Building a Model for Your Business in Nigeria
What is a business model, and why is it important?
Let’s answer this question with another. What fuels your business to keep it running? The answer is revenue. Well then, how does your business make money? The answer to this is a business model.
In its simplest form, a business model describes how your business will make enough money to keep running. It explains how you deliver value to your customers, how much you charge, and how you get paid.
Here’s what Peter Drucker, a management guru with Harvard Business Review back in 1994 said on business models:
Business models are meant to answer the questions of “who’s your customer, what value do you create/add to them, and how to do that at reasonable costs.”
With a business model, you can model the various ways that you’ll structure your business expenses and revenue streams. At the most basic, we can break down a business model into three main parts:
- All it takes you to make your product/service: From design to the raw materials, labour and everything in between
- Everything it takes to sell your products and services: Marketing, your value chain distribution, and delivery and so on
- How and How much you get paid: Your pricing strategy, methods of payment, the interval between payments, and so on.
As you can see, a business model simply shows what your costs and expenses are and how you charge for your services and/or products. To build a successful business model, collect more money from your customers that it cost you to create the products/services and deliver it to them. From the explanation above, there are three primary ways to do this, can you guess them?
Yes, the first is to reduce how much it costs you to produce the products and services. Can you make your design and manufacturing costs lower? The second way is to make your marketing and sales process more effective. Finally, you can find easier and better ways for your customers to pay. In case you don’t understand all this big ‘oyinbo” that I wrote or how it applies to your business. Don’t worry, Imma break it down for you.
Let’s take a look at some common business models and some companies that use them. P.S Keep in mind that there are a lot more business models than I can cover here, for a more comprehensive introduction, you can check out this article by feedough)
Advertising
This is a very old business model, and it has been around for a while. As the world has transitioned from print to online media, it has become even more sophisticated. In this business model, you have two sets of customers, the audience and the advertisers. While your audience may or may not be paying, your customers definitely are. The first step is to create content that your audience would love. Once a large following is reached, you can charge advertisers to send ads to your audience via your platform.
Can you think of any examples? Every single social media platform does this. From Facebook to Twitter to LinkedIn, and so on. Only WhatsApp perhaps is exempt, but then, some people own “WhatsApp Tv’s.” They curate and create content, then share on their status, then as their viewership increases, run adverts on the platform.
As you can probably guess, the major challenge to this model would be creating a balance between valuable content and adverts on your platform.
So how can this apply to your business?
First, ask yourself, do I have a relatively large following on your platform. If the answer is yes, then advertising might be a good business model for you. Of course, you have to ensure that you balance the number and type of ads that you allow on your platform.
Affiliate
This business model is quite similar to the advertising business model but with a bit of difference. To get customers, businesses partner with affiliates who promote the services and products of the business and receive a commission for every sale that comes through them.
Just like in the advertising business model, 3 parties make this model work, the company with the product, the affiliate and the audience/buyer.
For instance, you can get a blogger or someone with influence to market your products to their audience and then they earn a commission on every sale that results via them.
To apply this to your business, you must be able to balance how much your affiliates earn and the price of your products/services to remain sustainable.
A good strategy is to make the earnings of your affiliates in credit towards your products or services. A lot of financial platforms have this kind of structure in place. For instance, Branch loan app gives you about #1,500 worth of loan credit when you refer someone.
Franchising
If you don’t have a business idea of your own but have some money and want to start a business, you can start up a franchise. To start a franchise, you’ll have to buy the rights from an existing company and then set up your business in the way that the parent company decides.
One of the advantages of owning a franchise is that you get the support of a successful business when setting up your own business. On the side of the franchisor, they get to expand their brand without spending a lot of resources.
Freemium
A freemium model involves you giving out some of your services or products free and then charging for some premium features.
Note that this is not the same thing as giving a free trial where customers access all the full features but for a limited time. The freemium provides unlimited access to basic services and only charge customers that want to access more advanced functionality.
Almost all SaaS businesses use this model, from Spotify to Dropbox, Google Drive to Mailchimp and even LinkedIn, they all use this model.
For this model to work for your business, you have to ensure that the costs of providing the free services are covered by the revenue generated from premium users. A good way to start will be to determine what your running costs are in terms of infrastructure, then how many premium users you would need to generate enough revenue to break even. You want to set your marketing and sales goals just a bit higher than this at the least.
Subscription Models
Subscription models are becoming increasingly common nowadays. Under this business model, you charge your consumers a fee to get access to a service. While subscriptions for things like magazines have been around for quite some time, the model has spread to a lot of other niches like software, online services, and many others. A good example of this is Netflix, DSTV, Apple Music, and so on.
For this business model to work for you, you have to have content that a large enough audience wants to consume, and enough content that makes the subscription worthy. Or, you could be providing a service that requires periodic renewal, kinda like what network providers do.
How to Do Busines Modelling
Of course, there are many more business models that exist, but the point of this is to get you thinking about how you can structure your business. You don’t need to invent an entirely new business model, you can simply apply an existing business model to your business.
More importantly, you can even combine more than one business model in your business. Run a service business like a laundry? Why not create a subscription option? You can add an affiliate business model to that again.
What I want you to take from this article is that you can expand your business by utilizing more business models.
So, what business model are you using in your business currently? And which ones are you looking to add?
Do send me a message and let me know! Remember, your business is as small as big as you want it to be.
