What is a business model?
A business model is the plan for how a business makes money while being useful to people. It answers three things:
- Create value: what product or service do we make?
- Deliver value: how does it reach the customer?
- Capture value: how do we get paid, and is it more than our costs?
A business model is not the same as a business plan. The model is the idea of how the business works (one page). The plan is a longer document with goals, market data, money forecasts and steps.
Two firms can sell the same thing with different models. One bookshop sells books; another app rents e-books for a monthly fee.
The business model canvas: 9 blocks
The business model canvas is a one-page chart that shows the whole model in 9 blocks:
- Customer segments: who we serve (students, farmers, small shops...).
- Value proposition: the problem we solve or the need we meet. Why should they pick us?
- Channels: how we reach customers (shop, website, app, delivery).
- Customer relationships: how we keep them (personal help, self-service, community).
- Revenue streams: how money comes in (sales, fees, subscription, ads).
- Key activities: the most important work (cooking, coding, farming).
- Key resources: what we need (machines, skilled people, brand, money).
- Key partners: suppliers and other firms who help.
- Cost structure: the main costs (rent, salaries, materials).
Profit = revenue − costs. The canvas is a draft. Founders show it to real customers, collect feedback and change blocks that do not work. This test-and-change loop is how a startup searches for a model that lasts.
Types of business models
- One-time sale: the customer pays once for a product (a bicycle, a cup of tea).
- Subscription: the customer pays every month or year (streaming, gym, software). Regular income.
- Freemium: the basic version is free; a small share of users pay for extra features.
- Marketplace / platform: the firm connects buyers and sellers and takes a commission (taxi apps, online shops, food delivery).
- Advertising: users get the service free; advertisers pay to reach them (search engines, social media, free newspapers).
- Franchise: a brand lets other owners run outlets in its name for a fee.
- Razor and blade: a cheap main product, profit on refills (printer and ink).
- Pay-per-use / sharing: rent instead of buy (bike or car sharing, cloud storage).
Kinds of enterprise behind the model
A startup is a young firm still searching for a model that can grow fast. A social enterprise uses a business model to solve a social or environmental problem, and puts most profit back into that goal. A co-operative is owned by its members (for example, dairy farmers), who share the profit; one member, one vote.
Technology and future business models
Technology changes how value is created and delivered:
- Internet and apps made marketplaces and e-commerce possible: a small seller can reach the whole world.
- Digital payments (like UPI in India or card wallets elsewhere) made tiny payments and subscriptions easy.
- Data and artificial intelligence let firms suggest products, set prices and serve each customer differently.
- Cloud and sharing let people rent instead of own.
- Circular economy models repair, reuse and recycle to cut waste.
Finding and testing an idea
Good ideas start from market data: surveys, search trends, sales figures and complaints show unmet needs. Then the team builds a small test version and asks customers.
Scenarios
A scenario is a short "what if" story about the future: what if most shopping moves to voice assistants? What if fuel becomes very costly? Teams imagine 2–4 scenarios and ask how their model would survive in each. This helps them prepare new models early.
Key formulas and definitions
- Profit = Total revenue − Total costs
- Revenue (one-time sale) = Price × Units sold
- Revenue (subscription, per year) = Monthly fee × Subscribers × 12
- Revenue (marketplace) = Commission % × Value of sales
- Key terms: value proposition, customer segment, channel, revenue stream, cost structure, startup, social enterprise, co-operative
Worked examples
1. A juice shop sells 3,000 glasses a month at ₹40. Monthly costs are ₹90,000. Is it profitable?
Revenue = 40 × 3,000 = ₹1,20,000. Profit = 1,20,000 − 90,000 = ₹30,000 a month. Yes.
2. A gym has 400 members paying ₹800 a month. What is its yearly revenue?
Subscription revenue = 800 × 400 × 12 = ₹38,40,000 a year.
3. A study app has 50,000 free users. 4% pay ₹100 a month for premium. Monthly revenue?
Paying users = 4% × 50,000 = 2,000. Revenue = 2,000 × 100 = ₹2,00,000 a month.
4. An online marketplace takes 12% commission. Sellers sell goods worth ₹50 lakh in a month. Its revenue?
12% × ₹50,00,000 = ₹6,00,000. Note: the marketplace earns only its commission, not the full sales.
5. Fill the canvas for a school bus service: customer segment, value proposition, revenue stream, key resource.
Customers: parents of school children. Value: safe, on-time trips. Revenue: monthly fee per child. Key resource: buses and trained drivers.
Common mistakes
- Mixing up business model and business plan. The model is how the business makes money; the plan is the full document with targets and forecasts.
- Counting all marketplace sales as its revenue. A marketplace earns only the commission or fees.
- Thinking 'free' means no revenue. Free services earn from ads, data-based services or premium users.
- Writing a value proposition about the product ('we sell shoes') instead of the customer's gain ('comfortable school shoes that last a full year').