Undoubtedly, knowing the issue you are solving for your clients is the biggest challenge when you start a business. Customers will be interested in your offer only when their real problem is solved by your product.
However, ensuring that the product meets the needs of the consumer is one of the few aspects of starting a successful company. Finding out the process of making money is the other critical factor in doing business and business models play a major role in it. Choosing the right model of business is a very critical one considering the fact that 90% of Indian startups fail within the first five years of operations.
Unique Aspects of Business Models
- By definition, a business model consists of details about the generation of money from your business.
- It also provides a roadmap for the creation of customer value at a reasonable price.
- In essence, it is an exploration of the costs and expenses and how much you can generate from the product or service.
- These tools allow entrepreneurs to experiment, quantify, and model different ways of organising their costs and income streams.
- A good business model helps to generate more revenue than the costs to manufacture the product.
14 Different Business Model Types
In reality, to find a competitive advantage, most companies use existing business models and optimise them. Check out the most popular business models using which your business can do wonders.
The advertisement business model has migrated from print to the internet and is becoming more complicated over the last few years. The fundamentals of the model depend on the creation of material that people read and watch.
Two consumer categories should be included in the advertising model—your readers or viewers and your advertisers. Your audience can pay you or not, but your advertisers are surely going to pay for your content. A commercial advertising model is mostly associated with a crowdsourcing model in which you get content for free from creators instead of paying them.
If you can put a large number of individuals together to add content to your platform, then you’re using a crowdsourcing model. To generate revenue, crowdsourcing market models are most often combined with advertisement models.
Companies seeking to solve complex problems often freely publish their problems for others who can try to solve them. Good solutions earn incentives, and your business can then expand using the idea. Providing the right incentives to draw the crowd while you develop a sustainable company is the secret of a successful crowdsourcing business.
In the affiliate model, links are inserted in content instead of readily recognisable visual ads, unlike advertising business models. This model is mostly applicable in online mode. With an estimated growth of 27% for Indian e-commerce companies in the next 5 yearsHomepage, this model will surely fetch great returns if followed properly.
For instance, if you run a website for book reviews, you might insert Flipkart or Amazon affiliate links within your reviews that allow individuals to purchase the book you are reviewing. For any sale that you refer to, the e-commerce site will pay you a small fee.
In a franchise business model, you are providing a strategy for starting and operating a profitable business to another person. You will also offer original brand name access and support services that enable the new franchisor to operate. In essence, you are selling access to a profitable business model. Though franchising is predominant in the restaurant sector, you can also find it in all types of service industries from courier services to travel agencies. As per the latest estimate, the tourism sector is expected to grow at more than 6% per year, which makes this model one of the most viable one.
Brokerage firms connect buyers and sellers and assist in facilitating a transaction. They charge either the buyer or the seller or sometimes equally to both of them for any transaction.
A real estate brokerage firm is the most heard one, but there are other kinds of brokers that are also present in the market, such as freight brokers and custom brokers. A broker basically facilitates a transaction by using their core competency and knowledge about a particular sector.
Some businesses embrace current products or services and make every sale exclusive to the consumer by adding a customised feature.
For example, custom travel agents book vacations and modify the packages based on the customer’s preference. Even a sporting good manufacturing company such as Nike makes personalised shoes for satisfying a particular set of affluent customers.
In the marketplaces model, sellers can list products for sale. The marketplace provider also incorporates convenient tools for consumers for easy communication with the sellers.
In the marketplace model, the sellers can get sales from a number of sources like payments for a transaction between the buyer and seller, to advertise the goods of the seller, etc.
To manufacture and sell something in shops, you normally get the product from the factory to the store shelf through a range of intermediaries. Disintermediation is the way you sideline everyone in the supply chain and directly sell to customers. This process essentially lowers the costs and also facilitates direct communication with the customers.
9. Razor Blade
The razor blade model takes its name from the product from which it got invented. In this model, an imperishable product is sold below cost to maximise the high volume disposable component’s sales.
This is why razor blade companies basically give the razor handle almost free of cost, hoping that over the long run you can continue to purchase a large number of blades. The aim is to bind a customer into a scheme, meaning that over time there are many extra, ongoing transactions.
10. Reverse Razor Blade
You may sell a high-profit product and encourage the demand of a companion product which is low in value by reversing the razor blade model.
In the reverse razor blade model, like the razor blade model, clients enter into a product ecosystem. But the initial purchase, unlike the razor blade model, is the major sale where a business makes most of its profits. The add-ons are only there to keep consumers using the product that was originally costly. For example, the Apple iPod where the original product is costly, whereas iTunes is low in cost and encourages you to keep using the iPod.
Under the freemium business model, you can offer part of your product or service without any charges and take money only for premium features and services,
Though similar in nature, freemium is a different concept from the free trial. In the free trial model, the user can have access to a product or service for a particular amount of time. Freemium models instead allow free, unlimited use of fundamental features and charge customers only who want access to more advanced features.
In the pay-as-you-go model, at the end of the billing period consumers need to pay for actual use instead of buying anything before, for example, power or cell phone minutes. The most popular pay-as-you-go model is used in home utility products. However, it has also been extended to products such as printer ink in recent times.
Business models based on subscription are becoming more and more popular. Customers need to pay a basic fee under this business model for this service.
Although subscriptions to magazines and newspapers have long been around, nowadays it is even emerging in newer platforms like OTT streaming services.
14. Reverse auction
A reverse auction model turns auctions upside down and makes sellers present buyers their lowest prices. Buyers can then choose the lowest price of all offers. When contractors apply to work on a building project, you can see reverse auctions in place. Whenever you shop for a mortgage or some kind of loan, you also see reverse auctions.
- This is not an extensive list of all existing business models, but ideally, this would help you to figure out how your company should be structured.
- The key thing to remember is that you don't need a new concept for your startup business.
- A completely innovative business model may be highly profitable, but it also carries greater risk with it.
- An existing model will help you succeed because it is known that the model has been proven successful over time.
- You can also evolve in smaller ways to expand your business within the current business model.
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