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7 Types of Business Models to Consider For Your Company

Find the business model that works for you. Whether you choose the retailer, subscription, or affiliate company model, here is what you need to know.

When you think about how to start a business, the first step is almost always coming up with a great product or service. However, this first inspiration is only the start of an extremely long process.

Even if you know how to create a business idea, your efforts will fail without proper planning and execution. You need to monetize your product or service, figure out how to deliver it to your customers, and find the best method for ensuring continuous growth and improvement.

A business model helps you achieve all these goals so that you can move from brainstorming to company development to a profitable enterprise. Though the scale may be different, the process is the same whether you have a small business, a medium-sized company, or a large corporation.

The good news is that there are several established systems, so you have plenty of business model examples on which to base your company. This may also be a drawback because you need to make the best choice for monetizing your idea. With multiple options, you could easily make the wrong decision and miss growth opportunities.

Here is a look at different types of business models so you can get the details necessary to make informed choices about your company's business model and growth strategies.

What is a business model?

In the simplest terms, a business model describes the method your company uses to make money.

Successful business models typically include 5 components.

  1. A product or service.
  2. You then need to plan how to produce your product or service. Therefore, you also must consider design, production or processes, the materials and workforce needed, and traits that make your offering unique.
  3. You also have to decide how to deliver the product or service to the customer. This step includes marketing plans, sales, and distribution or delivery.
  4. Your business model should also include plans about how to cover expenses and details about the cost of doing business.
  5. Finally, you need to plan how you will turn a profit. This step includes ways the customer pays and how much you expect to make on the sale of each product or service.

This complete plan can help you start your own business and take it from a good idea to a profitable enterprise.

Why are business models important?

A successful business model provides you with a framework on which to build your company.

It will help you define your target market, plan for costs, adjust your business processes, and make financial projections. In most cases, investors will not be willing to provide capital until you have a well-defined business model.

The correct framework can also leave room for business model innovation. You can create additional income streams or offer alternative services if you have a robust initial business model.

That said, the types of business models can be very different, so you need to understand the details of each of these frameworks before you start planning.

Types of business models

Business models provide a roadmap between your initial product or service idea and profits. Whether you are looking to create a new business model or update your existing business model, following an established framework can help guide you.

Here are the most common business model examples.

Retailer model

The retailer model is the most common style of business. In this model, the consumer interacts with the retailer and purchases items directly from them online or in a physical store. Retailers typically buy their products from wholesalers and resell them at a markup.

Examples of this business can range from clothing and food sellers to department stores, auto dealers, and e-commerce sites.

This business model is one of the most straightforward to establish and understand. However, it is also the most competitive. You are likely to encounter many businesses selling similar products. You will need to compete with them on price, quality, or brand identity.

Manufacturing model

The manufacturing model involves the production of goods from raw materials or ingredients. This model can involve handcrafted goods or items mass-produced on an assembly line.

These businesses require access to raw materials and the skill, equipment, or labor force to make enough goods to be profitable. Manufacturers typically rely on wholesalers and distributors to sell their products.

Subscription model

The subscription model is newly popular, though it has long been used for publications like magazines and newspapers.

Subscription businesses provide an ongoing product or service to end users for a set price. The subscription could be daily, weekly, monthly, or yearly.

Digital companies like Netflix and Spotify use this business model, as do software and app providers, and online service providers. The advantage of this type of model is that you can get ongoing revenue streams without having to repeat sales.

Product-as-a-Service (PaaS) model

The Product-as-a-Service model (PaaS), also known as Product Service Systems, bundles services with products that consumers have already purchased.

A good example of this business model is an auto retailer offering an annual service membership for maintenance on a newly purchased car. The key advantage is to ensure sustainable income while also enhancing the customer experience. This business model can offer extra income streams to retailers.

Franchise model

The franchise model is another popular type of business framework. Many popular brands are franchises, including KFC, Dominoes, Jimmy John's, Ace Hardware, and 7-Eleven.

In this model, you develop a blueprint for a successful business and sell it to investors or franchisees. They then run the business according to the franchise brand identity.

In a sense, they are purchasing the brand and the blueprint and running the business. The attraction for business owners is that they do not have to worry about daily operations. Meanwhile, franchisees have a blueprint for success, which limits the risk of owning their business.

Affiliate model

The affiliate model is when a business relies on third-party publishers to market and sell its product or service.

Affiliates are responsible for driving sales. They receive compensation, usually in the form of a commission (percentage of the entire sale), from the seller or service provider. With affiliates, a business can enjoy an extensive reach and get customers from markets they would otherwise be unable to penetrate. The business typically provides free marketing materials to affiliates so that they display the proper brand identity when marketing.

Freelance model

Freelancers provide services for businesses or organizations. They typically work on a contract basis.

While it is possible to operate as an independent freelancer, you can also learn how to scale a freelance business. You can hire other freelancers or subcontractors who can work on your contracts. With a scaled business, you can take on more contracts than you can handle alone and split the revenue between yourself and your subcontractors.

The attraction of this type of business is the low overhead. You do not have to hire your subcontractors. You simply pay them after the client pays you.

Designing your business model

Business model examples are very different, but you can follow the same steps when designing your plan and tailoring it to the unique needs of your business.

  1. Start by defining your product or service, the need it meets for consumers, and who can benefit from using it.
  2. Once you have an idea of who will use your product or service, you can define your target market and research how they make purchases and how other companies in your sector market and sell to them.
  3. Come up with business models that could potentially work with your company. There could be more than one option.
  4. Create prototype designs for each possible business model you choose. You can then see potential issues and roadblocks with each plan and find the model that is best for your needs.

You also need to create a proper business plan. What is a business plan? It details how to structure your business and how the business model should work to achieve the desired level of success.

Mailchimp offers resources to help you learn how to write a business plan.

Choosing the right business model

When you design your business model, you should also define goals and list key performance indicators (KPIs) that will show whether your business is on the right track toward success. The business model you choose will offer the straightest path to these benchmarks.

The best business model will also help you build strong customer relationships by giving your customers the easiest path to your product or service. In most cases, the best strategy is to find a business model that makes it straightforward for your customers to access your products.

Finally, when you look at your model prototypes, you should consider which ones provide specific qualities. These include scalability, profits, low or predictable operating costs, and the ability to make changes if something does not work out.

The right tools to carry out your business plans

Mailchimp offers a variety of tools that can help you start your own business. Our email marketing, web design, and other products can be valuable as you devise how to start your business online.

Regardless of your chosen business model, Mailchimp can provide resources to help you grow, manage your business to improve your competitive advantage, and plan for future campaigns.

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