18 Business Model Example Explained (2023)

Ever wonder how your business will make money? Generating income by selling your products is the basic idea that comes to our mind. While this certainly is one of the types of business models. There are more than 50 different business models.

The blog discusses 18 examples of business models widely used by some top startups giving you an idea about which one and when to opt for.

Most profitable startups never invented new business models. They prefer to borrow it from other organizations & yes it works.

The Razor and Blades model have been highly profitable for Adobe document readers and Verizon’s cell phone business. The cheap-chic business model works for IKEA in the home furnishing business & Trader Joe’s in the grocery business.

Today, the type of business model depends on the usage of technology and innovation. Sometimes, one little twist in a present business model can deliver strong results in a new industry.

So, why do people choose Facebook? It is simply because they can chat and connect with other people around the world (operating model) and do not even charge for it (revenue model).

In this blog, starting with a short description of what exactly is a business model, I will discuss 18 Business Model Examples opted by startups and established firms. I will help you analyze which one works for you.

What is a Business Model?

A business model is a logical structure that supports the feasibility of the business. Designing a business model requires deep thought and analysis.

A business model provides a reason for the customer to choose the offering provided by your company over others. Business models focus on core strategy, customer interface, value network, and resources.

“All it really meant was how you planned to make money” — Michael Lewis

How do you write a business model?

Business Models are created with the help of a business model canvas. In more simple terms, every business model has three parts –

  • designing and manufacturing the product
  • From finding the right customers to selling and distributing the product
  • how the customer will pay and how the company will generate income

As you can see, a successful business model just needs to collect more money from customers than it costs to make the product. You can lower costs during design and manufacturing, finding more effective methods of marketing and sales & figuring out an easy way for customers to pay.

You don’t have to come up with a new business model, you could take an existing business model and offer it to different customers. For example, restaurants mostly work on a standard business model and focus their strategy by targeting different kinds of customers.

Business Model Example

Many people associate business models with lengthy documents but business models do not need to be a long document. A concise, visual document is required to distill the key elements of your strategy and ensure everyone understands the high-level approach. So let’s discuss the various business models with their examples.

1. Subscription Business Model

In the subscription business model, customers pay a fixed amount of money on fixed time intervals to get access to the product or service provided by the company. The major problem is user conversion; how to convert the users into paid users.

When & Why you should opt for the Subscription Business Model.

The subscription model is used because of its pricing structure, in which a business will charge customers a recurring fee to access their product or service.

This model should be used by those companies in which the revenue strategy depends on a customer paying multiple (recurring) and subscription based paymentsfor prolonged access to a good or service.

So let’s see how this model works for Netflix. Netflix is a subscription service providing online streaming videos that work on a membership-based model. The clients pay every month for access to TV shows, documentaries, motion pictures, and other media content in various qualities.

(Video) Business Model Canvas Explained with Examples

18 Business Model Example Explained (1)

2. Freemium Business Model

“Freemium” means “Free” and “Premium” service. It offers two types of services to the customers, ‘free service’ and ‘paid service’. The free service users have limited access to the basic features whereas the premium services are unlocked when the person buys the paid service.

When & Why you should opt for the Freemium Business Model.

The Freemium model should be adopted by companies when they are looking to grow their business and brand quickly. This model is preferred because everybody likes free stuff, and nobody wants to pay money for something they’re not sure will work for them.

So, the freemium model addresses that by providing such an enticing offer: giving users the ability to experience a new product without any risk.

For instance, MailChimp is an email marketing platform that began as a paid service and later added a freemium option in 2009. MailChimp allows the users to collect email list subscribers, create autoresponder series, send regular email updates, and automate their marketing.

Its free plan allows the users to have 2,000 subscribers and 12,000 emails per month, whereas the priced plans give more advanced features. The regular user mostly turns into a paid user as it would be hectic to change the platform once you have 2,000 listed subscribers.

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3. Open Source Business Model

Open source business model provides service/product offered for free, and a business/enterprise version which is paid. In the freemium and business model, the free product is built, developed, and maintained by the company centrally.

In the open-source model, the free product is built, developed, and in part, maintained by an open community of developers. Those developers are a part of an independent community.

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When & Why you should opt for the Open Source Business Model.

(Video) Lean Canvas Example

Open source business models should be used by a company when they have an aim to create a superior product, which immediately has a competitive advantage, and which generates multiple scalable revenue streams.

The open-source business model relies on shifting the commercial value away from the actual products and generating revenue through ancillary services like systems integration, support, tutorials, and documentation.

Let’s discuss the open-source business model of Fastly.Inc which is an American cloud computing services provider. Fastly leverages an active community of developers and a good chunk of revenue is spent on sales and marketing processes. For a monthly fee, customers get access to the platform & account management with enhanced customer support.

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4. Consulting Business Model

Unlike traditional businesses that have a clearly defined product or tool to sell, a consulting or agency business model provides a specific set of services for a fee. While this business model can be applied to almost any industry, the main drawback of consulting business models is that you should have expertise and authority around your brand.

When & Why you should opt for the Consulting Business Model.

Companies adopt consulting business models as they don’t have either the time or expertise to do specific tasks. This business model should be followed by those companies whose unique value proposition is based on the knowledge and expertise of its people.

For example, Alcor Fund which is a global private equity fund that acts as an advisory with a strong knowledge of the investment market. It offers fund and asset management, merger and acquisition, private equity, and corporate finance.

It operates through its investment bank & its consulting wing under ALCOR Advisors that advise the clients to take their companies on a rapid growth path through a focused strategy.

Neil Patel. Neil Patel Digital is the SEO and digital marketing agency that allows Neil Patel to monetize its traffic by offering free basic content marketing tools while charging for the premium.

The idea was simply that you generate enough qualified leads, set up a team to manage those projects, and grow the agency based on on-coming projects.

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5. Distributor Business Model

A distribution-based business model focuses on a company’s ability to have one or a few key distribution channels to connect to its final user or customer.

When & Why you should opt for the Distributor Business Model.

This model should be adopted when the survival of a company depends on its ability to have one or a few key distribution channels to connect to its final user or customer. In a distribution model, you don’t need to manufacture products of your own, you can comfortably engage in the distribution of the products of a company or several companies at the same time.

Unilever spends its major part of revenue in maintaining a proper distribution. The company is providing a proper distribution network to its brands by working with thousands of retailers and wholesaler suppliers across the world, with a massive supply chain.

Big companies like Unilever having a large turnover, focus on their distribution strategy. They spent most of their resources to tap into channels that can prove to be successful to scale up their business.

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6. Aggregator Business Model

An aggregator business model involves an aggregator that might act as a middleman. In an aggregator model, it’s the aggregator that keeps interacting with the two or more parties involved.

When & Why you should opt for the Aggregator Business Model.

(Video) Lean Canvas Intro - Uber example 🚘

Aggregator business model should be followed by a company in which it is not just a mediator but a firm with a brand for providing the goods/services from smaller providers. This model allows a company to connect with different goods/service providers and sell its goods/services under its brand.

For instance, Google shows users a search result page, and the same Google handles the ad inventors. Hence users and advertisers don’t interact with each other to set the price. Google as a search engine is more of an aggregator, where the company centrally enriches its index and builds up its rankings.

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7. Conceptual Business Model

A conceptual business model is a diagram that demonstrates to us how an industry or business functions. It shows an essential element in the business and tells how those elements relate to each other.

When & Why you should opt for the Conceptual Business Model.

Businesses should adopt a conceptual business model if their business often requires concepts and ideas to create innovative products. This model defines project scope, establishes entities with concepts, and provides a high level of understanding in different product development cycles.

For example, Maruti Suzuki a car company might create a conceptual model of a new car to be introduced in the market. This model is based on several or a single concept in design.

Conceptual models often require research to generate ideas into more specific concepts. Companies should perform consumer research to get an idea for what appeals most to consumers.

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8. Razor and Blade Business Model

In the razor and blade model, the basic product (hook) is offered cheaply or free while the complementary product or refill (bait) is sold expensively. We cannot use the basic product without a corresponding product. It is easy to attract customers with the “bait” product because it seems to them like they are getting a bargain. This model is one of the Small business strategy examples.

When & Why you should opt for the Razor and Blade Business Model.

Razor & Blade models are applied by companies when they have a complementary product that encourages repeat purchases. This business model allows the companies to sell their initial product for little to no profit & relying instead on the initial sale to cover their customer acquisition costs.

Companies like Apple use an inverse razor and blade, business model. Apple has created platforms like the iTunes and App Store, which sell songs, apps, movies, or web series at an appropriate price. Apple also charges premium prices on its devices like the iPhone, iPad, and Mac.

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9. SaaS Business Model

SaaS or Software as a Service business model is a centrally-hosted software that is hosted on a cloud infrastructure. Customers pay a subscription fee to utilize the software.

Zendesk is a customer service ticketing system famous for its usability by small, medium, and even large businesses. It provides a better customer service experience.

XERO is a huge SaaS model and a popular choice of many accountants to manage their clients.Auditox Accountancyuses around 5 different accountancySaaS programmes but Xero is the one that they say most people feel comfortablewith. This is a classic example of something used on mass markets with a high margin of return.

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10. Direct Sales Business Model

When it comes to the small business model, the direct sales business model involves selling a product directly to the targeted customer. chubbies adopted a direct sales model.

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(Video) Osterwalder explaining the Business Model Canvas in 6 Minutes

11. Advertising Business Model

The advertising model works by providing a free product or service that people want to consume. Later, it displays ads to those readers or viewers. Youtube is following the ad-based business model.

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12. Affiliate Marketing Business Model

An affiliate business model allows a firm to sell the products of other companies on their website. Like this company named Khojdeal is selling bluestone products with the help of discount coupons or the famous Amazon Affiliate Programfollows the affiliate marketing business model.

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13. Peer to Peer Business Model

A P2P business is a platform between consumers and individual service providers. It provides revenue by taking a percentage of all sales made through their platform.

Airbnb follows a peer to peer business model by charging guests a service fee between 5% and 15% of the reservation, while the commission from hosts is generally 3%.

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14. Franchise Business Model

A franchise exists when a parent corporation creates a unique product, a strong brand, and a replicable business model. Later, it sells it to others to own and operate independently. Starbucks is a retail company that sells coffee-related beverages.

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15. Amazon Business Model

The Amazon model includes online stores (which account for 52% of Amazon revenues), as well as physical store locations. It also includes AWS services like site hosting, subscription services, third-party sellers, and advertising revenue.

Jeff Bezos famously said “Your margin is my opportunity”

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16. Ecommerce Business Model

The eCommerce model focuses on selling products by creating a web-store on the internet (online shop). Amazon, Alibaba, ebay, olx, and Walmart are some of the big companies that have adopted an e-commerce business model.

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17. On-Demand Business Model

The on-demand business model is based on “Access is better than ownership rule”. The products & services are easily accessible to the customer in less time. On-demand laundry & dry cleaning service of uber is evolving & has radically mixed well.

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18. Uber Business Model

Uber runs according to a ‘two-sided’ marketplace business model. The company acts as the middleman or broker between the drivers and those who need a ride. The company earns profits from each transaction, taking a percentage from gross booking.

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Conclusion

Before we conclude, I would like to share an important factor to keep in mind that the most successful business models are dynamic and repeatedly evolving. Brands operate with more than one business model. The business model examples can help entrepreneurs find the formula to build a successful company.

Business models are helpful for analysis to understand how businesses work. Though they have found customers, the model fails because of lack of resources. According to Bill Gross, the founder of Idealab, “timing is the most important factor”.

(Video) Using Multiple Regression in Excel for Predictive Analysis

The success of a business model depends on the timing, context, and market conditions. Successful and profitable business models generally have substantial brand equity with a strong distribution network.

We at Alcor help founders build their idea from scratch to the growth stage. Explore your fundraising options with us on Venture capital, private equity, debt funding and more.

FAQs

What is a business model with example? ›

For instance, direct sales, franchising, advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA.

How do I explain my business model? ›

A business model should answer important questions about your business and set out a strong vision for the business. The key components of a business model should include relating to your target customers, the market, organization strengths and challenges, essential elements of the product, and how it will be sold.

What is a nickel and dime business model examples? ›

Nickel and Dime Business Model. In this model, a company operates on the principle of the lowest price strategy in basic products or services. Additional amounts are charged for other perks and services offered with the principal service. Examples of this model include Spirit and Frontier Airlines.

What are the 7 types of business models? ›

Types of business models and examples
  • Retailer model. A retailer is the last link in the supply chain. ...
  • Fee-for-service model. ...
  • Subscription model. ...
  • Bundling model. ...
  • Product-as-a-service model. ...
  • Leasing model. ...
  • Franchise model. ...
  • Advertising or affiliate marketing model.
Jul 14, 2022

What is the business model of Netflix? ›

Netflix is one of the current pioneers of subscription-based content. It runs on a Subscription Video on Demand (SVOD) model. Subscribers pay for a monthly plan and are given access to a vast library of media—any time, anywhere. Thus, subscriptions are Netflix's main source of revenue.

What is model example? ›

The definition of a model is a specific design of a product or a person who displays clothes, poses for an artist. An example of a model is a hatch back version of a car. An example of a model is a woman who wears a designer's clothes to show them to potential buyers at a fashion show.

What is a good business model? ›

Good business models create virtuous cycles that, over time, result in competitive advantage. Smart companies know how to strengthen their virtuous cycles, weaken those of rivals, and even use their virtuous cycles to turn competitors' strengths into weaknesses.

What is the business model of IKEA? ›

The business model of IKEA revolves around the manufacturing and selling of Ready-to-assemble furniture, home-ware, and food products. IKEA is a Dutch-based Swedish company established in 1943 as large and renowned furniture retail globally recognized and was set up by Ingvar Kamprad in Sweden.

What business model does Starbucks use? ›

The revenues for company-operated stores accounted for 80% of total revenues, thus making Starbucks a chain business model. What's Starbucks' mission?

What kind of business model is Amazon? ›

Amazon leverages two types of business models for their ecommerce businesses: The linear business model for those parts that are directly sourced ("online stores" and "physical stores" in their terminology) and. The platform business model for Amazon Marketplace ("Retail third-party seller Services")

What are the 9 business models? ›

There are nine building blocks in the business model canvas and they are customer value proposition, customer segments, channels, customer relationships, revenue streams, key resources, key partners, key activities, and cost structure.

What are the 8 key elements of business model? ›

But for our discussion here, these are the eight key elements of a business plan that you need to know:
  • 1) Company overview. ...
  • 2) Executive summary. ...
  • 3) Market analysis. ...
  • 4) Product or service description. ...
  • 5) Sales strategy. ...
  • 6) Marketing strategy. ...
  • 7) Management approach. ...
  • 8) Financial projections.
Sep 14, 2022

How many business models exist? ›

The 30 Types Of Business Models.

What is Spotify business model? ›

It uses a freemium revenue model that offers a basic, limited, ad-supported service for free and an unlimited premium service for a subscription fee. Spotify relies heavily on its music algorithms and its community of users and artists to keep its premium experience delightful.

What is the business model of YouTube? ›

YouTube's main source of revenue is advertising. Additionally, we earn money from our monthly subscription businesses such as YouTube Premium. We've also developed tools to help eligible creators earn money in a variety of other ways, such as Super Chat, channel memberships and merchandise.

What business model does Jollibee use? ›

Jollibee Foods Corporation (JFC) is franchising of quick-service restaurants (QSRs). The company is also development and operation of QSRs restaurant. Additionally, it engaged in manufacturing and property leasing activities in support of the QSR systems.

What are the types of models explain? ›

Each of these fits within an overall classification of four main categories: physical models, schematic models, verbal models, and mathematical models.

What is a business model PDF? ›

“A business model is a conceptual tool that contains a set of elements and. their relationships and allows expressing the business logic of a specific firm. It is a description of the value a company offers to one or several segments. of customers and of the architecture of the firm and its network of partners for.

What is the purpose of a business model? ›

In its simplest form, a business model provides information about an organization's target market, that market's need, and the role that the business's products or services will play in meeting those needs. Business model innovation, then, describes the process in which an organization adjusts its business model.

What are the 3 types of business models? ›

Business models come in a variety of forms. Direct sales, franchise, freemium, and subscription models are among the common kinds.

What is business model organization? ›

A business model describes how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts. The process of business model construction and modification is also called business model innovation and forms a part of business strategy.

What are different types of business? ›

Review common business structures
  • Sole proprietorship. A sole proprietorship is easy to form and gives you complete control of your business. ...
  • Partnership. Partnerships are the simplest structure for two or more people to own a business together. ...
  • Limited liability company (LLC) ...
  • Corporation. ...
  • Cooperative.

What are the 7 steps of a business plan? ›

How to make a business plan and seven components every plan needs
  • Executive summary. ...
  • Company description. ...
  • Market analysis and opportunity. ...
  • Competitive analysis. ...
  • Execution plan: operations, development, management. ...
  • Marketing plan. ...
  • Financial history and projections.
Nov 23, 2020

What is the business model of IKEA? ›

The business model of IKEA revolves around the manufacturing and selling of Ready-to-assemble furniture, home-ware, and food products. IKEA is a Dutch-based Swedish company established in 1943 as large and renowned furniture retail globally recognized and was set up by Ingvar Kamprad in Sweden.

What are the 3 business models? ›

Business models come in a variety of forms. Direct sales, franchise, freemium, and subscription models are among the common kinds.

What is the purpose of a business model? ›

In its simplest form, a business model provides information about an organization's target market, that market's need, and the role that the business's products or services will play in meeting those needs. Business model innovation, then, describes the process in which an organization adjusts its business model.

What business model is best? ›

Let's take a look.
  • The servitisation (subscription) business. ...
  • The platform-based business. ...
  • The social, authentic business. ...
  • The employee-centric business. ...
  • The partner-centric business. ...
  • The customer value-obsessed business. ...
  • The constant-innovation business. ...
  • The data-driven business.

How many business models are there? ›

The 30 Types Of Business Models.

What is business model organization? ›

A business model describes how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts. The process of business model construction and modification is also called business model innovation and forms a part of business strategy.

Is a business model? ›

A business model is the plan your business has for making money. It's an explanation of how you deliver value to your customers at an appropriate cost. This includes descriptions of the products or services you plan to sell, who your target market is, and any required expenses.

Why is IKEA business model successful? ›

Offering the lowest prices.

Cost effectiveness is one of the solid bases of IKEA competitive advantage. The global furniture retailer is able to offer low prices thanks to a combination of economies of scale and technological integration into various business processes.

Why IKEA is so successful? ›

At the heart of Ikea's success is value: You know what you're going to get when you shop at Ikea, and it's going to be affordable. In fact, price is so important to Ikea's strategy that the company first decides on the price of a piece of furniture and then reverse engineers the construction, the company says.

What is Apples business model? ›

Apple's business model is based on innovation and consumer-centric devices. They are able to keep their base due to easy-to-use designs and data migration to new product lines.

What are different types of business? ›

Review common business structures
  • Sole proprietorship. A sole proprietorship is easy to form and gives you complete control of your business. ...
  • Partnership. Partnerships are the simplest structure for two or more people to own a business together. ...
  • Limited liability company (LLC) ...
  • Corporation. ...
  • Cooperative.

What is a business model essay? ›

A business model describes the rationale of how an organization creates, delivers, and captures value – economic, social, or other forms. The process of framing the right business model design is an integral part of the company's business strategy.

What is business model and its components? ›

A business model is a company's primary strategy for turning a profit and generating value. Business models are typically based on factors such as the products or services the company sells, anticipated expenses and target customers.

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