A business model serves as a logical and visual reflection of how a company operates at all its levels, how it creates favorable conditions for customers, and how it ensures the required level of sales and corresponding profit.
You can clearly understand the essence of the need to create a business model if you try to put your business ideas on paper using graphs and diagrams. This is much harder than coming up with an idea and putting it into words. But only in this way do your thoughts and plans take on real features and can be understood and analyzed by others.
Popular types of business models that you can adopt for yourself
In the online segment, most companies currently use the most relevant of the existing, proven business models, adapting and improving them to suit their individual characteristics and competitive advantages.
Review the list of models to determine which ones you can use for your business.
- Advertising. A fairly old scheme used in the media, it has gone through many stages of change as content has moved from print to online. In the advertising model, there are two groups whose needs must be met:
- readers (viewers);
- advertisers.
The advertising business model is most effective when a niche or large traffic volume is correctly identified. Review the list of models to determine which ones you can use for your business.
- Affiliate marketing. An affiliate scheme is similar to an advertising scheme but has its own specifics. Usually, it uses links rather than easily recognizable advertisements.
- buying leads from partners;
- selling banners on partner resources;
- payment for the conversion of a targeted potential client;
- payment for the user’s completion of a targeted action, etc.
Examples include Ozon and Aviasales.
- Commission. An intermediary business simplifies transactions between a seller and a buyer by acting as a link between them. A fee is charged for each transaction from one or both parties to the transaction. Example: real estate agencies, recruitment companies, PR agencies.
- Trade. Wholesale and retail online sellers of goods and services, retailers, catalog sellers, and traditional sellers who buy products from wholesalers or distributors and sell them to a wide audience.
- Crowdsourcing. This model is relevant when you have managed to unite a lot of people who supply content to your resource. Often, it goes in tandem with an advertising example, but there are other options for generating income. Using the right incentives, companies can attract a wide audience to solve their problems. An example is crowdsourcing platforms that bring together different generations to create content or innovate
- Manufacturer. Within this business model, the entrepreneur independently produces and sells goods, excluding or minimizing distribution channels. Profit options:
- standard sale with transfer of ownership rights;
- lease with payment for the use of the goods and their return upon expiry of the contract;
- a license with the transfer of rights of use on agreed terms and conditions and without the seller losing its ownership rights;
- branded content – independent creation of materials and online resources for marketing purposes.
- Franchise. Using another company’s proven, successful, and efficient type of business base instead of creating your own is now widespread in various industries.
The franchise business model involves selling a strategy for launching and running a successful business with access to a brand and support services. The seller essentially sells access to his effective methodology.
- Low-touch. A low-service method (minimal employee involvement in the process of selling a product or service) allows a company to offer relatively low prices to consumers. This model has clear advantages – an affordable cost of attracting a customer by minimizing the cost of expensive manipulations in hiring and supporting a team.
- Razor and Blade. This model was named after the product that allowed it to be developed. The idea is to sell a durable product close to cost to make a profit by selling the disposable components that complement it. The buyer of an inexpensive razor automatically becomes a regular buyer of blades in the long term. He enters a system of constant interaction with the company with a guarantee of a large number of additional purchases.
- Marketplace. Marketplaces can be used for both goods and services, generating income from various sources:
- fees from buyers and/or sellers for transactions;
- payment for additional services;
- placement of advertising banners, etc.
- Subscription. Subscription based business models are beneficial for many organizations because they encourage customer success and improve buyer retention. In this model, the customer pays regularly for access to goods or services, creating recurring revenue for the company. Subscription business model is often used in the areas:
- of digital services (Netflix, Spotify);
- boxed deliveries (cosmetics, food);
- software (SaaS).
This list can go on for a long time, but the main thing that entrepreneurs need to understand is that they do not always need to invent something new that involves high risks.Business model generation can be an expensive endeavour and it is not always worth it. They should consider using a proven format that has shown its effectiveness and can greatly improve their growth.
7 questions to help you choose the right business model
The structure of the business model itself consists of three elements:
- Costs of creating and developing a product (production, labor, raw materials, design, etc.).
- Costs of organizing sales (marketing, promotion, service provision, trade).
- Method of making a profit (pricing strategy, payment methods and terms, etc.)
Thus, the essence of an effective scheme boils down to a simple thing – to make more profit than was spent on creating the product at all stages. Difficulties begin at the stage of choosing the right option, and here you will find 7 questions to evaluate it.
- The cost of switching. Will it be difficult for the consumer audience to switch to the goods and services of another company?
- Regular profit. Do you need to make new efforts for each new sale, or is there a guarantee of further sales and profit?
- The order of income and expenses. Do you make a profit before or after expenses are incurred?
- Features of the cost structure. Does your cost structure have fundamental differences for the better compared to your competitors, or does it differ from the competition in a fundamental way?
- Delegation of authority. Does your business model allow you to create value for your company for free to consumers and third parties?
- Scaling potential. To what extent are your firm’s growth opportunities limited by external constraints related to staff, infrastructure, customer support, etc.
- Protection from competition. How well does your business scheme protect you in a competitive environment?
Analyzing and choosing a business model is a serious and extremely responsible step. If a startup has already embarked on this path, it should move only forward, not deviating from its goal and not losing sight of it for a moment. A model that is competitive today may already be outdated tomorrow if you fail to develop an understanding of existing market conditions and market trends.
A regular assessment of your business methodology, which is as necessary as an annual health check-up for human health, will help you assess your position promptly and adapt to changing conditions.
