Starting a business isn’t as easy it looks. There are numerous things to consider – location, strategy, and the business model to adopt. There are numerous types of business models, but we’d be looking at a few.
Business models are important as they help you to identify what you’d be selling, whom you are selling to, and where and how to see those you’d be selling to.
Finally, a business model helps you understand or see how you’d make money from your business.
It is for this reason that we’ve put this piece together.
Therefore, this article will help you understand what a business model is. What it means to have a business model, and of course the types of business models there are.
Meanwhile, take a look at our table of content for a summary of this piece.
Planning is crucial in every human endeavor and most people who fail to plan, simply are planning to fail. It is even more important that one plans especially when it has to do with business. This is why you need a business model – it is your plan.
There are obviously lots of business models out there, but the important thing is to identify the type of business model that best suits your business.
It’s not news that business models have continued to evolve over the years. As a matter of fact, the 21st century has witnessed the birth of more sophisticated models along with even more-sophisticated businesses.
According to Wikipedia, before now, we just had the bait and hook business model (also referred to as the “razor and blades business model” or the “tied products business model”).
It was introduced in the early 20th century. It involves offering a basic product at a very low cost, often at a loss (the “bait”), then charging compensatory recurring amounts for refills or associated products or services (the “hook”).
Examples include razor (bait) and blades (hook); cell phones (bait) and air time (hook). Computer printers (bait) and ink cartridge refills (hook). Cameras (bait) and prints (hook).
A variant of this model was employed by Adobe, a software developer that gave away its document reader free of charge but charged several hundred dollars for its document writer.
However, we’re not only going to talk about a particular model or its history. We’d be looking at as many models as possible.
Like the term “model” it means structuring your business venture to fit into existing business models. This means you copying strategies already existing, and implementing them in your business.
To copy does not mean you take all you see in a business similar to yours.
Nor does it mean that every other business model automatically suits yours because they might be similar.
Rather, you apply the attributes of the business that you think might help you scale up yours while ignoring those that wouldn’t.
What Is A Business Model?
This is an outline of how a company intends to make money with its product and customer base in a specific market.
There are paramount points every business plan must address and they:
Examples Of Business Model
The subscription model is one of the most popular business models that we have now.
And in a subscription model, customers get to pay a certain fee for a product or service, and the company paid to is expected to render such services or provide the products to the customers.
This is usually for a period of time and is renewable if the fee expires.
A good example of a subscription business is Netflix. Telecom services are also another example of the subscription model.
Based on the four points mentioned earlier that every business model must show, let’s break down what Telecom Subscription services.
What Kind Of Product Or Service A Company Will Sell:
Telecommunication companies sell “talk/Call and Text time”.
How Do They Market Their Services?
Netflix uses a multi-channel marketing strategy and markets its service through social media, email marketing, advertising, and even simple word-of-mouth marketing.
What Expenses Will They Make:
As very big companies, they are bound to incur extensive expenses and most of it might come from maintaining their servers and database, and broadband technologies.
This ensures that they continue to provide the best services to their customers.
How Does The Business Turn In Profit?
The major way telecom companies make money is through subscriptions.
The example above shows how these companies make and spend money, and outlines the reason why these companies are subscription coys.
This said, your business model should be able to explain to you how you’d make money. Enough to cover your expenses and gain some profits.
Requisite Components Of A Business Model
Business models definitely vary in their form and functions, nonetheless, they all consist of the same basic components.
Essential elements of a business model include a unique value proposition, a viable target market, and a competitive advantage. Without them, you don’t have a way of generating revenue.
Bear this in mind, business models aren’t just about incomes. You also need to consider production costs and other factors in order to see the full picture.
Below are some of the things you need to be inundated with about business models:
- Value proposition: A feature that makes your product attractive to your customers.
- Target market: A specific group of consumers who would be interested in your product.
- Competitive advantage: A unique feature of your product or service that can’t easily be copied by competitors.
- Cost structure: A list of the fixed and variable expenses your business requires to function, and how they affect pricing.
- Key metrics: The ways your company measures success.
- Resources: The physical, financial, and intellectual assets of your company.
- Problem and solution: Your target customers’ pain points, and how your company intends to meet them.
- Revenue model: A framework that identifies viable income sources to pursue.
- Revenue streams: The multiple ways your company can generate income.
- Profit margin: The amount your revenue exceeds your business costs.
Why You Need A Business Model
You need a clear path to build something meaningful. The process of building a model establishes a plan for how you will realize your vision. It lays out the strategy behind a new undertaking or investment and provides a framework for tracking progress.
Creating one requires deep thought and analysis.
Company and product builders must think from the outside in, focusing on market needs and what matters most to customers. Once built, sharing your story across the organization encourages alignment.
This keeps everyone accountable for what they are working on and why, as well as guiding investments of time and resources.
Types Of Business Models
There are many types of business models but we’d be looking at 35 f them, and they’re as follows:
This model has been around for a very long while and continues to evolve. It’s even more sophisticated than today with the advancement of technology and easier internet access.
The fundamentals of the model revolve around creating content that people want to read or watch and then displaying advertising to your readers or viewers.
This model while very effective can be difficult as you are expected to please to set of people at all times.
The first group is your reader or viewers that may not pay for it, nor patronize you, and the second is the customers you’re looking to sell to.
This model is Related to advertising but still has its disparities. Affiliate uses links embedded in content instead of visual advertisements that are easily identifiable. It’s mostly found online.
Most freelance platforms are brokerages. Fiverr, Upwork, WritersGig – these are all examples of Brokerages as they charge a fee for each transaction to either the buyer or both.
Their job is to bring these people (Buyers $ Sellers together) for business purposes and take a fee.
Read This: Top 25 Profitable Service Business Ideas
This involves taking existing products or services and adding a personal touch to them for it to appeal to a particular customer.
You can find customization happening on a larger scale with products like Nike’s custom sneakers. You can also see it in the tourism sector.
This is a scenario where you bring together a large number of people to contribute content to your site.
This model is usually paired with an advertising model to generate revenue.
However, there are other ways to make money through this model – this includes proffering solutions to problems organizations might need answers to. You can see this In Threadless.
Another Crowdsourcing business model example is YouTube.
Eliminating all the middle-men to meet your customers, that’s Disintermediationsell. This allows you to potentially lower costs to your customers and has a direct relationship with them as well.
This model makes it possible for you to sell a portion of a business instead of all of it. Timeshare is a good example of this business model. In Timeshare a group of people can own only a portion of a vacation home, and use it sometimes of the year.
This is very common in restaurant businesses, but can also be found in all sorts of service industries from cleaning businesses to staffing agencies.
This business model has you selling the recipe for starting and running a successful business to someone else. Also, people sometimes sell access to a national brand and support services in a franchise business model.
Freemium models allow for unlimited use of basic features for free and only charge customers who want access to more advanced functionality.
You see this in lots of application software as well. Grammarly is one such software. You gain access to use its basic features and when you need more access to more sophisticated features, you pay for it.
This business model isn’t the same as a free trial.
Leasing is like renting. Unlike Fractionalization where you get perpetual ownership of a part of a property, in Leasing, you’re only allowed to use the product for an agreed time.
At the end of a lease agreement, you must return the product to the original owner.
This business model is seen in high-priced products that customers may not afford to pay for at a go.
This model requires businesses to lower their prices by providing fewer services. Airlines are usually the type of businesses to embrace this model.
In lower-touch businesses, customers might have to do something themselves or make additional purchases to keep the price low.
This business model allows sellers to list items for sale and provide customers with easy tools for connecting to sellers.
It’s similar to brokerage, in the sense that you make money from charging fees off completed business transactions. This seller or buyer could be charged or both. Nonetheless, there are other ways of generating revenue, which includes but are not limited to advertising.
The pay-as-you-go model is most common in home utilities, but it has been applied to things like printer ink.
With this model customers are charged for whatever they used at the end of the month.
#14. Razor Blade
This business model is popular among shaving objects manufacturing companies. They invented the name.
The idea is that you give away or sell a durable product below cost to increase volume sales of a high-margin, disposable component of that product.
#15. Reverse Razor Blade
This business model is quite similar to the razor blade model and customers in this model are often choosing to join an ecosystem of products.
However, unlike the razor blade model, the initial purchase is the big sale where the company makes most of its money.
The free products customers get in this model is to encourage them to keep buying the expensive products.
#16. Reverse Auction
Just like the name, this model holds auctions but in a reverse manner. What this means is that auctions are turned upside down and sellers present their lowest prices to buyers.
Mortgages, loans, and construction projects bidings are examples of this business model.
Netflix is a good example of a subscription business. This model has customers paying fees either monthly or bi-weekly for a particular product or service.
The payment gives you access to the services and will be canceled when your payment expires.
#18. Bundling Model
This a model of business that has the sellers selling two or more of their products in units.
These products sold in units are usually sold at a cheaper rate than a buyer would have bought it if it was sold separately.
With this model, organizations get to sell bigger volumes. They also use the opportunity to sell products that are difficult to sell.
AT & T and Adobe are good examples of businesses that utilize this model.
#19. Product To Service Model.
This model of business is used by companies that provide the result of their efforts to customers as a service.
They assemble man and equipment with the intention to create a service or product, and the result is what they offer us.
Exampls: Uber and Lyft . LIME and Zipcar.
#20. One-for-One Model
This is a business model that puts a lot of effort into helping charity. In this model, when a customer buys a product, the company donates one of such products to the charity.
It was pioneered by Blake Mycoskie, the founder of Toms.
#21. Distribution Model
This model will be noticed in companies whose core business is taking manufactured goods to the market.
They pick the goods from the factories and ensure it gets to the retailers.
Supply Coys are a good example of organization that uses this business model.
#22. Manufacturer Model
This is perhaps one of the oldest business models. Manufacturers that convert raw materials into a product are all making use of this business model.
Companies that assemble already manufactured products from different manufacturers also use this model.
#23. Retailer Model
If you purchase goods from manufacturers in order to resell to consumers, you’re making use of this business model.
People operating with this business model usually specialize in a particular niche.
#24. The Aggregator Model
Trivago is an example of a business that operates this kind of business model. A company that brings together a lot of service providers in a particular industry has all of its services listed to enable customers to choose what best suits them is using an aggregator business model.
#25. High Touch
High-touch business models require that company staff help customers with their product in terms of setting it up, operating it, and even maintaining it.
#26. Brick And Mortar
Among the oldest business models, these businesses interact face to face with their customers. However, the advancement of technology and the huge influence the internet has had on businesses has forced them to adapt.
Nonetheless, there are businesses that still operate and excel with this business model.
#27. Ecommerce Model
This simply involves selling products online to customers through a website. Tech advancement has also helped the growth of this business model as you can sell directly to customers using even smaller apps and mediums.
#28 Bricks and Clicks
This is when a business combines two or more existing distinct business models.
This is usually seen in organizations seeking to create other sources of revenue.
#29. Nickel and Dime Model
This business model involves driving the price of the product down while still making a profit. With the lower prices, companies usually experience higher sales volume.
#30. Data Licensing/Selling Model
Facebook, Twitter, and most of your big SM platforms operate with this business model. They gather data of their users and sell to third parties for a fee.
This has in recent times gained lots of backlash as the majority of users on these platforms feel their privacy is been violated.
#31. Agency Model
This is a commission-based model. The business generates income by having a large network of companies to which it can hire out talent. They offer their services to companies on a temporary basis, helping them execute projects and charging a commission for them.
#32. E-commerce Marketplace Model
This is different from the E-commerce model. In this model, you don’t sell to customers through a website or any platform. Rather you create a digital platform where buyers can come and sell their products.
#33. Dropshipping Business Model
Quite similar to the distribution model, but void of delivering or distributing the products directly.
When companies using this model gets orders, a third party handles the order.
#34. Networking Marketing Business Model
The dropshipping business markets products under its own brand takes the orders from the customers and then buys the desired products from a third-party company.
This model has a similar structure to a pyramid but it isn’t. In this business model, direct marketing is involved, and one person or company at the top of the pyramid sells directly to the customer and receives a cut of the profits.
A great example of network marketing is Usborne Publishing.
#35. Peer 2 Peer Business Model
Peer 2 Peer is another type of business model and creates a decentralized economy where the transactions are not handled by a central website, but instead are processed directly between users of the economy.
This allows users to trade with each other without necessarily having to pay a commission for each sale.
We’ve talked about business models and some types of business models in this article, however, the list is not near-exhausted as there are so many business models.
The thing with these business models is that someone out there has tried it out before you.
Therefore, you don’t need to start cooking up a new business model. All you have to do is study these existing models and identify the type of business model that best suits your business and plans.
Remember, you can combine a few of these models for maximum impact.