along with steps on how to create one. All business model canvas examples in the post can be edited online.

What is a Business Model Canvas

A business model is simply a plan describing how a business intends to make money. It explains who your customer base is and how you deliver value to them and the related details of financing. And the business model canvas lets you define these different components on a single page.   

The Business Model Canvas is a strategic management tool that lets you visualize and assess your business idea or concept. It’s a one-page document containing nine boxes that represent different fundamental elements of a business.  

The business model canvas beats the traditional business plan that spans across several pages, by offering a much easier way to understand the different core elements of a business.

The right side of the canvas focuses on the customer or the market (external factors that are not under your control) while the left side of the canvas focuses on the business (internal factors that are mostly under your control). In the middle, you get the value propositions that represent the exchange of value between your business and your customers.

The business model canvas was originally developed by Alex Osterwalder and Yves Pigneur and introduced in their book ‘ Business Model Generation ’ as a visual framework for planning, developing and testing the business model(s) of an organization.

Business Model Canvas Explained

What Are the Benefits of Using a Business Model Canvas

Why do you need a business model canvas? The answer is simple. The business model canvas offers several benefits for businesses and entrepreneurs. It is a valuable tool and provides a visual and structured approach to designing, analyzing, optimizing, and communicating your business model.

  • The business model canvas provides a comprehensive overview of a business model’s essential aspects. The BMC provides a quick outline of the business model and is devoid of unnecessary details compared to the traditional business plan.
  • The comprehensive overview also ensures that the team considers all required components of their business model and can identify gaps or areas for improvement.
  • The BMC allows the team to have a holistic and shared understanding of the business model while enabling them to align and collaborate effectively.
  • The visual nature of the business model canvas makes it easier to refer to and understand by anyone. The business model canvas combines all vital business model elements in a single, easy-to-understand canvas.
  • The BMC can be considered a strategic analysis tool as it enables you to examine a business model’s strengths, weaknesses, opportunities, and challenges.
  • It’s easier to edit and can be easily shared with employees and stakeholders.
  • The BMC is a flexible and adaptable tool that can be updated and revised as the business evolves. Keep your business agile and responsive to market changes and customer needs.
  • The business model canvas can be used by large corporations and startups with just a few employees.
  • The business model canvas effectively facilitates discussions among team members, investors, partners, customers, and other stakeholders. It clarifies how different aspects of the business are related and ensures a shared understanding of the business model.
  • You can use a BMC template to facilitate discussions and guide brainstorming brainstorming sessions to generate insights and ideas to refine the business model and make strategic decisions.
  • The BMC is action-oriented, encouraging businesses to identify activities and initiatives to improve their business model to drive business growth.
  • A business model canvas provides a structured approach for businesses to explore possibilities and experiment with new ideas. This encourages creativity and innovation, which in turn encourages team members to think outside the box.

How to Make a Business Model Canvas

Here’s a step-by-step guide on how to create a business canvas model.

Step 1: Gather your team and the required material Bring a team or a group of people from your company together to collaborate. It is better to bring in a diverse group to cover all aspects.

While you can create a business model canvas with whiteboards, sticky notes, and markers, using an online platform like Creately will ensure that your work can be accessed from anywhere, anytime. Create a workspace in Creately and provide editing/reviewing permission to start.

Step 2: Set the context Clearly define the purpose and the scope of what you want to map out and visualize in the business model canvas. Narrow down the business or idea you want to analyze with the team and its context.

Step 3: Draw the canvas Divide the workspace into nine equal sections to represent the nine building blocks of the business model canvas.

Step 4: Identify the key building blocks Label each section as customer segment, value proposition, channels, customer relationships, revenue streams, key resources, key activities, and cost structure.

Step 5: Fill in the canvas Work with your team to fill in each section of the canvas with relevant information. You can use data, keywords, diagrams, and more to represent ideas and concepts.

Step 6: Analyze and iterate Once your team has filled in the business model canvas, analyze the relationships to identify strengths, weaknesses, opportunities, and challenges. Discuss improvements and make adjustments as necessary.

Step 7: Finalize Finalize and use the model as a visual reference to communicate and align your business model with stakeholders. You can also use the model to make informed and strategic decisions and guide your business.

What are the Key Building Blocks of the Business Model Canvas?

There are nine building blocks in the business model canvas and they are:

Customer Segments

Customer relationships, revenue streams, key activities, key resources, key partners, cost structure.

  • Value Proposition

When filling out a Business Model Canvas, you will brainstorm and conduct research on each of these elements. The data you collect can be placed in each relevant section of the canvas. So have a business model canvas ready when you start the exercise.  

Business Model Canvas Template

Let’s look into what the 9 components of the BMC are in more detail.

These are the groups of people or companies that you are trying to target and sell your product or service to.

Segmenting your customers based on similarities such as geographical area, gender, age, behaviors, interests, etc. gives you the opportunity to better serve their needs, specifically by customizing the solution you are providing them.

After a thorough analysis of your customer segments, you can determine who you should serve and ignore. Then create customer personas for each of the selected customer segments.

Customer Persona Template for Business Model Canvas Explained

There are different customer segments a business model can target and they are;

  • Mass market: A business model that focuses on mass markets doesn’t group its customers into segments. Instead, it focuses on the general population or a large group of people with similar needs. For example, a product like a phone.  
  • Niche market: Here the focus is centered on a specific group of people with unique needs and traits. Here the value propositions, distribution channels, and customer relationships should be customized to meet their specific requirements. An example would be buyers of sports shoes.
  • Segmented: Based on slightly different needs, there could be different groups within the main customer segment. Accordingly, you can create different value propositions, distribution channels, etc. to meet the different needs of these segments.
  • Diversified: A diversified market segment includes customers with very different needs.
  • Multi-sided markets: this includes interdependent customer segments. For example, a credit card company caters to both their credit card holders as well as merchants who accept those cards.

Use STP Model templates for segmenting your market and developing ideal marketing campaigns

Visualize, assess, and update your business model. Collaborate on brainstorming with your team on your next business model innovation.

In this section, you need to establish the type of relationship you will have with each of your customer segments or how you will interact with them throughout their journey with your company.

There are several types of customer relationships

  • Personal assistance: you interact with the customer in person or by email, through phone call or other means.
  • Dedicated personal assistance: you assign a dedicated customer representative to an individual customer.  
  • Self-service: here you maintain no relationship with the customer, but provides what the customer needs to help themselves.
  • Automated services: this includes automated processes or machinery that helps customers perform services themselves.
  • Communities: these include online communities where customers can help each other solve their own problems with regard to the product or service.
  • Co-creation: here the company allows the customer to get involved in the designing or development of the product. For example, YouTube has given its users the opportunity to create content for its audience.

You can understand the kind of relationship your customer has with your company through a customer journey map . It will help you identify the different stages your customers go through when interacting with your company. And it will help you make sense of how to acquire, retain and grow your customers.

Customer Journey Map

This block is to describe how your company will communicate with and reach out to your customers. Channels are the touchpoints that let your customers connect with your company.

Channels play a role in raising awareness of your product or service among customers and delivering your value propositions to them. Channels can also be used to allow customers the avenue to buy products or services and offer post-purchase support.

There are two types of channels

  • Owned channels: company website, social media sites, in-house sales, etc.
  • Partner channels: partner-owned websites, wholesale distribution, retail, etc.

Revenues streams are the sources from which a company generates money by selling their product or service to the customers. And in this block, you should describe how you will earn revenue from your value propositions.  

A revenue stream can belong to one of the following revenue models,

  • Transaction-based revenue: made from customers who make a one-time payment
  • Recurring revenue: made from ongoing payments for continuing services or post-sale services

There are several ways you can generate revenue from

  • Asset sales: by selling the rights of ownership for a product to a buyer
  • Usage fee: by charging the customer for the use of its product or service
  • Subscription fee: by charging the customer for using its product regularly and consistently
  • Lending/ leasing/ renting: the customer pays to get exclusive rights to use an asset for a fixed period of time
  • Licensing: customer pays to get permission to use the company’s intellectual property
  • Brokerage fees: revenue generated by acting as an intermediary between two or more parties
  • Advertising: by charging the customer to advertise a product, service or brand using company platforms

What are the activities/ tasks that need to be completed to fulfill your business purpose? In this section, you should list down all the key activities you need to do to make your business model work.

These key activities should focus on fulfilling its value proposition, reaching customer segments and maintaining customer relationships, and generating revenue.

There are 3 categories of key activities;

  • Production: designing, manufacturing and delivering a product in significant quantities and/ or of superior quality.
  • Problem-solving: finding new solutions to individual problems faced by customers.
  • Platform/ network: Creating and maintaining platforms. For example, Microsoft provides a reliable operating system to support third-party software products.

This is where you list down which key resources or the main inputs you need to carry out your key activities in order to create your value proposition.

There are several types of key resources and they are

  • Human (employees)
  • Financial (cash, lines of credit, etc.)
  • Intellectual (brand, patents, IP, copyright)
  • Physical (equipment, inventory, buildings)

Key partners are the external companies or suppliers that will help you carry out your key activities. These partnerships are forged in oder to reduce risks and acquire resources.

Types of partnerships are

  • Strategic alliance: partnership between non-competitors
  • Coopetition: strategic partnership between partners
  • Joint ventures: partners developing a new business
  • Buyer-supplier relationships: ensure reliable supplies

In this block, you identify all the costs associated with operating your business model.

You’ll need to focus on evaluating the cost of creating and delivering your value propositions, creating revenue streams, and maintaining customer relationships. And this will be easier to do so once you have defined your key resources, activities, and partners.  

Businesses can either be cost-driven (focuses on minimizing costs whenever possible) and value-driven (focuses on providing maximum value to the customer).

Value Propositions

This is the building block that is at the heart of the business model canvas. And it represents your unique solution (product or service) for a problem faced by a customer segment, or that creates value for the customer segment.

A value proposition should be unique or should be different from that of your competitors. If you are offering a new product, it should be innovative and disruptive. And if you are offering a product that already exists in the market, it should stand out with new features and attributes.

Value propositions can be either quantitative (price and speed of service) or qualitative (customer experience or design).

Value Proposition Canvas

What to Avoid When Creating a Business Model Canvas

One thing to remember when creating a business model canvas is that it is a concise and focused document. It is designed to capture key elements of a business model and, as such, should not include detailed information. Some of the items to avoid include,

  • Detailed financial projections such as revenue forecasts, cost breakdowns, and financial ratios. Revenue streams and cost structure should be represented at a high level, providing an overview rather than detailed projections.
  • Detailed operational processes such as standard operating procedures of a business. The BMC focuses on the strategic and conceptual aspects.
  • Comprehensive marketing or sales strategies. The business model canvas does not provide space for comprehensive marketing or sales strategies. These should be included in marketing or sales plans, which allow you to expand into more details.
  • Legal or regulatory details such as intellectual property, licensing agreements, or compliance requirements. As these require more detailed and specialized attention, they are better suited to be addressed in separate legal or regulatory documents.
  • Long-term strategic goals or vision statements. While the canvas helps to align the business model with the overall strategy, it should focus on the immediate and tangible aspects.
  • Irrelevant or unnecessary information that does not directly relate to the business model. Including extra or unnecessary information can clutter the BMC and make it less effective in communicating the core elements.

What Are Your Thoughts on the Business Model Canvas?

Once you have completed your business model canvas, you can share it with your organization and stakeholders and get their feedback as well. The business model canvas is a living document, therefore after completing it you need to revisit and ensure that it is relevant, updated and accurate.

What best practices do you follow when creating a business model canvas? Do share your tips with us in the comments section below.

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

FAQs About the Business Model Canvas

  • Use clear and concise language
  • Use visual-aids
  • Customize for your audience
  • Highlight key insights
  • Be open to feedback and discussion

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Amanda Athuraliya is the communication specialist/content writer at Creately, online diagramming and collaboration tool. She is an avid reader, a budding writer and a passionate researcher who loves to write about all kinds of topics.

The 9-Step Business Model Canvas Explained (2023 Update)

how to write a good business model

Written by Raquel Alberdi

Business | entrepreneurship, 16 comments(s).

Business Model Canvas

Blog » The 9-Step Business Model Canvas Explained (2023 Update)

how to write a good business model

“A major mistake made by many start-ups around the world is focusing on the technology, the software, the product, and the design, but neglecting to ever figure out the business . And by “business” we simply mean how the company makes money by acquiring and serving its customers”.

-Reid Hoffman

After meeting with hundreds of entrepreneurs and business owners over the years I believe the LinkedIn co-founder and Blitzscaling author Reid Hoffman’s got it spot on.

People tend to focus on specific parts of their business, such as which software packages are being used, which is the cheapest supplier, how to optimize internal processes…?

They get so bogged down in the details of the day-to-day running that they lose the overall vision of their business.

Without this vision they are unable to scale, they make marginal profits, miss opportunities, struggle to innovate, and end up running “just another” business.

Another handy metaphor in understanding this common mistake is the soldier in the trenches .

Every meter of ground gained comes at a heavy cost, mistakes are made, and progress is hard-fought and slow…a day-to-day experience for 99% of entrepreneurs and businessmen.

But when you do have that 360 vision you see the entire battlefield. Decisions are much clearer, fewer mistakes are made, and progress is fast and methodical.

Fortunately, a business model framework exists that gives you both vision and clarity .

The Business Model Canvas provides entrepreneurs, business owners, and strategists with a tool to analyze, structure, and evolve a business while always keeping the bigger picture front of mind.

So let’s take a closer look at how it works.

Table of Content

What is the Business Model Canvas?

Created by Swiss entrepreneur and Strategyzer co-founder, Alexander Osterwalder, the Business Model Canvas is a visual representation of the 9 key building blocks that form the foundations of every successful business. It’s a blueprint to help entrepreneurs invent, design, and build models with a more systematic approach.

Why is it so popular within the business community?

Its simplicity. The business model canvas allows us to carry out a high-level analysis without drilling down and getting lost in the details. You just draw out the 9 building blocks on a blank canvas, fill them in as each concept relates to your business, and hang it somewhere everybody can see.

It’s a visual overview of your entire business on a single canvas.

While the Business Model Canvas is an extremely fluid concept and hyper-specific to individual companies, each canvas is still broken down into these 9 key building blocks:

Customer Segments

Value propositions, customer relationships, revenue streams, key resources, key activities, key partners.

When laid out on the canvas the model will look something like this:

 Scheme of business model in which 9 important fields are developed for its execution.

While you’ve probably come across each of the 9 building blocks before, the attractiveness of the Business Model Canvas is that it confines them to a single page , not a traditional 42-page document.

This makes it a lot easier to digest, as well as assess existing business models or map out new ideas.

How do I fill out the Business Model Canvas?

To start your Business Model Canvas you will need to breakdown and analyze each of the 9 building blocks.

A good way to approach this is to gather the heads from marketing, sales, operations, finance, and manufacturing (if product-based) and pencil-in a morning where you can all meet together.

Then, after drawing a mock canvas onto a whiteboard, proceed to dissect and discuss each of the 9 building blocks as they relate to your business. You can use sticky notes to better organize your thoughts around the canvas.

If you are an entrepreneur or new business owner working alone and don’t have a team to bounce your ideas off, not to worry. You can still carry out your analysis before sharing it with a like-minded entrepreneurial community or forum, like those found on ThePowerMBA , to get useful, insightful feedback.

Whichever way you decide to approach it, I recommend you complete each block in the following order:

  • Cost structure

For continuity, I’m going to use the fashion retail giant Zara when analyzing each of the 9 key building blocks.

If you’d like to skip to another case study similar to your own business, navigate to the table of contents at the top of the page and select one of the other business model canvas examples.

Customer segment business model canvas for Zara company

The first block of the Business Canvas Model is about understanding who is the most important customer(s) you’re delivering value to. Or, in other words, who are they? What do they do? And why would they buy your product or service?

Not a single company exists without its clients, making customer segments the best block to start with while drawing out your business model canvas.

A great exercise to define your customer segments is to brainstorm and create your company’s buyer persona (s) .

Buyer personas are fictional depictions of an ideal or hypothetical client. Typically when brainstorming a buyer persona you’d want to define certain characteristics (age, demographic, gender, income, industry, pain points, goals, etc.)

However, remember at this stage we want a snapshot of our customer segment. There’s no need to jump into great detail just yet.

In the case of Zara, there are three distinct customer segments to whom they offer different products.

The products created for each of these customer segments (clothing, shoes, and accessories) are not trans-consumable. That is to say, a woman’s dress is highly unlikely to be worn by a 7-year-old child.

Once we know exactly who it is we are targeting, it’s time to look at what we as a company have to offer.

Zara Customer Segments business model canvas template showing the development of the 9 fields

The second phase is about figuring out your company’s value propositions , and importantly, your UVP (unique value proposition). The “what” that makes customers turn to you, over your competitors? Which of their problems are you best at solving?

Each value proposition consists of a bundle of products or services that fulfill the needs of a buyer persona from your customer segment. It’s the intersection between what your company offers, and the reason or impulse customers have for purchasing.

Some popular questions to ask while determining your UVP are:

  • Which specific customer pain point are you trying to solve?
  • What job are you helping customers get done?
  • How does your UVP eliminate customer pain points?
  • What products or services do you provide that answer this specific pain point?

So let’s try and apply this to Zara. Why do people choose to purchase from them, over their competitors?

Zara’s principal value propositions are fairly clear. They offer various ranges of stylish men’s, women’s, and children’s clothing and accessories at an affordable price.

But there’s more to it than that.

If we dive a little deeper we see Zara’s value propositions are more complex, which are behind the success of the brand:

Fast fashion

Zara adds new clothes and designs to its collections every 2-3 weeks, both in its stores and online. It keeps the brand updated, fresh, and modern while maintaining its all-important medium price point

Great eCommerce experience

Once you enter Zara’s online store you’re presented with a clean, easy-to-navigate, and high-end feel. The customer segments are visible on the left navigation bar with a search tab to further aid customers with their online experience.

Zara's Canvas business model where you can see the innovative presentation of its image

Localized stores

You can find a store in nearly all major retail locations (shopping malls, retail outlets, airports, etc.) meaning accessibility is not an issue for the majority of consumers.

Flagship stores

Zara demonstrates its aesthetic evolution to customers through its flagship stores. The recent opening of their Hudson Yards , New York City flagship is a great example of this. Customers shop around its vivid, minimalist layout offering them an experience aligned with the brand’s deeper, eco-friendly values.

Zara's Canvas business model where you can see the innovative presentation of the image of its stores

Zara Hudson Yards, New York

Business Model Canvas Template Zara - Value Propositions

The next step is to ask yourself how you are reaching your customers, and through which channels ?

This includes both the channels that customers want to communicate with you as well as how they’ll receive your products or services.

Is it going to be a physical channel? (store, field sales representatives, etc.) Or is it a digital channel? (mobile, web, cloud, etc.).

Zara has 3 primary channels in which they communicate and deliver products to its customers:

  • Direct sales through their stores
  • Online (both app and website)
  • Social media

Customers can go to a traditional “bricks and mortar” store to browse, model, and purchase different items of clothing at one of their retail stores.

Alternatively, they can shop online or through their mobile application and have the product delivered straight to their door or nearest store. The choice is completely up to them!

So that covers Zara’s commercial channels, but what about how they communicate with customers?

While they do communicate through their mobile app, their predominant channel is social media.

What’s more, they’re really, really good at it.

For example, did you know that Zara invests less than 0.3% of its sales revenue into advertising?

This is only possible due to an A-rated social media presence . Customer queries are not only dealt with quickly, but recommended re-works are sent back to HQ, forwarded onto in-house designers who then apply the feedback to future collections.

This customer-first approach through fluid communication channels has saved them thousands of dollars in marketing, strengthened their brand, and created a loyal customer base.

You should only step away from this building block once you’ve decided how each of your customer segments want to be reached.

Zara Channels business model canvas template where its components are developed

Once you have acquired customers, you will need to think about how you can build , nurture, and grow those relationships.

Now, this can be automated and transactional like large eCommerce brands Amazon or Alibaba. Or, it could be at the complete opposite end of the scale and require a more personal relationship you’d typically have with a bank or your local bike shop.

Zara’s relationship with its customers is threefold, and lies somewhere in the middle of transactional and personal:

  • Salesperson at store
  • Brand through social media
  • Sentimental attachment to a product

Yes, you have the initial transactional touchpoint at the store or online, something relatively impersonal and for many the only interaction they’ll have with the brand.

However, customers (especially in the fashion industry) are encouraged to continue to interact with a brand through social media platforms.

As we mentioned before when discussing channels, Zara has a very effective communication system in place. Not only can people instantly get in touch with the brand, but also engage with new posts, images, and collections uploaded to social media.

This personal approach to customer relationship building can, in some cases, lead to the natural growth of brand ambassadors and communities .

An attachment can also develop between customers and particular garments or accessories from one of their collections. The sentimental attachment to these products also creates another potential form of brand loyalty.

The relations with Zara's clients to give a Business Model Canvas where the 9 points to be developed are seen

Now that you’ve described how you are going to create real value for your customers, it’s time to look at how you plan to capture that value.

What are your revenue streams? Is it going to be a transactional, direct sales strategy ? Are you going to consider a freemium mode l, where you give a portion of your product or service away for free with the idea of converting later on down the line?

If you’re a SaaS company such as SalesForce or Strava , then it’s likely that a licensing or subscription revenue model will be more appropriate.

At Zara, it’s extremely simple. They make their money by selling clothes and accessories either at a store or online.

Zara business model canvas template for the development of Revenue streams within the 9 points to work

As you can see, we’ve filled in the entire right-hand side of our business model canvas. We touched upon:

Customer segments

  • Value propositions
  • Revenue streams
  • Distribution channels

Now it’s time to move over to the left side of the business canvas model and look at what we need, internally , to deliver our value propositions.

Key resources of the Zara Business Model Canvas

To start with, let’s take a look at key resources.

The key resources are all things you need to have, or the assets required to create that value for customers.

This could be anything from intellectual property (patents, trademarks, copyrights, etc.) to physical holdings (factories, offices, delivery vans, etc.) right down to finances (the initial cash flow perhaps needed to start your brand).

Another key resource every company needs to consider is its human capital . Are you going to need highly specialized software engineers? Or field-based sales teams?

They are relatively capital-heavy resources that need to be factored into your business model.

In the case of Zara, they are going to need a number of key resources if they hope to deliver their propositions:

  • Stock management
  • A large, interconnected network of physical stores
  • A strong brand
  • Logistics and supply chain infrastructure

Stock is vital for both online and offline customers.

If they are unable to supply their range of products and meet customer demands, satisfaction levels fall and they have a serious problem on their hands.

A large distribution network of brick and mortar stores combined with a strong brand name help mitigate these factors, as well as reinforce any ongoing marketing activities and communication efforts.

Finally, an efficient logistics process within Zara is critical, especially when you consider the complexities involved with such a large-scale operation.

They will require the necessary technology to analyze data on inventory, storage, materials, production, and packaging, with the staff to execute each of these stages and manage the delivery of the final products.

Zara business model canvas template where the Key Resources are developed

The next step is to define the key activities – the areas you need to be good at to create value for your customers.

To mix it up a little let’s take a look at a slightly different business in Uber .

Their key activities can be broken down into:

  • Web and mobile app development
  • Driver recruitment
  • Marketing: customer acquisition
  • Customer service activities : drivers’ ratings, incidents, etc.

They need a fast, clean UX for their customers using the app, drivers to carry out their service, and the ability to both market the product and deal with any customer queries.

Zara’s key activities will differ to those of Uber. Some of the things they need to consider would be:

  • Manufacturing
  • Retail process (point of sale and 3rd party management)
  • Distribution channel / logistics

Design is a key activity as Zara’s value proposition is to provide stylish garments at an affordable price. Their collections need to be constantly updated to follow the latest fashion trends at the time.

To produce their collections Zara will also require manufacturing capabilities. Now Zara doesn’t own their own factories (we will get to that in the Key Partners section) but they still need to be involved in the garment manufacturing process.

Everything from fabric selection to pattern making, to detailing and dyeing affects the outcome of the final product which of course they have to then go on and sell.

The effective management of the retail and distribution channels (online, offline, shipping, and communication with providers) is also key. A breakdown in either of these activities, such as a poor relationship with an important provider will have serious consequences for the business.

Zara business model canvas template showing the key activities for its development

Most modern business models now require brands to build out and work with various key partners to fully leverage their business model.

This includes partnerships such as joint ventures and non-equity strategic alliances as well as typical relationships with buyers, suppliers, and producers.

A great example of a strategic partnership would be between ThePowerMBA and Forbes . In exchange for exposure of our brand to the magazine’s global audience, we provide expertise and content on high-level business education programs.

As we touched upon when discussing key activities , Zara requires strategic partnerships with many different providers if they are to design and produce their collections.

Another key partner is their major holding company, Inditex .

Inditex has several subsidiaries including Massimo Dutti , Pull & Bear , and Oysho . Being a subsidiary of Inditex means they share a consolidated balance sheet, stakeholders, management and control, and various legal responsibilities.

While as a subsidiary Zara is afforded certain freedoms when it comes to design, delivery, and the general running of the company, the overall strategy will need to be aligned with Inditex and its other subsidiaries.

Zara Key Partners business model canvas template where the eighth point is developed

The final step of the Business Model Canvas is to ask yourself, how much is it going to cost to run this model?

This includes some of the more obvious needs such as manufacturing costs, physical space, rent, payroll, but also areas such as marketing activities.

If you are unsure of exactly what to include in your cost structure take a look at a Profit and Loss statement ( P&L ) from a competitor or company in a similar industry to yours. You’ll find many items overlap such as research and development ( R&D ), cost of goods sold, admin expenses, operating costs, etc.

Once that’s done you should prioritize your key activities and resources and find out if they are fixed or variable costs .

As Zara is such a large, corporate business they are going to have both fixed costs (rent, payroll, point of sales personnel) and variables, such as costs associated with the fluctuating sale of goods, purchase of materials and, manufacturing costs.

Once you’ve completed these 9 steps, your Business Canvas Model should look something like this:

Business Model Canvas Examples

Hopefully, you were able to get a good feel for the effectiveness of the business model canvas with our run-through of Zara.

However, if you found it difficult to follow due to the stark difference between your industries, I’m going to quickly go through 3 more companies to demonstrate the tool’s flexibility:

  • Netflix (Media service/production)
  • Vintae (Vineyard)

Even if these business model canvas examples don’t align exactly with your industry, I honestly believe that studying different models gives you a competitive advantage in your professional career regardless.

If you’re currently employed by a company, you’ll better understand how your specific role helps the company achieve some of its “long-term” goals.

Alternatively, if you are a business owner yourself (or perhaps thinking of starting your own business) you’ll have a better understanding of your business and where potential opportunities lay.

I’m sure you’re familiar with our next business model canvas example candidate, Netflix .

The global media company offers an online streaming service of various movies, documentaries, and TV programs produced in-house or licensed 3rd-party content. Their success sparked a revolution in the online media world with the likes of Amazon, Apple, Disney, HBO, and Hulu all rushing to launch their own online video streaming platforms.

Netflix started life as an online DVD rental company, basically a web version of the more popular (at least at that time) “bricks and mortar” Blockbuster.

Co-founder Reed Hastings predicted as far back as 1999 that the future of media was in online streaming, saying “postage rates were going to keep going up and the internet was going to get twice as fast at half the price every 18 months.”

It wouldn’t be until 2007 that Hasting’s prediction would become true when Netflix, as we now know it, was born.

So let’s take a current look at their business model canvas:

Netflix business model in which the 9 topics are taken into consideration

As you probably know, there are very few people out there who haven’t subscribed, watched, or at least heard of Netflix. There is content for everybody: wildlife documentaries, sci-fi movies, rom coms, action-thrillers, you name it – it’s there.

That’s why their customer segment can be classified as a “ mass market ” as the base is just so diverse.

All people require is a computer, TV, internet, and/or smartphone and they’re good to go. For most developed markets, that covers just about everybody.

Value Proposition

Whether on the train to work, sitting in the car (if you’re not driving!), or relaxing at home in front of the TV, you can consume their online, on-demand video streaming service.

They also have a huge library of content for consumers to choose from, ensuring that people keep coming back, as well as increasing their mass-market appeal.

They also produce high-quality, original content to differentiate themselves from their competitors.

Most people access Netflix either through their website or mobile/TV App . Another popular channel that you may have picked up on is their affiliate partners .

You’ve perhaps signed up for a mobile, TV, and internet package where the provider offers Netflix as an extra to sweeten the deal, so to speak.

That would be an example of an affiliate partnership between Netflix and mobile service providers.

I doubt many consumers have had direct contact with Netflix unless it’s to resolve a subscription issue or general query. It’s very much a self-automated service – you download the app, select the program you wish to watch, and hit play.

Very simple, very effective.

Again, this doesn’t need much embellishment. Netflix generates money from the different tiers and packages put together in their subscription services.

This varies depending on the region to account for local markets, but on the whole, it’s sold at a low price point.

Originally, Netflix’s Key Resources would have been their unrivaled DVD collection combined with a cost-effective mail-order system.

Nowadays it’s undoubtedly the rights to stream online video content. Netflix has brokered deals with some of the biggest production studios worldwide.

Combined with their huge library of in-house productions , it’s more than enough to encourage customers to renew their subscriptions.

To help sustain interest in their product, Netflix understands they need to serve-up relevant content for each sub-sector of their mass audience. Therefore their machine learning algorithm selects content for consumers based on streaming habits (what they watched, at what time, etc,.) to personalize the customer experience.

This explains why over 80% of all content streamed on Netflix was cherry-picked by this algorithm, making it a Key Resource for their business model.

Also, Netflix accounts for a whopping 12.6% of global bandwidth usage . The literal capacity to stream their services must be met meaning bandwidth must also be included here.

Content procurement is arguably their biggest Key Activity. They need to find people to produce and deliver their original content, including actors, studios, writers, etc. as well as secure the licensing and streaming rights from 3rd party producers such as Sony, Warner Bros, and Disney.

Finally, they need a fast, easy-to-use application to host their online streaming service. This needs to be available for both TV and mobile devices if they are to deliver their “on-demand” value proposition.

K ey Partners

Seeing as Netflix’s entire business model is largely based around streaming 3rd party content, key partnerships need to be built with production studios . No content, no Netflix!

Also, as we touched upon earlier Netflix is one of the largest consumers of bandwidth worldwide. If the speed and delivery of their streaming service are to be continued then deals will also need to be made with internet service providers (ISPs).

Netflix’s biggest expenditures come from both their in-house content procurement and 3rd party licensing agreements . The high-quality standard of video streamed on Netflix is only possible due to the speed and performance of its online platform and application , which has additional costs of staff, software, etc.

To show you just how flexible the business model canvas can be, I wanted to throw in a slightly leftfield example. Vintae is a Spanish wine producer who, after a detailed analysis of the business model canvas, was able to innovate and disrupt one of the world’s most competitive industries.

As some of you may know, the wine industry is extremely competitive. It’s also steeped in history and tradition , making it very challenging for newcomers to grab market share, let alone think about year-on-year growth and revenue.

However, CEO “Richi” Arambarri looked at the traditional “ bodega ” business model and saw a chink in its armor.

A “small” innovation in the business canvas model helped them to become one of the region’s most important winery groups, with over 10 installations and a presence across all regional denominations (Rioja, Priorat, Rias Baixas, etc.) with year on year growth of 30% – practically unheard of in such a competitive industry.

So how did Vintae analyze the business model canvas to find a niche in their market?

To answer that question, we must first look at the traditional winery business model .

Traditional Winery Business Model with its 9 developed points

As you can see, the wine industry has historically been patrimonial. Vineyards and estates are passed down through generations with the winery responsible for all phases of production, clarification, and distribution.

The traditional winery business canvas model suggests you must be the owner of the winery/vineyard where the wine is “manufactured”, meaning physical assets are a key resource of the business model.

So, if you wanted to start producing a Rioja, for example, you’d have to set up your vineyard in the region.

This is monumentally expensive as you need to:

  • Purchase the land
  • Plant a vineyard
  • Absorb set-up and installation costs
  • Deal with maintenance costs

It’s here where Vintae saw their opportunity.

What if we move vineyard ownership across the business model canvas from key resources to key partners ?

By leasing the equipment and space of large wineries (of which there was plenty), they could still produce their wine but reduce the cost and exposure associated with land purchase, crushing equipment, huge storage tanks, vineyard maintenance, and their bottling line.

This enabled them to focus on their sales, marketing, and distribution channels to create a better brand experience for their customers.

Also, it afforded them more flexibility when creating new wines as they were no longer confined to the limitations of grapes grown on their vineyard.

The lightness of this new business model eliminates maintenance overheads, channels energy into personalizing the customer experience, and allows for unprecedented levels of growth in one of the world’s most competitive industries.

Vinate business model

Business Model Canvas Software

Although I did mention starting with a large whiteboard, sticky notes, and a pack of colorful sharpies there are several options in which you can digitize the business canvas model production process.

While I still believe the aforementioned process is extremely valuable (it gets your entire team’s input in a single hour-long session) you may decide it more viable for each member of management to pool their ideas digitally before sharing with the rest of the group.

If that’s the case, then take a look at some of the following software tools for creating your business model canvas.

Strategyzer

Created by the founders of the business model canvas Alex Osterwalder and Yves Pigneur , Strategyzer offers a range of business model canvas templates for you to get started with.

If you opt for the paid model (there is a 30-day free trial period) they offer a series of various classes that teach you how to build and test different value propositions and business models.

A real-time built-in cost estimator analyzes the financial viability of some of your business ideas, identifying alternative areas you may wish to explore with your model.

All-in-all, it’s a great resource to play around with and test some of your business ideas, with the option to dive into further detail if you see fit.

Canvanizer is a free, easy-to-use web tool that allows you to share links between team members who are brainstorming ideas for a business model canvas, but working remotely.

Like Strategyzer, there are several business model canvas templates provided to help you get started with your analysis. The strength of this platform is its accessibility. Much like a Google Doc., several people can brainstorm on the same canvas simultaneously with changes being synchronized automatically.

Business Model Canvas Tool

A ThePowerMBA alumni, impressed by the simplicity and effectiveness of the tool, went ahead and created the free application Business Model Canvas Tool .

It’s an incredibly intuitive, and easy-to-use tool that allows you to create templates simply by clicking the + button in each building block.

Each business model canvas created can be downloaded and shared as a pdf. with the rest of the team.

Would You Like to Learn More about Business Models?

If, after going through our 9-step guide on how to use the Business Model Canvas you’d like to learn more about different business model analysis tools , take a look at our alternative MBA business program .

As you’ll see, the course gives students a 360-degree view of business and management practices – such as engines of growth, segmentation and targeting, and value propositions.

I highly recommend you go check it out.

Regardless, I’d love to hear what you thought about this guide. Was it helpful? Would you like to see additional business cases analyzed from your industry?

Let us know in the comments below.

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16 Comments

Ayeah Goodlove

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kourosh abdollahzadeh

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Reza Ebadi

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Debashis Rout

Well explained with practical business case

Allen

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 FourWeekMBA

The Leading Source of Insights On Business Model Strategy & Tech Business Models

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How To Create A Business Model In Seven Steps

Define the problem you’re going to solve, then define the customers for which the problem will be solved. Next, identify the customer and the problem. After that, define a set of possible solutions. After, define a set of possible monetization strategies for that solution, test, and choose your business model .

Table of Contents

A business model design in seven steps

Time needed:  1 day

How to create a business model in one day and seven simple steps

product-market-fit

The most valuable asset any organization has is its business model .

Indeed, that is the way all the moving parts of the organization fit together to create a value chain.

The aim of the value chain is value creation for several players in that industry, market, and so on.

The business model is not static, it changes and evolves along with the scale of the organization.

The type of  business model you designed for your company will not work if your company scales. You’ll need to rethink and redefine it.

This is even more evident in companies that are trying to innovate.

When those organizations create a new technology or an innovative approach to existing industries, it is critical to understand who are the players involved in that industry and how you’re creating value for them.

In this blog, we covered the business models  of many organizations.

For instance, Google’s massive success is strictly connected to its business model .

The company managed to create a balance between several players in the publishing and information industry where each of those players gets back some value (economic and not) from having a relationship with Google .

Where do you start when it comes to creating a business model ?

Related : Successful Types of Business Models You Need to Know

It’s all about business model design

The primary aim of a business model is to create a sustainable chain, able to unlock value for several players in a market, industry, or niche .

Therefore, this value chain will start from a value proposition , a promise you make to the key players and partners in that market, industry, or niche depending on where you start.

For instance, when PayPal started out it didn’t look to dominate the whole market. It started from a niche .

As Pether Thiel put it in his book, Zero to One:

The most successful companies make the core progression—to first dominate a specific niche and then scale to adjacent markets—a part of their founding narrative.

Indeed, PayPal began by identifying its most valuable partner, what at the time they called “power user.”

That was a choice driven by its business model design .

Therefore, instead of focusing on generically offering a service for everyone, PayPal focused on acquiring and attracting as many power users as possible.

Those power users were mostly on another platform that had already scaled up: eBay.

Thus, PayPal focused all its effort on acquiring those power users from eBay , fast!

Only after PayPal had drafted, tested, and validated a clear value proposition for a small , yet critical group of power users, it could move on to take larger and larger segments of that market.

What is a value proposition?

At its most basic level, a value proposition is a promise you make as an organization to deliver something (either monetary or advantage) to a critical player you have in our industry.

For instance, when Google started it showed right away it was capable of offering 10x of search results, at a faster speed and more relevant to users.

However, had Google kept its search engine primarily focused on providing paid results, it would not have taken off.

Instead, Google focused on offering relevant paid results but also a bunch of organic results.

In short, Google managed to index and rank the web pages from blogs, journals, news sites and any other website that made those pages available to Google for its index.

In exchange for that content, Google offered back visibility as qualified traffic toward those sites.

Indeed, search engines back then (at the end of the 1990s) were not focused on offering quality traffic.

Thus, most of the audience you got back to your site might have been quite relevant to your business.

Google instead, with its dominant search engine allowed publishers, and businesses (small and large) to gain customers.

That sealed an implicit deal “Me (Google) will send you qualified traffic that helps you grow your business if you (publisher, business, or whoever publishes on the web) offer me your content to be indexed.”

We might call that an implicit contract, which is the beginning of a value chain.

In fact, from this sort of contract part of the Google business model has been built. Imagine the scenario where Google was not attractive enough to provide qualified traffic to content producers.

They would have stopped offering their content for free by blocking access to the search engine.

Instead, they allowed Google to index their pages because the visibility they got was too attractive.

A business model is also about how you make money but how you make money isn’t your business model

One of the biggest misconceptions of the business model is to confuse it with the monetization strategy or the revenue model of the company.

While this is an essential piece of the puzzle, it is just one of the components of a successful business model .

In this blog, we’ve discussed at great length how companies make money  as a way to start the discussion of a business model .

However, a business model implies the understanding of

operations, customer acquisition and retention, supply chain management, and the cost above and revenue aspects

According to the business model you designed over the years for your organization there will be a piece that plays a more critical role compared to others.

For instance, a vital component of the Coca-Cola business model is its distribution strategy .

For other companies like McDonald’s, the key to its business model success is the heavily franchised restaurants that helped the company scale up all over the world.

Each company will develop a unique  model  among the many types of business models which is what makes it thick in the long run!

What principles should I follow to create and design a business model?

Developing a deep understanding of your business model implies asking a few critical questions. For instance, some of those questions might be:

  • What value do I offer my potential customers? Or what problem do I solve with my product/service?
  • How do I charge my customers?
  • What does my acquisition cost look like?
  • What channels can I tap into to find my ideal customer?
  • Did I create a predictable revenue stream ? If not what can I do to generate that?

Your business model will be based on a few critical assumptions about who your customers are, how your product or service should look like, what are the favorite channels to reach them, and a few others.

Those assumptions will be tested as soon as you start kicking off your operations.

Your main concern should be just that. You need to check those assumptions as quickly as possible. 

Steve Blank has identified 17 principles in his  Customer Development Manifesto :

  • There Are No Facts Inside Your Building, So Get Outside
  • Pair Customer Development with Agile Development
  • Failure is an Integral Part of the   Search for the Business Model
  • If You’re Afraid to Fail You’re Destined to Do So
  • Iterations and Pivots are Driven by Insight
  • Validate Your Hypotheses with Experiments
  • Success Begins with Buy-In from Investors and Co-Founders
  • No Business Plan Survives First Contact with Customers
  • Not All Startups Are Alike
  • Startup Metrics are Different from Existing Companies
  • Agree on Market Type – It Changes Everything
  • Fast, Fearless Decision-Making, Cycle Time, Speed and Tempo
  • If it’s not About Passion, You’re Dead the Day You Opened your Doors
  • Startup Titles and Functions Are Very Different from a Company’s
  • Preserve Cash While Searching. After It’s Found, Spend
  • Communicate and Share Learning
  • Startups Demand Comfort with Chaos and Uncertainty

I suggest you read this manifesto over and over again. This should be the first step!

What tools can you use to design and create your business model?

One of the most used tools to design and create a business model has revolved around the customer development manifesto above.

However, it is essential to keep in mind that this manifesto was the fruit of an era where venture capital had become scarce compared to the dot-com bubble at the end of the 1990s.

Those tools for business modeling have been developed in that context. Thus, those are not a one-size-fits-all toolbox but rather work better in a context where capital is scarce, and you need to test your business model assumptions as quickly as possible. In that context three primary tools are:

  • Business model canvas.
  • Lean startup canvas.
  • Customer development canvas.

Those tools can be used by entrepreneurs in the phases of the business model generation:

  • Map the business model hypotheses.
  • Test these hypotheses with customer feedback.
  • Iterative this process.

The result will be an incremental development of a product that will reach a minimally viable version .

The better the product, based on customer feedback, the larger the audience it will reach.

Lean makes sense when capital is scarce and when you need to keep burn rates low.

Lean was designed to   inform the founders’ vision  while they operated frugally at speed. It was not built as a focus group for consensus for those without deep convictions .

Is the lean startup still a valuable model?

As Steve Blank has pointed out in an HBR article entitled “ Is the Lean Startup Dead? “

I realized it was time for a new startup heuristic: the amount of customer discovery and product-market fit you need to find is inversely proportional to the amount and availability of risk capital.

In other words, the more risk capital that is available on the market the least the lean startup model might work.

The reason is, that if you have massive risk capital, you won’t need to test all your assumptions.

Quite the opposite, you’ll need to execute them fast.

Also, one of the primary logic of the lean startup is to burn cash at the slowest rate possible, while evolving (so-called pivoting) your business model .

If money is not an issue, then why go for the lean startup?

Steve Blank went further:

Rather than the “first mover advantage” of the last bubble ,  today’s theory is that  “massive capital infusion owns the entire market.”

Therefore, if you secured a massive injection of money, then your aim might be primarily toward growth , rather than profits.

In that context, the lean startup might not work!

Are capital moats sustainable?

blitzscaling-business-model-innovation-canvas

When a company or startup has a substantial capital allocate for growth , that is when this injection can become a short-term competitive advantage.

However, as companies finance growth through artificial injection of capital, those also become extremely risky, because many of the assumptions underlying the business model can’t be tested organically, thus leaving the company’s foundations weak.

An example of this excess of use of capital as a competitive moat has been WeWork , which has proved one of the most disastrous business endeavors of the last decade.

Thus, capital moats and technological moats need to be balanced with careful business model testing and organic validation in the marketplace!

Key Highlights

  • This step is the foundation of your business model . It involves identifying a specific problem that your product or service aims to solve.
  • Problems can be functional (solving a practical need) or emotional (addressing a psychological desire or pain point).
  • Defining the problem clearly helps you focus on delivering value to your target audience.
  • Once the problem is defined, it’s important to identify the individuals or groups who are facing this problem. These are your potential customers.
  • Group your potential customers into categories, keeping it to a maximum of three types. Each type may have distinct characteristics and needs.
  • From the categories of potential customers and the identified problems, narrow your focus to one key customer type and one specific problem.
  • This step helps prevent spreading your resources too thin and allows you to concentrate on understanding your primary audience and addressing their primary need.
  • Brainstorm a range of solutions that could address the key problem for your chosen customer type.
  • List up to ten solutions. Then, evaluate these solutions based on feasibility, cost, time, and resources required.
  • Narrow down the list to three solutions that are viable given your constraints.
  • For the solution you’ve chosen, consider how you’ll monetize it. Determine how your business will generate revenue from providing the solution to your target customers.
  • Brainstorm up to five potential monetization strategies. These could include subscription models, one-time purchases, freemium offerings, etc.
  • Focus on the two strategies that can be tested quickly and efficiently.
  • This step involves practical validation of your selected solution and monetization strategies.
  • Test your product or service with real customers to gather feedback. Evaluate how well your monetization strategies perform in real-world scenarios.
  • Based on the feedback and data collected, choose the most effective solution and monetization strategy combination.
  • With a validated solution, monetization strategy , and a clear understanding of your target audience, you have the foundation of your business model .
  • Your business model is the blueprint that outlines how your company will create, deliver, and capture value in the market.
  • Continuously monitor and refine your business model as you gather more insights from customers and adapt to changing market conditions.

Create Your Business Model Idea In Less Than A Minute!

With our Business Model Idea generator, you can craft the perfect business model idea, in less than a minute, by leveraging AI, to help you find the first version of the building blocks needed to build a successful business model !

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  • Marketing Strategy: Definition, Types, And Examples
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What Is a Business Model?

  • Andrea Ovans

how to write a good business model

A history, from Drucker to Christensen.

A look through HBR’s archives shows that business thinkers use the concept of a “business model” in many different ways, potentially skewing the definition. Many people believe Peter Drucker defined the term in a 1994 article as “assumptions about what a company gets paid for,” but that article never mentions the term business model. Instead, Drucker’s theory of the business was a set of assumptions about what a business will and won’t do, closer to Michael Porter’s definition of strategy. Businesses make assumptions about who their customers and competitors are, as well as about technology and their own strengths and weaknesses. Joan Magretta carries the idea of assumptions into her focus on business modeling, which encompasses the activities associated with both making and selling something. Alex Osterwalder also builds on Drucker’s concept of assumptions in his “business model canvas,” a way of organizing assumptions so that you can compare business models. Introducing a better business model into an existing market is the definition of a disruptive innovation, as written about by Clay Christensen. Rita McGrath offers that your business model is failing when innovations yield smaller and smaller improvements. You can innovate a new model by altering the mix of products and services, postponing decisions, changing the people who make the decisions, or changing incentives in the value chain. Finally, Mark Johnson provides a list of 19 types of business models and the organizations that use them.

In The New, New Thing , Michael Lewis refers to the phrase business model as “a term of art.” And like art itself, it’s one of those things many people feel they can recognize when they see it (especially a particularly clever or terrible one) but can’t quite define.

how to write a good business model

  • AO Andrea Ovans is a former senior editor at Harvard Business Review.

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  • Who is this guide for?

How to choose the right business model

Business model inspiration, companies to learn from, who is this guide for.

When in need of a business model for your next startup or corporate venture, there are more than a couple of options to explore. To make your decision-making a little easier, we’ve analyzed 50 innovative revenue models and partnership ideas. 

Browse these business model examples to spot the ideas that are fit for your company’s needs, and let these use cases inspire you to start building your own business plan.

At Board of Innovation, we specialize in innovation and business design. If you feel you need help moving forward, you can dive deeper into how we do business model innovation or get in touch .

In this deck, you will find a comprehensive guide through business models from different companies and industries.

This guide will help you understand how each business model works, the products or services they offer, and what makes it unique. These key insights will help you in the selection process of a business model that works best for you.

Have you ever wondered how some companies are profitable?

In this deck, we deep dive into business models used by companies in multiple industries. Using our Business Model Kit , we offer a visual overview of how each business profits from the model that drives it. .

Free (or nearly free) for the user:

  • Early exit strategy
  • Pay-what-you-want (PWYW)
  • Tip jar/donation
  • Freemium model
  • Barter or swapping for services
  • Barter or swapping for products

Third party options:

  • Advertisement (ad-based) model
  • Affiliate/referral fee
  • Get-one-give-one model (G1G1)
  • Franchise model

Mixed business model:

  • Razor and blade model
  • Crowdfunding
  • Open source model
  • No frills model (discount or budget model)

Broker/matchmaking:

  • Commission-based model:
  • Auction model

Paid (direct sales business model):

  • Subscription model
  • Premium model
  • Pay-per-use model
  • Add-ons/In-app purchases
  • License fees
  • Single purchase model
  • Pay-as-you-go model (PAYG)

how to write a good business model

Grab is an on-demand ride service that has since expanded to everyday services like deliveries, financial services and more – making it a superapp. It charges a service fee of 20% ~ 30% for every transaction that goes through its platform.

how to write a good business model

Hubs charges clients for each industrial manufacturing job they begin through the platform. Prices are determined by a machine learning algorithm.

how to write a good business model

Patients Like Me offers a free health community service to its users. They make money by selling the data, generated by the community, to pharmaceutical companies.

how to write a good business model

WHOOP offers a wearable fitness gadget that gives personalized recommendations and feedback. WHOOP charges a monthly subscription fee to access the data on the platform, while the first device is free.

how to write a good business model

Digit is a financial service application that monitors financial behavior and automates its users’ savings. Digit receives a fixed monthly fee of $5 from its users. On top of that, it can leverage the funds it has under management for greater returns

how to write a good business model

Kiva is the first online non-profit lending platform for underserved populations.As a non-profit, Kiva doesn’t profit from loans received — lenders donate to Kiva to cover operating costs. The remainder of costs are covered through grants, supporters, and field partners.

how to write a good business model

Appear Here is the Airbnb of retail spaces — an online marketplace to list, find, and book short-term retail spaces. After the landlord sets a daily, weekly and monthly price, Appear Here takes commission between 12% - 15% on a completed transaction, while the space owners pay no listing fee.

how to write a good business model

Kaggle makes money in two ways: With Kaggle competition, they receive a “listening fee” for each competition posted on the platform. Also, they provide a service for matching companies to the top 0.5% of their community, which they call Kaggle Connect.

23andMe makes money with personal genetic tests, providing reports on lineage discovery & +240 health conditions. It’s believed that their DNA research studies & surveys will soon be an additional way of making money, with a mainly B2B focus instead of B2C.

how to write a good business model

Friendsurance works as a broker between Policy Holders and existing Insurance Partners. They’re letting customers share risks with friends, allowing them to lower prices due to reduced fraud & process costs, better risk pools, etc.

how to write a good business model

AliveCor makes money by selling ECG devices ($199) that fit on existing smartphones and via their AliveInsights Service – a professional analysis service that makes it easy to get expert insight on your ECG readings.

how to write a good business model

Glow sells “data insights” regarding conceiving to Research Institutions & gives exposure to trustworthy Infertility Treatment Clinics. The data is generated by users who use the Glow free fertility-tracking app.

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Harvard Business Review

How to Design a Winning Business Model

By: Ramon Casadesus-Masanell, Joan E. Ricart

Most executives believe that competing through business models is critical for success, but few have come to grips with how best to do so. One common mistake, the authors' studies show, is…

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  • Publication Date: Jan 1, 2011
  • Discipline: Strategy
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Most executives believe that competing through business models is critical for success, but few have come to grips with how best to do so. One common mistake, the authors' studies show, is enterprises' unwavering focus on creating innovative models and evaluating their efficacy in standalone fashion-just as engineers test new technologies or products. However, the success or failure of a company's business model depends largely on how it interacts with those of the other players in the industry. (Almost any business model will perform brilliantly if a company is lucky enough to be the only one in a market.) Because companies build them without thinking about the competition, they routinely deploy doomed business models. Moreover, many companies ignore the dynamic elements of business models and fail to realize that they can design business models to generate winner-take-all effects similar to the network externalities that high-tech companies such as Microsoft, eBay, and Facebook often create. A good business model creates virtuous cycles that, over time, result in competitive advantage. Smart companies know how to strengthen their virtuous cycles, undermine those of rivals, and even use them to turn competitors' strengths into weaknesses.

Jan 1, 2011

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Harvard Business Review

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how to write a good business model

How to Write a Business Proposal [Examples + Template]

Meredith Hart

Published: December 05, 2023

Free Business Proposal Template

how to write a good business model

Propose your business as the ideal solution using our Free Business Proposal Templates.

Thank you for downloading the offer.

Here's what every new business owner needs: an extra 8 hours in the day, an endless supply of coffee, and, most importantly, a really strong business proposal.

how to write a business proposal: image shows a person holding a pen and another person typing on a laptop

A business proposal can bridge the gap between you and potential clients. Done correctly, and it will outline your value proposition and persuade a company or organization to do business with you.

Here, we'll take a look at the various kinds of business proposals and go over how to write one. We’ll also see some ideas and examples to help guide yours.

Know exactly what you need? Jump to one of the following sections:

What is a business proposal?

Types of business proposals, how to write a business proposal, business proposal templates, business proposal example, tips for writing a business proposal, business proposal ideas.

A business proposal is a formal document that’s created by a company and given to a prospect to secure a business agreement.

It's a common misconception that business proposals and business plans are the same. However, a proposal helps you sell your product or service — not your business itself.

Think of it this way: instead of assisting your search for investors to fund your business, a proposal helps you seek new customers.

Follow Along With HubSpot's Business Proposal Template

business-proposal

Download the Template for Free

There are two types of business proposals: unsolicited and solicited.

  • Unsolicited Business Proposals : With unsolicited business proposals, you approach a potential customer with a proposal, even if they don't request one, to gain their business.
  • Solicited Business Proposals : Solicited business proposals are requested by prospective clients so that they can decide whether to do business with your company.

In a solicited business proposal, the other organization asks for a request for proposal (RFP). When a company needs a problem solved, they invite other businesses to submit a proposal that details how they'd solve it.

how to write a good business model

Propose your business as the ideal solution using our Free Business Proposal Templates

  • Problem summary
  • Proposed solution
  • Pricing information
  • Project timeline

You're all set!

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Fill out the form to get your template.

Whether the proposal is solicited or unsolicited, the steps to create your proposal are similar. Make sure it includes three main points:

  • A statement of the organization's problem
  • Begin with a title page.
  • Explain your why with an executive summary.
  • State the problem or need.
  • Propose a solution.
  • Share your qualifications.
  • Include pricing options.
  • Summarize with a conclusion.

Before writing your business proposal, it's crucial you understand the company. If they've sent you an RFP, make sure you read it carefully, so you know exactly what they want.

I recommend having an initial call or meeting with any new clients to ensure you fully understand their objectives. Ask open-ended questions to understand not just what they want, but why they want it.

Once you've done your research, it's time to begin writing your business proposal. While there's no one-size-fits-all approach to writing a business proposal, there's several elements most proposals include. (I designed this example business proposal using Canva .)

1. Begin with a title page.

You have to convey some basic information here. Introduce yourself and your business. Be sure to include:

  • Your company's name
  • The date you submitted the proposal
  • The name of the client or individual you're submitting the proposal to

Your title page should reconcile engagement with professionalism. I think of it as your first tone-setter, so you need to make sure yours is sleek, aesthetically appealing, and not too "out there."

Here's an example of what a business proposal template looks like when done right:

How to Write a Business Proposal: Business Proposal Example Title Page

The executive summary details exactly why you're sending the proposal and why your solution is the best for the prospective client.

Specificity is key here. Why are you the best choice for them?

Like a value proposition, your executive summary outlines the benefits of your company's products or services and how they can solve your potential client's problem.

After reading your executive summary, the prospect should offer a clear idea of how you can help them, even if they don't read the entire proposal. Here's what one should look like:

How to Write a Business Proposal: Sample Executive Summary

3. State the problem or need.

This is where you share a summary of the issue impacting the potential client. This is your opportunity to show them you understand their needs and the problem they need help solving.

How to Write a Business Proposal: Example Event Overview

In the example above, I included several signals to showcase my expertise – that I've been in the photography biz for 10 years, that I've worked with over 500 clients, and that I've been featured a number of publications. 

As you approach this section, focus on presenting yourself as an authority. Consider leveraging tools like:

  • Case studies
  • Client testimonials
  • Relevant awards
  • Industry accreditations

6. Include pricing options.

Pricing is where things can get a bit tricky, as you don't want to under or over-price your product.

How to write a business proposal: Include Pricing Options

The pricing section of your proposal could include:

  • A detailed pricing breakdown, including packages, tiers, and add-ons or optional services
  • How product features and benefits align with pricing choices
  • Pricing for different needs and budgets
  • How your pricing compares with competitors
  • An FAQ section to respond to anticipated objections and explain your pricing strategy

7. Summarize with a conclusion.

After sharing the above information, simplify it all into one final section.

  • First, briefly summarize the proposal. Be sure to share your qualifications and why you’d serve as the best choice.
  • Then, to prompt further conversation, confirm your availability to go over the next steps.
  • At the end of the proposal, the goal is to have the client ready to work with you. So, be sure to offer your contact information for easy follow-up.

In need of some inspiration before you begin writing? Here are example business proposal templates from popular business proposal software companies you can use to help create your proposal.

1. HubSpot's Free Business Plan Templates

HubSpot Business Proposal Template

Download these Templates

We know how crucial a great business proposal is to your and your client’s success. That's why we've compiled 2 Free Business Proposal Templates for you to use and customize for any of your projects.

You'll gain access to a concise, one-page template (pictured above), as well as a longer template for you to refine your plan and proposal.

Download the templates now to get started on building your proposal.

What We Like

The one-page template is clear, straightforward, and easy to read — without skipping on the key elements of a business proposal. This format is especially useful for busy clients who appreciate brevity and clarity.

2. Web Design Proposal

Business Proposal Templates: Web Design

With advertising on social networks projected to reach $82.23 billion dollars in 2025 , it's in your business's best interest to have a plan for growing your client's social media presence.

To help you in that effort, the information in this social media marketing proposal includes an executive summary to help introduce your high-level ideas, an assessment of the client’s company to show your diligence, and a breakdown of billing to show how your company charges for posting, content creation, and analytics.

This template includes all the bells and whistles of a social media proposal packaged in a fun yet professional design. It also includes helpful writing instructions under each section.

8. Content Marketing Proposal

Business Proposal Templates: Content Marketing

Business proposal templates are helpful places to get started, but what should your business proposal look like when it's complete? This template should inspire you.

When pitching your content marketing services to clients, this template can help you organize your ideas. While it walks you through initial objectives and how to communicate your prospected results, one of the most helpful parts of this template is the pricing ideas it gives you when charging for your services.

In the business template example below, Social Portal Consulting (SPC) pitches a marketing proposal to Graphic Bean. At first sight, this proposal appeals to the creative. I recommend going a step forward and designing the layout in your or your client’s brand colors.

Business Proposal Example: Social Media

Besides the design, the social media icons quickly tell the prospect what platforms Social Portal is pitching. Because we see Facebook, Twitter, Instagram, and Pinterest icons, the client instantly knows that this proposal doesn’t include LinkedIn, YouTube, or other platforms.

While maintaining its design, this example outlines Social Portal Consulting’s plans efficiently. It begins by providing insight into Graphic Bean and its goals before elaborating on how SPC can leverage its expertise to help them achieve them.

This business proposal template includes an easy-to-follow timeframe for goals and objectives while keeping the client abreast of how payment will happen across the project.

Overall, this is an excellent example of how to combine the elements of social media marketing into a creative and concise business proposal. Finally, we'll leave you with some business proposal ideas to get you started on your own.

  • Start with an outline.
  • Keep it simple.
  • Stay on brand.
  • Quality control.
  • Include data and visuals.
  • Add social proof.
  • Use a call-to-action.
  • Create a sense of urgency.
  • Make the decision for them.
  • Incorporate video into your proposal.
  • Include up-sell and add-on opportunities.
  • Clarify your terms and conditions.
  • Include a space for signatures to document agreement.
  • Create a table of contents.

1. Start with an outline.

If you want to produce a thoughtful, effective business proposal, you need to have some idea of what you're hoping to achieve with it.

Before I dive into writing a proposal, I always outline the major sections of the proposal that I want to include. That way, I can stay focused and make sure my message stays intact as I write.

Use these free business proposal templates to make sure that your outline includes everything you need.

2. Keep it simple.

Ultimately, there's no definitive blueprint for how long a business proposal has to be. Yours should be however long it takes to convey the information you want to get across.

That said, I'm a firm believer in quality over quantity, especially when it comes to business proposals. Keep your sentences short and simple, and avoid including too much business jargon.

You want anyone who picks up your proposal to make sense of it. So, be straightforward and don't get too fancy. Aim for substance over flash.

3. Stay on brand.

Don't be afraid to let your company's personality shine through in your proposal. Stay true to your brand and show the client what sets you apart from your competitors.

4. Quality control.

I've made it a habit to add an editing/QA step in my writing process. During this step, I do a quick spelling and grammar check before hitting send.

So, as you draft your proposal, and after checking for the basics, keep scanning this document until it's just right.

Check to make sure your proposal:

  • Meets client needs and expectations
  • Highlights your value proposition
  • Is well-structured and easy to read or skim
  • Complies with legal, ethical, and regulatory requirements
  • Looks professional and engaging

5. Include data and visuals.

You want your business proposal to capture your prospect's attention and help set you apart from any other ones they might have received. One of the best ways to do that is to include hard, quantitative data that helps stress the value of your business.

Use relevant, compelling figures that highlight what you have to offer. This can establish authority and make your proposal more convincing. It also helps to include visuals such as charts and graphs to enhance your proposal.

6. Add social proof.

From my experience, you can only be so convincing when you're personally talking up how great your business is — which is why adding social proof is key to establishing credibility.

At the end of the day, prospects are skeptical. They may not take you at your word. But they'll likely trust peers and fellow customers. That's why including elements like customer quotes and testimonials can go a long way.

7. Use a call-to-action.

I've learned that the best proposal in the world can only take you so far if you don't clearly define the next steps. That's why you have to make sure the reader knows what to do after reading your proposal.

A clear call-to-action is the best way to get there.

Define and highlight exactly what they should do to act on the interest your proposal has generated. Without that guidance, you might leave your reader in limbo.

HubSpot customers : Use this CTA builder to create powerful customized CTAs.

8. Create a sense of urgency.

No one wants to feel as if they missed out on a great opportunity. From my experience, prospect tend to drag their feet and put off making a decision if there isn't a sense of urgency.

So, as you create your business proposal, your goal should be to add a degree of urgency. When prospective clients read your business proposal they should feel that the best time to sign up for your service is now .

One way I accomplish this is by stating short and long-term goals for their business. They'll have to wait for the long-term goals, but I make the short-term goals so enticing that they'll be ready to begin a collaboration.

9. Make the decision for them.

Craft your copy in a way that seems like saying "no" to the proposal would be stepping over dollars to pick up pennies. Your offer should go above and beyond their expectations. Do everything in your power to remove friction and objections along the way.

10. Incorporate video into your proposal.

If you're creating an online proposal using document file formats like PDF, add multimedia elements. This will enhance the proposal experience, make your document richer, and keep them engaged.

Try adding a video at the beginning as an intro to your proposal. Or, put a video in the project breakdown to verbally discuss some of the more confusing parts.

Extras like this can make an impression. This tip works especially well with prospects who are visual or auditory communicators.

Pro tip : HubSpot Video makes it easy to record and embed video into a website or email for a big proposal boost.

11. Include up-sell and add-on opportunities.

They say you won't receive unless you ask. And readers won't explore the upper tiers of your solutions if you don't give them the opportunity.

So, share some upsells and add-ons about your business that they can act on. Call out a specific pain point and how this extra can add value.

With this step, balance is important. Show them everything your business has to offer without overwhelming your recipient.

12. Clarify your terms and conditions.

Your business proposal should include details on your project timeline and payment schedule. This summary is basically what you and the client agree to if they accept your proposal.

How to write a business proposal: Example Terms and Conditions

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Blog Business

How to Write Winning Business Proposal: Examples & Free Templates (2024)

By Aditya Sheth , Jan 25, 2024

How to Write Winning Business Proposals

The great Mark Cuban once said, “Sales cure all.” If a business doesn’t sell, it doesn’t make money and by extension the business fails. That’s why you need to write business proposals .

A well-written business proposal can often mean the difference between winning or losing a prospective client.

In this in-depth guide to creating business proposals, we show you how to close more deals, make more sales and crush your business goals — all by using easy-to-edit professional business proposal templates .

Here’s what this guide will cover (click to jump ahead):

What is a business proposal.

  • How to write a business proposal step by step

What should you include in a business proposal?

What are the types of business proposals, more business proposal examples + writing and design tips.

  • FAQs about business proposals

Looking for a shortcut? Watch this quick video for an overview of everything to include in your business proposal:

An effective business proposal is a document used by a B2B or business-facing company (this may not always be the case, but most B2B SaaS companies do so) where a seller aims to persuade a prospective buyer into buying their goods or services.

A business proposal outlines what your business does and what you can do for your client . It can be general like this business proposal example:

general business proposal template

Or it can be more specific, like this business proposal template which focuses on proposing a project for the Newton Center Rail:

simple business proposal project proposal template

Or this business proposal sample, which presents a plan for a social media strategy and campaign:

social media marketing business proposal template

To design a business proposal that holds the client’s attention, identify their pain points . Then provide your buyer with the right solution to alleviate those frustrations.

How to write a business proposal step by step

Before you start creating your business proposal template, you need to understand the business proposal format. At a high level, your effective business proposal should include the following:

Table of contents

Executive summary, the problem statement, the proposed solution, qualifications, the timeline, pricing, billing, and legal, terms and conditions, the acceptance.

Below, you can see business proposal examples that demonstrate how to include these 10 sections.

Business proposal title

A compelling title could mean the difference between someone reading your proposal or ignoring it in favor of a competitor’s . 

What makes a good title page? Here are the essential elements to include: 

  • Your name along with your company’s name
  • The name of the prospect (or their business) 
  • The date you’re submitting the proposal

Gray Business Consulting Proposal Template Cover Page_Venngage

The gray business consulting proposal template above contains all the details a prospect would want to know. The title also offers a strong tangible benefit to the prospective buyer. Honestly, “Who doesn’t want to grow their business?”

The table of contents is a fundamental part of every winning business proposal template. It makes your proposal scannable and easy to read.

The people you will be pitching to are usually C-level executives. These are busy people who don’t have time to read your entire proposal in one go.

That’s why most of the business proposal examples in this list include a table of contents.

Adding a table of contents to your document makes it easy for them to go through it at their own pace. They can also skim through parts of the proposal that they deem more important. You can see how this abstract business proposal template uses the table of contents:

Creative Social Media Business Proposal Template Table of Contents

You can also make your business proposal template easier to navigate by adding hyperlinks to the document, particularly in the table of contents. This way your clients can jump to specific sections without having to scroll through the entire document. 

It’s easy to add hyperlinks in the Venngage editor. Select the text you’d like to turn into a link, then click the link icon in the top bar. From there, select the page you want to link to! Then download your completed design as an Interactive PDF .

Proposal-ToC-Example

The executive summary is a staple in all kinds of annual reports , leadership development plan , project plans and even marketing plans . It is a concise summary of the entire contents of your document. In other words, write a business proposal outline that is easy to glance over and that highlights your value proposition.

The goals of your executive summary are:

  • Introduce your company to your buyer
  • Provide an overview of your company goals
  • Showcase your company’s milestones, overall vision and future plans
  • Include any other relevant details

This gray business proposal example has a detailed yet short executive summary including some social proof in the form of clients they’ve worked with:

Gray Business Consulting Proposal Template About Us

Take note of how precise this business proposal example is. You want to keep your executive summary concise and clear from the get-go. This sets the right tone for the rest of your proposal. It also gives your buyer a reason to continue reading your proposal.

Pro Tip: Try to write an executive summary such that, even if your prospective client doesn’t read the entire proposal (with a good executive summary, they most likely will), they should have a clear idea about what your company does and how you can help them.

The point of writing a business proposal is to solve a buyer’s problem. Your goal is to outline the problem statement as clearly as possible. This develops a sense of urgency in your prospect. They will want to find a solution to the problem. And you have that solution.

 A well-defined problem statement does two things: 

  • It shows the prospect you have done your homework instead of sending a generic pitch
  • It creates an opportunity for you to point out a problem your prospect might not be aware they had in the first place. 

Texture Business Proposal Template

This bold business proposal template above clearly outlines the problem at hand and also offers a ray of hope i.e. how you can solve your prospect’s problem. This brings me to… 

The good stuff. In the proposed solution section, you show how you can alleviate your prospective buyer’s pain points. This can fit onto the problem statement section but if you have a comprehensive solution or prefer to elaborate on the details, a separate section is a good idea.

Spare no details regarding the solution you will provide. When you write a business proposal, explain how you plan to deliver the solution. Include an estimated timeline of when they can expect your solution and other relevant details.

For inspiration, look at how this business proposal template quickly and succinctly outlines the project plan, deliverables and metrics :

Sales Plan Proposal Table Template_Venngage

At this point, the prospect you’re pitching your solution to likes what they’re reading. But they may not trust you to deliver on your promises. Why is this?

It’s because they don’t know you. Your job is to convince them that you can fix their problem. This section is important because it acts as social proof. You can highlight what your company does best and how qualified your team is when you write a business proposal for a potential client.

business proposal qualifications section

This free business proposal template showcases the company’s accolades, client testimonials, relevant case studies, and industry awards. You can also include other forms of social proof to establish yourself as a credible business. This makes it that much more likely that they will say yes!

Pro Tip: Attaching in-depth case studies of your work is a great way to build trust with a potential client by showcasing how you’ve solved similar problems for other clients in the past. Our case study examples post can show you how to do just that.

To further demonstrate just how prepared you are, it’s important to outline the next steps you will take should your buyer decide to work with you.

Provide a timeline of how and when you will complete all your deliverables. You can do this by designing a  flow chart . Or add a  roadmap  with deadlines. Pitching a long-term project? A timeline infographic would be a better fit.

If you look at this abstract business proposal template below, even something as simple as a table can do the trick.

Abstract Business Consulting Proposal Template Timeline_Venngage

The timeline is not always set in stone, rather it’s an estimation. The goal is to clarify any questions your potential client might have about how you will deliver for the underlying B2B sales process.

On this page, you can outline your fees, payment schedule, invoice payment terms , as well as legal aspects involved in this deal. You can even use the  Excel Invoice Template  to create professional-looking invoices (including brand logo and other elements) and add them to this page.

The key to good pricing is to provide your buyer with options. A  pricing comparison table can help with this. You want to give your client some room to work with. Make sure you’re not scaring off your client with a high price, nor undervaluing yourself. 

Breaking up your pricing in stages is another great way to make sure your potential client knows what he’s paying for. Look at how this simple business proposal template does this:

Bold Business Proposal Template Pricing Page_Venngage

The legal aspects can slot right into the terms and conditions section. Alternatively, you can add them to the signature section of the proposal to keep things simple.

Summarize everything you have promised to deliver so far. Include what you expect from your prospective buyer in return.  Add the overall project timeline from start to end, as well as payment methods and payment schedule. This way, both of you will be clear on what is being agreed on.

This step is very important as it outlines all the legal aspects of the deal. That is why the terms and conditions section of your proposal needs to be as clear as possible.

Modern Business Proposal

I recommend consulting a lawyer or your legal team when working on this section of the business proposal. If you’re a business veteran and understand the legalities of your business, you can use the same terms and conditions across all your proposals.

The final step of this whole process. Your client has read your business proposal and they want to buy what you have to offer.

Add a small section at the end of your proposal to get the necessary signatures. This way, you and your client can sign the proposal and the partnership becomes official.

Be sure to also include your contact information in your business proposal template. It acts as a gentle prompt to your client to contact you in case they have any questions. A professional way of doig that would be to include an e-business card with your contact details, email i.d and any other social links you want to share. You can go through this article for the best digital business cards .

Orange-Simple-Project-Proposal-Template

A business proposal usually aims to answer the following questions: 

  • Who you are and what your company does
  • The problem your buyer is facing
  • The solution your company offers to alleviate the problem
  • How your company will implement this solution effectively
  • An estimate of resources (time, money, etc) required to implement the solution

You can see how this sample business proposal template covers the above points.

business project proposal template

Notice how this proposal template addresses the same project like in one of the previous templates, but uses a completely different design style (more retro, while the previous business proposal template is more modern and minimalistic).

Generally, there are three types of business proposals:

1. Formally solicited 

A formally solicited business proposal is made when you respond to an official request to write a business proposal.

In this scenario, you know all the requirements and have more (if not all) information about a prospective buyer. You simply need to write the business proposal for your buyer to evaluate so you can begin the sales process .

2. Informally solicited 

Informally solicited business proposals are written when there isn’t an official request for a proposal. A prospective buyer is interested in your services and asks for a proposal so they can evaluate it.

An informally solicited proposal requires a lot more research from your end. These types of proposals are usually created out of informal conversations. They are not based on official requests which often contain more detail.

3. Unsolicited 

Think of this as a marketing brochure or a cold email . Unsolicited business proposals will often take a generic, one-size-fits-all approach to business proposals. Unsolicited proposals lack any understanding of the buyer or their requirements.

But with additional  market research , personalization and identifying customer pain points , you can propose a customized solution based on your buyer’s needs. This can be a very persuasive approach, such as in this business proposal example:

corporate business proposal example

Now that you know how to write a business proposal, let’s look at how you can optimize your proposal to deliver results!

Below you’ll find some winning business proposal templates and examples to get you started. I’ve also included some design tips to keep in mind when you’re creating your next business proposal: 

1. Know your audience 

If you have some clarity on who your ideal buyer is — their pain points, their budget, deadlines, among other things — you’ve already won half the battle.

If you are a business that helps clients with everything from running giveaways or helping grow their blog , identify which customers to pitch. This is a sure-shot way to close the deal.

Mapping user personas  for your ideal buyer can help bring some clarity. It will also help you position your business proposal correctly. This improves the chance of your buyer moving your business proposal to the “Yes!” pile.

2. Put your brand front and center

If your company follows certain brand guidelines, incorporate them in your business proposal templates. Consider how business proposal examples like the one below highlight brand identity :

content marketing plan business proposal example

From the color palettes to the company logos , everything follows their brand guidelines. The result: a business proposal that’s consistent across the board.

Pro Tip: Switching this template to match your brand assets is actually pretty easy. Venngage’s My Brand Kit feature allows you to import your color palettes, logos as well as font choices. Any Venngage template can now be your template.

You can also consider this sample business proposal template:

Example of a Business Proposal

Design companies sure do know their design. They did a phenomenal job keeping their brand colors consistent while opting for a black design. This unique color scheme also makes their white logo prominent throughout the proposal.

3. Try less text, more visuals

Have you ever read a proposal and thought to yourself, “Wow, this is all text and has no images, I love it!”? Yeah, me neither.

The free business proposal template below is a perfect example of the “less is more” principle. It does a phenomenal job of communicating what it needs to. By substituting some of the text with icons and visuals, you get a clean business proposal that’s much more scannable.

Social Media Plan Proposal Template

Want to keep things strictly professional? Instead of icons, you can always add your team’s headshots. This shows your buyer exactly who they’ll be working with.  

Check out this formal business proposal format for some inspiration:

Red Human Resources Consulting Proposal Template Team

4. Switch up your business proposal designs

It doesn’t hurt to go above and beyond once in a while. Jazz up your business proposal template with some extra colors. This helps make your business proposal more engaging. It also helps your buyers retain information faster.

Simple Business Proposal Example

The business proposal example alternates between black, white and grey backgrounds. It still manages to maintain consistency in its branding . Just switching up your backgrounds once in a while can also bring in some variety to an otherwise standard business proposal.

This SEO business proposal sample proves that it’s possible to switch up the colors in every other page. But it still maintains the same color scheme across the entire proposal just like a professionally designed website : 

SEO Marketing Proposal

Pro Tip: Not a color expert? Our guide on picking colors can help you pick the right color scheme for your proposals.

FAQ about business proposals

What is the purpose of a business proposal.

A business proposal aims to streamline the B2B sales process (which is often complex ) between you as a seller and a buyer.

It does this by serving the dual purpose of acting as a source of information. The proposal also acts as a sales pitch aimed at convincing your buyer why they should buy what you have to offer.

What are the best practices for business proposal design?

  • Do a thorough spell-check. The goal of your business proposal is to convince your buyer why you’re the perfect person for the job. A proposal with typos or grammatical errors communicates the opposite. A thorough spell-check before you send your proposal is a must.
  • Keep things clear and readable: Clarity is an important aspect that you have to ensure in your business proposal. If you want your proposal to hit home and make an impact on the buyer, you have to write it in an understandable way. To keep things clear and readable, there are a couple of things that you can do. You can, for one, take care to use easy wording and segmented sentences from the get-go. You can also try paraphrasing the hard parts of your proposal once you are done writing it.
  • Let your brand shine. As discussed before, writing a business proposal is all about knowing your ideal buyer and focusing on their pain points. But that doesn’t mean your business proposal template has to be boring. Demonstrate how different you are compared to other companies. You can do this through your brand guidelines , by using more visuals, switching up your proposal design or showing off your personality in your writing . 
  • Create a business proposal PDF. Downloading your business proposal in PDF format allows you to attach other collaterals with your business proposal. These can include a company explainer video or case studies showcasing the work done with past clients. Also, who doesn’t love saving paper?

How long should your business proposal be? 

The length depends on the scope of the work as well as the complexity of the project. Here is a one-page business proposal template:

one page business proposal template

Can your business proposal template really be one page? Yes, as long as you understand who your buyer is and their pain points. You should also have the ability to communicate everything your ideal buyer needs to know about your business in a succinct manner.

Or if you’re feeling adventurous how about just two pages? Often, clients prefer if you go straight to the point and avoid all the fluff.

For example, this green modern marketing proposal template wastes no time in getting down to brass tacks:

Project Business Proposal

Need more inspiration? Check out this blog on the 5 marketing proposal examples that’ll help elevate your business.

There is no one size fits all approach when it comes to deciding how many pages you should include in your business proposal template. And at the end of the day, “the only rules are the ones you set for yourself”.

At the end of the day, writing winning business proposals that sell is all about you understanding your buyer, their potential pain points and positioning yourself as someone who can alleviate those pain points. 

Now that you know how to write compelling business proposals, what are you waiting for?

Take action and start creating your own business proposals to close more deals and grow your business today!

More business communications templates + writing tips you might be interested in…

  • 31 Consulting Proposal Templates to Close Deals
  • How to Write a Project Proposal [10+ Templates]
  • 20+ Professional Business Letterhead Templates + Branding Tips
  • How to Write a White Paper [Tips & Templates]

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What is Sora? A new generative AI tool could transform video production and amplify disinformation risks

how to write a good business model

PhD candidate in Human Computer Interaction, Monash University

how to write a good business model

Assistant Professor in Data Visualization, Linköping University

Disclosure statement

The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.

Monash University provides funding as a founding partner of The Conversation AU.

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Late last week, OpenAI announced a new generative AI system named Sora , which produces short videos from text prompts. While Sora is not yet available to the public, the high quality of the sample outputs published so far has provoked both excited and concerned reactions.

The sample videos published by OpenAI, which the company says were created directly by Sora without modification, show outputs from prompts like “photorealistic closeup video of two pirate ships battling each other as they sail inside a cup of coffee” and “historical footage of California during the gold rush”.

At first glance, it is often hard to tell they are generated by AI, due to the high quality of the videos, textures, dynamics of scenes, camera movements, and a good level of consistency.

OpenAI chief executive Sam Altman also posted some videos to X (formerly Twitter) generated in response to user-suggested prompts, to demonstrate Sora’s capabilities.

How does Sora work?

Sora combines features of text and image generating tools in what is called a “ diffusion transformer model ”.

Transformers are a type of neural network first introduced by Google in 2017 . They are best known for their use in large language models such as ChatGPT and Google Gemini.

Diffusion models, on the other hand, are the foundation of many AI image generators. They work by starting with random noise and iterating towards a “clean” image that fits an input prompt.

A series of images showing a picture of a castle emerging from static.

A video can be made from a sequence of such images. However, in a video, coherence and consistency between frames are essential.

Sora uses the transformer architecture to handle how frames relate to one another. While transformers were initially designed to find patterns in tokens representing text, Sora instead uses tokens representing small patches of space and time .

Leading the pack

Sora is not the first text-to-video model. Earlier models include Emu by Meta, Gen-2 by Runway, Stable Video Diffusion by Stability AI, and recently Lumiere by Google.

Lumiere, released just a few weeks ago, claimed to produce better video than its predecessors. But Sora appears to be more powerful than Lumiere in at least some respects.

Sora can generate videos with a resolution of up to 1920 × 1080 pixels, and in a variety of aspect ratios, while Lumiere is limited to 512 × 512 pixels. Lumiere’s videos are around 5 seconds long, while Sora makes videos up to 60 seconds.

Lumiere cannot make videos composed of multiple shots, while Sora can. Sora, like other models, is also reportedly capable of video-editing tasks such as creating videos from images or other videos, combining elements from different videos, and extending videos in time.

Both models generate broadly realistic videos, but may suffer from hallucinations. Lumiere’s videos may be more easily recognised as AI-generated. Sora’s videos look more dynamic, having more interactions between elements.

However, in many of the example videos inconsistencies become apparent on close inspection.

Promising applications

Video content is currently produced either by filming the real world or by using special effects, both of which can be costly and time consuming. If Sora becomes available at a reasonable price, people may start using it as a prototyping software to visualise ideas at a much lower cost.

Based on what we know of Sora’s capabilities it could even be used to create short videos for some applications in entertainment, advertising and education.

OpenAI’s technical paper about Sora is titled “Video generation models as world simulators”. The paper argues that bigger versions of video generators like Sora may be “capable simulators of the physical and digital world, and the objects, animals and people that live within them”.

If this is correct, future versions may have scientific applications for physical, chemical, and even societal experiments. For example, one might be able to test the impact of tsunamis of different sizes on different kinds of infrastructure – and on the physical and mental health of the people nearby.

Achieving this level of simulation is highly challenging, and some experts say a system like Sora is fundamentally incapable of doing it.

A complete simulator would need to calculate physical and chemical reactions at the most detailed levels of the universe. However, simulating a rough approximation of the world and making realistic videos to human eyes might be within reach in the coming years.

Risks and ethical concerns

The main concerns around tools like Sora revolve around their societal and ethical impact. In a world already plagued by disinformation , tools like Sora may make things worse.

It’s easy to see how the ability to generate realistic video of any scene you can describe could be used to spread convincing fake news or throw doubt on real footage. It may endanger public health measures, be used to influence elections, or even burden the justice system with potential fake evidence .

Read more: Whether of politicians, pop stars or teenage girls, sexualised deepfakes are on the rise. They hold a mirror to our sexist world

Video generators may also enable direct threats to targeted individuals, via deepfakes – particularly pornographic ones . These may have terrible repercussions on the lives of the affected individuals and their families.

Beyond these concerns, there are also questions of copyright and intellectual property. Generative AI tools require vast amounts of data for training, and OpenAI has not revealed where Sora’s training data came from.

Large language models and image generators have also been criticised for this reason. In the United States, a group of famous authors have sued OpenAI over a potential misuse of their materials. The case argues that large language models and the companies who use them are stealing the authors’ work to create new content.

Read more: Two authors are suing OpenAI for training ChatGPT with their books. Could they win?

It is not the first time in recent memory that technology has run ahead of the law. For instance, the question of the obligations of social media platforms in moderating content has created heated debate in the past couple of years – much of it revolving around Section 230 of the US Code .

While these concerns are real, based on past experience we would not expect them to stop the development of video-generating technology. OpenAI says it is “taking several important safety steps” before making Sora available to the public, including working with experts in “misinformation, hateful content, and bias” and “building tools to help detect misleading content”.

  • Artificial intelligence (AI)
  • text-to-image
  • Generative AI
  • Diffusion models

how to write a good business model

Lecturer / Senior Lecturer - Business Law & Taxation

how to write a good business model

Lecturer - Human Geography 

how to write a good business model

Research Governance Officer

how to write a good business model

General Manager | La Trobe University, Sydney Campus

how to write a good business model

Newsletters and Social Media Manager

EU AI Act: first regulation on artificial intelligence

The use of artificial intelligence in the EU will be regulated by the AI Act, the world’s first comprehensive AI law. Find out how it will protect you.

A man faces a computer generated figure with programming language in the background

As part of its digital strategy , the EU wants to regulate artificial intelligence (AI) to ensure better conditions for the development and use of this innovative technology. AI can create many benefits , such as better healthcare; safer and cleaner transport; more efficient manufacturing; and cheaper and more sustainable energy.

In April 2021, the European Commission proposed the first EU regulatory framework for AI. It says that AI systems that can be used in different applications are analysed and classified according to the risk they pose to users. The different risk levels will mean more or less regulation. Once approved, these will be the world’s first rules on AI.

Learn more about what artificial intelligence is and how it is used

What Parliament wants in AI legislation

Parliament’s priority is to make sure that AI systems used in the EU are safe, transparent, traceable, non-discriminatory and environmentally friendly. AI systems should be overseen by people, rather than by automation, to prevent harmful outcomes.

Parliament also wants to establish a technology-neutral, uniform definition for AI that could be applied to future AI systems.

Learn more about Parliament’s work on AI and its vision for AI’s future

AI Act: different rules for different risk levels

The new rules establish obligations for providers and users depending on the level of risk from artificial intelligence. While many AI systems pose minimal risk, they need to be assessed.

Unacceptable risk

Unacceptable risk AI systems are systems considered a threat to people and will be banned. They include:

  • Cognitive behavioural manipulation of people or specific vulnerable groups: for example voice-activated toys that encourage dangerous behaviour in children
  • Social scoring: classifying people based on behaviour, socio-economic status or personal characteristics
  • Biometric identification and categorisation of people
  • Real-time and remote biometric identification systems, such as facial recognition

Some exceptions may be allowed for law enforcement purposes. “Real-time” remote biometric identification systems will be allowed in a limited number of serious cases, while “post” remote biometric identification systems, where identification occurs after a significant delay, will be allowed to prosecute serious crimes and only after court approval.

AI systems that negatively affect safety or fundamental rights will be considered high risk and will be divided into two categories:

1) AI systems that are used in products falling under the EU’s product safety legislation . This includes toys, aviation, cars, medical devices and lifts.

2) AI systems falling into specific areas that will have to be registered in an EU database:

  • Management and operation of critical infrastructure
  • Education and vocational training
  • Employment, worker management and access to self-employment
  • Access to and enjoyment of essential private services and public services and benefits
  • Law enforcement
  • Migration, asylum and border control management
  • Assistance in legal interpretation and application of the law.

All high-risk AI systems will be assessed before being put on the market and also throughout their lifecycle.

General purpose and generative AI

Generative AI, like ChatGPT, would have to comply with transparency requirements:

  • Disclosing that the content was generated by AI
  • Designing the model to prevent it from generating illegal content
  • Publishing summaries of copyrighted data used for training

High-impact general-purpose AI models that might pose systemic risk, such as the more advanced AI model GPT-4, would have to undergo thorough evaluations and any serious incidents would have to be reported to the European Commission.

Limited risk

Limited risk AI systems should comply with minimal transparency requirements that would allow users to make informed decisions. After interacting with the applications, the user can then decide whether they want to continue using it. Users should be made aware when they are interacting with AI. This includes AI systems that generate or manipulate image, audio or video content, for example deepfakes.

On December 9 2023, Parliament reached a provisional agreement with the Council on the AI act . The agreed text will now have to be formally adopted by both Parliament and Council to become EU law. Before all MEPs have their say on the agreement, Parliament’s internal market and civil liberties committees will vote on it.

More on the EU’s digital measures

  • Cryptocurrency dangers and the benefits of EU legislation
  • Fighting cybercrime: new EU cybersecurity laws explained
  • Boosting data sharing in the EU: what are the benefits?
  • EU Digital Markets Act and Digital Services Act
  • Five ways the European Parliament wants to protect online gamers
  • Artificial Intelligence Act

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