Running a business without planning can pose numerous challenges in your company’s operation and growth. Because of this, you should be aware of what a business model is and business model examples to help you achieve your short-term and long-term goals.
Below is the definition of a business model and numerous examples of business models to help you drive success in your organization. Whether you are just starting to design your marketing strategy or are an experienced entrepreneur, these models will provide you with a wide range of key elements to succeed in your journey.
What Is a Business Model?
A business model is a framework that shows how a business will make money. It influences a client’s purchase decision by showing the problem your business will solve for them. Whether you’re investing in a new business or expanding your business, an exceptional business model is necessary to succeed as an entrepreneur.
A solid business model can help you improve the shopping experience for customers and improve customer relationships, get clear on your core values and business objectives, or help you keep track of key metrics.
Where Is a Business Model Used?
- Revenue projections
- Designing marketing strategies
- Developing pricing strategies
- Business evaluation
- Making investment decisions
Why Is a Business Model Important?
In order for a company to achieve its goals, its business model is imperative. It guides an organization in creating and obtaining value in different contexts. You get to create strategies for hiring, customer acquisition, business development, and partnership alliances. It is also fundamental to implementing a business plan’s concepts or ideas. Below are some key components you should consider.
- Key objectives
- Customer targets
- Vision and mission statement
- Go-to-market
- Growth opportunity
- Messaging
- Pricing
Real-World Examples of Business Models
Learning how to write a business model is important. However, it can be challenging to create one without real-world business model examples. Examples of successful business models include the following.
- Advertising business model
- Affiliate marketing business model
- Aggregator business model
- Crowdsourcing business model
- Conceptual business model
- Freemium business model
- One-for-one business model
- Open-source business model
- Razor Blade model
- Subscription model
10 Great Examples of Business Models
Business Model Example 1: Advertising Business Model
The advertising business model entails the incorporation of adverts in the content that your audience wants. Although this successful business model has been around for a long time, it continues to evolve with emerging trends. For instance, YouTube implements this efficiently with its entertainment and educational videos.
Business Model Example 2: Affiliate Marketing Business Model
The affiliate marketing business model is connected to the advertising business model, but it performs its duties uniquely. Usually, this business model leverages links embedded in content rather than visual adverts that viewers can identify effortlessly. This is guided by current industry trends.
For example, if you own a website covering electronic appliances (fridges, washing machines, and vacuum cleaners) product reviews, you can link to Amazon products, allowing people to purchase these products. Consequently, Amazon will pay you a certain commission depending on every sale you make.
Business Model Example 3: Aggregator Business Model
An intermediary in an aggregator model facilitates interaction between involved parties. As a result, the company can connect with numerous product or service providers and sell the products under their brand.
Google, for instance, shows search results and controls the ads displayed to users. Hence, the users and advertisers can’t connect to set prices. Google is an aggregator that works towards building its rankings.
Business Model Example 4: Crowdsourcing Business Model
Typically, a crowdsourcing model is combined with an advertising model to give optimum results to a company. If you gather many people to contribute content to your site, then you’re operating under the crowdsourcing business model.
This model has several iterations. Threadless, for example, allows designers to submit t-shirt designs and then sell them. Most companies looking for solutions to difficult problems usually post them to the public for experts in the field to offer solutions. To succeed with this model, you need to provide an enticing reward to the target group.
Business Model Example 5: Conceptual Business Model
A conceptual business model refers to a diagram that demonstrates how a business or industry works. It presents the different elements of a business and how they relate. If your business relies on ideas or concepts, you need to create successful conceptual models.
For instance, Maruti Suzuki operates with this model as it allows the company to create different car models before building a car. To develop a successful conceptual business model, you need to do consumer research.
Business Model Example 6: Freemium Business Model
The freemium business model offers clients free and paid services. The word free stands for free services while ‘mium (premium) stands for premium services. To grow your brand or business rapidly, you should use this model’s concepts. It helps you meet your business goals as it provides proof to customers of your service’s quality without paying for it.
Besides experiencing your service without any risk, they enjoy free stuff, attracting more prospective buyers. For example, MailChimp launched as a paid service but later introduced this model in 2009. As a MailChimp user, you can get email list subscribers, send email updates, and automate your marketing.
Nevertheless, the free plan limits you to 12,000 emails monthly and 2,000 subscribers, unlike the premium service, which offers you more advanced features. Once a regular user hits 2,000 users, it’s challenging for them to shift to a different platform. Hence, they turn into paid subscribers.
Business Model Example 7: One-for-One Business Model
With the one-for-one business model, a business gives an item to charity for every product sold. This model attracts those consumers who value businesses with charitable initiative. TOMS and Warby Parker are great examples of companies that run on this model.
For instance, Warby Parker gives away a pair of eyeglasses for every pair they sell. Hence, prospective buyers buy from them to contribute to the donation initiative.
Business Model Example 8: Open Source Business Model
The open-source business model offers two products or services, namely a free and a paid version. Unlike the freemium model, the open-source business model develops a product and then allows the open community of developers to maintain it partially. The freemium business model builds and maintains the service independently.
A company that wants to create superior products with a competitive advantage and generate numerous revenue streams should utilize this model.
Business Model Example 9: Razor Blade Model
Razor blade companies offer a basic product for free or low cost and sell a complimentary product for a higher price. Initially, razor blades were offered at low prices, so the model was named after them. After that, however, their replacement costs are usually very high.
This model is suitable for companies offering a basic and complementary product. The goal of such companies is to tie their clients into a system where they will make repeat purchases. For instance, companies like Xbox, Apple, and Amazon’s Kindle will offer a basic product (hook) for a complimentary item, or a bait, at a high price.
Business Model Example 10: Subscription Model
The subscription business model provides clients with services while paying subscription fees for specific intervals. Nevertheless, this model poses the challenge of customer acquisition. Due to its payment structure, businesses receive recurring fees for their services or products.
Magazines and newspapers often use subscription services as part of their business models. It is now common in software and online services like Salesforce, Comcast, and Netflix.
Pro Tips to Boost Your Business Model Skills
- Convert your model into achievable goals. Creating a business model is essential. However, making it effective is a key component to driving a successful business. That’s why you need to convert your business model into measurable goals. This will help you evaluate your progress and prove to investors or partners that your business venture is profitable.
- Get feedback. To ensure a successful business model, you need to get feedback from stakeholders and your customer base. Leverage crowdsource feedback, conduct interviews, and share surveys. This will help you identify whether your hypothesis is correct and whether you’re solving a problem.
- Develop strategic models. To create a successful model, borrow from different business models. Consider how you will deliver the product to customers and deal with the competition, as well as business opportunities and threats.
What Should Be the Next Step in My Business Model Learning Journey?
Select the type of business model that works best for your company. A business model should take into account the types of products and services offered. Assuming you have complimentary and basic products, you can apply the razor blade business model to accomplish your business goals.
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In addition, you need to get feedback from your customers, partners, and stakeholders before implementing the model. This will help you enjoy great benefits in the long run, including large profit margins and growth from your target market.
Business Model Examples FAQ
The four types of ecommerce business models include business to consumer, business to business, consumer to business, and consumer to consumer models.
A successful business model should have four elements, which include profit formula, customer value proposition, core processes, and essential resources.
A business model canvas is a 1-page business plan that shows whether a business is sustainable.
You should review your business model when significant technological and environmental changes occur.
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