A business model is essentially a set of managerial choices which constitute the key elements related to operations and revenues of the business. These elements include value propositions, resources, processes, and profit-making formulas. The success of your business depends greatly on the effectiveness of these elements in terms of generation of revenues for the organization to grow and thrive.
A periodic assessment of the business model is recommended to understand how well the business is performing and predict its profitability and growth prospects in the future. However, you need to look for the right metrics and tools for evaluating your business model so that you are able to understand your current status and think of the adjustments that would be needed to make things better. Here are some parameters that can be used to assess the success of your business model.
Since change is inevitable in the dynamic enterprise landscape, scalability of a business model is one of the key criteria for determining its value. Every business needs to grow with time and should be able to do so. Scalability refers to the ability of the business model to be expanded in size without a considerable increase in costs. Scaling up is easier for online entities as compared to the ones based on physical values.
The revenue which an organization is able to generate on a regular basis without having to incur additional expenses is the recurring revenue. Basically, it comes from repeat customers who need not be retargeted with extra marketing efforts. Similarly, businesses that sell products on a subscription model can claim recurring revenues because the customers are bound to come back for renewal, that too without the need to retarget them.
The measure of customer loyalty is another metric that is closely related to the success of your business model. This is measured as the effort that customers will need to make for switching from your brand to another product or service provider. Greater effort translates into greater customer loyalty, hence indicating a successful business model. There are various tools and metrics that help you measure customer loyalty accurately. One of these is net promoter score, which calculates customer loyalty on the basis of a one-question survey that identifies the number of promoters, passives, and detractors. It is a good idea to learn about net promoter score from SimpleSat to understand how this popular metric works.
A successful business model is not only about producing great products or services but also about rendering a strong competitive advantage. These are hard to compete despite the best competitors in the market. For example, Apple goes all the way to give an edge to its rivals with its innovative products and technologies that are hard to match. In fact, other players end up trying to copy them but always come second in the race.
Strategic cost structure
Another parameter that determines the efficacy of a business model is a strategic cost structure. Businesses are keen on saving costs as part of their cost management strategy. They can do so by working on a disruptive operational model that brings down the cost of the products or services they offer. This approach gives them a dual benefit; while they can cut down the production/delivery cost, the product or services reaches the consumers at a lower cost, which again is a revenue and loyalty driving factor.
Value addition by customers
Interestingly, you can come up with an effective business model by enticing customers to add value. This is a smart approach as it yields revenue without having to invest anything but rather by making others work for you. IKEA is the best example of this model as this brand saves up on the labor costs by leaving the assembly process to the customers. At the same time, it also capitalizes on the “feel good” factor that customers love because they get to “make” their own products.
Another factor that you need to consider while evaluating the success of your business model is its sustainability. Staying stable in the long run is the key because organizations are expected to sustain and grow over the years rather than fall apart due to small and big obstacles they face on a daily basis. Businesses that are able to manage their financial, social and environmental implications, in the long run, are able to succeed.
A successful business model is focused on constantly creating value for itself and its customers. Constant review, therefore, is essential so that you can identify the bottlenecks and further improve or reinvent the model if there is a need. Attaining success in the corporate landscape is possible if you take the right approach and always aspire for improvement.