How to make a Business Model Canvas in 9 steps
Business Model Canvas (BMC) is a strategic management tool to quickly and easily define and communicate a business model, product or service. BMC offers a template on one page that helps you work through the fundamental elements of a business or product, structuring your ideas in a coherent way.
A BMC has 9 elements: key partners, key activities, key resources, value propositions, customer relationships, channels, customer segment, cost structure, and revenue stream.
Why use a Business Model Canvas?
BMC is all about defining your business model or defining a product or service that your organisation offers. You can use BMC as a step-by-step guide to developing a complete business model, product or service. A BMC can also serve as important groundwork for your strategic plan in OGSM, since it helps you think about a range of important factors for your Strategies.
How do I make a Business Model Canvas?
The Business Model Canvas template consists of 9 different components that you will have to think about and define as concretely as possible. Below, we briefly explain each of the components:
1. Key partners: These are your relationships and strategic alliances with other businesses and suppliers. These relationships can help you with resource acquisition, reduction of risk, and optimization of economies. Partnerships can help you innovate and stand out in the market, outperform the competition, and/or increase sales.
2. Key activities: These are the most important activities that your company needs to execute to make your business plan work. The key activities of a company can be managerial or operational. You’ll want to briefly describe the activities that are core to your company’s functioning, but don’t go into everything in exhaustive detail.
3. Key resources: These are the resources you need to create value for your customers. They include all assets that your company needs to sustain and support the business. This component includes human, financial, material and intellectual resources.
4. Value propositions: This is the added value that your service or product offers. It should define the main reason why customers should choose you over a competitor. The value proposition must address a problem, need or desire of a customer.
5. Customer relationships: To ensure the survival and success of your business, you must identify the type of relationship you want to create with your customer segments. This element should cover three critical aspects of the customer relationship:
- How your business will get new customers;
- How your business will convince existing customers to keep purchasing its products or using its services;
- How your business will grow its revenue from its current customers.
6. Channels: Your company can deliver its value proposition to its targeted customers through different channels. Effective channels will distribute a company’s value proposition in ways that are fast, efficient and cost-effective. You could reach clients through your own channels (store front), partner channels (major distributors) or a combination of both.
7. Customer segments: Different customers have different needs and requirements. It is very important to recognise them, so your company can target new customers effectively and successfully leverage the customer relationships as described under component 5.
8. Cost structure: Each company has costs linked to the key activities, key partners and the key resources. For each cost, you should determine whether it is fixed or variable, and direct or indirect.
- Fixed costs: These don’t change, even if the production increases, e.g. rent paid for office space.
- Variable costs: They increase proportionally with the volume of production, e.g. material or labour costs.
- Direct costs: They are essential for the creation of the product or service.
- Indirect costs: They do not have a direct link with your value proposition
9. Revenue stream: This describes the way your company generates revenue from each customer segment. Some possible revenue streams are usage fees, product sales, subscription fees, licencing, advertising, lease, and brokerage.
Now that you know all the BMC components, you can make a table with two columns and nine rows. In the left column, enter all nine components from top to bottom. Then, in the right column, enter the required information for each component.
BMC as preparation for OGSM or OKR
Frequently asked questions about Business Model Canvas
A Business Model Canvas (BMC) is a template to quickly and easily communicate a business model, product or service. A BMC is made in 9 steps, resulting in a simple overview of a business model (not a business plan!) on one page.
A Business Model Canvas is a template for a business model. It outlines what products or services you offer, who your clients are, what your revenue streams are, what your sales channels are, and so on. It is a snapshot of your current company or a business case for a new company.
A strategic plan, for example in OGSM or OKR format, contains quantitative goals, strategies, KPIs and actions to execute the plan. A strategic plan is a living document with an owner, and it is continuously adjusted based on data and learning.
Making a BMC can help you communicate your business model easily. It is also useful preparation for your strategic planning process. By walking through the 9 steps of the Business Model Canvas, you get important input for your Strategies and Action Measures (OGSM) or your Key Results (OKR).
For more detail, see above. The steps are:
- Key partners
- Key activities
- Key resources
- Value propositions
- Customer relationships
- Customer segments
- Cost structure
- Revenue stream
Get some paper or open your document editor and divide the page into two columns, a narrow one and a wide one. In the narrow left column, write each of the 9 steps above. In the right column, add the relevant information for each item.
- For more detail on the contents of each step of the BMC, Wikipedia explains all the elements.
- Business design company BMI made a ready-made Business Model Canvas template.
- ING Bank has some more info (in Dutch) on each of the core elements of the Business Model Canvas.
- Watch this useful BMC introduction video on YouTube by The Business Channel.