A business model is a comprehensive framework for defining, understanding, and designing your whole business. Defining your business model for your start-up is key to increase your companies long term value and will simplify your operations. Early founders often misunderstand the importance of company models, for a deeper understanding, check out these 50 various kinds of business models, as well as company examples. Use this guideline to help define your next business venture.
1. Franchise Model
Franchising is the best way for a business to expand since it enables the franchisor to license its resources and brand name. For a franchise to offer its goods and services in return for a royalty, intellectual property and rights are required.
Pros:
- Best for a company’s expansion
- Can license its resources and brand name
Example:
- McDonalds
- Subway
- Gold’s Gym
2. Multi-Sided Platform
A multi-sided business model is used by any firm that provides services to both sides of the business, LinkedIn is a great illustration of this, since it offers membership services to individuals looking for jobs as well as HR managers looking for applicants for their open positions.
Pros:
- Offers services to both sides of business
Example:
- LinkedIn- it offers subscription services for people to find job opportunities but also for HR to find candidates
3. Cash Machine Business Model
This model is also referred to as the cash conversion cycle (CCC). It simply refers to how fast a business transforms cash to goods and services, and then back to cash. This strategy is employed by businesses who have a low profit margin yet have a disruptive position in the market. Amazon, for example, makes a large profit from its online shop before paying its suppliers. Another perspective is that Amazon’s supply chain is based on vendor credit.
Pros
- Good for companies with low-profit margin
- Good for inventory type of business
Example:
- Amazon-they generate a large amount of cash from their products before they pay the suppliers
4. Freemium business model
This model offers a mix of free and paid services, normally used by tech companies. For example, Software as a Service model (SaaS) or apps would use the freemium model. Companies offer a limited free version of their software or with limited features, to unlock the full software you would need to pay.
Pros:
- Grows business and acquire customers
- Good for SaaS or apps
- Great initiative to get customers to try the software
Example
- Zoom
- DropBox
- MailChimp
5. Subscription Business Model
This approach enables customers to get services by paying a set monthly or annual fee. In this scenario, the business must offer sufficient value to its customers so that they return to the website on a regular basis.
It enables businesses to segment the market and provide a limited number of things in their content under various plans and pricing, referred to as tiered offers.
Pros:
- Useful for content or service based websites
- Stable cashflow
Examples:
- Netflix
- Amazon Prime
6. Peer-to-peer business model
In a peer-to-peer transaction, the buyer and seller deal directly with each other about delivery of the product or service and payment exchange. Typically in a peer-to-peer economy, the producer is an individual or freelancer owns both their equipment (or means of production) and their final output. It’s not like a normal partnership when a company sells its services to customers (B2B or B2C). It earns money by charging commissions on the service. Uber is a good example of this since the app acts as the middleman to connect a driver with a passenger and the app keeps commission.
Example:
- Airbnb
- Uber
- Amazon
7. One-for-one Business Model
Known as the social entrepreneurship model, It’s a hybrid approach that incorporates both for-profit and non-profit services. Many businesses are adapting their business strategies to appeal to socially aware millennials, despite some concerns about its long-term viability. The greatest example is TOMS Shoes, which donates a pair of shoes to a kid in need for every pair sold across the world.
Pros:
- Appealing to socially aware millennials
Cons:
- Long term viability since overtime “buy-one give-one” strategy will become costly
8. Hidden Revenue Model
This model is a revenue generating method in which consumers do not have to pay for the services provided, but the business still makes money from other sources. Google, for example, makes money from advertising dollars paid by companies to bid on terms ( key words), despite the fact that consumers do not pay for the search engine. Many social media companies use this model, especially Facebook. They gather data on peoples profiles and sell them to companies for advertising purposes.
Examples:
9. Razor and Blade Business Model
In this paradigm, one item (the razor) is offered at a cheap cost, while another (the blade) is sold at a high cost. A printer and cartridge business model is another name for it. The cost of an inkjet printer, for example, was a one-time cost; nevertheless, having a new ink cartridge changed is an ongoing cost for customers. If you have a devoted client base and can establish a lock-in scenario with customers, this strategy is ideal.
Pros:
- Need for recurring sales of an associated item
- Continuous flow of revenue
Cons:
- Need a devoted client base
Example
- HP printers
- Xbox games
- nespresso
10. Reverse Razor and Blade Business Model
The business model is the reverse of the razor blade business concept. It entails selling low-cost goods to entice consumers to purchase higher-cost ones. This business model employs a one-time offer for the premium product and, over time, generates additional income from secondary products.
Example
- Apple; sell apps, movies, music at a low cost but sells iPhone, iPad at high cost
11. Direct sales business model
Products are directly sold to end consumers under this approach, either one-on-one or in small groups (remember Tupperware home parties?). Every sale earns the salesman a commission. Despite the fact that technology has mostly replaced direct sales in many aspects, many businesses still want to provide a human touch to their consumers.
Example:
- Avon
- Arbonne
- Monat
12. Affiliate marketing business model
Companies earn money in this model by promoting, evaluating, and recommending the goods and services of other businesses. Consider websites that provide product reviews. These websites are compensated depending on the number of sales opportunities they generate for their sponsors.
13. Consulting business model
The consulting business model is used by companies that offer consulting services by employing experienced and qualified individuals and assigning them to client projects. These businesses often bill on an hourly basis and/or take a portion of the project’s success as compensation (cost reduction project). This approach is used by multibillion-dollar companies like Mckinsey and Boston Consulting Group.
14. Agency-based business model
An outside company is contracted to perform a particular job under this project-based business model. Businesses that lack internal knowledge have traditionally hired agencies to obtain a customised solution for their requirements. Do you remember Mad Men? Netflix original series about an advertising firm and its clientele. Digital marketing, design & architecture, survey, promotion, media, public relations, branding, website development, social media, and other specialised agencies are examples.
Examples:
- Digital marketing
- Design
- Branding
- Website development
- Social media
15. User-generated content business model
User-generated content is collected and sold to businesses looking to capitalise on their customers’ ideas and material in order to advertise their products.
This approach is powered by a variety of digital commodities, including videos, reviews, photos, blog entries, testimonials, and any other kind of material produced by brand users. And it’s all done via social media.
Example
- Youtube
- Quora
- Yelp
16. Online Educational Business Model
This business model is aimed towards the educational sector, including students and instructors, and enables them to access educational materials via flat course costs or subscriptions. It’s a hybrid of freemium, course fees, and a subscription-based business model.
Examples:
- Khan Academy
- Udemy
17. Instant News Business Model
This approach focuses on sharing and updating news in real time, without the need of a middleman.
This approach allows trustworthy main or secondary sources to convey breaking news or important announcements directly to their audience via open and dependable channels.
18. Multi-brand business model
This strategy is built on selling more than two goods that are almost identical but compete with each other and are distributed by the same company but under various brand names. It is carried out in order to achieve economies of scale and to establish an empire.
19. E-Commerce Business Model
E-commerce is a simple yet powerful business concept that enables consumers and sellers to connect and trade via the internet (online shop). Business to Business (B2B), Business to Customer (B2C), Customer to Customer (C2C), and Customer to Business (C2B) are all examples of e-commerce business models (C2B).
20. Distribution based business model
This approach is used by a business that integrates with its end consumers via one or a few major distribution channels. Companies that utilize this approach offer dealers, brokers, supermarkets, retailers, and other channels for companies to sell to consumers. Unilever, for example, devotes a significant portion of their income on ensuring appropriate distribution.
- Example:
Unilever - Supermarkets
- Brokers
- retailers
21. Drop-shipping business model
Drop-shipping is a company concept that is both cost-effective and interesting. A wholesaler drop-ships goods straight from the manufacturer to the consumer once an order is made on the company’s website. The company owner does not need to keep any inventory and delegates all shipping and logistics to a third party.
Pros:
- Start a niche e-commerce business website with limited up-front cost
22. Entrepreneurship Business Model
Enterprise business strategy is focused on obtaining huge agreements by concentrating on and targeting only large customers. Fortune 500 customers, for example, often have multi-billion dollar budgets. Boeing, Raytheon, SpaceX, and Goldman Sachs are examples of Enterprise business models since their sales efforts are directed at extremely big corporate enterprise clients or governments.
Examples:
- SpaceX
- Boeing
- Goldman Sachs
- Social Enterprise business model
23. Social Enterprise business model
Social enterprises apply business solutions to social problems. The goal is to achieve sustainability by enabling non-profits to support themselves financially instead of relying solely on grants and donations. Since there are no shareholders in a non-profit organization, the profits from the related social enterprise are completely re-invested in the work of the organization.
24. Direct-to-consumers business model
This approach enables businesses or brands to sell their goods directly to end users. Customers must be retained via very successful marketing campaigns and advertising activities.
25. Family-owned business model
A family-owned company is one that is managed by a family and whose decision-making procedures are overseen by two or more family members. The company’s leadership is handed on to the heir, who will transmit the baton to their offspring.
26. Blockchain based business model
Blockchain, the most sophisticated, futuristic, and contemporary technology, has transformed the whole landscape of global transactions using decentralized network systems. Consumers may transact peer-to-peer via a decentralized network, which increases confidence. Tokens are used by blockchain-based companies to generate revenue and to provide Blockchain as a service.
Examples:
- Bitcoin
- Ethereum
- Cryptocurrencies
27. Vertically integrated supply chain business model
Vertical integration is where two businesses at different stages of the supply chain join together. For instance, a business that relies on another for its supplies may find that it is unreliable, which is affecting business. In turn, it may vertically integrate with its supplier in order to reduce late deliveries and increase efficiencies. When a business has more control over how a product is manufactured and supplied to end users, it may offer goods to customers at cheaper costs (with a higher profit margin).
Examples:
- Amazon
- Ikea
- Netflix
28. Combination of chains and franchise business model
This strategy consists of a mix of owned and operated chains as well as licenced shops (franchising). Starbucks is the most well-known example of a business that has both company-operated and licenced locations.
29. Data licensing business model
In today’s environment, a data-driven business strategy has taken on new significance, particularly in the technology industry. Data is a vital component of web technology since it allows businesses to carry out operations and generate money.
Example:
- Google sells real time data to its partners used for advertisements and customer insights
30. Influencer business model
The influencers business model, works on the basis of the advertising paradigm, earning money by capturing the attention of their target audience. A brand finds an influencer who has a connection to the target audience the brand wants to reach. The target audience could be the brand’s existing audience, or a new demographic the company hopes to reach but hasn’t yet.
The brand and influencer enter an agreement. The influencer then creates content, usually with the brand’s oversight. They share the content with their followers. “When an internet service is free, you are not the customer,” Apple CEO Tim Cook famously wrote. “You are the finished product.”
31. Discount with high quality business model
Supermarkets and department shops that buy goods in bulk and offer them at wholesale prices often use this business model.
32. Nickel and Dime business model
The lowest pricing approach for the fundamental product or service is used in this company model. Because the base price is kept as low as possible, an extra fee is paid for the additional benefits and services that come with the primary basic service. The nickel and dime business model is prevalent in the airline industry. Airline companies that offer various services divide their service to charge for them individually. If a customer wants to pay for these additional services, they have to pay for them separately.
Spirit and Frontier Airlines, for example, are budget airlines that charge fees for extra services such as printed boarding passes, carry-on/check-in baggage, seat choice, priority boarding, Wi-Fi, beverage, meal/snack, phone booking costs, and so on.
33. Aggregator business model
The aggregator business model has come to disrupt every industry. This model, frequently confused with other kinds of platforms, usually involves organizing, under one brand, a very populated sector, such as taxis, hotels, travel, groceries, food, etc.
To make it simple, the aggregator may act as a sort of middleman, but unlike other platforms, it keeps tight control of the entire experience of its users.
Example:
- Uber
34. API licensing business model
Application programming interface (API) is a term that refers to a set of (API). It’s essentially a collection of subroutine definitions, communication configurations, and program development tools. API licensing is a business strategy that offers licensing mechanisms that enable third-party plugin/add-on applications for well-known platforms to be created by the developer community. Developers must also pay a fee to get access to APIs.
Example:
- Microsoft
- Apple
35.Crowd source business model
Companies may use the crowdsource business model to get access to operational solutions such as ideas and technology, improved customer engagement, possibilities for co-collaboration, operation optimization, and cost reduction.
Example:
- Wikipedia
- Kickstarter
36. High touch business model
Customers’ engagement and participation are prioritised in the high-touch business strategy to customise the experience. It’s a phenomena in which a client forms a kind of relationship with the company. Larger accounts need more attention since they pay more and are more loyal.
Example
- Buying a vehicle, a home, or business SaaS requires numerous contacts with the salesman
37. Low Touch business model
Of course, a low touch business model is the polar opposite of a high touch business model, in which the product or service is provided with the least amount of client contact. Low touch is ideal for low-cost software solutions where gaining clients is more straightforward.
38. Flex Pricing business model
Flexible pricing is a business approach in which the ultimate price of an item may be negotiated. In other words, buyers and sellers may haggle over the price that best suits their needs.
39. Auction based business model
This concept is built on the opportunity to purchase a product or service via bidding. Although the concept is no longer widely utilized, it is still used in sectors such as antiques, real estate, collectibles, and commercial transactions.
Example
- On online sites that trade new and used goods, such as eBay and Amazon, the contemporary version of the auction concept may be seen
40.Reverse action business model
This business strategy adheres to a rigorous pattern of establishing the highest pricing and allowing customers to bid appropriately until the prices begin to fall. Businesses looking for suppliers often utilise a reverse auction. At each subsequent round, eligible providers bid lower and cheaper in order to attract the company and win the contract.
41. Brokerage business model
The brokerage business model gives buyers and sellers a single platform to communicate about transactions. Depending on the featured category, it charges a fee for every transaction between the parties, either from the buyer or the vendor.
42. Bundling business model
Bundling is a business technique that involves combining goods or services to create a bundle that can be sold as a single unit for a cheap price. It is a method of buying many goods and services from a single company unit in a convenient manner.
Example:
- Microsoft office 365 bundle (PowerPoint, Word, OneNote, Outlook)
- McDonald’s combo meal
43. Disintermediation
The Disintermediation Model eliminates the need for outsourcing or the use of a third-party middleman. In reality, businesses that follow this model interact directly with clients and consumers via various channels such as the internet. Tesla is a good example of this since clients will go through their website or application for service. It creates a smoother more efficient customer service for their clients.
44. Fractionalization business model
The fractionalization model involves selling a product or service for just a portion of its intended use or in distinct portions. It’s a technique that separates goods and services into subcategories to provide diversity to the products while charging individually for each category.
- Example
selling pizza by the box or by the slice
45. Pay as go (utility) Business model
The pay as you go model makes profit based on how much a product or service is used. In recent years, governments and NGOs have used the Pay-As-You-Go model to deliver common commodities like solar panels to rural communities, which they pay for over time. This model, for example, includes businesses that provide power, water, and mobile phones, as well as Amazon Web Services.
46. Product as a service
This model sells the service of a product instead of the product itself. For example, at a printing shop you can pay to use a printer. Therefore, you’re paying for the service of the printer.
47. Standardization business model
Standardization refers to the process of making a once-customized service general. This attracts customers because of the convenience and cheap costs. For example, Coca-Cola uses a global standardization in marketing keeping its design and theme the same even in countries with different languages.
48. User base communities
User-based communities make money by creating an engaging platform where users may connect with one another while also advertising. Subscription and advertising fees fund this model.
Example: Craigslist
49. Leasing business model
Leasing is the practise of renting rather than selling big or high-profile goods such as machinery and technological equipment.
Example:
- Home Depot (tool rental)
- Enterprise
50. Pyramid Scheme Business model
A pyramid scheme is a business strategy that is unlawful or contentious. Rather than providing investments or selling goods, the business works on the single principle of recruiting members by offering them a return in the form of money or services if they agree to enrol others in the scheme.
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