Keeping in mind profit potential, what are the most important costs inherent in your business model and how will you minimize them?
The Commercial Dimension
Creating and delivering value, maintaining relationships, and generating revenue all incur costs. Such costs can be calculated relatively easily after defining key resources, key activities, and key partnerships. Some business models, though, are more cost-driven than others. Therefore, it can be useful to distinguish between two broad classes of business model cost structures: cost-driven and value-driven (many business models fall in between these two extremes). Cost structures can have the following characteristics: fixed costs, variable costs, economies of scale (output-related), and/or economies of scope (operations-related).
The Impact Dimension
Like other parts of a social enterprise business model, the cost structure needs to take account of both your commercial costs and the costs involved in delivering an impact. For most social enterprises this means understanding the costs involved in keeping the ‘business’ going, and unpacking what extra costs are needed to actually deliver on the impact of the enterprise. Impact is rarely, if ever, cost neutral – if it was, then every business would be a social enterprise! Understanding and articulating your impact is critical to being able to unpack its cost structure. If your impact is vague or ill-defined, costing it will be equally imprecise.
Professor Sarah Soule explains the goal of the cost structure block, and poses questions for you to consider as you think through strategic options for your venture. She will discuss the example of Equal Opportunity Schools, a national nonprofit organization with both earned income and philanthropic support. (1:11)
Design Prompts
- What are the critical expenses that your social venture or program will incur to start operating and gain stakeholder traction?
- What are your long-term cost drivers?
- What are the most expensive aspects of running your business or program?
- Which costs will decrease over time if you scale?
For-profit example
d.light
Cost structure:
- Office & call center space [c]
- Salaries [c]
- Research [c]
- Manufacturing [c]
- Marketing [c]
- Distribution [c]
- Impact assessment [i]
d.light sells solar energy solutions to populations without electricity in 60+ nations. See project description and its Impact BMC
Nonprofit example
Equal Opportunity Schools
Cost structure:
- Salaries [b]
- Office [b]
- Insurance [b]
- Legal [b]
- Accounting [b]
- Marketing [b]
- Research [b]
- Travel [b]
Equal Opportunity Schools helps minority and low-income high school students succeed in AP and IB courses. See project description and its Impact BMC
i = Impact dimensions, c = Commercial dimensions, b = Both dimensions
Deep dive
- Osterwalder, A., & Pigneur, Y. (2009). Business Model Generation. New Jersey: John Wiley & Sons, Inc. See pages 40-41
- Burkett, I. Using The Business Model Canvas for Social Enterprise Design. See page 28
- Calderon, J. The Social Blueprint Toolkit. See page 21