A business model describes how managers of a business intend to generate revenue and profits. The financial model describes all sources of revenues and their importance and all sources of expenses and relative amounts.

According to some sources, a business model also describes product offerings, selection criteria for employees and customers (target market), and how resources are deployed.

Chesbrough and Rosenbloom identify six components of the business model:

1. Value proposition - a description the customer problem, the product that addresses the problem, and the value of the product from the customer's perspective.

2. Market segment - the group of customers to target, recognizing that different market segments have different needs. Sometimes the potential of an innovation is unlocked only when a different market segment is targeted.

3. Value chain structure - the firm's position and activities in the value chain and how the firm will capture part of the value that it creates in the chain.

4. Revenue generation and margins - how revenue is generated (sales, leasing, subscription, support, etc.), the cost structure, and target profit margins.

5. Position in value network - identification of competitors, complementors, and any network effects that can be utilized to deliver more value to the customer.

6. Competitive strategy - how the company will attempt to develop a sustainable competitive advantage, for example, by means of a cost, differentiation, or niche strategy.

from http://en.wikipedia.org/wiki/Business_model

Henry Chesbrough, Open Innovation : The New Imperative for Creating and Profiting from Technology, HBS, 2003.