There are two determining factors in sizing up business models, according to Joan Magretta, award-winning contributor to and former strategic editor of the Harvard Business Review.
“When business models don’t work, it’s because the story doesn’t make sense and/or the numbers just don’t add up to profits,” she once stated.
A business model can therefore be defined as a company’s plan and strategy to make a profit. It also helps make clear what products or services the enterprise wants to sell to make a profit as well as making social contributions. Effective business models also help the company to identify the target market, define customer segments, and forecast costs and benefits.