Business Model Canvas

Key Partners

Key partners will be external businesses or organizations that a company collaborates with to create, deliver, and capture value. Small business owners should consider the key resources they’re acquiring and what they’re providing in return to those key partners. The key partners a small business chooses should provide them with a range of benefits and can come in various forms depending on the industry or the types of goods and services a business produces.

Examples of Key Partner relationships include:

• Coopetition - Occurs between companies that are competitive in some product and service offerings but choose to collaborate. A well-known example of coopetition is Apple and Samsung competing in the smartphone market yet Samsung has provided Apple with several different iPhone model screens.

• Joint Venture - A separate, collaborative business formed by two or more existing companies. These JV companies are usually formed to share the combined expertise and resources of the participating parties while helping mitigate the risk of taking on the project individually. Honda and General Motors have 50-50 ownership of a joint venture focused on developing hydrogen fuel cell systems as a zero-emissions alternative to battery-electric vehicles.

• Strategic Alliances - Partnerships formed by two or more traditionally non-competitive companies with synergies that can be utilized to access new markets, increase customer value, improve efficiency, or mitigate risk, among other things. A common strategic alliance is airlines, hotels, and rental car companies partnering to offer discounted bundles to travelers.

• Affiliate Partnership - An agreement in which a company is compensated for promoting the goods and services of another company. The compensation in these agreements comes in various forms (fixed rate, revenue sharing, etc.). An affiliate partnership benefits both parties by providing additional revenue for the affiliate and expanded distribution for the merchant.

• Supplier Relationships - These are partnerships with vendors who provide you with the materials, resources, or services you need to operate. Think manufacturers, distributors, raw material suppliers, etc. Strategically allocating purchases with select suppliers can help reduce overall costs and expand margins.

Key Activities

The key activities component of a business model canvas outlines the essential tasks and activities a business must perform to create its value proposition, reach its customers, maintain customer relationships, and generate revenue. This section focuses on what the company must do to make its business model work effectively. Key activities should consider requirements from the following business areas:

• Production activities such as design, development, manufacturing, procurement, inventory management, and quality control should all be considered

• Marketing and sales activities include brand development, advertising, pipeline development, the sales process, quoting, and contracts

• Customer relationship management to provide ongoing support to customers, encourage product adoption, promote and initiate customer engagement

• Financial planning and analysis activities including accounting, budgeting, forecasting, variance analysis, reporting, and investment analysis

• Research and development activities to develop new products, services, or processes that provide a competitive advantage

• Human resources activities to attract, develop, and retain employees through engagement and performance management

Different businesses will have different key activities. Whichever activities you focus on, each activity should be directly tied to delivering the value proposition, fulfilling customer needs, and achieving the company’s strategic objectives. Identifying and focusing on these key activities helps ensure the efficient and effective operation of the business.

Key Resources

The key resources component describes the most important assets required to make a business model work. These resources allow an enterprise to create and offer a value proposition, reach markets, maintain relationships with customer segments, and earn revenues. Key resources can be categorized into physical, technological, intellectual, human, and financial resources.

• Physical Resources - Include buildings, facilities, equipment, machinery, vehicles, and inventory

• Intellectual Resources - Include patents, copyrights, trademarks, proprietary knowledge, and brand reputation and value

• Human Resources - Include all human capital required for the company to operate including management teams and employees

• Financial Resources - Include the capital and other financial assets required to operate and grow the company

• Technological Resources - Include the systems, networks, and platforms required to operate the business and protect its information

The key resources identified should serve to help the business by expanding market reach, enabling operational efficiency, developing strong customer relationships, mitigating risks, and delivering on the value proposition. By identifying and managing key resources effectively, a business can ensure that it has the necessary assets to achieve its objectives, deliver value to customers, and maintain a competitive edge in the market.

Value Propositions

The value propositions component of the Business Model Canvas describes the bundle of products and services that create value for a specific customer segment. This section focuses on solving customer problems and fulfilling customer needs with value propositions that distinguish the company in the marketplace. A wide range of potential value propositions exists depending on the customer segment being targeted. The primary focus of this section should be on:

• Products and services offered including features and benefits

• Problems or needs the products and services will address for customers

Some of the value propositions commonly highlighted by various products and services include:

• Innovation - The product is new, or an improved version of an existing product

• Performance - Products and services offer improved performance and efficiency versus competitor alternatives

• Convenience - The product or service is simple to use or more accessible to a wider audience

• Reduced Costs - Lower costs for consumers by offering cheaper prices or an extended product life resulting in less maintenance and replacement

• Reduced Risk - Lowering the perceived risk of a purchase through guarantees, warranties, easy returns, and earning a reputation for high quality

• Status - Brand perception and the associated status for the user, common in luxury brands, or creating a superior customer experience that elevates the brand in consumer’s opinions

• Social/Environmental Impact - Products and services focused on sustainability or making a social contribution such as fair-trade goods or supporting charitable causes

Each value proposition should communicate the unique benefits and solutions offered to specific customer segments. It's essential to align value propositions with customer needs, preferences, and expectations to create a compelling and differentiated market offering.

Customer Relationships

The customer relationships component describes the various relationships a company establishes with specific customer segments. It focuses on how a company interacts with its customers to acquire, retain, and boost sales. This section covers the strategies and practices small businesses use to build and maintain strong customer connections, ensuring long-term engagement and satisfaction. Types of relationships that can be established with customers include:

• Personal Assistance - Dedicated personal assistance is when each customer receives a specific representative who provides tailored support and services while individual personal assistance is when customers receive help from a representative when needed, but not from the same individual each time

• Self-Service - Customers can utilize automated services in which they perform tasks independently using provided tools and resources (FAQs, self check-out, etc.) or user communities or platforms where customers can help each other, such as online forums, discussion boards, and social media groups

• Automated Services - Automated systems are employed to analyze customer data and predict customer preferences and behaviors to present personalized recommendations, experiences, or targeted ad campaigns

• Co-Creation - Customer feedback and engagement are heavily utilized to involve customers to generate ideas, solve problems, create content, and aid in the development of new products and services

Customer relationships should enable the following outcomes:

• New customer acquisition

• Existing customer retention

• Enhanced customer engagement

• Improved customer trust and loyalty

Each type of relationship should align with the company’s overall strategy and the specific needs and preferences of its customer segments. The goal is to create strong, lasting relationships that drive customer satisfaction, loyalty, and business growth.

Customer Segments

The customer segments component defines the different groups of people or organizations a business aims to reach and serve. This section is crucial because it helps the company understand who its customers are, what they need, and how to best serve them. Identifying and understanding these segments allows for more targeted and effective marketing, sales, and service strategies. The following are common ways businesses will segment the markets they serve.

• Demographics - statistical data including age, gender, income level, education level, etc. relating to the population of various markets that a business serves

• Geography - customizing offerings or adapting products and services to serve customers in specific locations, climates, or environments

• Psychographics - developing products and services for customers based on attitudes, aspirations, personality traits, lifestyle choices, values, and beliefs

• Behavior - segmenting customers based on purchasing habits, usage rates, or special occasions like birthdays, holidays, or seasonal events

Examples of customer segments by business type:

• Technology Company - Early adopters, tech enthusiasts, small businesses, large enterprises

• Retail Business - Budget-conscious shoppers, luxury shoppers, online buyers, in-store buyers

• Healthcare Provider - Patients with chronic conditions, healthy individuals seeking preventive care, elderly patients, and pediatric patients

• Financial Services - Individual investors, small business owners, high-net-worth individuals, young professionals

• Non-Profit Organization - Donors, volunteers, beneficiaries, community partners

Each customer segment should be clearly defined and understood to create targeted value propositions and strategies. By tailoring products, services, and marketing efforts to the specific needs and preferences of each segment, a company can enhance customer satisfaction, loyalty, and overall business success.

Channels

The channels component describes how a company delivers its value proposition to its customer segments. It outlines the various ways a business reaches, communicates with, and sells to its customers. Effective channels are crucial for ensuring that customers receive the value the company offers in a manner that enhances their experience and maximizes the company's efficiency. Channels can broadly be categorized as either direct or indirect channels.

• Direct Channels - These channels are owned and operated by the business directly

  • Sales Team - In-house sales teams that engage directly with customers, often used in B2B and high-value B2C transactions

  • E-Commerce - Selling products or services through the company’s own website or e-commerce platform

  • Retail Locations - Physical brick-and-mortar locations owned and operated by the company

  • Direct Mail - Sending catalogs, brochures, or other marketing materials directly to customers

• Indirect Channels - These channels are owned and operated by other companies

  • Retail Partners - Third-party retail stores or chains that sell the company’s products

  • Wholesalers and Distributors - Intermediaries that buy products in bulk and resell them to retailers or other businesses

  • Franchisees - Independent businesses that operate under the company’s brand and business model

  • E-Commerce - Selling products and services on a website or platform owned by another business

The channels selected should be responsible for raising customer awareness of products and services, helping customers evaluate the product or service, facilitating purchases, delivering the product or service, and providing any after-sale support. The selected channels must be well integrated to maximize efficiency, optimize costs, and deliver a great customer experience. This strategic approach to channels helps optimize marketing efforts, sales processes, and overall customer satisfaction.

Cost Structure

The cost structure component describes all the costs and expenses a company will incur while operating its business model. This section focuses on understanding the most significant costs associated with delivering the value proposition, maintaining customer relationships, and generating revenue. Analyzing the cost structure helps businesses identify optimization areas and manage costs effectively. Consider the following factors when identifying the costs required to run the business:

• Types of Costs - Costs can be assigned to one of two broad categories: fixed costs and variable costs

  • Fixed Costs - Costs that remain constant regardless of the volume of goods or services produced such as salaries, rents, utilities, and insurance

  • Variable Costs - Costs that vary directly with the level of production or business activity such as raw materials, direct labor, sales commissions, shipping, and packaging

• Cost Elements - Understand where these costs fall on the P&L and how they help the business deliver the value proposition to customers

  • Cost of Goods Sold (COGS) - Direct costs attributable to the production of the goods sold by a company including raw materials, production costs, and direct labor costs; COGS are generally variable costs as they’ll change with the level of sales

  • Operating Expenses (Op Ex) - Ongoing expenses necessary for running the day-to-day operations of a business such as marketing expenses, salaries, rents, and administrative costs; Op Ex consists of both fixed and variable costs

  • Capital Expenditures (CAPEX) - Investments in long-term assets that will benefit the company for several years such as property, machinery, technology infrastructure, and equipment; these expenses aren’t reported on the P&L but impact the cash flow of the business

By thoroughly understanding and managing the cost structure, businesses can make informed decisions to enhance profitability, ensure sustainable growth, and maintain a competitive edge in the market.

Revenue Streams

The revenue streams component describes how a company generates income from each customer segment. This section focuses on which revenue models and pricing mechanisms will be used to capture value from customers in the form of financial returns. Identifying and optimizing revenue streams is crucial for ensuring profitability and long-term sustainability. When defining revenue streams, consider the following factors:

• Types of Revenue Streams - All revenue streams can be classified as either transactional revenue or recurring revenue

  • Transactional Revenue - Revenue generated from one-time customer payments such as product sales or service fees; each transaction is independent of the others

  • Recurring Revenue - Regularly earned revenue from ongoing payments such as subscription fees, royalties, licensing fees, memberships, rentals or leasing; these revenue streams are considered more stable and predictable than transactional revenue streams

• Revenue Models - Specifically describe how the business will charge customers for its products and services

  • Asset Sales - Selling ownership rights to a physical product such as selling cars, appliances, or books; this is the most traditional revenue model where goods are exchanged for money

  • Usage Fees - Charging customers based on how much they use a service; the more they use, the more they pay

  • Subscription Fee - Charging customers a regular fee to access a product or service such as Netflix or Spotify; this is becoming an increasingly popular revenue model because of the consistency and predictability

  • Lending/Renting/Leasing - Temporarily granting someone the right to use an asset for a fixed period in exchange for a fee

  • Licensing - Allowing customers to use protected intellectual property in exchange for licensing fees such as software licenses, franchise agreements, or patent usage

  • Brokerage Fees - Earning revenue as an intermediary between two or more parties and charging a commission for facilitating transactions such as real estate agents and stockbrokers

  • Advertising - Generating revenue by charging for advertising space such as online ads, commercials, or billboards

• Other Revenue Considerations

  • Revenue Diversification - Having multiple revenue streams to spread risk and increase stability helps mitigate the impact if one revenue stream underperforms

  • Cost Alignment - Ensuring that the revenue generated aligns with the cost structure to maintain profitability which involves analyzing gross margins and operating costs

  • Scalability - The ability to grow revenue without a corresponding increase in costs; scalable revenue streams allow for greater profit margins as the business expands

By implementing a well-thought-out and diversified revenue model, businesses can ensure a robust and sustainable financial foundation. This enables them to optimize their pricing strategies, improve profitability, and achieve long-term growth.

If your business is struggling to develop a business model canvas, our team can help. Schedule a discovery session today to understand how our affordable expertise can assist your business. Whether you have the occasional question or require more comprehensive guidance, we offer a range of options to meet your needs.

Other Strategy Templates

Ansoff Matrix | PESTEL Analysis | Porter’s Five Forces | Strategy Choice Cascade | SWOT Analysis