4.1.4 Financial viability area

The financial viability area is located in the lower part of the business model canvas (see Figure 5). It focuses on the money a value proposition costs versus what it generates as a revenue. Therefore, the financial viability is composed of two elements: revenue streams and cost structure.

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Figure 5 The financial viability area of the Business Model Canvas

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There is a heading in the top left-hand corner of the figure which says: ‘The Business Model Canvas’. Figure 5 is also divided up into nine separate blocks. The two blocks at the base of the figure are labelled ‘Cost structure’ (on the left-hand side) and ‘Revenue streams (on the right-hand side). There are two icons, one symbolising a graph next to the ‘Cost structure’ label and a second icon symbolising a bag of money next to the ‘Revenue streams’ label. There is also a label in the centre (straddling the two blocks) which says: ‘Financial viability’. The two blocks are also shaded purple.

Above the ‘Cost structure’ and ‘Revenue streams’ blocks, there are seven more blocks. These are labelled (from left-to-right) as ‘Key partners’, ‘Key activities and ‘Key resources’. Each one is symbolised by an icon such as a hand shake for ‘Key partners’, a tick box for ‘Key activities’ and a factory for ‘Key resources’.

There is also the ‘Value proposition’ block with a gift icon as its symbol. At the far top right of the Business Model Canvas there is a cluster of three blocks labelled ‘Customer relationships’, ‘Channels’ and ‘Customer segments’. These are symbolised using a heart icon for ‘Customer relationships’, a lorry symbolising ‘Channels’ and a people icon symbolising ‘Customer segments’.

Figure 5 The financial viability area of the Business Model Canvas

• Revenue streams

  The revenue streams are revenues that the business model generates. The key question at issue here is: ‘What value are customers willing to pay for?’ (Osterwalder et al., 2010, p. 31). In the business models of fast couriers such as DHL, a German multinational delivery service provider, and FedEx, an American multinational delivery services company, the revenue streams rely on the customers’ willingness to pay more for speedy deliveries.

  

  It is also important to clarify how revenues are collected or, in other words, how customers pay. The two possibilities are shown in Figure 6.

  

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  Figure 6 Pricing mechanisms

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  Figure 6 consists of a large box titled: ‘Pricing mechanisms’. There are two smaller boxes within the larger box. On the left there is a box titled: ‘Fixed menu pricing’ with a subtitle underneath that states: ‘Predefined prices are based on static variable’. The box consists of two columns and four rows. Each column and row contains text. This is listed as follows:

  List price – Fixed prices for individual products, services or other value propositions.

  Product feature or dependent – Price depends on the number or quality of value proposition features.

  Customer segment dependent – Price depends on the type and characteristic of a customer segment.

  Volume dependent – Price as a function of the quantity purchased.

  On the right there is a box titled: ‘Dynamic pricing’ with a subtitle underneath that states: ‘Prices change based on market conditions’. The box consists of two columns and four rows. Each column and row contains text. This is listed as follows:

  Negotiation (bargaining) – Price negotiated between two or more partners depending on negotiation power and/or negotiation skills.

  Yield management – Price depends on inventory and time of purchase (normally used for perishable resources such as hotel rooms or airline seats).

  Real-time-market – Price is established dynamically based on supply and demand.

  Auctions – Price determined by outcome of competitive bidding.

  Figure 6 Pricing mechanisms

• Cost structure

  Cost structure identifies the costs underlying the business model. A business model involves using resources. Each resource has its own cost. Therefore, the key question to be considered here is: ‘What costs are generated by the resources employed?’

  Also, a business model involves a series of activities an organisation needs to perform to generate value. Therefore, an additional important question here is ‘What are the costs associated with the activities of the business model?’ For instance, some customers see value in greener solutions with carbon neutral deliveries; yet, it is costly to develop such offers. Usually more innovative, they require additional investments of time, attention and money to develop. Also, they do not always reflect the conventional meaning of efficiency measured in financial terms. This may be the case of green solutions. Yet, despite their higher costs, green value propositions are at the core of business models in many companies. For example, DPD, the largest parcel delivery company in Europe, offers carbon-free bicycle deliveries to customers interested in, and ready to wait and pay more for, green solutions.

  

Now you have considered all the different areas of the business model canvas, you will consider your own business model canvas.