When it comes to developing a successful mobile app, there are many things that need critical consideration but are often overlooked. The business model of an app is one of them.
Mobile apps can be anything, from incredibly addictive games to useful productivity tools. App owners need to consider how to deliver value to users through their apps and how to earn money from them. The business model of an app is built on these two questions.
According to Gartner, most mobile apps are falling flat these days. The reason behind this is they are based and started on just an idea.
While a great idea is crucial for a mobile app, creating a business requires more than just a concept.
The right business model - which gives a contemporary worldview of the idea and underlying challenges and opportunities in the marketplace – is also crucial.
Use this guide to find out what a business model exactly is and make the right decision for your next app.
What Is a Business Model?
A business model is a conceptual structure that supports the validation of an app. It clarifies how the business works and makes profits while providing value to its users. All the business procedures and strategies that a business adopts and pursues are part of the business model.
The model is exclusively focused around answering “what, how, and who” questions for business.
- What: What is the value being delivered to the customers?
- How: How is that value created, delivered and maintained?
- Who: Who is being served?
Along with providing answers to these three questions a business model also lists the cost structure and revenue generation methods of a business.
One of the greatest misconceptions when it comes to business models is to confuse it with the revenue model or monetization strategy of the business. While this is an essential part of the riddle, it is not the only component.
The business model of an app is crafted using nine ingredients. The model that then emerges is called the business model canvas.
In the business model canvas, the "What" question is answered by value propositions, i.e. the unique benefits the app will offer to its users.
The "How" question is answered by giving details of external resources and activities used to create and deliver that value to the users.
The “Who” question is answered by defining the customer segment that is ideally targetable and partner networks.
The business model should then describe the most essential part of the business - the profitability. This includes the cost structure involved in all the operations mentioned above and the revenue generation sources.
Thus, the model turns into an organizational lightning rod for concentrating on delivering value and moving the organization strongly toward a viable technique of competitive advantage.
The Advantages of Having a Great Business Model
A business model can help your company plan ahead and prepare itself for a process. By thinking about the future, a business model helps people plan their goals for the year and think about how to achieve them.
Different Sources of Revenue
Most often when entrepreneurs develop an application, they have only one source of revenue in mind as a primary concern. But, crafting a great business model can help them find other sources of revenue for their business.
Let’s take Uber – the ride-sharing-giant - as an example.
The company was founded in 2009 and had one single source of revenue - rides. Gradually, the founders created and evolved the business model and found many other sources of revenues like surge pricing, premium rides, cancellation fees, leasing to drivers, brand partnerships, and advertising.
Now, Uber is no longer known as just the on-demand cab-hailing service. It has plunged its toes into other territories also – from Uber Freight (on-demand trucking) to Uber Eats (on-demand food delivery) – and has become a billion-dollar company.
Uber invested in different sources of revenue to help its business scale faster.
Scale Your Business Faster
An incredible business model helps you scale your business quickly by giving you a chance to utilize your available resources with amazing proficiency.
A question that every entrepreneur thinks about is how to take his business from nothing to the Fortune 500? The answer is easier than you might suspect.
Make a scalable business model.
By structuring your very own scalable business model, you can ensure that you're not just prepared for quick growth but can actually help your business drive it. A scalable business model gives your business a chance to get the most out of your resources.
Here is how an incredible business model can incorporate scalability in your brand:
Some of the greatest brands in the world like Apple, Starbucks, and Amazon came from exceptionally humble beginnings but had the capacity to develop rapidly because they were designed for scalability.
By making a business model that is incredibly effective, stable under pressure, and maintains a relationship with customers, you can make a brand that is more than prepared to grow rapidly.
After all, building for scale rarely fails.
Acquire High-Value Customers
Focusing on the right kind of customers is crucial for each sort of business or application start-up. It is the main stride towards the success of an app – acquiring high-value customers.
Also, having a well-defined business model can help you with the same.
When I state high-value customers, that doesn't mean rich ones, but the ones who meet the following necessities:
- Are simple to find
- Allow you to charge a profitable price
- Are willing to try your product after minimal marketing costs
- Can create enough business to meet your sales and profit objectives
Users don't really need to be the end clients of your app or product. They could be retailers, wholesalers, catalogs or whomever you pitch your product to.
You will investigate these classifications when you create an appropriate business model even before seeking funding for your app.
There was once a time when high-end technologies used to impress investors. In the present market, technology takes a back seat to the business model.
Present-day entrepreneurs must perceive this move. The capacity to scale rapidly is turning into an essential for pulling in an investment of any kind. Here are two things that investors want to see in a startup before giving them the funding:
The larger part of investors today care about just a single thing: scale. Investors are not impressed by slick technology that doesn't lend itself to fast adoption. They can just recognize two words: return on investment and profits.
If they see you have planned for ROI and profits, only then they will put resources into your start-up. If you have a scalable business model that guarantees your growth in front of the investors, they will be likely to invest their money in your start-up.
Slow but steady growth irritates investors. They need to see profits as soon as possible. Investors, acquirers, and other key partners value speed nearly as much as they value the capacity to scale. Having an extraordinary business model guarantees you and your investors the objectives of your business and the potentials it has.
If your organization isn't having a business model that demonstrates these two factors, you will have an intense time raising capital.
Offer Significant Value to Your Customers
When you make a business model, you define value proposition given by your business to customers. There are various manners by which you characterize and make significant value and competitive advantage for your users:
- Unique advantages in benefits and features
- Better distribution through various channels
- Faster delivery or more customization choices
- Lower pricing
This not just guarantees the quality of services you provide, but in addition, makes it imperative that you remain on an innovative edge to battle off competition.
Top Factors to Consider While Creating the Right Business Model of Your App
Confirm that your product or service solves a problem: Once you have a prototype or alpha version of your app, release it to real customers to check the response you get. Pay attention to feedback on the most proficient method to make it a superior fit. If it doesn't solve a problem or doesn't work, no business model will help you.
Study the market: Do competitor analysis, set your budget, find out your target audience and depict the size of your market. Keep in mind, products too costly for the market won't succeed, and prices too low will allow the users to question your quality. Match with competitor prices and market demographics.
Talk to investors and industry experts: A little advisory board of outside individuals with experience in your domain can give you the fair-minded feedback you need, as well as the connections you require for setting up distribution and sales channels. It's additionally important to talk with potential investors for their perspectives, even if you are bootstrapping the effort.
Plan a soft-launch: Good traction and response on a restricted rollout is a great validation of a business model. It enables you to test costs, pricing and quality in a couple of stores or a single city, with least jeopardy and the maximum speed for corrections and recovery.
Collect customer references: Give extra attention to that first couple of users, and request publishable testimonials and word-of-mouth help in return. If you can't get their help, even after your personal efforts, accept it as a warning that the business will not scale at the rate you anticipated.
Make Your App More than an Idea
Finding an incredible mobile app idea isn't even a halfway reached scenario. In the competitive mobile application world, you need much more than that to get success.
Your business model can be a better sustainable competitive advantage than your product features and technologies used in it. Additionally, it can be your greatest risk exposure. A number of app business plans are overwhelming on competitive product features but light on business model innovations and details. This is the fundamental reason why applications fall flat.
If you or somebody in your team hasn't spent the same efforts on the business model as on the product service, you are just half prepared for the present reality of businesses today. It's difficult to win by doing half the job, especially if that is the simpler half. So, think about a business model first and then proceed with your app development and release.