Business Model Canvas - the Financial Viability Side
Karim Jabber, External Lecturer, Copenhagen Business School
The financial viability side, represented by the revenue streams and the cost structure. Unless there is a positive balance between the revenue side and the cost side, the business will not be viable.
Revenue Streams
The revenue streams are the monetary income generated when the company, or organization delivers its value proposition to the customer segments. As mentioned, the flows can come directly from the customer segment making use of the offer. Or, it can be carried by another customer segment that is subsidizing this usage. Revenue streams can take many shapes. For example - direct sale, usage fee, service fee, subscription fee, licensing fee, commission fee, advertising etc.
Choosing the right kind of revenue model is extremely important for a business. Even if there is a good fit between value proposition, the customer side and the customer segments, the right channels, the right customer relationship, etc. The type of chosen revenue stream might make or break the venture. Maybe the customers like your product but would prefer to lease it rather then buy it. Or maybe a brokerage fee on each facilitated transaction rather than a subscription model would attract more users to your online service. Successful companies constantly make sure that the chosen revenue streams reinforce the product- market fit rather than weaken it. The business model canvas can be a good tool to compare various revenue options and assess their implications on the rest of the business model.
Cost Structure
The three supply side dimensions - resources, activities and partnerships can be translated into a number of costs incurred by the company. The way these costs are structured will depend on the type of business model employed by the company. In general terms, you can say business models are either cost-driven, for example, low cost carriers, low cost airlines. Or value driven, for example, sports cars. Depending on the type of company, there might also be varying levels of fixed cost versus variable cost. As well as potential cost advantages based on economies of scale and scope.
Revenue Streams
The revenue streams are the monetary income generated when the company, or organization delivers its value proposition to the customer segments. As mentioned, the flows can come directly from the customer segment making use of the offer. Or, it can be carried by another customer segment that is subsidizing this usage. Revenue streams can take many shapes. For example - direct sale, usage fee, service fee, subscription fee, licensing fee, commission fee, advertising etc.
Choosing the right kind of revenue model is extremely important for a business. Even if there is a good fit between value proposition, the customer side and the customer segments, the right channels, the right customer relationship, etc. The type of chosen revenue stream might make or break the venture. Maybe the customers like your product but would prefer to lease it rather then buy it. Or maybe a brokerage fee on each facilitated transaction rather than a subscription model would attract more users to your online service. Successful companies constantly make sure that the chosen revenue streams reinforce the product- market fit rather than weaken it. The business model canvas can be a good tool to compare various revenue options and assess their implications on the rest of the business model.
Cost Structure
The three supply side dimensions - resources, activities and partnerships can be translated into a number of costs incurred by the company. The way these costs are structured will depend on the type of business model employed by the company. In general terms, you can say business models are either cost-driven, for example, low cost carriers, low cost airlines. Or value driven, for example, sports cars. Depending on the type of company, there might also be varying levels of fixed cost versus variable cost. As well as potential cost advantages based on economies of scale and scope.
This blog post is based on my learnings from the course on ‘social entrepreneurship’ offered by Copenhagen Business School through Coursera (2014).
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