Business model

What is a business model?

A business model is how a company creates, delivers and captures value. It covers who the customers are, what they get, how they are served, and how revenue and costs line up to produce a profit. The Business Model Canvas, from the book Business Model Generation, lays these elements out on one page. Joan Magretta made the case for the concept in Harvard Business Review in 2002.

Why it matters to a revenue leader

The business model sets the economics a revenue leader sells inside. A commercial services company built on recurring inspection and maintenance agreements earns differently from one built on project work, and each needs its own sales motion and pay plan. Recurring agreements make revenue more predictable, which a buyer looks for at exit, so a revenue leader who shifts the mix toward agreements changes what the company is worth.

A mechanical contractor earns 80 percent of its $30M revenue from one-time projects. Over three years, it moves its sales team toward preventive maintenance agreements that lead to repair work. Recurring revenue grows from $6M to $13M, and forecast misses shrink because more of each year's revenue is under contract on January 1.