A business model is a very basic step for the establishment of a business idea. Every business idea needs a well prepared, well-planned business model. It is a hypothetical concept which is to be implemented in actions and revise for necessary changes.
A business model begins from the feasibility studies of a business idea and winds up with a clear business plan. The business model is the first step of a business plan. It answers the question “how the business idea works” and “where will be the idea implemented”. It explains about the targeted customers, targeted area and the path which the product or service delivers to the customer.
In short, the business model just puts forward the answers to the questions “where” and “how”.
Choosing right areas for a business is a difficult process. Through the preparation of a business model, the decision can be fixed.
For every business, market segmentation is a very important procedure. The organization must fix their targeted customers for their product or service or whatever they provide.
For an example, a showroom of a luxury car opened in a village area. The idea will not work in between the villagers. The luxury is not accessible by the middle-class villagers. So the market segmentation for a business is an essential part.
One of the main parts of a business model is the market segmentation. That completes the answer to the question “where”.
The next thing in a business is “how”. The question “how” includes two things. One is the way in which a company generates revenue and makes a profit from the firm operation. And the other one is the way which the product or service of the company reach the customer. It describes the whole path of the product or service from its manufacturing stage to the delivering end.
In short, this part of a business model describes ‘how the profit comes from the businesses’.