What is a business model? 35 types of business models

What is a business model? 35 types of business models in 2022

 

Starting a business is not as easy as it seems. Many elements must be taken into account: the location, the strategy and the business model to adopt. There are many types of business models, but we will look at a few.

 

Business models are important because they help you identify what you are selling, who you are selling to, and where and how to see who you would sell to.

 

 

 

Finally, a business model helps you understand or see how you would make money with your business.

 

 

 

It is for this reason that we have composed this piece.

 

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 that exist.

 

 

 

In the meantime, take a look at our table of contents for a summary of this article.

 

 

 

Planning is crucial in every human endeavour, and most people who fail to plan simply plan to fail. It is even more important that one plans ahead especially when it comes to business. That's why you need a business model - it's your plan.

 

There are obviously many business models, but the important thing is to identify the type of business model that best suits your business.

 

It's no news that business models have continued to evolve over the years. In fact, the 21st century has seen the birth of more sophisticated models and even more sophisticated companies.

 

 

 

According to Wikipedia, before now, we only had the  bait and hook  business model (also called the “  razor and blades business model” or the “related products business model”).

 

It was introduced at the beginning of the 20th century. It involves offering a basic product at a very low price, often at a loss (the “bait”), and then charging compensatory recurring amounts for top-ups or associated products or services (the “hook”).

 

Examples include razor (bait) and blades (hook); cell phones (bait) and airtime (hook). Computer printers (bait) and ink cartridge refills (hook). Cameras (bait) and footprints (hook).

 

A variation of this model was used by  Adobe , a software developer that offered its Docs Reader for free, but charged several hundred dollars for its Docs Writer.

 

 

 

However, we are not just going to talk about a particular model or its history. We would look at as many models as possible.

 

Introduction

 

Like the term “model,” it means structuring your business to fit into existing business models. This means that you copy already existing strategies and implement them in your business.

 

Copying doesn't mean you take everything you see in a business similar to yours.

 

It also doesn't mean that all other business models are automatically suitable for yours, as they may be similar.

 

Instead, you apply the attributes of the business that you think could help you grow yours while ignoring those that wouldn't.

 

 

 

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What is a business model?

 

It is an overview of how a company intends to make money from its products and customer base in a specific market.

 

There are key points that every business plan should address and they:

 

What product or service a business will sell

How it intends to market this product or service

What kind of expenses he will have to face

How he hopes to generate profits

Business Model Examples

 

The subscription model is one of the most popular business models we currently have.

 

And in a subscription model, customers have to pay a certain fee for a product or service, and the company being paid is expected to provide 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. Another example of the subscription model is telecommunications services.

 

Based on the previously mentioned four points that every business model must show, let's break down telecom subscription services.

 

What type of product or service a business will sell:

 

Telecom 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 large companies, they are bound to incur significant expenses and most can come from maintaining their servers and database, as well as broadband technologies.

 

This ensures that they continue to provide the best services to their customers.

 

How does the business generate profits?

 

Subscriptions are the main way for telecommunications companies to make money.

 

The example above shows how these companies make and spend money, and explains why these companies are subscription companies.

 

That said, your business model should be able to tell you how you would make money. Enough to cover your expenses and make a profit.

 

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Required components of a business model

 

Commercial models certainly vary in form and function, nevertheless, they all consist of the same basic components.

 

The essential elements of a business model include a unique value proposition, viable target market, and competitive advantage. Without them, you have no way to generate income.

 

Keep this in mind, business models aren't just about revenue. You should also consider production costs and other factors to get the big picture.

 

Below are some of the things you must be inundated with about business models:

 

Value Proposition:  A feature that makes your product appealing 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 cannot be easily copied by competitors.

Cost structure:  A list of fixed and variable expenses your business needs to operate, and how they affect prices.

Key Metrics:  The ways your business measures success.

Resources:  The physical, financial and intellectual assets of your business.

Problem and Solution:  The pain points of your target customers and how your business intends to meet them.

Revenue Model:  A framework that identifies viable revenue streams to pursue.

Revenue streams:  The multiple ways your business can generate revenue.

Profit Margin:  The amount of your revenue exceeds the costs of your business.

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Why you need a business model

 

You need a clear path to building something meaningful. The process of building a model  lays out a blueprint  for how you are going to  achieve your vision . It lays out the strategy behind a new business or investment and provides a framework for tracking progress.

 

Creating one requires careful thought and analysis.

 

Business 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 holds everyone accountable for what they are working on and why, while guiding investments of time and resources.

 

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Types of business models

 

There are many types of business models, but we would consider 35 of them, and they are as follows:

 

#1. Advertising

 

This model has been around for a very long time and continues to evolve. It's even more sophisticated than today with advances in 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 tricky because you're expected to appeal to a set of people at all times.

 

The first group is your reader or viewers who may not pay for it or patronize you, and the second is the customers you are looking to sell to.

 

#2. Affiliate

 

This model is related to advertising but still has its disparities. Affiliate uses in-content links instead of easily identifiable visual advertisements. It is mostly found online.

 

#3. Brokerage

 

Most independent platforms are brokerages. Fiverr, Upwork, WritersGig – these are all examples of brokerages as they charge a fee for each transaction to the buyer or both.

 

Their job is to bring these people together (Buyers $ Sellers) for business purposes and collect fees.

 

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#4 Concierge/Personalization

 

It involves taking existing products or services and adding a personal touch to them so that they appeal to a particular customer.

 

You can find customization on a larger scale with products like Nike's custom sneakers. You can also see it in the tourism sector.

 

#5. Crowdsourcing

 

This is a scenario where you gather a large number of people to contribute content to your site.

 

This model is usually combined with an advertising model to generate revenue.

 

However, there are other ways to make money from this model, including providing solutions to problems that organizations might need answers to. You can see it in Threadless.

 

YouTube is another example of a crowdsourcing business model.

 

#6. Disintermediation

 

Eliminate all intermediaries to meet your customers, that's Disintermediationsell. This allows you to potentially reduce costs for your customers and also has a direct relationship with them.

 

#7 Splitting

 

This model allows you to sell part of a business instead of all of it. Timeshare is a good example of this business model. In timeshare, a group of people can only own part of a vacation home and sometimes use it all year round.

 

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#8. Franchise

 

This is very common in catering businesses, but can also be found in all sorts of service industries, from cleaning companies to recruitment agencies.

 

This business model allows you to sell the recipe for starting and running a successful business to someone else. Additionally, people sometimes sell access to a national brand and support services under a franchise business model.

 

#9. Freemium

 

Freemium models allow unlimited use of basic features for free and only charge customers who want access to more advanced features.

 

You also see it in many application software. Grammarly is one such software. You get access to its basic features and when you need more extensive access to more sophisticated features, you pay for it.

 

This business model is not the same as a free trial.

 

#ten. Rental

 

Renting is like renting. Unlike fractionation where you get perpetual ownership of part of a property, in leasing you are only allowed to use the proceeds for an agreed time.

 

At the end of a rental agreement, you must return the product to the original owner.

 

This business model is found in high-priced products that customers can't afford to pay for upfront.

 

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#11. Touch down

 

This model forces companies to lower their prices by providing fewer services. Airlines are typically the type of business to adopt this model.

 

In low-power businesses, customers may have to do something themselves or make additional purchases to keep the price down.

 

#12. Marlet

 

This business model allows sellers to list items for sale and provides customers with easy tools to connect with sellers.

 

It is similar to brokerage, in that you earn money by charging fees on completed trade transactions. This seller or buyer could be charged or both. Nevertheless, there are other ways to generate revenue, including but not limited to advertising.

 

#13. Pay as you go

 

 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 billed for everything they have used at the end of the month.

 

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#14. Razor blade

 

This business model is popular among shaving item manufacturing companies. They made up the name.

 

The idea is that you give away or sell a durable product at a lower price to increase volume sales of a high-margin disposable component of that product.

 

#15. Inverted razor blade

 

This business model is quite similar to the razor blade model and customers of this model often choose to join a product ecosystem.

 

However, unlike the razor blade model, the initial purchase is the big sale where the business makes the most money.

 

The free products that the customers get in this model are to encourage them to keep buying the expensive products.

 

#16. Reverse auction

 

Just like its name, this model organizes auctions but in a reverse way. This means that auctions are turned upside down and sellers present their lowest prices to buyers.

 

Mortgages, loans and building project tenders are examples of this business model.

 

#17. Subscription

 

Netflix is ​​a good example of a subscription business. In this model, customers pay a monthly or bi-weekly fee for a particular product or service.

 

Payment gives you access to the Services and will be canceled when your payment expires.

 

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#18. Grouping model

 

It is a business model where sellers sell two or more of their products in units.

 

These products sold individually are generally sold at a lower price than what a buyer would have purchased if they had been sold separately.

 

With this model, organizations can sell larger volumes. They also take the opportunity to sell hard-to-sell products.

 

AT&T and Adobe are good examples of companies that use this model.

 

#19. Product-to-service model.

 

This business model is used by companies that provide the result of their efforts to customers as a service.

 

They put man and equipment together with the intention of creating a service or a product, and the result is what they offer us.

 

Examples: Uber and Lyft. LIME and Zipcar.

 

#20. One-to-one model

 

It's a business model that puts a lot of effort into helping charity. In this model, when a customer purchases a product, the company donates it to the charity.

 

It was started by Blake Mycoskie, the founder of Toms.

 

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#21. Distribution model

 

This pattern will be noticed in companies whose core business is the marketing of manufactured goods.

 

They select the goods in the factories and ensure that they reach the retailers.

 

Supply Coys are a good example of organizations using this business model.

 

#22. Manufacturer's model

 

It is perhaps one of the oldest business models. Manufacturers who turn raw materials into a product all use this business model.

 

Companies that assemble already manufactured products from different manufacturers also use this model.

 

#23. Retailer model

 

If you buy products from manufacturers in order to resell them to consumers, you are using 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 company that leverages this type of business model. A company that brings together many service providers in a particular industry has all of its services listed to allow customers to choose what works best for them using an aggregator business model.

 

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#25. high touch

 

High-touch business models require company personnel to help customers with their product in terms of setup, operation, and even maintenance.

 

#26. brick and mortar

 

Among the oldest business models, these companies interact face to face with their customers. However, advances in technology and the enormous influence the Internet has had on businesses have forced them to adapt.

 

Nevertheless, there are companies that still work and excel with this business model.

 

#27. E-commerce model

 

It is simply selling products online to customers through a website. Advancements in technology have also helped this business model grow, as you can sell directly to customers using even smaller apps and mediums.

 

#28 Bricks and Clicks

 

It is when a company combines two or more distinct existing business models.

 

This is usually seen in organizations looking to create other revenue streams.

 

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#29. Nickel and Dime Model

 

This business model consists of lowering the price of the product while making a profit. With lower prices, businesses generally experience higher sales volume.

 

#30. Data Licensing/Sale Model

 

Facebook, Twitter and most of your big SM platforms work with this business model. They collect their users' data and sell it to third parties for a fee.

 

There has been a lot of backlash lately as the majority of users on these platforms feel that their privacy has been violated.

 

#31. Agency model

 

This is a commission-based model. The company generates revenue by having a large network of companies from which it can hire talent. They offer their services to businesses on a temporary basis, helping them execute projects and charging them a commission.

 

#32. Ecommerce Marketplace Template

 

This is different from the e-commerce model. In this model, you are not selling to customers through a website or platform. Instead, you create a digital platform where buyers can come and sell their products.

 

#33. Drop shipping business model

 

Quite similar to the distribution model, but without direct delivery or distribution of products.

 

When businesses using this model receive orders, a third party handles the order.

 

#34. Networking Marketing Business Model

 

The dropshipping company markets products under its own brand, takes orders from customers and then purchases the desired products from a third-party company.

 

This model has a structure similar to a pyramid, but it is not. In this business model, direct marketing is involved, and a person or company at the top of the pyramid sells directly to the customer and receives a share of the profits.

 

A good example of network marketing is  Usborne Publishing .

 

#35. Peer-to-peer business model

 

Peer 2 Peer is another type of business model and creates a  decentralized  economy where transactions are not handled by a central website, but are instead processed directly between users in the economy.

 

This allows users to trade with each other without necessarily having to pay a commission for each sale.

 

 

 

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Conclusion:

 

We have talked about business models and some types of business models in this article, however, the list is not nearly exhausted as there are many business models.

 

The problem with these business models is that someone tried it 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 your projects.

 

Remember that you can combine a few of these designs for maximum impact.

 

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