The final two elements of the business model canvas are the two financial elements: revenues and costs. We’re going to examine revenues first; as the types of revenues you intend to produce will determine what kinds of costs you encounter. Generally these are the first two elements that people think of when designing a business strategy, however, it’s important to ensure that your revenue streams and your cost structures flow from the rest of your business structure rather than you trying to force them to work together.
Revenue is money coming into the business. Revenue streams are all of the different ways that the company can make money. Chiefly you’ll want to consider the money that comes in from direct product and service sales, but there are other streams to consider as well. For example, if you run a commercial kitchen, you could potentially rent out your equipment when you know that your business won’t be using it. The same goes for manufacturing equipment, vehicles, and other long-term assets. Another type of revenue stream is ad revenue; if you are creating an online business or a physical newsletter/magazine (etc.), you can sell ad space along the tops and sides of your content to produce additional revenue. You could also engage in co-branding, hosting workshops or taking speaking engagements, sell the licensing rights to your brand name or expand through franchises – there really is no limit to the types of revenue your company can produce.
For our cleat company example, we would, of course, have revenue from cleat sales. We might also have an opportunity for ad revenue on our website. Because we run an Aboriginal-owned, technology-based company, we plan to earn revenue through speaking fees; we want to help our communities learn to use technology and technology-based careers to improve their lives, so we will be trying to secure speaking engagements soon after launching the business. Finally, we will earn revenue through affiliate, partnership marketing. We will set up agreements so that every time a customer accesses and signs up for rec classes in their community through our website, we will take a small percentage of revenue. This agreement is called affiliate marketing or co-branding.
The final segment of our Business Model Canvas is the Cost Structure segment – this is the part of the process where we figure out what kinds of costs our crazy ideas have gotten us into. The Cost Structure segment forces us to list off the major categories of costs that we will incur as a business and it’s one of the most important segments. For this segment, we want to look at the rest of the Canvas (with a focus on: Key Resources, Key Activities, and Revenue Streams) to ensure we have accounted for all of the major costs.
For our example business, the cleat company, our major cost categories could potentially include:
- Hiring and training customer service representatives
- Returns and exchange allowances
- Website maintenance and development
- Cleat production/purchase
Although there are other costs that the business will incur (everything from insurance to financing costs, stationery purchases to owner’s salaries) these five items are our major cost categories.
Now that you have filled out every section of the Business Model Canvas, it’s time to review each section to ensure that your vision is clear and your ideas are all connected. For example, your Key Resources should be enough to support the Revenue Streams you’ve chosen and your Key Partners should be compatible with the types of Customer Segments that you’re targeting. Your Cost Structure items should cover the costs of your selected Channels and your Value Proposition should be relevant to the missions of your Key Partners (and so on…).