Every business needs a business model. But what exactly is a business model? In the most basic terms, a business model is how you plan to make money with your business. You need to ask questions like, “Who is your target customer?”, “How will you generate revenue?”, “How will you reach potential customers, convert them to paying customers, and keep them paying?” These questions will help you decide which business model will be best for you.
There are plenty of well-documented examples to help you understand what a business model is, and how the right model will help your startup succeed. In an article in BPlans, there are some great examples of business models, such as:
- Add-On: Core product/service is competitively priced, with lots of paid add-ons
- Advertising: Other companies pay to advertise with your company (online, radio, newspaper)
- Affiliated: Helping others sell their products in exchange for a commission
- Auction: like eBay. ‘Nuff said
- Bait and Hook: Similar to the add-on model. A good example is a razor; the handle is cheap, but the replaceable blades and expensive and continually being upgraded.
- Direct sales: selling direct to customers, with no middleman
- Franchise: buying an existing business model from a chain e.g. McDonalds, Subway
- Freemium: Giving away something for free in exchange for personal details. This works on the basis of being able to market to you later and hopefully make sales. Often free versions of software come with ads, whereas paid versions do not.
- Low cost: One word. . . Ryanair. Higher volume, lower pricing. Higher priced add-ons.
- Subscription: recurring payments for products/services. Magazines or cloud storage/software is a good example of this.