The business model explains how your company will make a profit by providing its product or service. In simple terms, it is the average sales value of a transaction and the related variable costs to provide that product or service. The remaining profit is then applied against fixed costs. The ability to “break even” depends upon the number of transactions that must be made each month; however, a higher level of transactions will be needed in order to reach desired profits.
The development of the business model will help determine how many customer transactions are required / expected to meet the overall business goals. This will help establish the Marketing plan, especially pricing, promotion and sales. Small changes in pricing (increases or decreases) can have a huge implication on profitability, business volume, and organization size and structure. It is a way to visualize your business under different assumptions before making any investment or significant decisions. This tool can also be used when planning a new product, market or geographic launch in your business.