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What is Business Model Analysis?

Article Details
  • Written By: Osmand Vitez
  • Edited By: C. Wilborn
  • Last Modified Date: 03 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
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Business model analysis is a process companies use to evaluate their internal working processes. The analysis process consists of four parts: usage, resources, customers, and competitors. Companies go through this process to ensure each business model maximizes given resources and leverages them into the most profit possible. Business model analysis may also focus on reducing the costs associated with a business process, which helps companies lower the expenditures associated with non-revenue generating models. Processes that do not generate revenue are called cost centers and often need analyzing to ensure they are within budget.

The usage portion of business model analysis includes examining the users of the model, clients or customers who may use the model, how the model is best used, and the technical application of it. In some cases, the company may determine that the business model has a proper design, but the users — whether internal or external — are not using the model properly. To correct this, the company may be able to simply retrain employees. Additional employee training can also translate to customers who will have a better knowledge of the model and how to use the business model system.

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Resources in business model analysis include the amount of money a company spends on the model, the ability to discover the core competencies of a model, how to calculate changeover costs, and whether or not the company should outsource the business model. Companies often undergo this part of the analysis process if they believe the company can do better at completing the process. During periods of low capital or sales, the company will often look at reducing costs through a resource analysis.

Reviewing customers involved with the business model is another part of the analysis process. Customer demand dictates the type of service companies will provide, how many customers the company can gain each month using the business model, and how to understand why a customer uses the model. This analysis also involves understanding why a customer would leave the company and shift his business to a competitor. Most businesses spend more money gaining new customers than they do retaining current ones, making this analysis important.

Another part of business model analysis involves studying competitors. Companies determine how many direct competitors they have, the number of new competitors, and how competitors conduct business. This analysis is often conducted prior to starting a new product line or entering a new market. Companies may include this analysis with the former process of customer reviews. Each method works together to provide companies with information that is similar.

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