What Are The Features Of The Best Business Model?
What are the features of the best business model?
The term business model aims to a company's plan for making a budgeted profit.
It contains the products or services the business plans to sell, its identified potential and budgeted market.
Business models are important for both new and established businesses.
Business models help new, developing companies attract investment, plans to recruit talented employees, and motivate management and staff.
Established businesses should regularly update their business plans or they'll fail to archive the challenges ahead.
Business plans help their present and potential investors evaluate companies that interest them.
Thus a best business model refers to a company's main strategy for profitably doing business.
Examples of Business Models
Consider a comparison of two competing business plans where two companies A &B sell branded clothes. Both businesses made Rs10 crores in revenues after spending Rs 8 crores on their stock of clothes. This means that each company makes a gross profit calculated as Rs 10 crores minus Rs 8 crores i.e.Rs2 crores. They also have the same gross profit margin, calculated as 20% of gross profit divided by revenues.
But things change with the arrival of the internet. Company B decides to sell the branded clothes online instead of selling physical clothes. i.e.off line.
This change disturbs the business model in a positive way. the cost of holding inventory goes down considerably.
In fact, the change reduces storage and distribution costs making more profits by selling more by company B,
Meanwhile, Company A fails to update its business plan and is stuck with a lower gross profit margin. As a result, its sales begin to slide downwards. Company B isn't making more in sales target, but it has rescheduled its business model, and that has greatly reduced its costs.
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