It’s easy to get confused with academic definitions of “business model,” so let’s put it in the simplest of terms—a business model is how your business makes a profit. Note that’s profit, not simply revenue. If you want to focus on revenue only, that’s what’s known as a “revenue model.” This difference is important because there are many other considerations that you should take into account other than revenue. You have to factor in the cost of creating the sale. Did you have to buy the inventory before you could sell it? Did you have to pay a big commission to a salesperson? You also have to factor in your overhead expenses. Do you need an expensive storefront, or can you get by with a website and home office? The questions that have to do with the financial dynamics of your business combine to create your business model, and indicate how lucrative your venture could be. There are a few useful tools you can use to help you through the process, such as the Business Model Canvas or the Lean Canvas. All aspects of your business have financial implications, so make sure you’ve got all the bases covered.
