Company is understood as a legal entity that shapes up through the association of people via natural or/and legal means for channelizing any industrial or commercial enterprise in a revenue-oriented manner.
In this post, we will be covering all the important details associated with the business model of a Company through which it channelizes different elements, functions, and management of the company to generate revenues and make profits.
So, without any further ado, let us get started straight away-
Table of Contents
Introduction to the Business Model of a Company
When it comes to running a company, it is important to have the right structures for long term sustainability and offering values. This is in order to make sure that different entities are able to ascertain the growth of the company as well.
They need to find out proper solutions in order to make sure that they are able to earn money and also provide services to the people by performing all the right functions.
So, there is no doubt about the fact that in order to have a certain growth, the companies need to focus a lot on the business model that they have.
For a company, fulfilling all the needs and requirements of the customers is one of the most important factors for sure. With the help of this, they will be able to ensure the success and growth of the company.
Hence, there is simply not a single speck of doubt that with the help of amazing business model a company will be able to make sure that they are able to provide all what the customers and also guarantee the profit of the company as well.
What Exactly Is A Business Model of a Company?
The business model of a p company depends upon the specific type of that company.
When it comes to defining the business model, we can say this that it is basically just a description of the ways through which the company channelizes its different entities, plus will be able to make money to pay the remuneration of the employees and generate profits.
This is in order to see that the company is able to provide certain value to the customers in the form of products/services and that too at legitimate rates so that it doesn’t cross the budget of the customers.
Let us have a look at different types of companies to understand the business model of Company-
Types of Companies to decide the Business Model of A Company
Companies are divided into four types based upon different grounds. Let us have a look at those first-
#1. On the Basis of Members
- One Person Company
- Private Company
- Public Company
#2. On the Basis of Liability
- A company limited by shares
- A company limited by Guarantee
- Unlimited Company
#3. On the Basis of Special Companies
- Government Company
- Foreign Company
- Section 8 Company
- Public Financial Institution
#4. Based on Control
- Holding Company
- Subsidiary Company
- Associate Company
How Does a Business Model of a Company Work?
With the help of the technologically advanced tools, the entrepreneurs can test, experiment, and create some models for different ways and then create the costs and streams as well. These tools are certainly one of the best ways to make some changes in the business model in case there is a need for it.
Now that you know a little bit about the business model of a company, it is time to get into some other details. Well, we all know that business models are the high–level plans which are used by the businesses so that they can operate in a certain marketplace.
This is just the particular description which is provided to the services and products which are provided by the company and why these items are desirable to the different clients and customers that they want to target.
Apart from that, the business model for any particular company or an enterprise will also cover some details about the startup costs for any products. There is also some important pieces of information about the financing too.
Along with that, you will also find the details of the customer base for the business. There is also a mention of the marketing strategy, the competition review, and some other examples and revenues as well.
Mistakes that may Occur in the Business Model of A Company
One of the most common mistakes that people tend to make during the creation of a business model is to actually underestimate the funding costs for the business until and unless that becomes profitable in any way.
The product costs are just not enough, and the company needs to make sure that they are able to run the business when the revenue is exceeding the expenses too.
This is one of the most important things that you always need to keep in mind during the creation of business models.
Understanding the Different Types of Business Models of a Company
It is also important for people to know a little bit about the different types of business models because there are quite a few of them. So, here we are going to provide a little bit of detail into these amazing business model types of a company as well.
Well, there are different types of companies in the industry, and with that, there are different business models as well. Some of those types are-
- Franchising models
- Direct sales models
- Brick and mortar examples of the businesses
- Hybrid examples as well in which the company will get to combine internet sales with the land-based stores
With the difference in these business types, there is a difference in the plans which are created for these businesses.
Let us take the example of a shaving industry. We all know about Gillette and how it is able to sell the Mach 3 razor that it has and that too at low cost.
So, this way, they are able to get more and more customers to try out their products in the best way. So, the business models that they have will actually be called the razor blade business model in which they can have all the details which are essential.
How Does A Company Make Money?
The business model of a company is based upon offering services and products as per the requirements of the target base to generate revenues. These customers, when opting for the services, the company will be able to have the money for sure.
So, here we are going to talk about some of the general ways in which companies can earn money-
#1. By Offering Quality Services
This is one of the most important things for the company in order to make sure that they are able to earn money from the customers. There are so many services that are provided by the company these days.
The services that are provided to the customers need to be of high quality so that people can make sure that they spend a lot of money in order to acquire all of these services.
With the help of providing quality services, companies can make sure that people are always interested in their products and services in the best way.
#2. By Channelizing different Programs
There are certain programs that are offered by companies these days.
These are the programs which people can use in order to have an idea about the company. However, these services have some sort of prices attached to them as well.
In order to ensure that people are able to get the services, they need to pay for the programs. This is another one of the ways in which the company is able to make money.
#3. By Fulfilling the Demands of Target Audiences
The customers make the base for every single company. Without the customers, there is no doubt that the company will be nowhere as well.
So, when the companies are able to fulfil the needs and requirements of the customers, they will be able to get all the benefits from the people. This way, they can also make sure that they are able to earn a lot of money as well.
In addition to these general ways of making money, companies also opt for specific business models that empower them to generate good revenues. Now we will be discussing those models here and now-
Specialized Business Models of Companies to Make Good Money
Earlier, we talked about some general ways which are common in companies for making revenues via manufacturing products and selling those to users or offering services to the target audiences to make profits.
But now, let us delve into some special business models that are helping some of the top-performing companies generate their revenues-
#1. Offering Products for Free and Generating Revenues from the Advertisers
This type of business model is quite common with online services and applications. Social Media Platforms are also parts of the same mechanism.
In this, companies offer services free of cost to the users that help them to have a powerful user base. Then companies allow advertisers to run advertisements on their portals or platforms for the exchange of good money.
This helps companies make revenues.
#2. Choosing the Freemium Model in which users will pay for the Upgrade
In this, companies offer their base model for the free, but when the users would want an upgrade, they will be required to pay money for that.
LinkedIn, Applications, and other programs quite prefer this model for generating money.
#3. Opting for a Pricing Model with low subscription payments via monthly or Yearly Payments
To offer products and services to more and more number of customers, companies allow them to buy products just with a low subscription payment and then monthly or yearly payments.
It lets companies have a stable revenue system to generate money in a sustainable manner.
Customers will not pay the one higher up-front price, so lower entry cost will for sure pull in more and more customers. Internet and other online services are quite enjoying this model.
#4. Generating Revenues as a percentage of every transaction
This is a very common business model that is gaining prevalence in online and e-commerce world.
In such type of models, product or transaction provider gets a percentage or royal from each of the sales.
#5. Having low product price but charging extra money for the support
There are companies that offer their products at a low price, but they do not offer free support to their customers.
Users would be required to pay extra money to them for getting the support as per their specific needs.
#6. Offering Low Entry Price with an extra fee for additional or premium features
Companies that opt for this model offer the products at the low entry price, but those products would miss some premium and additional features.
When the users would like to opt for those features, they should pay the extra fee. Hence, the company will not only be able to pull in more users via low entry price but will also generate more money for additional features.
#7. Razor-Blade Model in which base unit is Priced Low
Have you heard of the quote- “Give ’em the razor; sell ’em the blades.”
This is applied to Razor-Blade model in which one based unit is sold at a low price, so the sales of good complementary increases and helps the company generate good income in the long run.
Now on the concluding note, it seems obvious that the business model of a company is one of the most important things that people need to keep in mind when they want to ensure the success of the company.
This article is meant to educate people about the business model that companies use and how they tend to make money. So, we hope it was informative and useful to you in the best way.
Did we miss any of the significant information about the business model of a Company?
Do you have any other ways through which companies make money? Share with us in the comments.
Liked this post? Check out the complete series on Business Models