Types of Business Models Overview

When choosing a Business, you do not have to just focus on the profit ratio or the demand in the market for a particular product. Rather, you need to focus more on how will your products reach the customer, what structure are you going to opt for scaling up your business, how is it going to operate, and in what ways would it operate the best. Your entire structure is dependent on the type of Business Model that you choose. Let us have a look at all the Business Models that are out there.

What is a Business Model?

According to its literal definition, ‘A business model describes the rationale of 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.’ In short words, a Business model is your blueprint to success, and it is also your strategic plan to make your business more successful, or better than your competitors, to create that brand value for the business, and so on.

Various Types of Business Models

With more than fifty Business Models out there available in the market, you can understand and comprehend the best Business Model that is suitable for your Business and the one where you have enough expertise and knowledge. Each Model has its own advantage and disadvantage. Categorized from B to B and B to C, and so on.

Business Model of Cash Machine

One of the best-adopted Models by many businesses is the Cash Machine Business model, which is also called the Cash Conversion Cycle (CCC). In this type of Business Model, businesses mainly rely on low-profit margins but survive with the help of numbers. The primary point of this model is to convert your cash into Goods and then again earn back from the sales, after finishing the payments to the necessary chain.

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Franchise Business Model

Franchise Model is already a name that is well-known and acquainted with every entrepreneur. One of the major and successful stories of the Franchise Business model is McDonald’s. The name needs no introduction, and it is a success story of applying the Franchise model in the right manner. In a Franchise Model, the franchisor trades his intellectual rights, brand name, and rights to a franchise that in return would pay the franchisor with Royalty.

Freemium Business Model

One of the well-known and most commonly used Business Models by many software and app-developing companies is the Freemium Business Model. It is the best model for acquiring customers and sales. The model works in a manner, where a company would offer its viewers or customers a free version of their app or software, and along with the free version, they would also offer them a premium or a paid version that would come along with various advanced features for them. Most of companies have various Paid plans available to offer to their customers.

Subscription Business Model

A very useful model for companies or Businesses that have various content or services to provide is called a Subscription Business Model. In this model, the company offers its content or its service to its customer on a monthly, quarterly, or yearly basis. One of the prime examples of a Subscription Business Model is Netflix. Depending upon the plan, the company offers its content, features, or services. Some companies even offer lifetime access or subscription schemes to their consumers with some great discounts. However, it is recommended to never offer lifetime access.

Direct Selling Model

An emerging and well-known model all around the globe is the Direct Selling Model. It has created many success stories of Millionaires around the world and is emerging every day. The Direct Selling model works in a system as the manufacturer produces the products, and instead of selling the goods through the supply chain, the products are directly sold to the consumers through the distributors. These products are never advertised, but rather the sales work through word of mouth and by creating a consumer network.

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Drop shipping Model

Drop shipping is one of the most popular Business models that is going around for a long time. In the Dropshipping model, the Retailer sells the goods through a platform to its potential customers, and in return, the seller manufactures, packs, and even ships the product to the customer’s address. In case of any defective product or replacement, all the responsibility is taken by the seller and not the Retailer. Once the sales occur, the Retailer earns the royalty or the decided profits from the sales.

Affiliate Marketing Model

Known as the commission-based Business Model, Affiliate Marketing is a growing Business model all around. In Affiliate Marketing, the promoter ties up with a manufacturer or a seller company and promotes their goods or products through their website or the decided platform. Most of the commonly used platform is a Websites. Once a visitor clicks on the given link or makes a purchase, the Promoter is paid money on commission based on the referral link.

This type of Business Model is very beneficial to companies that sell products that are complementary in nature. By complementary what it means is that one cannot be used in the long term without the help of the other. For example, you can buy a Printer, but you would have to regularly refill and buy the Ink cartridge for making your Printer work in the long run, that’s an example of the Razor and Blades Model. One of the key features is to sell the high-margin product at a relatively low price and make profits from the low-margin product.

Reverse Razor and Blades, Model

The complete opposite of the Razor and Blades Model is called the Reverse Razor and Blades Model. The concept is simple, in this model the complementary product is charged at a very low price to make customers buy the parent product at a high rate. For example, we have Amazon Kindle. Amazon offers e-books at a lower cost and offers customers to buy Kindle for enjoying these books for a lifetime.

Conclusion

By understanding the different Business Models that are out there, we can comprehend the amount of profit that could be made from each of these models. A Few of the most well-known models is Franchise Model, Affiliate Marketing, Dropshipping, Direct Selling, Freemium Model, Subscription Model, Razor and Blades, Reverse Razor and Blades, and Cash Machine Model.

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