Business models define how a company creates, delivers, and captures value. There are numerous business models, each tailored to specific industries, customer segments, and value propositions. Today, most businesses are forced to operate within multiple models to build a repeating customer base. Here’s an overview of the top business models.
- Brick and Mortar: Traditional physical business model where customers visit a store or office. Examples include retail stores, restaurants, and clinics.
- E-commerce: Selling products or services online. This can be through a company’s own website or through platforms like Amazon or eBay.
- Subscription: Customers pay a recurring fee to access a product or service. Examples include Netflix, Spotify, and many software-as-a-service (SaaS) companies.
- Freemium: A combination of “free” and “premium”. Basic services are provided for free, but advanced features or services come at a cost. Examples include Dropbox and many mobile apps.
- Affiliate Marketing: Companies earn commissions by promoting other company’s products or services. Bloggers and influencers often use this model.
- Franchise: A franchisee pays an initial fee and ongoing royalties to a franchisor. In return, the franchisee gains the use of a trademark, ongoing support, and the right to use the franchisor’s system of doing business. Examples include McDonald’s and Subway.
- Advertising: Revenue is generated by providing advertising space. Many online platforms, like Google and Facebook, and traditional media outlets, like TV and radio, use this model.
- Brokerage: Acts as an intermediary between buyers and sellers. The broker earns a fee upon the successful sale or other transaction. Real estate agents and stock brokers operate on this model.
- Razor and Blades: Companies sell one item at a low price (or give it away for free) and then make profits on the sale of refills or associated products. The classic example is razors (cheap) and blades (expensive).
- Crowdsourcing: Outsourcing tasks to a large group of people or community (the “crowd”) through an open call. Wikipedia and Kickstarter are examples.
- Peer-to-Peer (P2P): Enables individuals to lend or borrow from each other, bypassing traditional institutions like banks. Examples include Airbnb and Uber.
- Direct Sales: Products are sold directly to the consumer without a fixed retail location. Examples include Tupperware and Avon.
- Licensing: Allows others to use intellectual property like patents, trademarks, copyrights, or brands for a fee.
- Agency Model: Acts on behalf of the supplier and sells to customers. The agent earns a commission on each sale.
- Bait and Hook: Similar to the razor-blades model. The basic product is sold cheaply or given away for free, while the consumables are sold at a high margin.
- Data Selling: Companies collect data and then sell it to other companies who can use it for various purposes, including advertising and market research.
- Reverse Auction: Customers state what they’re willing to pay for a service, and providers bid to offer their services. Priceline is an example.
- Low Touch vs. High Touch: In a low-touch model, customers can use the product or service without much interaction with the company. In a high-touch model, there’s significant interaction and support.
- Marketplace: Platforms that connect buyers and sellers, taking a fee from each transaction. Examples include Etsy and eBay.
- Wholesale: Selling products in bulk at a discount to retailers who then sell them to end customers.
- Dropshipping: Retailers don’t keep products in stock. Instead, they buy the product from a third party and have it shipped directly to the customer.
This is by no means an exhaustive list, and many businesses operate using a combination of these models. Additionally, as industries evolve and technology advances, new business models continue to emerge.
