Essentially business model is the way how a company makes money. A business model describes the way an organization creates value and money and how it aims to achieve its vision and mission. All the business policies and processes can be said to be a part of the business model of the organization.
Since business model is not only about how the company makes some money but it is also about how it leverages key business partnerships on and how it treats its employees, it is an essential part of the organization. Following are few of the types of Business models that common organizations work on :
What are the Types of Business models?
1) Razor and Blade revenue Business Model :
In Razor and Blade business model, the company makes the customer product loyal and sells the related accessories at a premium price. This can be compared to the razor and blade, where razor is a onetime purchase but the blade is a constant purchase and thus company ensures a constant stream of revenue by pricing the blade at a premium.
Another example of the same would be the pricing of a printer. While the printer comes at a very less cost, the ink cartridges associated with the printer which is necessary for printing or price very costly. An example of the same would be the pricing of the apps. While the apps come at free of cost in the app store, the in-app purchases can be very costly.
An everyday bike would also be an example of razor and blade revenue business model whereby bike is a one time purchase but petrol is an everyday purchase which is becoming costlier every day. The primary focus of the company is not generating a constant stream of revenue. Mobile data operator, TV operators have been using this strategy to get regular revenue from customers.
2) Reversed Razor and Blade revenue business model :
As the name suggests this is the type of business model that is exactly opposite to the other one mentioned. Apple charges very high on its physical products why it gives out the music on iTunes for apps on Appstore for a very low cost which is a constant purchase. So in the case of Apple, the one-time purchase is more expensive than the regular purchases which are in fact Reversed Razor and Blade business model. This is one of the strategies that helped Apple grow and become a trillion dollar company.
3) Cash Business Machine Model :
This is also called as Cash Conversion Cycle Business Model. An example would be a company which makes a very low-profit margin but disrupts the market. An example of the same would be Amazon.
The company has a long business cycle in which an item sets in Amazon inventory for approximately 36 days and after 19 days it takes Amazon to collect the money from customers and 82 days before Amazon has to pay to the supplier. Amazon gets its partners to finance the business. This type of business models can also be seen with other e-commerce companies as well.
4) Peer to Peer Business Model :
As the name explains in Peer to Peer Business model, third party or the parent company allows the customers to use services of another party at an added cost which in fact is a profit of its own. The perfect example of the same would be Airbnb. The company allows using the premises of other people to customers at an added cost. The reservation fee is anywhere between 5 to 15% of the total and the commission fee is about 2-3%. The same is done by Uber. Uber use cars owned by other people and provide services to customers at an added cost.
5) Hidden Revenue Business Model :
As the name suggests this company have their business model hidden. The most popular companies who follow these business models are Google and Facebook. They are entirely based on advertising revenue generated when people click on the ads. Every time the customer clicks on the link of the Google which says add next to it the company gets paid by the advertising firm. Same goes for Facebook wherein the news feed is the place Facebook monetize is its ads.
The ads keep on showing in the news feeds of the people and revenue keeps coming to Facebook. It has worked very well for both of the companies making them two of the richest companies on the planet. Also, the user data is one of the biggest monetary resources for the companies who sell their user data to the third party without the customer realizing the data is being sold. Mark Zuckerberg has run into a lot of trouble about the same when he was questioned for more than 3- 4 hours by the US congressmen. Same was done with Sundar Pichai, CEO of Google.
6) One for One Business Model :
In this Business model, the company does a non-profit gesture for every product sold. For every product sold another product is given free of cost as a part of Charity.
The best example would be TOMS shoes which give out one pair to the kids around the world cannot afford them for every pair of shoes sold. This move has made the company very profitable and sustainable over a long time is it improves the brand image in the minds of people. The nonprofit side of the business is excellent for revenue generation.
7) Multi-Sided Platform Business Model :
These types of Business Models act as invisible middlemen who ensure smoother transactions in interactions among buyers and sellers. One of the best examples would be LinkedIn. The business social network is an undoubted market leader in its platform which allows job seekers and companies to interact “socially” in a “business sense.”
The multi-sided platform service to both the parties, for example, it helps the HR managers to find candidates was it helps the candidates to find the HR managers. To add value to the platform LinkedIn has also started an online teaching platform for the development of skills. These girls are not only limited to the candidates but also to the HR manager and organizations as a whole.
8) Direct sale business model :
These are perhaps the most common types of Business Models. With the evolution of technology it may seem that direct sales are a thing of the past but in fact, direct sales work better than any of the technology-assisted series programs. Many companies are becoming automated but direct sales still remain the preferred choice for many industries like Pharma wherein sales teams approach doctors every day for visits which are part of sales.
Pharma industry spends a fortune in training and paying these salespeople but it develops a long-term business with customers. Of course, they have accepted automation like the inclusion of Sales tracking, visit tracking, mailers, and technology-assisted simulations for customers but they are far from replacing the sales model because no machine can provide the human touch. For every Pharma company, direct sales will remain the business model.
9) Freemium Business Model :
The term ‘Free’ is very attractive as a customer. Freemium business model works on providing a certain free product with full features for limited time and then charging a premium for a lifetime. These types of Business models work very well in the tech industry with anti-virus for example.
The first three months of an anti-virus sir for free of cost with full features so that the user can experience the premium features. Once the user is convinced about the quality of the product the free period expires and the user has to pay for it. Video movie streaming company Netflix provides 1 month for free of cost and is chargeable from subsequent months. Users can experience all sorts of movies for free for one month which gets them used to the service and which itself brings conversion.
10) Affiliate Marketing Business Model :
Affiliate Marketing is when profits are earned by selling the third party product. The customer or the user can have a website where he can feature the products of the third party and when the buyers click on the link they are redirected to the original website but the middleman who hosted the website gets paid a certain amount of commission.
This is known as an Affiliate marketing business model. Amazon runs the world’s most successful affiliate marketing business model whereby it gives commissions to individuals over the product sold. The commission is a pre-decided percentage based on the price of the product.
11) Subscription-based Business Model :
A subscription business model is the one in which a company sells the same product on a subscription basis divided over time. Latest take an example of an online course.
Suppose there is a course for $10 and you sell that course to 10 people, you will earn $100 for one month. Next month you will have to come up with new buyers for the course without which there would be no revenue. Instead of this course is converted into a subscription-based business model, the course sections can be given to students for $3 per month. This way with 10 subscribers you have $30 fixed revenue for subsequent months and as users keep on adding the revenue keeps on growing. Amazon Prime and Netflix run a similar business model.
12) Consulting Business Model :
Consulting is a major business revenue for companies like Accenture which is the world’s most successful consultancy business model company. The services provided by Accenture are to variety of industries right from financial sector to communication and even the government sector.
Consulting business model depends on hiring talented people and making them work on multiple projects of different clients. The fees paid by clients can be Per hour or Per day or according to the requirements and the specifications of the service. Using this business model Accenture was able to build a multi-million dollar company on a global scale.
13) Agency based Business Model :
These types of business models work on upcoming projects that are enough qualified leads are generated and a team is a setup to manage those projects which grow the agency. Agency based business model is one of the most recent in the types of business models. The businesses monetize on the services offered by the agency.
Since these agencies cater only to individual services, it makes them cost of foldable for companies and they can outsource the particular function to the specific agency. Many advertising agencies work on some other business model.
14) E-Commerce Business model :
The name Amazon and eBay have become synonymous with E-commerce. With more than $24 billion in revenue and about $8 million dollars in profit, Amazon has captured the marketplace. Running very close to it is Alibaba which is the Chinese market leader in e-commerce which recorded over 423 million active buyers in the year 2016. Both of them have Business models diversified with many moving parts however the core is based on e-commerce.
Building a website has become practically inexpensive and avoids a lot of traditional costs in brick and mortar type of businesses and hence more and more upcoming businesses are following the similar type of business model to have their businesses online. No wonder this model has made Amazon owner Jeff Bezos the world’s wealthiest man in 2018.
15) Attention Merchant Business Model :
The company that generates revenue by investing in human attention is called attention merchant business model. These types of Business models run on attention merchant who works on grabbing the attention or focus.
Companies in advertising are termed as attention merchants and it is the same logic that has made Facebook and Google highly profitable buy harvesting the attention of the people. The primary function of attention merchant Business models is to keep the attention of the customer engaged and hooked and then use that to promote a certain Ad. Recently, Facebook has started to show ads in between the videos.
16) Privacy as Business Model :
Privacy has become the biggest need in recent times and with the evolution of technology. With Google and Facebook gathering uses data the concerned is legitimate for all the people about their privacy. In this respect, many of the businesses are started evolving which allow users to control privacy better than popular businesses.
Free sample over Google privacy concerns, a search engine like duckduckgo have started evolving which allows users to control the data and private navigation. Duckduckgo makes money via associations and by sales of local keywords. Does privacy has become a business model for duckduckgo.
17) Franchising Business Model :
Franchising is perhaps undoubtedly the most popular form of business model followed by many businesses which require only capital investment. In franchising, independent business owners can adopt the business model of the franchise company and pay them royalties.
Mcdonald’s is perhaps the best example of the world’s most successful franchising business model. Mcdonald’s gets paid against its services and product in exchange for royalty fees. Following the success of McDonald’s many companies like dominos KFC, Burger King have started their own franchise.
18) On Demand subscription based Business Model :
For more than a decade in past, we have relied on fixed schedules of the media business. People used to watch late night shows which were live or repeat telecast of the same show on the next day morning. But with the increase in the usage of YouTube videos, online video streaming companies like Netflix have gained popularity.
Netflix is an on-demand subscription-based business model wherein the subscribers can take a subscription whenever they want to watch a particular TV show or a movie and their subscription at their own convenience. Following the success of Netflix Amazon have started Amazon prime Hulu and many more. In 2020 Disney will come up with its own streaming channel called Disney plus which will have the most popular movies.
19) User-generated Content Business Model :
These types of Business models work entirely on user content. People come on these websites to know about information and that information is provided by other people themselves.
The best example is Quora which is termed as Social QnA site. The concept comes from Wikipedia where users use their knowledge to edit certain articles and share their talent for others to read. Blogs are another example of the user-generated content business model. Many people have their own blogs, with millions of followers, wherein the share their views and thoughts about particular topic and websites earn money from advertising on those blogs or by taking yearly fees from the blogger for the site space.
20) Educational Niche business model :
These types of Business models operate in the educational sector by charging a premium from the users who want to enroll with certain courses. The best example of the same would be the online learning app Udemy, Language learning app Duolingo etc. These applications provide courses for free of cost but getting a certification is chargeable.
21) Instant News Business Model :
People want to know the happenings around the world instantly. While Facebook is serving that purpose partly, the news available on Facebook are hardly reliable, except if they are from reliable sources and with the increase in data many users are not comfortable with Facebook. In such cases, apps like InShorts which provide news in 60 seconds instantly have come into limelight. Twitter also serves the purpose of instant news with the trending hashtags. Users can simply check the trending hashtags to know the current topics.
22) Multi-Brand Business Models :
Companies these days want to serve all categories of people. To save this purpose companies need to have all sorts of brands which resonate with all categories of customers. Not everybody would afford Puma Shoes, for example, hence many retail outlets have started to keep multiple brands in the same store so that the users can have a choice and the retailers can have a business. Lifestyle and Pantaloons are few other examples which follow multi-brand business model strategy.
23) Direct to Customer Business Models :
These types of Business models are followed by many established forms from a long time. The company service directly to the customers without the requirement of an intermediary party. These companies organize extensive marketing campaigns and involve customers in them to increase their market visibility and brand recall.
The best example would be companies like Unilever, Procter and Gamble Johnson & Johnson. Unilever is considered as world’s second largest advertiser according to 2017. It has the world’s second-largest media spend along with more convention advertising. Unilever also delivers content through customizing channels and has made itself available digitally as well. These companies emphasize more on marketing rather than sales process because they believe that marketing is the backbone of sales. Better marketing campaign automatically results in increased sales.
The above were all the different Types of Business Models. Thus, you have more then 23 types of Business Models to choose for your business.