What is a 'business model'?

A business model is fundamentally a framework that outlines how a company intends to generate revenue and create value for its customers. This encompasses various components, including the target market, product or service offerings, pricing strategies, and distribution methods. By focusing on how the company will make money, the business model clarifies the core activities and value propositions that drive profit.

Understanding the essence of a business model is crucial for entrepreneurs and managers as it directly influences their operational decisions and strategic direction. It is not just about the financial aspects; it also includes understanding customer needs and how the business meets those needs effectively.

While other concepts listed have their importance in business operations — such as employee hiring strategies or financial management methods — they are not central to defining a business model. The primary goal of a business model is to articulate a clear path to profitability and sustainability for the business.