Rajat Negi

Understanding Business Model’s Viability

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I believe you have read the introduction of the Business Model. If not then you can read by clicking on this link. as this article is of no use if you have not read my previous articles.

The only way to check the business model’s viability is to check its revenue. Let’s consider three organizations: Microsoft, Tata Motors, and Aggarwal Sweets. If I ask you what is the business of each of these companies, your answer would probably be :

Microsoft is in the field of developing software, Tata Motors is in the business of manufacturing and selling automobiles and Aggarwal Sweets provides mouth-watering sweets and snacks.

But the truth is that all these three are actually in one business and that is to make a profit.

Their methods of doing so are different. The primary objective of starting a business is to earn profit. unless the business is making a profit, you might want to reconsider whether you wish to continue running it.

Similarly, The main objective of marketing is to do the sale and to increase revenue. 

It demonstrates how you can capture customer value returns. Revenue is the amount of money received from a specific consumer group. Return of customer value is another name for revenue collecting. If your business canvas model is on track, your income will exceed your costs.

Let’s see what could be the streams of revenue for your business. 

Understanding Revenue Streams for Viability

Revenue stream could be sale from ownership, usage fee, brokerage, advertising, subscription, renting, licensing.

  • Ownership:- We’ve all been trained to think of own sales as a simple connection in which you sell a product or service, produce an invoice, have the buyer pay you, and ownership is transferred at the same moment.

Example:- Sale and Purchase of New House from Maakan.com 

  • Rent:- For this revenue stream, you give exclusive rights to your customer for a specific period. reoccurring revenue will come every month.

Example:- You are renting a house for 2-3 years near your office from 99acres.com

  • Usage fee:- you offer service to your customer, by delivering services you get revenue, the more customer use, more he/she has to pay in the form of revenue. 

Example:- You are using the property of Oyo rooms for your vacations.

  • Licensing Fee:- for this revenue stream, the customer pays you to use your intellectual property. Customer takes permission from you to use your intellectual property. This revenue stream will be reoccurring and scalable. 

Example:- Apple purchased exclusive rights to use the jingle of “Dum Maaro Dum” from their creators. 

  • Advertising Fee:- here you promote others’ services and products for a revenue stream. 

Example:- Media Channels works in this domain. You always see advertisements more than the news. 

  • Subscription:- You are giving continue access to a service to your customer. This can be a reoccurring revenue stream for you. 

Example:- Every month you take a subscription to Netflix

  • Brokerage:- You are giving a service, where you are performing like an intermediary between two or multiple parties.

Example:- You buy shares from BSE( Bombay Stock Exchange) through your broker UpStox

Now you can easily fill the column of Revenue in business canvas model.

Understanding business models viability  - Understanding Business Model's Viability

Understanding Cost Structures for Viability

In every business, an initial cost or capital is required to start the business.

Basically, there are two types of cost.

  • Variable Costs:- It changes with respect to products or services. 

Example:- Let’s you are manufacturing leather shoes. so the cost of leather (raw material) will depend on the quantity of production. It will vary from month to month

  • Fixed Costs:- It won’t change with respect to anything.

Example:- You are paying a fixed rate of rent or paying a fixed electricity bill.

always try to measure the incurred costs in this way where you are extracting the ratio of fixed and variable costs.

Your fixed costs should not rise in order to earn a high income and save money. Variable cost increase should be greater than fixed cost growth. If the ratio of variable to fixed costs changes, it should be compensated by economies of scale or economies of principle. In the functioning business model, costs are incurred in all operations. A sustainable approach should have a lower cost structure than income. Fixed and variable costs must be calculated separately.

Now, try to fill the column of the cost structure in your business canvas model.

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Cost Structure

It comprises many things such as cost of goods sold, salaries or wages, operations, taxes, Net Profit, etc. These all things will get covered when I will write about financial statements. 

I hope, I have thoroughly explained the business’s viability to you. If you still have queries related to the business’s viability you can leave a comment. I will surely respond to it. DO SHARE THIS ARTICLE with your friends or family who are engaged in any startup or business. 

To your Success

-Rajat Negi, Logging Out 1f917 - Understanding Business Model's Viability


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Rajat Negi

Compound Investor (Who loves to talk to stock)
Digital Marketer (Who loves to make brands)

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