A business model consists of a series of ideas and processes that will help us function better as a company and provide the best service to our clients.
Understanding the different types of businesses, it’s time to analyze the elements of a business model to capture them in a canvas and build a solid, well-structured company.
📋 The Key Elements of a Business Model
| Element | Brief Description |
|---|---|
| Problem and Solution (Lean) | Problem identification and solution proposal |
| Value Proposition | Unique benefit we offer |
| Added Value | Differentiator from competition |
| Key Activities | Essential processes to operate |
| Key Resources | Necessary assets to function |
| Key Partners | Strategic allies |
| Customer Relationships | Type of interaction with the market |
| Segmentation | Market division into groups |
| Ideal Buyer | Detailed customer profile |
| Sales Channels | Means to commercialize |
| Key Metrics | Performance indicators |
| Cost Structure | Necessary expenses to operate |
| Revenue Streams | Sources of money |
🎯 Problem and Solution (Lean)
A business that arises from the idea of solving a common problem among people is known as a Startup. This type of company seeks to innovate the way we do things.
Example: Uber
Uber identified a common problem in private transportation:
- Problem: Unemployed people with cars and people seeking fast, comfortable, safe transportation
- Solution: An application that connects drivers with passengers via internet
When this is the case, it’s recommended to use the Lean Canvas for your business model, as it focuses on providing solutions or innovating these problems.
Current Solution
When a Startup focuses on solving a problem, the first thing to consider is the solutions currently being implemented, in order to improve existing solutions or propose a completely new one.
Uber Example:
- Existing solution: Car owners working as taxis or private services under direct arrangement; users using public or private transportation under direct arrangement
- New solution: Digital platform that eliminates the friction of direct arrangement and offers safety, tracking, and ratings
Proposed Solution
After thoroughly analyzing the problem and the solutions people currently use, it’s time to present our solution.
Example: Uber proposed an application where car owners can connect with people needing transportation through the internet.
💎 Value Proposition
The value proposition is what we offer consumers that they find as a benefit for themselves. It’s the reason customers choose you over the competition.
Concept
The concept refers to what people feel and think when they think of your company.
Example: What do you feel or think when you hear the name Uber? Rhetorical question—Uber designed and worked on this concept to make you feel and think exactly that.
Uber’s Value Proposition
Their value proposition is based on providing work and transportation to people in the easiest, fastest, most comfortable, and safest way.
✨ Added Value
A value proposition can be introduced to the same person by different companies. To make our company the best choice for consumers, we must offer something the competition doesn’t have: added value.
Good added value will make our company stand out from the competition.
Examples of added value:
- Extended warranty
- Personalized attention
- Free delivery
- Loyalty program
- Exceptional post-sale service
⚙️ Key Activities
We must establish the activities to carry out to deliver our value proposition to customers.
If it involves a group of activities requiring a team, we need to know what these activities are to assign tasks to the best-qualified people.
Example: Uber’s Key Activities
- App development and maintenance
- Digital marketing
- Customer service (drivers and passengers)
- Payment processing
- Driver background checks
🛠️ Key Resources
To carry out our business activities, we will need certain resources that we must acquire.
Example: Uber’s Key Resources
- Internet and web infrastructure
- Computers and development equipment
- Design and development software
- Scalable technology platform
- User database
🤝 Key Partners
It’s very important to consider all the people who will support us in delivering that value proposition to our customers. These people provide some of the resources we need to achieve it.
Example: Uber’s Key Partners
- Drivers: Provide vehicles and labor
- Investors: Provide capital for growth
- Payment processors: Facilitate transactions
- Developers: Create and maintain the platform
💬 Customer Relationships
Customer relationships are based on how you execute your sales process in relation to consumers’ purchasing process.
Types of Customer Relationships
| Type | Description | Example |
|---|---|---|
| Direct | In-person, phone, or video contact | Lawyer, consultant |
| Indirect | Remote contact through intermediaries | Coca-Cola, supermarket products |
| Individualized | Exclusive, personalized service | Personal trainer, financial advisor |
| Automated | Automated mechanisms without direct contact | Online store, ATMs |
| Collective | Group customer contact | Schools, workshops, seminars |
| Self-service | Customers serve themselves | Self-checkout supermarkets, buffet |
| Through Third Parties | Service performed by intermediaries | Uber, delivery platforms |
Customer Links
Transactional:
Occasional customer contact. No ongoing relationship beyond the purchase.
- Example: Convenience store, hardware store
Long-term:
Establishes a close, long-term relationship with the customer, such as with a subscription to an ongoing service.
- Example: Netflix, Spotify, gym
Consumption Habits and Factors
It’s important to know the customer to integrate our products and services with their daily habits.
Purchase habits:
- Habit of going to the same store
- Buying everything in one place for convenience
- Buying certain things in one place and others elsewhere
Influencing factors:
- Purchase times
- Substitutes and complements
- Warranties
- Added value
- Costs
🎯 Segmentation
To start prospecting, the first task is to segment our market to define our target audience. This helps us approach prospects in the best way.
Example: Selling the same car to an adult and a young person requires different approaches.
Types of Segmentation
Demographic
This is the most common segmentation and denotes very specific elements about our target audience.
| Variable | Examples |
|---|---|
| Age | 18-25, 26-35, 36-50, 50+ |
| Biological sex | Male, Female |
| Sexual orientation | Heterosexual, LGBTQ+ |
| Family size | 1 person, 2-3, 4+ |
| Income | Low, medium, high |
| Profession | Professional, worker, student |
| Education level | Basic, high school, college, postgraduate |
| Socioeconomic status | Lower, lower-middle, middle, upper-middle, upper |
| Religion | Catholic, Christian, Jewish, Muslim |
| Nationality | Mexican, foreign |
| Culture | Western, Eastern, Latin |
Geographic
Refers to the physical space and environment where your target audience operates.
| Variable | Examples |
|---|---|
| World region | Latin America, Europe, Asia |
| Country | Mexico, USA, Spain |
| Region | North, South, Central, West |
| City | Mexico City, Guadalajara, Monterrey |
| Climate | Tropical, temperate, cold |
| Urban/Rural | City, suburb, countryside |
Psychographic
This type of segmentation understands each ideal buyer at a more personal level.
| Variable | Examples |
|---|---|
| Personality | Extroverted, introverted, analytical, creative |
| Lifestyle | Healthy, adventurous, homebody, night owl |
| Values | Honesty, freedom, family, success |
| Attitudes | Optimistic, pessimistic, proactive, reactive |
| Interests | Sports, art, technology, fashion |
Behavioral
In this type of segmentation, we understand our target audience’s behavior.
| Variable | Examples |
|---|---|
| Purchase patterns | Frequent, occasional, seasonal |
| Benefit sought | Quality, price, convenience, status |
| Reaction to costs | Sensitive, indifferent |
| Brand loyalty | Loyal, switcher, opportunistic |
👤 Ideal Buyer
The term “ideal buyer” is also known as “buyer persona” or “proto persona” and is defined as our perfect customer.
Early Adopters
Early adopters are people who start consuming your company’s products or services before others, adapting to your sales process. They are crucial because:
- They validate your product in the real market
- They provide valuable feedback
- They become brand ambassadors
How to Create a Fictional Ideal Buyer
Our first fictional ideal buyer is based on personality patterns and habits we seek according to our business nature.
Example for a vegan restaurant:
- Fictional name: Ana Vegana
- Age: 28 years
- Profession: Graphic designer
- Location: Roma neighborhood, Mexico City
- Values: Animal respect, environmental care
- Habits: Exercises, follows vegan accounts on Instagram, shops at organic stores
- Needs: Quick, delicious options near her work
- Objections: High prices, limited variety
We create a document describing this person very specifically with detailed information. As we acquire new clients, our ideal buyer will be shaped more effectively.
📢 Sales Channels
A sales channel is a method by which a sale is made. They can be categorized into 3 main methods.
| Channel | Description | Examples |
|---|---|---|
| In-person | In-person purchase | Physical store, supermarket, point of sale |
| Phone | Order by phone call | Pizzeria, services (internet, phone) |
| Online | Purchase via internet | E-commerce, marketplaces, social media |
Multichannel Strategy
The idea is to sell as much as possible, so it’s crucial to find or create as many sales channels as possible. The internet is where we can usually achieve this.
Example: Some companies sell on portals like Amazon, Mercado Libre, eBay, regardless of having their own online store. This is because these companies know the number of people using these platforms, making them another sales channel.
📊 Key Metrics (KPIs)
Also known as KPIs (key performance indicators), these are statistics of great value for measuring the health and overall performance of our company and its departments.
Web Traffic
There are various web tools like Google Analytics, Facebook Pixel, Hotjar that help us know everything we need about our web traffic.
| Metric | Description |
|---|---|
| Reach | Number of people who see your content |
| Visits and sessions | Number of visits to your site |
| Bounce rate | Percentage that leaves without interacting |
| Click-through rate | Percentage that clicks your links |
| Search position | Your ranking in Google results |
Prospect Origin
It’s important to know where our clients come from:
- Direct
- Flyer / Print advertising
- Digital ad
- Website
- Social media
Sales Metrics
Average Ticket:
When we have different products and services with different costs, the average ticket is the average amount earned per sale.
Formula:
Average Ticket = Total Revenue ÷ Number of Sales
Conversion Rate:
Every time a person performs a desired action (sale, registration, download, form submission).
Formula:
Conversion Rate = (Conversions ÷ Visitors) × 100%
ROI (Return On Investment):
ROI is a financial metric used to evaluate the efficiency of an investment or compare the efficiency of different investments.
Formula:
ROI = [(Net Profit - Investment Cost) ÷ Investment Cost] × 100%
Retention Rate:
The percentage of customers we retain over a given period.
Formula:
Retention Rate = [(End Customers - New Customers) ÷ Starting Customers] × 100%
💰 Cost Structure
In a company, the cost structure is the organization of all elements needed to fulfill our value proposition. The profit from our products and services after these expenses is called “profit.”
Common Business Costs
| Cost Type | Examples |
|---|---|
| Personnel fees | Salaries, wages, benefits |
| Location rent | Offices, stores, warehouses |
| Tools | Software, machinery, equipment |
| Materials | Supplies, raw materials, inventory |
| Distribution | Logistics, shipping, storage |
| Marketing | Advertising, promotions |
| Administrative | Utilities, supplies, paperwork |
💵 Revenue Streams
Refers to the various sources from which a company earns money from selling goods or providing services. The types of revenue a company records depend on the types of activities performed by the company.
Types of Revenue
| Type | Description |
|---|---|
| Sale of goods or services | Main source, “sales revenue” |
| Interest income | Interest from investments (debt securities) |
| Rental income | Leasing buildings or equipment |
| Dividends | Earnings from holding shares in other companies |
Examples of Revenue Streams
Transactional:
Proceeds from the sale of goods usually paid in a single installment.
- Example: Department store, supermarket
Services:
Generated by providing services to clients and calculated based on time.
- Example: Hourly consulting, legal advice
Projects:
Earnings acquired through unique projects with new or existing clients.
- Example: Website development, marketing campaign
Recurring:
Earnings acquired through ongoing payments for continuous services or post-sale services. The recurring revenue model is the most used by companies because it’s predictable and ensures the company’s revenue stream is continuous.
Sources of recurring revenue:
- Subscription fees (monthly or annual)
- Leasing or asset rental
- Content licensing to third parties
- Brokerage fees
- Advertising fees
✅ Conclusion
The elements of a business model are the map that guides all your company’s decisions. Each of these elements interacts with the others to create a cohesive system that generates value for your customers and profitability for your business.
Before launching your company, make sure you have clearly defined:
The problem you solve and your solution
- The value proposition that sets you apart
- Your customers and how to reach them
- Your resources and key activities
- Your metrics to measure success
- Your costs and how you’ll generate revenue
A well-defined business model not only helps you start but also grow with direction and purpose.
Have you defined all the elements of your business model?
