We think that most business giants and unicorns have a great product line that makes them successful. But most often it is an innovative business model that does the trick.
How else can Starbucks charge an above-average price for a coffee? Or, how can IKEA sell furniture appliances and home accessories at such attractive prices?
The primary goal of your startup is to find the right market to ensure a positive cash flow. That is quintessential for the enterprise to sustain itself and grow. That is why startup experts stress the need for a business plan. A business plan will steer your startup in the right direction and keep it relevant in the marketplace. And for creating a business plan, you need to decide on the business model you want to implement for your startup.
The business plan of your startup will revolve around your business. It should be suitable for your industry and the right one for your niche market. But then, there are different types of business models available and it might confuse an entrepreneur on which one to choose.
In this blog post, we’ll explore the most popular business models out there. By learning more about them, you can have a clear picture of which one would work best for your startup. You can also combine one or more of these business models to create a unique and customized model that is ideal for you.
What is a business model?
A business model is the best way to figure out if your startup will make money once it is launched. But, a business model covers much more than that.
It encompasses information such as the products or services the business plans to sell, the target market, and any anticipated expenses. Generally, these are questions a business model addresses:
- Who wants to buy your products? And why?
- Where can your customers find your products?
- How much should the customer pay for the product or service?
The business model deals with the links between all elements of your startup: mainly, your product/services, the market, and your customers.
How To Choose The Right Business Model For Your Startup?
As we discussed before, choosing the ideal business model for your startup can make all the difference in how well your enterprise will convert. So, as a business owner, you have to carefully evaluate which is the best for your enterprise.
Here are four questions that will guide you while choosing the ideal business model for you from the ones we are sharing below:
- What is the customer persona for my business?
- What is the value my products give to my customers?
- What’s the business domain of my startup?
- How does my business stand apart from the competitors?
Now, we are going to dive into the types of business models that entrepreneurs can implement for their startups.
6 Most Popular Business Models With Examples
Below, we will look at the most popular business models that propel profits. We will also look at some examples of businesses that belong to each model.
As the name suggests this model represents nothing more than a market or a bazaar. In a marketplace business model, the business owner facilitates transactions between buyers and sellers. It’s an interactive commercial space where merchants can showcase their goods and customers can select from a wide range of sellers before making a purchase.
The marketplace business model can be implemented both online and in a physical space. The business owner only provides the space for the merchants, so they don’t have to worry about an inventory of your offerings.
These days, e-commerce is gaining a lot of popularity as a marketplace business model. E-commerce refers to the online trade of goods and services. Amazon is one of the most successful marketplace businesses as it provides a space for sellers and buyers to interact. Amazon is credited with 300 million active users, which is twice the entire population of Russia!
On Amazon, Sellers can list their products for attracting potential buyers. Sellers can be manufacturers, distributors, or resellers. They pay a subscription fee to Amazon for the space to put up their products on the site. Amazon also provides advertising for the products and product delivery services.
As a startup, you can implement a tiered approach to get your customers to pay for your products or services. This is done by using human psychology to get your customers hooked on the product. And that is where the Freemium model comes in.
The Freemium model works by offering certain services for free, without any hidden charges to the users. Once they are happy with your services, you can collate a premium package that offers more exclusive services and additional features for your users. The premium package will be a paid package with more privileges for the customer.
Spotify is a great example of a Freemium business model. It is a music streaming platform that gives users access to a huge catalogue of music all across the world. It uses a model that offers a basic, limited, ad-supported service for free and an unlimited premium service for a subscription fee.
The subscription business model has been the lifeline of newspaper and magazine companies. Now, it’s gaining popularity in online business models as well.
The subscription model is more apt for businesses where the customers or end-users engage with your startup frequently rather than one-time sales. It is more of a B2C business model. Convenience is the most important value you provide the customer in a subscription model.
Netflix is the best example of this model. Netflix has huge databases of visual content that you can binge-watch for a monthly subscription fee. There are countless movies, documentaries, and TV shows that you can stream anywhere at any time. You are all if you have a smart device and enough internet data. It eliminates the trouble of purchasing or renting them. You don’t even know if you paid for Netflix every month!
We all know about fast-food chains expanding all over the world by opening new franchises. But it’s not just fast-food chains- many popular businesses implement franchise models for their business. Oyo is an example of a hotel franchise running very successfully in India.
The franchising system is a business model where there is an agreement between the business owner (the franchisor) and a third party (the franchisee). The agreement allows the franchisee to operate and manage the business owner’s products and services under their trademark and branding in return for a fee and ongoing royalty payments.
A franchise is a tried and tested business model. Anyone can purchase a franchise model blueprint if they wish to start a new business.
Also known as the product-to-service model, it is a straightforward business model that we see everywhere.
Basically, in an on-demand business model, the customer purchases the utility of equipment or product rather than the equipment itself. You can offer a service for the customer to use as and when they need it for a small fee. This allows the customer to have the utility of a product without investing in the actual equipment.
To illustrate in simpler terms, let’s take the example of Ola cabs. People who can’t own a car can enjoy the convenience of a car by opting for a car rental service. Food or grocery ordering services are also examples of the On-Demand Business Model. It is a cost-effective model that uses freelance workers to fulfil the customers’ needs.
Hidden Revenue Model
True to its name, the Hidden Revenue Model relies on indirect sources of cash flow. As a customer or an end-user, you don’t pay any money to get the services offered by businesses. It depends on Advertisements and marketing campaigns to grow the business.
Entrepreneurs can start online businesses with this model and can gain money from sponsors, advertisements, and paid promotions. This is a very lucrative startup idea now gaining popularity all across the globe.
The best example of a business that has implemented this model is Google. It provides users information on anything ranging from health, science, and literature, to food recipes and job openings free of cost. We can find anything we want on Google from anywhere and anytime.
Google makes huge profits by allowing businesses to run paid promotions to get their products more visibility and top rankings on Google’s search engine. Every time someone clicks on a pay-per-view campaign link, Google gets paid by the advertiser.
Find Your Ideal Business Model
These are the most popular business models that help businesses make profits in their businesses. When making a business plan for your startup, you have to identify which business model to follow.
You can modify and iterate your business model to create the best business plan for your startup. Keep in mind the main questions to consider when choosing the best business model for your startup.
We, at Voila Experts, have also been trying exceptionally hard to provide a unified platform to startups for all their micro-consulting needs. Just fill out this tiny form and avail the Voila Managed Support Service to connect with a network of vetted startup experts.