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10 Most Common Types of Business Models and How They Work

 

 

You’ve got it: an amazing business idea that you’re convinced will be a hit. And you’ve got the ambition, time, and energy to jump into an entrepreneurial adventure.

But even if you’ve already done some research, you may still have some unanswered questions. How do I choose the best business model? Which types of business models are the most common? Let’s take a deep dive into your choices so you can choose the business model that will work best for your new business idea.

 

Subscription Model

It’s often easier to keep an existing customer than to recruit a new one. And this universal truth is the foundation that the subscription model is built upon.

The subscription business model has come a long way from offering newspapers or magazines to your door. Now, it can be used to offer anything from makeup, beer, razors, food, or even personal stylist services. 

Chances are, you or someone in your home has purchased something that’s part of something that’s a subscription model business, whether it’s a monthly streaming entertainment service or a yearly food delivery service.

Knowing your target customer is important to profit within this business model. The more you know your customer, the better. This will help you reach your target customer and price your product accordingly.

Subscription-based model examples

  1. Streaming services
  2. Birchbox
  3. Dollar Shave Club
  4. Xbox Game Pass
  5. Peloton

 

Freelance Model

Every business has a customer, but for some businesses, the customer is actually another business.

Many businesses rely on freelance workers for their core functions. Whether it’s writing social media posts, handling accounting, or dealing with customer service, there can be a freelancer for everything. An increasing number of workers earn money in freelance positions. These roles, also referred to as independent contractors or gig workers, can offer workers the chance to do work they love under flexible conditions. 

 

Advertising Model

A business may offer a fantastic product and great service, but if no one actually knows that the business exists, it will fail.

And this is one area where advertising can help – by getting the word out about a business.

The advertising business model is a business-to-business operation. Advertisers can help spread the word about a new business or help a business reach new customers.

There are several examples of this in the digital era. YouTube, for example, allows content creators to get their message out and monetize their channel. Along with this, businesses of various types can run ads on Google. Additionally, you may even see ads while you’re reading an online version of your favorite news source.

 

Franchise Model

Starting a business requires sourcing products, establishing procedures, and building brand awareness. This takes a lot of time, thought, and energy.

On the other hand, if you want to own a business where much of the groundwork has been done, a franchise might be for you. A franchise has the intellectual property, brand logos, and name recognition that new businesses often lack. 

Some common franchises include:

  • Auntie Anne’s
  • Burger King
  • KFC
  • McDonald’s
  • Pizza Hut

 

Direct-to-Customer Model

Most of the products you need and want have some sort of middleman. That is, you can’t buy directly from the manufacturer. Whether it’s food at the grocery store, clothing from your favorite brand, or even simple party supplies, there’s usually a third party in between taking a share of the profits, and that person isn’t the manufacturer.

But, in the direct-to-consumer model, there’s no middleman. Some notable examples of this include Casper mattresses, Everlane clothing, and Warby Parker eyeglasses.

 

Retail Model

No matter what you buy or how you buy it, chances are, you’re buying it from a retailer. Most brand-new clothing, home decor, furniture, or craft supplies, are purchased from a specialty store or at a big-box store, whether that’s a brick-and-mortar store or an online store. And, these stores are part of the retail business model: the stores that sell what you want and need.

The retail model is ever-changing with the emergence of digital platforms. And, with the fact that a brick-and-mortar presence is no longer required to operate a retail store, this decreases the start-up costs. This model overlaps with two other common business models which are the brick-and-click model as well as the ecommerce model (we’ll explain what those are later in this article).

 

Freemium Model

It’s often said you can’t get something for nothing. But for customers of a freemium business model, this isn’t exactly the case.

Some big-name companies that have thrived under this model are Spotify, Skype, and WordPress.

While your ultimate goal is to make a profit, the freemium model can help you lure prospective customers by offering them something for free, with a catch.

The best freemium model businesses offer a higher-level product that isn’t free. After the brand has gained a following, the familiarity that its customers have developed causes many people to convert to the paid version of the product.

So, in the early days of a startup, while your brand is still working on becoming known to the general public, getting “free publicity” can be a tremendous asset.

But, choosing a freemium business model shouldn’t be done without careful consideration. You’ll need to consider your future possibilities for growth. If all your customers are satisfied with getting something for free, you may find that your revenue suffers if you don’t have a solid plan for converting these customers into customers that will pay for your upper-tier product.

Multi-Brand Business Model

A multi-brand business model refers to a company’s strategy of producing and marketing multiple brands within the same product category or market segment. Instead of concentrating on one flagship brand, companies deploy multiple brands to cater to diverse customer preferences, needs, and price sensitivities.

This approach allows them to capture a broader market share, cater to different segments, and counteract competition more effectively. Companies using this model can benefit from diversifying risks; if one brand faces challenges, the others can continue to drive revenue. This approach also allows for greater market penetration.

However, managing multiple brands adds operational complexity. Each brand needs its distinct identity, positioning, and strategy. This can lead to increased marketing expenses and the potential for internal brand competition. While the multi-brand strategy can be powerful, it demands meticulous management to ensure that each brand retains its unique value while benefiting from the shared corporate resources.

E-Commerce Model

Electronic commerce, or “e-commerce,” is a business model in which companies and individuals buy and sell products and services online. Because the business is entirely online, the products and services offered are nearly limitless. An e-commerce business offers companies the extra convenience of not needing a physical store. This increases the selection of products available to consumers. A business might combine the e-commerce model with the drop-shipping model.

Types of E-commerce business models

  • B2B: Business to Business Ecommerce- The B2B model focuses on providing products from one business to another.
  • B2c: Business to Consumer Ecommerce- B2C model focuses on businesses providing products to the consumer base
  • C2C: Consumer to Consumer Ecommerce- C2C model focuses on consumers selling directly to other consumers. Sites like eBay and Craigslist are examples of C2C companies.
  • C2B: Consumer to Business Ecommerce- This model is when a consumer sells products or services to businesses. Those in this line of work will oftentimes be freelancers and sole proprietors.

 

Bricks-and-Clicks

At its core, the Bricks-and-Clicks model takes advantage of the traditional retail space (the “bricks”) and e-commerce platforms (the “clicks”). This dual presence not only offers consumers the tactile experience of in-person shopping but also the ease of online transactions. This broadens a business’s audience reach. This model allows a business to cater to the customers who enjoy browsing shelves and the immediate gratification of their purchase. But it also attracts customers who want to shop from their phones and wait for their orders to arrive later.  

Also, it’s not just about sales channels. The Bricks-and-Clicks model also offers data-driven insights. Businesses can gain valuable information from their online platforms and implement them in their physical spaces and vice-versa.

Conclusion

Choosing the right business model will dramatically increase the chances of your business succeeding. The right business model will help you succeed and stand out amongst your competitors. This, combined with a strong business plan, will help you start a new business with the right foundation.

Erin Shelby on TwitterErin Shelby on Wordpress
Erin Shelby
Team Writer: Erin Shelby is a writer and blogger based in Ohio. Follow her on Twitter @ByErinShelby

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Business Models · Find Your Way · Grow Your Business · Leading Your Team · Your Mindset
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Team Writer: Erin Shelby is a writer and blogger based in Ohio. Follow her on Twitter @ByErinShelby

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