15 Types of Business Models To Consider For Your Business
Starting a business is like having a blank canvas waiting for your touch. A brand-new startup’s potential for innovation and growth is practically limitless, but the key to unlocking that potential rests with your choice of business model. The type of business model you choose will define how your organization drives revenue and ultimately dictate the shape your business strategy takes.
In this article, we’re going to explore 15 different types of business models that every entrepreneur should consider for their business, each of which offers unique advantages in different contexts.
What Is a Business Model?
Before we delve into specific business model examples, it's important to grasp the fundamental concept of a business model.
Your business model serves as the cornerstone of your organization's operations. A business model is not merely a vague concept — it's a meticulously structured business plan that serves as the blueprint for how your company creates, delivers, and captures value. This business plan extends across all facets of your business, encompassing everything from the inception of your product or service to its marketing, sales, and the mechanisms through which you generate revenue
There are three main components of business models: value creation, value delivery, and value capture. Let’s look at each of these business model components in more detail:
1. Value Creation
At the heart of any business model lies its value proposition, or what it plans to offer its customers. Value creation is the fundamental process by which a company generates something of worth that satisfies the needs and desires of its target audience.
Value can manifest in various forms. It could be a physical product, a digital service, a solution to a problem, or simply an experience. The essence of a business model is to clearly define what value the business intends to create and deliver to its customers.
2. Value Delivery
Once value is created, it must be efficiently delivered to customers. This involves the entire value chain through which products or services are produced, distributed, and made accessible to the target audience.
Value delivery might involve manufacturing and logistics for physical products, or digital platforms and user interfaces for online services. The choice of how value is delivered can have a profound impact on a company's operations and customer experience.
3. Value Capture
Value capture is where a business realizes its financial rewards for the value it provides. This is the revenue generation component of the business model. Companies employ various strategies to capture value, such as pricing models, subscription fees, advertising revenue, or transaction fees. The key is to ensure that the revenue generated exceeds the costs incurred in value creation and delivery, resulting in a profitable operation.
Business Model Diversity
There are an enormous number of different types of business models you can use for your business. Different business models result in different types of companies, each with unique strategies and strengths. For example, some models prioritize recurring revenue and customer loyalty, while others focus on cost-effective customer acquisition.
Your choice of a business model is highly dependent on factors like the nature of your product or service, your target market, your competitive landscape, and your company's short and long-term objectives. The business model you choose dictates the paths your company will take to reach its goals, the resources it will use, the relationships it will rely upon, and more.
Selecting the right business model is a critical decision that requires careful consideration. Your business model may also need to be adapted over time as your business and your market evolves.
The Definitive 15 Types of Business Models
Here are 15 tried-and-true business models that every entrepreneur should consider. Each of these models has its unique strengths that you should take into consideration when choosing the right business model for your venture.
The subscription model revolves around providing ongoing value to customers who pay a recurring fee. This model is often used by companies in the streaming media industry like Netflix and by software services like Adobe Creative Cloud.
A subscription model ensures a steady flow of income and encourages long-term customer retention. Subscribers receive regular updates and access to new features, creating a stable customer base and predictable revenue stream. If you choose the subscription model, it's essential to continuously deliver value to maintain a base of satisfied subscribers.
The freemium business model is a hybrid model that offers both free and premium versions of a product or service. Companies like Dropbox and Evernote employ this approach, offering basic services for free and charging for premium features.
Freemium models attract a large user base through free offerings, creating a broad user network that can be monetized through upselling premium features. However, success hinges on striking a balance between free and premium features to entice users to upgrade.
The Franchise model involves allowing individuals or entities to operate a business under your brand using your support and systems. This model has been instrumental in the expansion of well-known brands like McDonald's and Starbucks.
Franchising spreads the business while sharing the responsibility, allowing for consistent brand identity and rapid growth. Franchisees invest in the franchise, receive training and support, and run their locations with a proven formula.
4. Affiliate Marketing
Affiliate marketing is a performance-based model where businesses reward affiliates for driving traffic or sales. Marketplace companies like Amazon and Shopify frequently use affiliate marketing to help them expand their reach and drive revenue.
On the other end of the relationship, the actual affiliate marketers promote the company’s products or services and receive a commission for each sale generated through their efforts. This model provides a cost-effective way for businesses to acquire customers and an attractive way for content creators like bloggers to monetize their content.
E-commerce is the sale of products or services over the internet. Companies like Amazon, eBay, and Etsy are prominent examples of the e-commerce model in action. E-commerce businesses provide customers with a vast selection of products they can conveniently purchase online with just a few clicks. One of the primary advantages of the e-commerce business model is the ability to reach customers beyond a single, limited geographical area and participate in a global market.
6. Business-to-Business (B2B)
Business-to-business (B2B) models focus on selling products or services to other businesses. These companies serve as suppliers, distributors, or service providers for other enterprises, facilitating the operations of various industries.
B2B businesses often deal with larger transactions and longer sales cycles. They generally require very effective relationship-building and highly customizable solutions to meet the specific needs of different corporate clients.
7. Bricks and Clicks
The “bricks and clicks” business model combines physical stores (bricks) and online operations (clicks). Retail giants like Walmart and Target have effectively implemented this approach to serve customers through multiple distribution channels. Customers can choose to shop either in-store or online (or both), providing flexibility and convenience.
Integrating both physical and digital channels not only enhances the shopping experience for customers but also increases the number of potential avenues for making sales. It’s also a great model for streamlining inventory management.
8. Direct Selling
Direct Selling involves selling products directly to consumers through a distributor network. Health and beauty companies like Amway and Mary Kay frequently utilize this model to generate revenue. The direct selling model relies heavily on traditional sales techniques like building personal relationships and offering product demonstrations to potential customers.
In a direct selling model, independent representatives (often referred to as consultants) promote and sell products to friends, family, and anyone else in their social networks. This model is characterized by the personal touch and one-on-one interactions provided by the sales representatives.
9. Consumer-to-Business (C2B)
Consumer-to-Business (C2B) reverses the traditional business-consumer relationship. In this model, individual consumers offer products or services to businesses. Platforms like Upwork and Fiverr are key players in the C2B landscape.
Individuals with specialized or unique skills can leverage C2B platforms to market their services to businesses looking for specific solutions. This model empowers regular individuals to become successful service providers and also allows businesses to access a wider pool of talent.
10. Brick and Mortar
The traditional brick and mortar business model involves establishing a physical store from which to sell products or services. While online shopping is more popular than ever these days, the brick and mortar model remains relevant for many kinds of businesses such as grocery stores, boutiques, and restaurants.
A brick and mortar business offers numerous benefits, like a tangible shopping experience, immediate product availability, and in-person customer service. Businesses that use the brick and mortar model often rely on foot traffic and good location to attract customers.
11. Peer-to-Peer (P2P)
Peer-to-peer (P2P) business models enable individuals to transact directly with one another. Companies like Airbnb and Uber have pioneered this sharing economy.
P2P platforms provide a marketplace where individuals can offer their available assets (like a spare guest house) or services (like picking up and delivering food) to others. One benefit of the P2P model is that it promotes resource sharing, often at a lower cost than traditional alternatives.
The consulting model is based around providing expertise to businesses or individuals. Consultants offer specialized knowledge to advise clients and help them solve specific challenges or achieve specific goals.
Consulting services exist in nearly every industry, from management and strategy to IT and marketing. Regardless of industry, consultants leverage their unique expertise to analyze issues, provide recommendations, and implement strategies.
13. Product-as-a-Service (PaaS)
Product-as-a-Service (PaaS) transforms physical products into subscription-based services. Companies like Peloton and Dollar Shave Club offer equipment and content on a subscription basis, creating recurring revenue and fostering customer engagement.
This model provides customers with regular access to a product and often includes maintenance, updates, or complementary services. Not only do PaaS businesses offer extraordinary convenience to their customers, but they also excel at building ongoing relationships between buyer and brand.
14. User-Generated Content
Some businesses leverage user-generated content to create value. Social media platforms like Facebook and YouTube thrive on user-generated content, using it to attract wide audiences and generate massive amounts of advertising revenue.
In a user-generated content business model, the platform provides a place to create and host content, while the users themselves contribute the content. The platform generates revenue through advertising, sponsored content, or other, similar strategies. Achieving success with the user-generated content model requires prioritizing user engagement to build a strong core community of users.
15. Online Education Business Model
The online education business model delivers value in the form of courses or training programs that can be completed over the internet. Platforms like Coursera and edX connect learners with instructors from around the world, offering flexible and accessible education options for those who need an alternative means of accessing educational resources.
The education model caters to a diverse range of learners, from students seeking academic courses to professionals aiming to upskill. Some online education models offer a broad range of courses or training programs, while others focus on a specific skill or industry.
How to Choose the Right Business Model
Selecting a business model is one of the most important decisions you’ll make as an entrepreneur. Few other choices you make this early in the process will have as large an impact on your venture’s chances of success. Remember that each model in this list has its own unique strengths, and each is best suited to different types of products or services. Make sure the business model you choose aligns fully with your goals, target audience, and resources.
To navigate this critical decision-making process more effectively, consider seeking guidance from an experienced business advisor. A professional entrepreneur, investor, or other business leader could be the perfect person to help you assess your options and chart a sustainable course for your business's growth.