{"id":297151,"date":"2026-01-20T16:15:24","date_gmt":"2026-01-20T03:15:24","guid":{"rendered":"https:\/\/www.reckon.com\/nz\/?post_type=sbh&p=297151"},"modified":"2026-01-28T17:46:30","modified_gmt":"2026-01-28T04:46:30","slug":"business-model","status":"publish","type":"sbh","link":"https:\/\/www.reckon.com\/nz\/small-business-resources\/starting-a-small-business\/business-model\/","title":{"rendered":"Business Model: Definition and Key Components"},"content":{"rendered":"

[et_pb_section fb_built=”1″ custom_padding_last_edited=”on|phone” _builder_version=”4.23″ custom_padding_tablet=”” custom_padding_phone=”0px||||false|false” da_disable_devices=”off|off|off” locked=”off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_row column_structure=”1_3,2_3″ _builder_version=”4.23″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” width=”100%” custom_padding=”||0px||false|false” locked=”off” global_colors_info=”{}”][et_pb_column type=”1_3″ module_class=”table-contents” _builder_version=”4.23″ background_color=”#f3f2f6″ custom_padding=”25px||25px||true|false” sticky_position=”top” sticky_limit_bottom=”section” sticky_position_tablet=”top” sticky_position_phone=”none” sticky_position_last_edited=”on|desktop” pac_dcm_carousel_specific_module_num=”0″ border_radii=”on|24px|24px|24px|24px” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text _builder_version=”4.23″ text_font=”||||||||” global_colors_info=”{}” background__hover_enabled=”on|desktop”][\/et_pb_text][\/et_pb_column][et_pb_column type=”2_3″ _builder_version=”4.16″ custom_padding=”|||” pac_dcm_carousel_specific_module_num=”0″ global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text admin_label=”Copy paste body text here” _builder_version=”4.27.5″ header_2_font_size=”32px” header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}”]<\/p>\n

Every business owner should have a firm idea of their business model. That might sound obvious, but you\u2019d be surprised by just how many budding entrepreneurs forge ahead into business without actually understanding how their operation will work.<\/p>\n

A business model is basically the \u2018core structure\u2019 of how an organisation creates, delivers, and captures value. It doesn\u2019t matter whether you\u2019re a new startup exploring innovative business models, or an established company that wants to refine an existing business model \u2013 developing the right business plan could be your key to success.<\/p>\n

What is a business model?<\/h2>\n

In simple terms, a business model breaks down the specifics of how a business generates income and creates value for and attracts its customers. In a perfect world, it should outline how your company will make money from various products or services.<\/p>\n

The term \u2018business model\u2019 has changed over the last few decades, especially as industries have been transformed by technology and digital business models. New business models like the freemium business model or subscription-based models, for example, are very common in the software and media industries.<\/p>\n

Bottom line: a competitive business model should explain how you will differentiate yourself in the market.<\/p>\n

Key components of a company’s business model<\/h2>\n

To fully understand a business model, it can be helpful to break it down into its main building blocks. The \u2018business model canvas\u2019 is a popular tool that some businesses use to better understand their own model. Here are some of the primary elements you\u2019ll want to incorporate into your own business model concept:<\/p>\n

Value proposition<\/h3>\n

This describes what unique benefit your business gives its customers. It answers the question: \u201cWhy would a customer choose us over a competitor?\u201d The answer could be that it\u2019s a low-cost solution, a specialised service, a high-quality product, etc. Think about low-cost airlines that have budget-friendly flights \u2013 that\u2019s their primary value proposition. This is also quite often tied to your brand identity.<\/p>\n

Customer segments<\/h3>\n

Customer segments are the specific groups of people or organisations your business wants to serve. Identifying these target markets will help you tweak your products and services to meet customers\u2019 needs. Some businesses focus on a single customer segment, while others might need to target multiple segments.<\/p>\n

Channels<\/h3>\n

Channels refer to the ways you deliver your products or services to customers (e.g. online platforms, retail stores, third-party distributors). Businesses relying on an e-commerce model, for example, will use digital channels as their main way of reaching customers, while traditional business models for retail operations will rely on physical stores.<\/p>\n

Customer relationships<\/h3>\n

How do you interact with and retain your customers? This part of your business model describes the strategies and approaches your company uses to build and maintain customer loyalty. Social media platforms and CRM (customer relationship management) tools are really handy ways to support your customers over the long term.<\/p>\n

Revenue streams<\/h3>\n

This is all about how your business makes money from each customer segment. Different business models can generate revenue in different ways, including direct sales, subscription-based models that require ongoing payments, or a freemium model that gives away a basic service for free with the hopes of converting customers to a premium paid option.<\/p>\n

Key resources<\/h3>\n

These are the essential assets needed to successfully operate your business model. Depending on your industry and business type, this might include raw materials, intellectual property or even human capital (i.e. skilled employees). Think about a software company that relies on talented developers as its key resource, or a manufacturing company that needs to acquire specific raw materials.<\/p>\n

Core activities<\/h3>\n

These are the most important tasks or actions your business needs to perform in order to operate well and deliver value to customers. Some key activities could involve manufacturing, software development, marketing or customer service, depending on your business type.<\/p>\n

Partners<\/h3>\n

Key partners will include things like your suppliers, distributors and other businesses you collaborate with to make your business model work. Building partnerships can be a great way to reduce costs or bring in resources that might not be available internally.<\/p>\n

Cost structure<\/h3>\n

This final section should identify all the expenses that are involved in running your business. Fixed costs like rent and salaries are front-and-centre, but there might also be variable costs that fluctuate based on your production volume. Having a good grasp of your cost structure will help in setting a sustainable cost model and managing your resources as effectively as possible.<\/p>\n

Different types of business models<\/h2>\n

All businesses adhere to some form of model. Understanding how a business operates within its model helps identify how to adapt and thrive in changing environments.<\/p>\n

Service-based business model<\/h3>\n

In this model, businesses deliver services to customers in exchange for a fee. It\u2019s extremely popular in industries like consulting, healthcare, accounting and legal services. Achieving success with a service-based model is often dependent on whether you can build strong client relationships and provide a high level of expertise.<\/p>\n

Subscription-based business model<\/h3>\n

Subscription models revolve around giving customers access to a product or service on a recurring basis (e.g. monthly or annually). It\u2019s really popular among software service providers and streaming platforms, and it\u2019s a way to generate consistent revenue through ongoing payments.<\/p>\n

Retail business model<\/h3>\n

This model is based on selling products directly to consumers. Retailers can choose to do this through physical stores, online platforms or a combination of both. The retail model is highly competitive, so your company will need to have to capacity to maintain inventory levels and respond to changing customer preferences.<\/p>\n

Manufacturing business model<\/h3>\n

In the manufacturing model, a company makes goods and sells them to wholesalers, retailers or directly to consumers. It\u2019s a model that relies on you having a lot of capital investment, as well as strong supply chain management and the ability to produce your products at scale.<\/p>\n

Freemium business models<\/h3>\n

In the freemium model, a company \u2018sells\u2019 a basic version of a product or service for free and charges for premium features or upgrades. You\u2019ll see this model used by software companies, especially with apps and online services, as it can be used to attract a large user base.<\/p>\n

Hybrid business model<\/h3>\n

A hybrid business model incorporates two or more models as part of its structure. Companies that use hybrid business models generally start under one model, but over time, branch out to expand and tap into additional revenue streams. An example of a company that has more than one model is Amazon. Amazon is a multinational corporation that offers multiple services from its e-commerce platform (retail) to its web and cloud services (subscription).<\/p>\n

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How to choose the right business model<\/h2>\n

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Still unsure which business model best applies to your company? That\u2019s okay \u2013 it\u2019s a big decision that will have an impact on your overall strategy and growth potential. Here are some of the most important things to consider when choosing a model for your business:<\/p>\n