While kick-starting a business, the critical foundation of the process is planning. However, business planning may sound boring, but you need to invest your time determining:
- What to sell,
- Who would be your customers, and
- How your business would make money.
Besides, you need to choose a business model and include it in your business planning and research.
This post will take you on a walkthrough:
- Definition of a business model
- Components of a business model
- Traditional eCommerce business models
- Different types of business models, and
- How to pick a suitable business model
Let’s start then!
What Is a Business Model?
A business model tells about a company’s plan to make a profit. It identifies:
- The product or services a business would like to sell,
- The target customers, and
- Any expected expense.
Undoubtedly, business models play an important role whether you have a well-established business or planning to start a new one. They may ask the companies about the prospects of the business idea, whether it would catch up with success.
The business models assist companies in magnetizing investment, recruiting needed experts, and encouraging staff and management.
A business, even if it’s already established, should update its business plans, or it may expect a fall in understanding the challenges and trends ahead.
Furthermore, investors can opt for the companies that interest them through business plans.
Essential Components of a Business Model
One should follow every business model component as they offer a complete guide towards making a company profitable and crafting customer value.
Let’s review the top components of a business model one should consider:
As value is related to business models, it addresses the key features of your solutions that make them exceptional.
Also, the value can include the treatment you give to your business employees and consumers concerning their requirements and considerations.
Your message must be robust and clear to magnetize the customers’ attention and convince them that your products or services are worth purchasing.
One can use this message in advertisements and should reflect his brand’s unique traits and enclose a call to action, like “Contact us Today” to catch up with a quote.
A robust business model holds a list of solutions for the customers’ issues. One needs to ensure that such solutions are realistic by considering the resources available for you to use at any time.
Go to Market
It includes choosing the channels for promoting and selling your products or services, like mobile app stores, social media platforms and paid search.
Customer Targets and Challenges
When choosing a business model, it’s significant to know the potential customers interested in buying your products or services.
This component needs to list the challenges our target customers may face while consuming our offerings, such as receiving a wrong or damaged product and what steps they should take further.
It includes finding the ways that can assist your company to grow. For example, you can search for acquisitions and mergers with other brands and partnerships with nonprofit firms for charity campaigns. This way, you can enhance the efficiency of your business operations by expanding your staff which may lead to enhanced brand reputation.
As a business person, you should craft a pricing model for the product or services you want to sell. If your brand is new, you can start with low prices to attract customers, but be sure it’s high enough to cover costs and overhead expenses. While setting the price, remember to consider the quality of the products or services. You can offer special deals and discounts when you reach your profit margins.
A high-level Vision
While creating your company’s vision, you should remember to state your business’s industry and use a positive tone.
Post establishing your company’s vision, you need to determine your top quantifiable targets and a plan to evaluate them.
Your objectives can be relevant to your operating costs, annual sales revenue, staffing decisions, or marketing strategies.
New businesses need to set reasonable goals, whereas an already established one should go for more ambitious targets, like increasing customer reach.
One should decide the needed investments to avoid any costly losses. So, before making such a decision, one should set the budget and conduct a cost-benefit analysis.
What Are The Four Traditional Types of eCommerce Business Models?
While starting a new eCommerce business, chances are you will fall into any of the general categories of the eCommerce business model below. Many companies work in various types simultaneously.
Each comes with its benefits and challenges.
Let’s check them out:
B2C – Business to Consumer
As the name says, business to consumer (B2C), businesses sell to the end-users, customers in this business model. A widely-known and used model, B2C covers a plethora of distinctive approaches.
This business model’s decision-making process is much shorter than other models, especially for lower value products or services, like B2B purchases.
So, because of the short sales cycle, B2C businesses usually spend less on marketing to make a sale. But, its average order value is lower and recurring orders are less.
B2C innovators consider using the technologies such as native advertising, remarketing, and mobile apps to market to their customers directly and ease their lives.
Examples: Walmart, Amazon
B2B – Business to Business
In this business model, a business sells its product or services to another company. Sometimes, the buyer is the end-user here, but mainly, the buyer resells to the consumer.
Such a business model, B2B, has a longer sales cycle, but the order value is higher, and recurring purchases are more.
Nowadays, B2B innovators have made a position for themselves by replacing order sheets and catalogs with eCommerce stores and expanding targeting.
Example: Intel, Panasonic
C2B – Consumer to Business
C2C businesses permit individuals to sell goods and services to companies.
In this business model, a website may allow customers to post their preferable work for completion and get businesses to bid for grabbing this opportunity. Affiliate marketing services are also known as C2B.
The competitive edge of the C2B model is the pricing of goods and services. This approach facilitates consumers with the strength to name their price or business directly to fulfill their needs.
Recent C2B innovators have started connecting companies to social media influencers using this model to market their products.
Example: Referral programs, data sharing
C2C – Consumer to Consumer
Also known as an online marketplace, the C2C business model connects the consumers to exchange their goods and services and make money by charging listing or transaction fees.
C2C businesses need to take care of their products’ or services’ quality and technology maintenance.
Examples: eBay, Etsy
Types of Business Models
As we have read, the business model is the best way to streamline your business process.
A business model is a complete framework that defines, understands, and designs an entire business.
Let’s go through different business models with examples to get better insights.
1. Franchise Model
This model is best for the company’s expansion. By franchising, the franchisor gets a chance to license its brand name, resources, rights for a franchise, and intellectual property to sell its goods and services in exchange for royalty.
Examples: McDonald’s, Subway
2. Multi-sided Platform Model
A company that offers services to both sides of business chooses a multi-sided business model, like a hiring company that charges people who want to hire candidates and others who wish to get hired.
Examples: Freelancer.com, LinkedIn
3. Cash Machine Business Model
Also referred to as the cash conversion cycle (CCC), this model is for companies that quickly convert cash into goods and services and then into money. Such brands make low-profit margins but survive longer with a disruptive position.
Examples: Amazon, Apple
4. Freemium Business Model
Tech brands usually use paid and free services, the software as a Service (SaaS) freemium model. The companies that need to grow their business and acquire customers offer free versions or limited features. The customers need to choose paid services to unlock the upgraded versions or advanced features.
Examples: Dropbox, Zoom
5. Subscription Business Model
This business model permits customers to catch up with services on paying a monthly fixed amount or annually. The company needs to offer enough value to the customers to become repeat customers.
Moreover, it allows brands to divide the market and offer certain items under different plans and prices, known as tiered offerings.
Examples: Amazon Prime, Netflix
6. Peer to peer Business Model
In this model, a company is a middleman between two parties and crafts value for supply and demand. It’s different from B2C and B2B, making a profit through commission.
Examples: Airbnb, eBay
7. One for One Business Model
Also known as a social entrepreneurship business model, this model is a hybrid solution combining profit and nonprofit services.
Examples: Soapbox Soaps, TOMS Shoes
8. Hidden Revenue Business Model
It refers to a revenue generation system that facilitates users not to pay for the services offered. Still, the brands earn revenue from other sources.
Examples: Google, Instagram
9. Razor and Blade Business Model
Also termed as a printer and cartridge business model, one product (Razor) is sold at a low cost in this business model. In contrast, another associated item (blade) is sold premium. For the recurring sale of an associated item, one can use this model to generate a continuous flow of revenue.
Examples: Nespresso coffee machines, HP Printers
10. Reverse Razor and Blade Business Model
It’s the reverse of the razor blade model in which low-priced products are offered to motivate customers to purchase premium-priced items. This model follows the strategy according to which the customers are given a one-time offer for the high-priced products and catch up with enhanced revenue from the secondary items in a long way out.
Examples: Apple sells apps, songs, and movies at an affordable rate but charges high on its devices, like iPad iPhone.
11. Direct Sales Business Model
In this business model, the brands sell products directly to end customers, whether in one to one conversations or small gatherings.
Examples: Personal Care & Nutrition Brands (Herbalife, Avon), Tupperware
12. Affiliate Marketing Business Model
Using this model, the companies make money by reviewing, recommending, and featuring other brands’ goods or services.
Examples: Capterra, NerdWallet
13. Consulting Business Model
Companies that offer consulting services by hiring qualified and professional people and assigning them to clients’ projects choose this business model. Such companies charge on an hourly basis or pick a percentage share based on the successful completion of the project.
Examples: Mckinsey, Deloitte
14. Agency-based Business Model
It’s a project-based business model, where the company hires an outside firm to complete their specific tasks like some brands hire advertising agencies for their promotional needs.
Examples: Leo Burnett Company, TBWA\Media Arts lab
15. User-generated Content Business Model
It’s a new, yet fast-growing model that permits users to create quality content on websites for free to resolve other users’ queries and provide reviews. User-generated content is also compiled in this model and sold to brands seeking to use customers’ ideas and content for promoting their brands.
A wide range of digital commodities uses this model.
Examples: Yelp, YouTube
16. Online Educational Business Model
This business model targets the educational industry, including teachers and students, and permits them to access educational resources through subscription or flat course fees. You can name it a combination of freemium, a subscription-based model, and course fees.
Examples: LinkedIn learning, Khan Academy
17. Instant News Business Model
This model targets updating and sharing news with no intermediary.
Brands that choose this model offer reliable and open channels permitting trusted primary and secondary sources to spread urgent announcements or breaking news directly to their audience.
18. Multi-brand Business Model
It’s based on marketing multiple products, almost identical yet competing for each other and lying under one organization but holding different brand names. It’s used to create profits and build an empire.
Examples: Unilever, Nestle
19. E-Commerce Business Model
A simple yet the best business model, this model permits buyers and sellers to connect and transact utilizing an online platform.
Various types of eCommerce business models are there, like Business to Customer(B2C), Business to Business (B2B), Customer to Business (C2B), and Customer to Customer (C2C).
Examples: eBay, Walmart
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20. Distribution Based Business Model
A company that performs by having one or more major distribution channels to connect with its end users chooses this model.
Brands that use this model offer channels for businesses to sell to consumers via brokers, dealers, retailers, supermarkets, and more.
21. Dropshipping Business Model
In this model, a business owner connects with different wholesalers/suppliers to sell their goods on the site. Once a customer places an order on a business owner’s site, the wholesaler dropships the goods directly from the manufacturer to the customer.
In this case, the business owner doesn’t need to hold an inventory. Instead, he uses a third party to manage all the logistics and shipping needs.
This model is best to start a niche eCommerce business site with a little upfront cost.
Examples: Oberlo, Doba
22. Enterprise Business Model
This business model is based on catching up on big deals, targeting just large clients. It is developed on complex sales with a few and good potential clients.
Examples: SpaceX, Boeing
23. Social Enterprise Business Model
It is based on the base according to which the brands should make profits without harming anyone, and a portion of it is spent on human welfare to improve people’s living conditions.
Example: Brunello Cucinelli
24. Direct to Consumers Business Model
This business model permits brands or companies to sell their goods directly to final customers. To retain customers, highly effective advertising campaigns and marketing campaigns are needed.
25. Family Owned Business Model
When a family runs a business and two or more family members control the decision-making process, it’s a family-owned business. The leadership of a company is passed to its offspring.
Examples: Walmart, Ford
26. Blockchain based Business Model
The futuristic, advanced, and modern technology, Blockchain has flipped the entire way of transactions, including decentralized network systems worldwide.
A decentralized network increases trust and permits customers to transact end-to-end.
Blockchain-based businesses earn profit using tokens and provide Blockchain as a service.
Examples: Bitcoin, Ethereum
27. Vertically Integrated Supply Chain Business Model
It’s about owning and handling the supply chain activities, such as manufacturing, retailing, and distribution, for its goods by the brand itself.
When a brand controls the production and delivery of products to the end-users, it can offer goods at lower prices to the customers.
Examples: Amazon, Walmart
28. Combination of Chains and Franchise Business Model
It’s a blend of licensed stores (franchising) and operated chains.
29. Data Licensing Business Model
Such a ‘data’ business model has earned popularity in this modern world, specifically in the technology sector. Data plays a vital role in web technology, where the brands need critical information to conduct operations and earn revenue.
30. Attention Merchant Business Model
Influencer or attention merchants work using advertising models and make money by magnetizing the attention of their target audience.
Example: Instagram, Snapchat
31. Discount with High-quality Business Model
The departmental stores and supermarkets use this business model, where they get the products in bulk and sell them at wholesale prices.
Examples: ASDA, Tesco
32. Pyramid Scheme Business Model
It’s usually considered controversial or illegal. This model performs on the only principle of recruiting members with a promise to reward them in the face of services or payments if they admit enrolling others into the schema despite product sale or supplying investments.
33. Nickel and Dime Business Model
It includes the lowest pricing strategy for essential goods or services. By keeping the basic cost as low as possible, an extra amount is charged for the other services and perks with the leading service. `
Examples: Frontier Airlines, Spirit
34. Aggregator Business Model
This business model is a network model that offers collective information relevant to a specific service and sells it under its brand name. Using this model, many brands provide sources and information on a single industry using this model.
Examples: Uber, Zillow
35. API licensing Business Model
Basically, it’s a set of subroutine definitions, software development tools, and communication setups. This business model offers licensing protocols that permit developers’ communities to craft 3rd-party APIs, plugins or add-on apps for popular platforms. And the developers pay an amount to get API access.
Examples: Apple, Microsoft
36. CrowdSource Business Model
It facilitates the brands to access operational solutions, such as technologies and ideas, co-collaboration opportunities, consumer interaction upgrades, reduced costs, and operation optimization.
Examples: YouTube, Wikipedia
37. High Touch Business Model
In this business model, the customers’ involvement and interaction are at the peak to make a personalized experience. It’s a fact in which a customer is involved in a type of partnership with the business. It’s required for larger accounts as they pay more and stay longer.
38. Low Touch Business Model
It’s the opposite of the high touch model, where the goods or services are delivered with less customer interaction. It’s best for low-price software tools where it’s easier to acquire customers.
Examples: Amazon, SurveyMonkey
39. Flex Pricing Business Model
It operates through a business strategy in which the product’s final price is negotiable. In brief, buyers and sellers are allowed to bargain to meet their purpose.
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40. Auction-Based Business Model
It’s based on the bidding option to purchase goods or services. It’s not so common now, still used for industries, such as real estate, antiques, businesses sales, and collectibles.
Examples: Amazon, eBay
41. Reverse Auction Business Model
It follows a fixed pattern making the products priced higher and allowing the buyers to bid accordingly until the cost decreases.
Businesses seeking suppliers choose this business model. The suppliers bid lower and lower to magnetize business and grab the contract.
Example: Government contract bidding.
42. Brokerage Business Model
This business model offers a single platform to buyers and sellers for deals communication. It charges an amount for any transaction between the buyers or the sellers based on the featured category.
Example: Century 21, Expedia
43. Bundling Business Model
A business strategy bundling combines products or services to provide a package accumulated as a single fused unit to sell comparatively at a low price. It eases the purchasing process for numerous products and services from a single business unit.
Example: Burger King, Microsoft Office 365
44. Disintermediation Model
It removes the need for a third-party or outsourcing intermediary. This model permits the direct deal between clients and customers via distinct channels, such as the internet.
Example: Tesla, Dell
45. Fractionalization Business Model
This business model allows selling goods or services for separate parts or partial usage. It’s a strategy that divides goods and services into subcategories to introduce products’ varieties.
Example: Selling a pizza with different varieties of slices in one box.
46. Pay as Go (Utility) Business Model
It charges according to the product or service usage.
Example: Cell phone, water, and electricity brands, Amazon Web Services
47. Product as a Service
It facilitates selling a product’s service despite selling the actual product.
Example: Fedex, Zipcar
48. Standardization Business Model
It states making a universal service that was customized in the past. It attracts customers because of low prices and convenience.
49. User Base Communities
Using this model, users communicate with each other and advertise simultaneously, and it also generates revenue with both advertising and subscription fee.
50. Leasing Business Model
It refers to renting high or large-profile items, such as electronic equipment and machines, instead of selling them.
Example: Hertz, Enterprise
51. Virtual Real Estate in Metaverse
Buying land has always been the most beneficial investment for us, ensuring a solid return on our investment. Buying land on Earth has proven successful, and it is now time to acquire land in the Metaverse. Being a landowner in the metaverse allows you to reap the same benefits as you would in real life. Some advantages include gaming, trading, socializing, and meeting new people.
Example of Metaverse Marketplace: Otherdeed, Decentraland, Sandbox, NFT Worlds
How to Choose the Right Business Model for You
Witnessing many business models would make it challenging for you to pick the most suitable for your business.
You need to follow a process that can assist you in determining the suitable business model for your business.
Let’s catch up with that process:
1. Consider your Customer Needs
Be sure the model you choose should meet your customers’ expectations and needs.
Moreover, you should put the customer experience above profit, and it demands a combination of multiple models.
2. Consider How your Customers Buy
Some markets are challenging to monetize. You need to know the preferable way your customers choose to buy.
For example, you can pick the advertising model if your website is content-driven and catching up with a high traffic volume but is not getting converted into product sales.
3. Consider the Market Potential and Competition
You should invest your time analyzing your market to know how other brands are catching up with revenue. If they are new in business, they might have chosen a model that holds the caliber to replicate.
You can emerge, innovate, and disrupt your market. So, don’t ever feel that you should follow the pathway that’s a way to success for others.
4. Consider your Value Proposition
You need to find your business’s value proposition, what makes it unique, which suitable model, etc.
5. Consider Multiple Revenue Streams
Various successful businesses will depend on many revenue streams. In the initial days of your new business, it’s all relevant to experimentation.
Now, as you know about the various business models, you can pick one or a combination of a few that suits your business, which would magnetize more revenue for your business.
A business model lets us know an organization’s needs and objectives. If crafted accurately, a business model can assist a brand in delivering valuable products and services. Further, it can increase customer satisfaction, a powerful position, and improve brand loyalty.
So, while planning, you need to choose smartly one or a combination of business models.