In short, Business Models are plans for the successful operation of a business, identifying sources of revenue, the intended customer base, products, and financing details. Bу dеfіnіtіоn, a buѕіnеѕѕ рlаn іѕ a fоrmаl ѕtаtеmеnt оf a ѕеt оf gоаlѕ, reasons they are attainable and plans how to achieve them among others.
The objective of writing a business plan is to best prepare for achieving financial success. Mаnу tіmеѕ a business plan is thоught of as ѕоmеthіng thаt іѕ рrоduсеd ѕресіаllу to hеlр entrepreneurs rаіѕе саріtаl. One of the major decisions a business owner will have to address in his business plan is the type of business plan model they will adopt. Selecting a business model defines how you plan to generate revenues and fundamentally influences the relationship between the company and its customers.
This is an extremely important aspect because this will become the main framework for the business to operate and achieve financial success or failure. You’ll need a Business Plan if you plan to apply for funding. Why not look at our article entitled A Business Plan and 8 Clear Facts Why it is Vital for free guidance?
We have listed here 15 Business Models as examples you can choose when starting your new business:
- Production (Manufacturing). It is centuries old and the basis for the Industrial Revolution among much of our economic success. Historically, raw materials are bought, processed and sold as manufactured products at a cost markup. Whether you are producing software or silverware, this model presupposes that you will be making a product. Today this can be a physical as well as a digital product. Production-based business models benefit from economies of scale when higher volumes are sold, provided the manufacturing process can be standardised. Another common business model focuses on taking raw materials and producing products. This also applies to companies that assemble finished products from premade parts. You can split a business into direct sales (e.g. Dell selling directly to customers) and indirect sales (e.g. Acer, HP selling via retailers).
- Retail. This business model goes hand-in-hand with the production model, as the business purchases goods from a manufacturer to resell them to an end consumer. This model works just as well for the local ice cream vendor as Amazon.com. Today, physical goods are sold, and many digital goods, books, videos, audio, services, you name it. The retailer’s business model’s main problem is distribution and service. He can focus on serving a local market with the selected products and even add his services on top. The retail business model has even become more relevant today with the rise of E-Commerce, as online retailing has boomed in the last decade as more consumers look to the Internet as a viable commercial option for goods.
- Service-based. This business model has been around for as long as there have been people with needs, wants, and desires. Research, accounting, audit and consulting services are typical examples. In addition, many online services such as VoIP or Internet-based telephone calls and Search Engine Optimisation fall under the service business model. Typical here is that one must hire more employees to provide the service. Therefore a service-based business model is more difficult to scale.
- Affiliate marketing. These generate sales for a third-party producer of goods or services. The affiliate is an independent contractor and receives a portion of the sale for marketing and lead generation. The subcontractor may not close the sale but lead the prospect through the sales funnel. The marketers receive pay after the sale or when a specific agreed-upon completion of an agreed-upon result. Affiliates do not create a product or perform services outside marketing, so they are free to focus exclusively on lead generation. However, normally they are fully dependent on the third party and the quality of those products.
- Franchise. They aim to create a successful franchise brand. A typical example is a restaurant chain where the brand owner owns not all restaurants. He will define the business concept, do brand marketing and establish the standards to which the brand should adhere. Given the business, the concept is proven and works; he can now give franchises to third-party to establish businesses under his brand.
- Subscription. These are popular on and off the web. Information products and services often use this system to sell subscriptions instead of a one-time product. Magazines represent an example of the subscription model; your favourite edition comes to you every month in the mail and is now online. The advantage of this business model is that recurring revenues can be generated.
- Project-based. In this kind of model, this is where you work on a project and are then charged for that project at a set fee. Big-time projects like infrastructure, consulting firms, or web development need project-based business models.
- Product-based business model. This is the most commonly used business model in demand and popular. Every store sells physical products, such as clothing, jewellery, cars, etc. All businesses apply product-based business models.
- Freemium. A popular business model due to the allure of offering free simple and basic services for users. But charges for more advanced and additional features at a premium. The note-taking app Evernote and the music-streaming platform Spotify are companies to think of as a business model sample. These apps allow users to use the basic features for free, but a premium account grants users access to additional features such as offline access.
- Marketplace. Another popular business plan model offers a platform to connect buyers and sellers. Not only is this applicable for brick and mortar businesses but also E-Commerce. The marketplace is a middleman between the seller and the buyer to meet an agreed commission rate. Provides a seller with a place to sell and look for buyers and provides a place for buyers to look for sellers/vendors/stores that sell products they want. An example is Takealot.
- Broker. You work on the buying or selling side and obtain a commission upon a successful transaction. In other words, the broker is the middleman that brings the buyer and seller together. A side note; when selling through whichever business model, there may be reasons why customers don’t buy from you. We explore these in our article 10 Negative Reasons Why Customers Don’t Buy from You.
- E-Commerce. This refers to a business transaction that is conducted online. In other words, it is a business model where all sales happen via the internet without a physical presence. It is one of the most successful startup business models that takes advantage of the internet and the convenience of having the platform online, which opens up the opportunity of targeting a wider range of the market.
- Dropshipping. A type of E-Commerce business model is sending a product directly from the manufacturer to the customer, and the business only secures the customer. Its business is not to keep the products it sells in stock but purchases it from a third party and then ship them directly to the customer without having to shoulder the handling fee in some cases. Amazon, eBay, and Shopify are just some of the few who made it big using this business model.
- Rental. As simple as it sounds, the operation for this business model is renting something to an interesting market. For example, it could be products, Storage Space, Service Office, or renting Equipment such as Rental Equipment and Rental Vehicles.
- Network. One of the most popular business models of all ages and for different use cases. It is a model where the value for each customer increases the more users the network has. Facebook, LinkedIn, and Twitter are good business model samples that fall under this.