Different types of business models suit different types of businesses. A business model is the way that a company sells products to its customers. It describes how a business creates, delivers, and captures value.
It defines how the enterprise delivers value to customers, gets them to pay for that value, and converts those payments to profit. There are different types of business models meant for different businesses:
1. Free for Users, Revenue Is Through Adverts
This is the most common model used by online businesses and apps today, the so-called Facebook model, where your service is free, and the revenue comes from advertising.
The challenge here, is to get your traction going before advertisers think it is safe and feasible to invest in ads on your site/app. They need to know that their ads are going to be seen by the relevant audience. Just to give you a perspective, Facebook reportedly spent almost USD 150 million on getting started.
2. Freemium Model
In this variation on the free model, used by LinkedIn, many online games and other online and app offerings, the basic function is free, but premium services are only available for an additional fee.
This also requires a base critical mass, and real work to differentiate and convert users to paying customers.
3. Low Price Subscription Model
This is a very popular model today for Internet services, with monthly or yearly payments, in lieu of one higher up-front price, Netflix being the most relevant example here.
Advantages for your business include a stable revenue stream, customer retention, and increasing customer investment over time. The customer advantage is a lower entry cost. The challenge here is gaining traction, i.e. getting your first subscribers so it might take a while to even break-even.
4. Revenue Is a Percentage of Every Transaction
This is another popular model for platforms, e-commerce, and affiliates, where you as the transaction or product provider get a small percentage or royalty on every ultimate sale to customers by others.
Amazon led the way on this one online, but distributors have long used this model in retail. Apps like Uber, Ola Cabs, Zerodha, etc have been tremendously successful in integrating this business model into their very being!
It might make your product/service a little expensive or burn cash if you want to come out with competitive prices, but it is a pretty solid business model to have!
5. Low Entry Price, With Priced Features Additional
This approach works if your product can be configured “bare-bones” for a low price, and additional features priced separately.
It is a very competitive approach, but requires design and development effort for value at every level. Expect extra costs for development, testing, documentation, and support. Many of the Software based applications follow this type of a business model!
Visit our website on:
