Business modeling¶
What is business modeling?¶
Business modeling is the act of generating a representation of two key sides of a business: revenue and expense. Creating this representation can be simple or complex. Either way, the ultimate output will be a monetary amount. Typically, the goal of a business model is to understand how an enterprise is making money or spending it.
Business modeling varies depending on the audience or goals. For example, a simple business model in a spreadsheet is likely designed to help understand the viability of a business at a high level. bframe is built to enable accounts receivable management (ARM) and focuses on answering the question of how a business makes money. This includes representing contracts and orders, calculating product usage and producing documents that indicate how much each customer owes. In essence, ARM is only possible if a company can measure, track and understand what was sold to customers. This is what bframe is designed to accomplish.
Why is modeling a business important?¶
From the outside, it often seems like a company has everything under control. While this may be true in exceptional cases, it’s a challenging assumption to validate. Enterprises become more difficult to understand the larger they get. The only way to manage this problem is by creating more visibility into operations, the most fundamental of which being the process of making money. Without it, the business will cease to exist. So modeling a business is important, especially on the accounts receivable side, because it offers a view into how a company creates revenue.
A business model can also be a source of truth for codefied pricing, packaging and contract terms. Without a realistic business model, determining what a customer owes becomes be a manual process. Each contract either needs to be the same, or be manually reviewed prior to invoicing. Manual contract review can become a blocker to bringing on enterprise customers and introduces risk of revenue leakage from human error. ARM automation is widely seen as a best practice. In order to automate ARM, a business must be modeled effectively and accurately.
How do you model a business?¶
There are numerous ways to model a business, since selling something can take many shapes or forms. The first step of modeling a business is to classify it. A great process for determining the value of a gold vein will not be helpful for a consumer tech startup. bframe is designed for B2B software as a service (SaaS) companies. The defining characteristic of these companies is that they sell software, usually on a recurring basis to other businesses.
Once classified, there are common data models for each type of business. Using these primitives, a business can be modeled accurately even without detailed workflows. This can occur in a spreadsheet, database or in code. Often operators will start out in a spreadsheet.
As a business grows, it becomes important to codify these primitives to build out automated workflows. bframe depicts four different workflows which culminate in a representation of what a customer owes, also known as revenue.
The configuration workflow takes place first and codifies standard products, pricing and terms.
The provisioning workflow represents what products a customer has purchased along with what pricing and terms they have agreed to.
The metering workflow tracks usage and assigns it to the configured products.
Finally, the rating workflow computes invoices based on the pricing, terms and usage of each customer.
The outputs of this model are intended to be used for ARM, but they can be applied across revenue management. Invoices can be summed to represent revenue, broken down by line item for accounting or attributed to sales executives to determine compensation.