The Different Types Of Business Models: Which One Suits Your Business?

Posted on Dec 21, 2022 at 09:12 PM

If you're a manager or CEO of a new company, chances are you've heard or read about business models. However, creating business models is an essential part of every company. In this article, you'll learn more about business model generation, different types of business models, and how to use them to help your company excel in the customer market.

What is a business model?

A business model is a plan describing how your company will make money. It's the blueprint for how you run your business. For example, it explains what products you will offer, who customers are, and how much you plan on charging them.

Companies use business models to create sustainable profit, build a reputation, overcome competition, and accomplish goals on economic and social aspects. Business plans also come hand in hand with risk management plans to create better solutions for new challenges.

Five critical elements of a business model

Business models define how you intend to do business. It's a way to describe how a company operates. There are many critical elements to building a successful business model outline; these include:

• Product or service offerings: What do you sell? What's your value proposition? Does your product solve a problem? Is it unique and innovative? Does it need testing? Is there an individual marketplace for it?
• Customer segments: Who are your target market? Are they all the same, or can you segment them into different groups based on their needs or characteristics? 
• Channels: Who will sell and deliver your products or services to customers — are they salespeople, distributors, consumers themselves (eCommerce), etc.? How will they be compensated?
• Revenue streams: How do you generate revenue from selling your products or services — one lump sum at the end (upfront payment - cash), ongoing monthly payments (subscription models), etc.? 
• Cost structure: What are the costs for creating and delivering each unit of your product or service — materials, labour, overhead expenses like rent and utilities?

What is a business model canvas?

Business Model Canvas is a simple visual tool for describing the critical components of businesses. It's a strategic management and innovative tool used to design, evaluate and communicate new or existing products, services, and customer experiences.

Alexander Osterwalder and Yves Pigneur created the Business Model Canvas (BMC) as part of their book Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers (Osterwalder & Pigneur, 2010). It was first introduced in 2009 at Vienna's Management Innovation eXchange (MIX) conference.

As its name suggests, Business Model Canvas is a canvas with 9 segments connected in one diagram – a visual representation that helps you understand and describe your business model. It's also helpful in structuring your analysis when defining or designing a new product or service for the market.

If you’re an entrepreneur ready to create your first business plan for your company, a business planning course in London is a significant first step to the business world!

What are the different kinds of business models?

1. The classic business model

The classic business model has been around for centuries; it's the most common and is based on a company producing a product or service and selling it for profit. This requires investment, whether it be your own money or borrowed funds. It also requires that customers be willing to pay for your product or service.

2. The subscription business model

The subscription business model is a variation of the classic business model that relies on recurring revenue from customers who pay regular fees to use the product or service. For example, many internet companies offer free products if users pay an annual fee or monthly subscription.

3. The affiliate marketing business model

Affiliate marketing is when an affiliate promotes a product or service and receives a commission each time someone purchases their recommendation,

 This can be done through a social media platform, blogs or other online platforms where users can monetise their content through advertising revenue streams such as Google AdSense; this model is most popular among influencers and youtube bloggers.

4. The freemium business model

This service includes two types of its product – one free and one paid version with additional features. Users can access the basic version without paying anything. Still, if they want more functionality or more elements, they will have to pay for it, i.e. readers can access a part of a book for free, or users can view examples of a particular service.

5. Customer relationship management (CRM). 

This model focuses on customer retention and loyalty. It includes programs like customer service for users, loyalty rewards and discounts, product warranties and guarantees, and customer communications.

A business model is a great way to start a new business or innovate an old one; it allows you to create a detailed description of your firm and makes generating new ideas and outlines for plans easier. It's a great strategy tool that will significantly contribute to any organisation.