Different Types of Business Models Explained
Types of Business Models For Different Industries
Before we dive into the types of business models used across multiple industries, let us understand what a business model is. Simply put, it is a representation of how a company generates revenue from customers in a specific market. First, it explains how a company will build and deliver its products and services. Furthermore, it contains information about how the business will market those products and services.
A business model also provides details about the cost associated with the business. There will be information on the pricing strategy, revenue, and profit models along with the costs. Furthermore, business models also describe the opportunities for growth and expansion. Moreover, it can explain the partners and competitors of the company.
The Importance of Business Models
Why are business models important? Well, without a business model, your idea will never see the light of day. After all, it provides a general overview of all the activities and resources you need. A business model canvas is a one-page template that allows you to list all the important business components. This will help you communicate your ideas and plans to partners, investors, and customers. Similarly, you can find areas of innovation and improvement by studying existing businesses models. Most importantly, your model will be critical in adapting to changing customer demands and interests.
Types of Business Models
Subscription Model
Subscriptions are one of the most popular and common types of business models. The customer typically pays a fee at a regular interval for the use of products and services. In this model, the customers can pay for services as long as they think it is essential. Therefore, if you want to use this mode, you need to be overly attentive to your customers’ needs.
There are a lot of industries successfully employing subscription models. Streaming services like Netflix, Amazon Prime, and Spotify are some of the well-known examples. Software services are also the major employers of the subscription model. HelloFresh, a meal kit delivery company, is also making wise use in the food industry. Likewise, some of the traditional industries are exploring the possibilities and experiencing success in this model. This includes subscription-based use of automobiles and private jets.
Franchise Model
The franchise model is one of the common types of business models with a fair bit of history. This model consists of a franchisee and a franchisor. The franchisee is someone who operates a franchise business using the trademarks and branding of a franchisor. Upon using the franchisor’s assets, the franchisee pays a fee, typically known as a royalty. Typically, there are two primary types of franchising models.
- Business Format Franchise
In this type of franchising, a company allows independent business owners to use its trademark and brand name. In return, they charge fees and royalties from those owners. The most common occurrences are seen in the fast-food industry. McDonald’s is a highly successful company making use of this franchising scheme.
- Product Franchise
Under a product franchise model, a manufacturer allows retailers to distribute their products under their trademarks and branding. However, the retailers will have to pay certain fees or order a minimum amount of products. Companies like Ford, Dell, Asus, and vending machines are some of the most common examples of product franchising.
Manufacturer Model
The manufacturer model is one of the oldest types of business models. A manufacturing company uses resources like raw materials, technology and equipment, labour and capital to make new products. The company will typically contain a huge assembly plant employing state-of-the-art industrial machines. For example, Dell is one of the largest computer manufacturers in the world.
A manufacturer can operate in both the B2C and B2B models, selling directly to customers or other businesses. One of the difficulties for new business owners to adopt this model is the requirement of a large amount of capital.
Retailer Model
The retailer model has become one of the most successful types of business models raking up hundreds of billions of dollars in value. The retail company typically purchases products from the wholesaler and distributes them directly to the end customers. Likewise, retailers can be both offline and online. The ease of starting a business has made online retailing attractive for new owners.
Grocery chains, apparel, accessories, and department stores are common examples of the retailer model. Walmart is the largest retailer in the world with more than five hundred billion dollars in global revenue. Amazon.com is the largest in the United States in the online space whereas JD takes the top rank in China.
Brokerage Model
In the brokerage model, a brokerage firm brings buyers and sellers together and charge a fee for each of the transactions. There are several types of brokers operating in multiple industries. For example, financial brokerage firms bring together buyers and sellers of financial assets such as insurances and stocks. Goldman Sachs is one of the well-renowned examples.
eBay is one of the leading companies in physical brokerage where buyers and sellers exchange physical assets. Likewise, an intellectual property broker facilitates the transaction of intangible assets. Moreover, human resources brokers bring together buyers and sellers of human services.
Crowdsourcing Model
Crowdsourcing is also one of the attractive types of business models which have been used by multiple companies, especially in the online space. Wikipedia is a popular example of this model. People from all around the world contribute content to the site. Some other companies ask for contributions and send out rewards or a percentage of sales. Threadless is a T-shirt company that asks for design from the crowd and rewards the selected ones.
Crowdsourcing can provide a lot of advantages if used in the right way. First, you do not have to hire in-house employees and have the freedom to search for talents all around the world. This will greatly reduce the operational costs as it is free of salaries, training, and worker benefits. Likewise, you can bring knowledge and experience that is beyond the capabilities of the organization.
Stay Ahead in the Business World with Top World Business
In this blog, we came across the basics of business models and why they are important for companies to keep sight of what they are doing. We also put light on how these models can help you communicate your ideas and plans to investors, partners, and customers. Finally, we understood some of the most common business models used by companies throughout the world in multiple industries.
Top World Business is a one-stop place for all the business-related news from every corner of the globe. Our aim is to keep you updated on recent and future business trends so you can use them to your advantage. Contact us if you have any further queries.
