Four elements of the cost side of the business model

Absrtact: Business model is a cycle in which a company creates and leaves value in the marketplace. From the revenue side, we need to first understand the target users and their needs, and set the value to provide them, usually our products or services. Then we

A business model is a cycle in which a company creates and leaves value in the marketplace. From the revenue side, we need to first understand the target users and their needs, and set the value to provide them, usually our products or services. Then we choose the path to contact with the target customer and maintain the relationship, then the revenue capacity of this business model appears.

In other words, you can write a formula like this:

"Number of potential customers with such demand" "X" likes my product (value appeal) and the price ratio] "x" Product price "X" Access after the ratio] "x" access to the potential customer ratio] "x" after the purchase repurchase cycle and ratio (relationship)] "=" The company's long-term turnover

But a company will not only have revenue, in fact, each revenue generation, behind will have a corresponding cost. The cost side of a business model can be analyzed with the following four elements:

Key activities

The key activity is to generate the above long-term revenue, a company must engage in activities. Take our breakfast shop for example, the most basic key activity is opening, call ingredients, make breakfast, sell breakfast, and depending on the choice of users, access, value and customer relationships, there may be a need to go to the alley to recruit guests, communicate with the channel partners, ship, recruit members, or exquisite packaging sandwiches and so on.

Key Resources

As opposed to key activities, the key resource is to generate such revenue, we have to get the important production elements. For breakfast shops, water, electricity, food, cooks, and cooking stations are essential resources, and if the value of our appeal is health, it is very likely that we must obtain a stable supply of organic ingredients.

Key partners

Key partners are often the providers of critical resources. The same key resource, if more partners are available, the cost is usually more reasonable and the stability of supply can be ensured. Conversely, if a single partner has to be relied upon to provide key 0 components, the long-term cost of the business model is hard to keep down, and the risk of breaking the impact is higher. Therefore, the more scarce supply partners, the more they must find ways to maintain a long-term stable relationship.

Cost structure

With activities, resources and partners, the cost structure of the business model can be deduced. It is worth noting that all the costs of a company are not entirely the cost of a business model. Technology companies, for example, tend to hire many engineers for research and development activities in order to build future competitiveness, or to rent larger offices at a stretch to reserve future expansion space. In most cases, these additional costs should not be counted into the cost structure of a business model.

Continuous adjustment

In most cases, a market-driven business model, its cost structure is often far beyond the revenue capacity. At the opening breakfast, most of the target customers didn't know it existed, and it was normal for them to be out of work in the last few months. Just online services, more often to burn for a few years to have the opportunity to turn losses into surplus.

Of course, if you have unlimited deposits in your bank and have great confidence in your business model, you can actually sit there and wait for the reverse to come. But in practice entrepreneurship is often not the case, we usually have only limited funds, more importantly, our business model often has a lot of room for refinement, can let the revenue rise, cost reduction, close to the profit and loss balance point distance.

In the case of traditional physical products, because the design, production, manufacturing process is very lengthy, has caused the cost structure can not be easily changed, so when the goods into the market found that customer acceptance is not as expected, the company most often do is to change the target group, access, customer relations and packaging, From there trying to improve the revenue capacity of existing products.

Singer Lady Gaga is an interesting example of a market change, and before she became a goddess, Kaka's name was Stefani Germanotta, a jazz and blues pianist at New York University. When she was a sophomore in college, she decided to drop out of school and try to find her position in the music market. Before and after the hip-hop, rock, the signing of a contract with the record company was broken, the fall to New York's Lower East Side of the comedy theater performance, and was found by Sony Records and hired Britney Spears composer, then she gradually found the popular nowadays young people, combined with fashion, dance, alternative style of musicians.

The logic of the network world is reversed, relative to the entity. Software products are easily changed, but customers and access roads are more difficult to obtain. So you see the site is often in the revision, trying to find more in line with the market needs of the value of demand, to generate higher long-term revenue. But because the membership list and the fan community accumulation is not easy, they often do not casually change the target customer base.

In conclusion, since startup is a temporary organization, it is necessary to find a repeatable, scalable business model in order to start the transformation, gradually become a great career. To understand the business model of each link, and constantly to analyze, diligence, must be an entrepreneur, the most basic homework.