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Traditional Business V/S Digital Business and Types of Business Models Used
This post discusses the differences between traditional businesses and digital businesses. It also talks about the types of business models that come under these two forms of businesses.
Managing a business is both challenging and interesting. It’s not like your 9-5 government job where one reaches the office at or before a particular time, does some mundane tasks, and then wraps up for the day at a fixed time. With business, everything takes a different turn. Inherent risks and the constant need to pacify customer requirements float in the business owners’ minds.
A traditional business setup has a physical presence, and it serves people locally by providing services or products through brick-and-mortar stores. In case of a digital business setup, people sitting in any corner of the world can scroll through the web and avail the company's services and products.
What is Traditional Business? Types Of Traditional Business Models What is Digital Business? Types Of Digital Business Models Traditional Business V/S Digital Business
What is Traditional Business?
Organizations such as restaurants, agencies, and anything resembling an office-setup fall in this category. Traditional business-oriented organizations usually sell products or services through stores.
A traditional business serve s customers in exchange for monetary compensation. It works on CAPEX and OPEX. While such organizations focus on profit generation, a few of them—non-profit organizations—work for customers without expecting profits.
Types Of Traditional Business Models
Various types of business models used in traditional business are:
Manufacturer
The manufacturer business model utilizes raw materials to create products that are then sold in the market. This type of business model involves the assembly of pre-manufactured items. The products are either directly sold to the customers in what’s known as B2C model (business to customer) , or to another business unit in the form of B2B model (business to business) . Automobile manufacturers are an example of B2C model, and wholesalers follow the B2B model.
Distributor
A company in the distributor business model buys products directly from the manufacturer . The company then sells the procured products to consumers or retailers.
A company following the retailer business model purchases products from the wholesaler/distributor. It then sells the inventory to the public. Brick-and-mortar stores fall in this category.
In this setup, the company buys the franchise of a very successful brand and promotes the brand’s services/products to the general public. The franchise segment is a popular way to build awareness across geographies.
What is Digital Business?
Digital business is the modern form of business, a significant deviation from the established norm. This model leverages technology for value creation & addition, thereby giving an entirely different customer experience.
The umbrella term includes both digital-only brands as well as traditional businesses that use modern-day innovations. Prominent examples of digital businesses are Uber, the cab-owning service which allows the user to book cabs online, Disney+Hotstar , and Netflix (video streaming service).
Types Of Digital Business Models
Types of the business model used in digital business are:
Small businesses fall in this category. With a small presence on digital platforms, such ventures rely on traditional marketing methods like direct mail and print advertising.
Intermediate
A level where small businesses employ tools like websites with basic functionality; these sites don't have e-commerce or mobile rendering capabilities. Other factors like listing in online directories and third-party marketplaces play a major part here.
Advanced websites with mobile app versions or e-commerce abilities are used by digital businesses in this category. The reliance on Social media engagement is quite significant. Video conferencing, SAAS apps, etc. are part of the toolkit.
This model is the epitome of digital business. Such ventures have high social media visibility, have little or no physical presence (as in brick-and-mortar stores), and engage with customers extensively through the internet.
Traditional Business V/S Digital Business
There are various differences between traditional business and digital business which are listed below:
- The traditional business model requires more capital than its digital counterpart. The former needs place, furniture, transport, staff, and other utilities. Digital businesses are cost-effective in this aspect.
- A business unit following the digital approach is convenient for customers in terms of the flexibility offered in the variety and cost of products (consider Amazon's extensive product catalog). In the traditional setup, rigidity is a major issue. As a result, consumers are now inclined towards shopping online.
- The digital business model is yet to achieve perfection when it comes to real-time customer experience . For example, you can’t try a mobile phone before purchasing it from Amazon. You rely on customer reviews and the specifications listed on the website. This obstacle is overcome in the traditional business model.
- Online businesses tend to have a larger digital market spend than their old-school counterparts. Traditional businesses diversify marketing strategies to attract customers from both local areas and online demographics. But their reach is relatively restricted to digital businesses.
- Digital businesses work 24/7 and overcome both geographical and timing barriers. You can carry out online purchases in the middle of the night from anywhere in the world.
- Organizations based on the traditional business model have restrictions on when and where they function. Timings are rigid and customer service isn’t flexible either. There are exceptions where few traditional business operates 24/7, but those are limited in numbers and function in select locations only.
What is the difference between traditional business and digital business?
A traditional business setup has a physical presence, and it serves people locally by providing services or products through brick-and-mortar stores. In the case of a digital business setup, people sitting in any corner of the world can scroll through the web and avail the company's services and products.
Why is online business better than traditional business?
Digital businesses work 24/7 and overcome both geographical and timing barriers. You can carry out online purchases in the middle of the night from anywhere in the world. Traditional business has restrictions on when and where they function.
What is traditional business?
What are traditional business models.
Types of Traditional Business Models:
- Manufacturer: The manufacturer business model utilizes raw materials to create products that are then sold in the market. This type of business model involves the assembly of pre-manufactured items.
- Distributor: A company in the distributor business model buys products directly from the manufacturer.
- Retailer: A company following the retailer business model purchases products from the wholesaler/distributor. It then sells the inventory to the public. Brick-and-mortar stores fall in this category.
- Franchise: In this setup, the company buys the franchise of a very successful brand and promotes the brand’s services/products to the general public. The franchise segment is a popular way to build awareness across geographies.
What is the difference between traditional and non-traditional business?
The major difference between traditional and non-traditional business are:
Traditional
Standalone stores, retail spaces in malls, and any other type of place that houses a usual location for a given franchise fall under the category of traditional businesses.
Non-Traditional
Non-traditional businesses conduct most of their operations over the internet. They might have a few physical stores but these are generally for resolving customer issues and function as a point-of-contact.
What are the types of ECommerce Business models?
Four Traditional Types of Ecommerce Business Models are:
- B2C – Business to consumer
- B2B – Business to business
- C2B – Consumer to business
- C2C – Consumer to consumer
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Traditional Types of Business Models
A business model is simply the overarching plan of a company to generate a profit by selling a service or a product. The business model provides an outline of the plans of the company to produce a product or service and to market it. This plan also includes the expenses that will occur with manufacture and marketing of the service or product. Different business models exist, each of which can suit different companies and types of businesses.
Manufacturer
The manufacturer business model utilizes raw materials to create a product to sell. This type of business model might also involve the assembly of prefabricated components to make a new product, such as automobile manufacturing. A manufacturing business can sell the products created directly to customers, which is known as the business-to-consumer model. Another option involves outsourcing the sales aspect of the process to another company, which is known as the business-to-business or B2B model. Wholesaling manufacturers typically sell products to retailers, which then sell directly to consumers. An example of this type of company might be a clothing manufacturer that sells merchandise to a retailer, which then sells to consumers.
Distributor
A company fitting the distributor business model would be a business that buys products directly from a manufacturing company. This business would then resell the products directly to consumers or to a retailer. The distributor often acts as one of the middle points between a manufacturer and the general public. Distributors have the challenge of setting price points that will produce a profit while also utilizing effective promotion strategies that will secure strong sales. Competition can be fierce for distributors, which necessitates continual analysis of the market.
A retailing business purchases products directly from a wholesale or distributing company, then sells the inventory directly to the public. Retailers often utilize a brick-and-mortar location for points of sale. Examples of retailers include grocery stores, clothing stores, and department stores. Retailers might be nationwide chains, or they could be independent shops operated by a single entity. A physical location for a retailer is common but not mandatory. Retailers may choose to offer sales as an online retailer. Online retailing can be done alone or in combination with selling from a physical location. Retailers experience the ongoing challenge of competing against other retailers that offer similar products.
A franchise business model might involve any of the other business models, such as manufacturing, distributing, or retailing. Franchise business are set up according to the unique service or product sold or produced. The business model of the franchise is adopted by the purchaser of the franchise, who is known as the franchisee. Purchasing a franchise has some important benefits for the franchisee, since most business processes and protocols are already established for the business. However, with these established protocols come less flexibility for the franchisee.
Additional Business Model Structure Options
Within these four standard business models, business owners can structure their companies to include specific features of one or more models. For example, a company that engages in direct sales to consumers might integrate a process of product demonstrations in the consumer’s home. Companies could also engage in direct online sales without the use of an intermediary company. Retailers that utilize both a physical store location and a website could offer online sales for consumers who could then pick up their items at the brick-and-mortar store. Companies might also hold Internet auctions for sales. Some businesses also utilize a sales approach that offers a free basic service with the option to upgrade to a paid, premium service. Business model structures can vary significantly, and companies might explore a wide array of combinations to find a model that meets with success.
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- What Are Business Models, and How Are They Built? (PDF)
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- Business Model Elements in Different Types of Organizations in the Software Business (PDF)
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- Examples of Business Models Used in Major Industries
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500+ Free business plan examples
Need help writing your business plan? Explore over 500 free real-world business plan examples from a wide variety of industries to guide you through writing your own plan. If you're looking for an intuitive tool that walks you through the plan writing process, we recommend LivePlan . It includes many of these same SBA-approved business plan examples and is especially useful when applying for a bank loan or outside investment.
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Example business plan format
Before you start exploring our library of business plan examples, it's worth taking the time to understand the traditional business plan format . You'll find that the plans in this library and most investor-approved business plans will include the following sections:
Executive summary
The executive summary is an overview of your business and your plans. It comes first in your plan and is ideally only one to two pages. You should also plan to write this section last after you've written your full business plan.
Your executive summary should include a summary of the problem you are solving, a description of your product or service, an overview of your target market, a brief description of your team, a summary of your financials, and your funding requirements (if you are raising money).
Products & services
The products & services chapter of your business plan is where the real meat of your plan lives. It includes information about the problem that you're solving, your solution, and any traction that proves that it truly meets the need you identified.
This is your chance to explain why you're in business and that people care about what you offer. It needs to go beyond a simple product or service description and get to the heart of why your business works and benefits your customers.
Market analysis
Conducting a market analysis ensures that you fully understand the market that you're entering and who you'll be selling to. This section is where you will showcase all of the information about your potential customers. You'll cover your target market as well as information about the growth of your market and your industry. Focus on outlining why the market you're entering is viable and creating a realistic persona for your ideal customer base.
Competition
Part of defining your opportunity is determining what your competitive advantage may be. To do this effectively you need to get to know your competitors just as well as your target customers. Every business will have competition, if you don't then you're either in a very young industry or there's a good reason no one is pursuing this specific venture.
To succeed, you want to be sure you know who your competitors are, how they operate, necessary financial benchmarks, and how you're business will be positioned. Start by identifying who your competitors are or will be during your market research. Then leverage competitive analysis tools like the competitive matrix and positioning map to solidify where your business stands in relation to the competition.
Marketing & sales
The marketing and sales plan section of your business plan details how you plan to reach your target market segments. You'll address how you plan on selling to those target markets, what your pricing plan is, and what types of activities and partnerships you need to make your business a success.
The operations section covers the day-to-day workflows for your business to deliver your product or service. What's included here fully depends on the type of business. Typically you can expect to add details on your business location, sourcing and fulfillment, use of technology, and any partnerships or agreements that are in place.
Milestones & metrics
The milestones section is where you lay out strategic milestones to reach your business goals.
A good milestone clearly lays out the parameters of the task at hand and sets expectations for its execution. You'll want to include a description of the task, a proposed due date, who is responsible, and eventually a budget that's attached. You don't need extensive project planning in this section, just key milestones that you want to hit and when you plan to hit them.
You should also discuss key metrics, which are the numbers you will track to determine your success. Some common data points worth tracking include conversion rates, customer acquisition costs, profit, etc.
Company & team
Use this section to describe your current team and who you need to hire. If you intend to pursue funding, you'll need to highlight the relevant experience of your team members. Basically, this is where you prove that this is the right team to successfully start and grow the business. You will also need to provide a quick overview of your legal structure and history if you're already up and running.
Financial projections
Your financial plan should include a sales and revenue forecast, profit and loss statement, cash flow statement, and a balance sheet. You may not have established financials of any kind at this stage. Not to worry, rather than getting all of the details ironed out, focus on making projections and strategic forecasts for your business. You can always update your financial statements as you begin operations and start bringing in actual accounting data.
Now, if you intend to pitch to investors or submit a loan application, you'll also need a "use of funds" report in this section. This outlines how you intend to leverage any funding for your business and how much you're looking to acquire. Like the rest of your financials, this can always be updated later on.
The appendix isn't a required element of your business plan. However, it is a useful place to add any charts, tables, definitions, legal notes, or other critical information that supports your plan. These are often lengthier or out-of-place information that simply didn't work naturally into the structure of your plan. You'll notice that in these business plan examples, the appendix mainly includes extended financial statements.
Types of business plans explained
While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. To get the most out of your plan, it's best to find a format that suits your needs. Here are a few common business plan types worth considering.
Traditional business plan
The tried-and-true traditional business plan is a formal document meant to be used for external purposes. Typically this is the type of plan you'll need when applying for funding or pitching to investors. It can also be used when training or hiring employees, working with vendors, or in any other situation where the full details of your business must be understood by another individual.
Business model canvas
The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea.
The structure ditches a linear format in favor of a cell-based template. It encourages you to build connections between every element of your business. It's faster to write out and update, and much easier for you, your team, and anyone else to visualize your business operations.
One-page business plan
The true middle ground between the business model canvas and a traditional business plan is the one-page business plan . This format is a simplified version of the traditional plan that focuses on the core aspects of your business.
By starting with a one-page plan , you give yourself a minimal document to build from. You'll typically stick with bullet points and single sentences making it much easier to elaborate or expand sections into a longer-form business plan.
Growth planning
Growth planning is more than a specific type of business plan. It's a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, forecast, review, and refine based on your performance.
It holds all of the benefits of the single-page plan, including the potential to complete it in as little as 27 minutes . However, it's even easier to convert into a more detailed plan thanks to how heavily it's tied to your financials. The overall goal of growth planning isn't to just produce documents that you use once and shelve. Instead, the growth planning process helps you build a healthier company that thrives in times of growth and remain stable through times of crisis.
It's faster, keeps your plan concise, and ensures that your plan is always up-to-date.
Download a free sample business plan template
Ready to start writing your own plan but aren't sure where to start? Download our free business plan template that's been updated for 2023.
This simple, modern, investor-approved business plan template is designed to make planning easy. It's a proven format that has helped over 1 million businesses write business plans for bank loans, funding pitches, business expansion, and even business sales. It includes additional instructions for how to write each section and is formatted to be SBA-lender approved. All you need to do is fill in the blanks.
How to use an example business plan to help you write your own
How do you know what elements need to be included in your business plan, especially if you've never written one before? Looking at examples can help you visualize what a full, traditional plan looks like, so you know what you're aiming for before you get started. Here's how to get the most out of a sample business plan.
Choose a business plan example from a similar type of company
You don't need to find an example business plan that's an exact fit for your business. Your business location, target market, and even your particular product or service may not match up exactly with the plans in our gallery. But, you don't need an exact match for it to be helpful. Instead, look for a plan that's related to the type of business you're starting.
For example, if you want to start a vegetarian restaurant, a plan for a steakhouse can be a great match. While the specifics of your actual startup will differ, the elements you'd want to include in your restaurant's business plan are likely to be very similar.
Use a business plan example as a guide
Every startup and small business is unique, so you'll want to avoid copying an example business plan word for word. It just won't be as helpful, since each business is unique. You want your plan to be a useful tool for starting a business —and getting funding if you need it.
One of the key benefits of writing a business plan is simply going through the process. When you sit down to write, you'll naturally think through important pieces, like your startup costs, your target market , and any market analysis or research you'll need to do to be successful.
You'll also look at where you stand among your competition (and everyone has competition), and lay out your goals and the milestones you'll need to meet. Looking at an example business plan's financials section can be helpful because you can see what should be included, but take them with a grain of salt. Don't assume that financial projections for a sample company will fit your own small business.
If you're looking for more resources to help you get started, our business planning guide is a good place to start. You can also download our free business plan template , or get started right away with LivePlan .
Think of business planning as a process, instead of a document
Think about business planning as something you do often , rather than a document you create once and never look at again. If you take the time to write a plan that really fits your own company, it will be a better, more useful tool to grow your business. It should also make it easier to share your vision and strategy so everyone on your team is on the same page.
Adjust your plan regularly to use it as a business management tool
Keep in mind that businesses that use their plan as a management tool to help run their business grow 30 percent faster than those businesses that don't. For that to be true for your company, you'll think of a part of your business planning process as tracking your actual results against your financial forecast on a regular basis.
If things are going well, your plan will help you think about how you can re-invest in your business. If you find that you're not meeting goals, you might need to adjust your budgets or your sales forecast. Either way, tracking your progress compared to your plan can help you adjust quickly when you identify challenges and opportunities—it's one of the most powerful things you can do to grow your business.
Prepare to pitch your business
If you're planning to pitch your business to investors or seek out any funding, you'll need a pitch deck to accompany your business plan. A pitch deck is designed to inform people about your business. You want your pitch deck to be short and easy to follow, so it's best to keep your presentation under 20 slides.
Your pitch deck and pitch presentation are likely some of the first things that an investor will see to learn more about your company. So, you need to be informative and pique their interest. Luckily, just like you can leverage an example business plan template to write your plan, we also have a gallery of over 50 pitch decks for you to reference.
With this gallery, you have the option to view specific industry pitches or get inspired by real-world pitch deck examples. Or for a modern pitch solution that helps you create a business plan and pitch deck side-by-side, you may want to check out LivePlan . It will help you build everything needed for outside investment and to better manage your business.
Get LivePlan in your classroom
Are you an educator looking for real-world business plan examples for your students? With LivePlan, you give your students access to industry-best business plans and help them set goals and track metrics with spreadsheet-free financial forecasts. All of this within a single tool that includes additional instructional resources that work seamlessly alongside your current classroom setup.
With LivePlan, it's not just a classroom project. It's your students planning for their futures. Click here to learn more about business planning for students .
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- Product management
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- What is a business model?
Business models distill the potential of a business down to its essence. Companies across every industry and at all stages of maturity need business models. Some rely on lengthy processes to build complicated models, while others move quickly to articulate the basics and take action. Either way, having the discipline to work through this planning tool forces internal alignment.
You must build something that real people with real needs will find value in and pay for — otherwise you do not have a lasting business. Brian de Haaff Aha! co-founder and CEO
For established enterprises, a business model is often a living document that is reviewed and adapted over the years. For companies launching products and services or entering new markets, a business model helps ensure that decisions are tied back to the overall business strategy . And for early-stage startups, a simple one-page business model enables founders to explore the mechanics of a business and how you anticipate it will be successful.
Defining and documenting a business model is an essential exercise. Whether you are starting a new venture, expanding into a new market, or shifting your go-to-market strategy , you can use a business model to capture fundamental assumptions about the opportunity ahead and tactics to addressing challenges.
Unfortunately, many companies fail to integrate their business model into all aspects of the organization — from recruiting talent to motivating employees. Part of the issue is accessibility. That is why forward-thinking companies choose tools that make it possible to quickly build and share your business model. The Aha! business model canvas, for example, gives you a collaborative space to explore concepts and connect your model to everyday work.
Build a business model in Aha! Create. Sign up for a free account .
Start using this template now
You can access the business model template shown above for free using Aha! Create . You can also try a similar template that is built into the product strategy section of Aha! Roadmaps . Or you can download these free Excel and PowerPoint business model templates .
This guide covers the basics of business models, from core concepts to best practices. Jump ahead to any section:
Definition of a business model
Business model components
Business model vs. business plan.
Different types of business models
Pros and cons of different models
Analyzing competitor business models
Business model templates
How to build a business model
What is the definition of a business model?
A business model answers foundational questions about the operation of a business — identifying the problem you are going to solve, the market that you will serve, the level of investment required, what products you will offer, and how you will generate revenue. Pricing and costs are the two levers that affect profitability within a given business model.
The most basic definition of a business model is that it defines how a company will create, deliver, and capture value.
A business model is part of your overall business strategy. Some business models extend beyond economic context and include value exchange in social or cultural terms — such as the intangible impact the company will have on a community or industry. The process of constructing and changing a business model is often referred to as “business model innovation.”
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There are three main areas of focus in a business model: value proposition, value delivery, and value capture. The proposition outlines who your customers are and what you will offer. The delivery details how you will organize the business to deliver on the proposition. And the capture is a hypothesis for how the proposition and delivery will align to return value back to the business.
Below are some components to include when you create a business model:
Vision and mission : Overview of what you want to achieve and how you will do it.
Objectives: High-level goals that will support your vision and mission, along with how you will measure success.
Customer targets and challenges: Description of target customers (written as archetypes or personas ) and their pain points.
Solution: How your offering will solve customer pain points.
Differentiators: Characteristics that differentiate your product or service.
Pricing: What your solution will cost and how it will be sold.
Positioning and messaging: How you will communicate the value of your offering to customers.
Go-to-market: Proposed approach for launching new offerings and services.
Investment: Resources required to introduce your offering.
Growth opportunity: Ways that you will grow the business over time.
Positioning vs. messaging
- What is value-based product development?
- What is a go-to-market roadmap?
Business models and business plans are both elements of your overall business strategy. But there are key differences between a business model and a business plan.
A business model is seen as foundational and will not usually be reworked in reaction to shorter-term shifts — whereas a business plan is more likely to be updated based on changes in the economy or market.
Related: Business plan templates
What is the benefit of building a business model?
Innovation is about more than the products or technologies that you build. The way that you operate your business is a critical factor in how you stand apart in a crowded marketplace. The benefit of building a business model is that you can use the exercise to expose and exploit what makes your company unique — why choosing your offering is better for customers than any alternatives and how you will grow the business over time.
Many people associate business models with lengthy documents that describe a company’s problem, opportunity, and solution in the context of a two-to-five-year forecast. But business models do not need to be a long treatise.
A one-pager is just as effective for distilling and communicating the most important elements of your business strategy. The concise format is useful for sharing with broader teams so that everyone understands the high-level approach. Done right, a business model can become a touchstone for the team by outlining core differentiators to promote and defend in the market.
Related: A more comprehensive business model builder
What are the different types of business models?
There are many different types of business models. Below are some of the most common business models with example companies for reference (take note of the companies that appear in several categories):
Did you keep track of the companies that appeared in several of the business model examples? Good. You now have a grasp of how complex enterprises with vast portfolios of products and services often employ many business models within the same organization.
Consider a company like Apple, which manufactures and sells hardware products as well as offering cloud-storage, streaming subscriptions, and a marketplace for other applications. Amazon, whose offerings range from retail (with the acquisition of Whole Foods) to marketplace (Amazon.com) to subscription services (Amazon Prime and Amazon Music) to affiliate, also features in different categories. Each division or vertical will have a distinct business model that reflects the nuances of how it operates while also supporting the corporate business model.
Related: The product manager vs. the portfolio product manager
Pros and cons of different business models
Some types of business models work better for certain industries than others. For example, software-as-a-service (SaaS) companies often rely on freemium business models. This makes it easy for potential users to experience the value of the product and incentivizes paid conversions via access to additional features.
Many social media platforms make money through advertising. By providing full access to the platform for free, these companies attract more users. In turn, this creates a more valuable audience for advertisers and increases revenue for the business.
How do you analyze a competitor’s business model?
Business analysts and investors will often evaluate a company’s business model as part of due diligence for funding or market research . You can apply the same tactics to analyze a competitor’s business model — with a few caveats.
Public companies are subject to reporting requirements. This means that the business must regularly disclose financial and performance data to the public — these disclosures occur quarterly and annually. The data includes everything from gross revenue, operating costs and losses, cash flow and reserves, and leadership discussions of business results. Designed to protect and inform investors, these reports can provide you with the information you need to understand the basics of the company’s business model and how well it is performing against the model.
Private companies are not required to reveal business data publicly. Investors or partners may be privy to certain aspects of the company’s performance, but it can be difficult to understand exactly what is happening from the outside. Some analysts or business websites will attempt to “size” a business or market by looking at a variety of factors — including the number of employees, volume of search terms related to the core offering, estimated customer base, pricing structure, partnerships, advertising spend, and media coverage.
Once you have identified relevant alternatives to your offering and gathered all of the information that you can find, a good way to analyze a competitor’s business model is to conduct a competitive analysis.
Related: Competitor analysis templates
You do not want to spend too much time thinking about other companies when you could be focused on your own. A simple SWOT analysis is a helpful way to map out strengths, weaknesses, opportunities, and threats that were revealed during your research.
Below are three types of business model example layouts you can use to succinctly and objectively assess what is possible and what challenges could arise for your business.
Aha! Create business model template
Articulate the foundation of your product or service in a flexible whiteboard-style format with the Aha! Create business model template.
The focus is on capturing key elements like why the solution is worth buying (messaging), pain points of the buyers (customer challenges), and ways you will grow the business (growth opportunities).
Aha! Roadmaps business model canvas
The Aha! Roadmaps business model is the most complete template in this guide — based on our team's decades of experience building breakthrough products and software companies.
You can drag and drop each component within a custom layout. And once you have completed your business model, it is easy to share with your team via a live webpage or exported PDF. This business model builder is included with the free 30-day trial of Aha! Roadmaps.
Aha! Roadmaps lean canvas
Similar to the business model canvas, this model in Aha! Roadmaps takes a problem-focused approach to create an actionable business plan. It is most commonly used by startups and entrepreneurs to document business assumptions. The focus is on quickly creating a concise and effective single-page business model. It documents nine elements, including customer segments, channels used to reach customers, and the ways you plan to make money.
How to build a business model in 10 steps
Crafting a business model is part of establishing a meaningful business strategy. But a business model is essentially a hypothesis — you need to test yours to prove that it will actually provide value. Many startup founders especially underestimate the costs and timeline for reaching profitability.
1. Identify your target market Who will benefit from your offering? What characteristics do prospective customers share?
2. Define the problem you will solve What is the problem that you are solving? What are the pain points of your potential customers?
3. Detail your unique selling proposition (USP) What will you build and how will you support it?
4. Create a pricing strategy How much will you charge for your offering? What factors will go into choosing your price point?
5. Develop a marketing approach How will you market your product and reach target customers? What channels will you choose for go-to-market?
6. Establish operational practices How will you streamline processes and procedures to reduce overhead and fixed costs?
7. Capture path to profitability How will your business generate revenue? What level of investment will be required and what fixed costs exist?
8. Anticipate challenges Who are your competitors? What opportunities and threats exist for your business?
9. Validate your business model Was your hypothesis correct? Does your business model solve a problem the way you thought it would?
10. Update to reflect learnings What can you do differently in the future to ensure greater success?
Your business model will ultimately guide your organization and influence your product roadmap. Give it the deep thought it deserves — questioning your core assumptions about how you will generate value and how your team will work towards achieving shared goals.
Deliver more with Aha! — try it free for 30 days .
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- What is enterprise transformation?
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- What is the role of product management in enterprise transformation?
- What is a Minimum Viable Product (MVP)?
- What is a Minimum Lovable Product (MLP)?
- What is product vision?
- How to set product strategy
- What is product-market fit?
- What is product differentiation?
- How to position your product
- How to price your product
- What are product goals and initiatives?
- How to set product goals
- How to set product initiatives
- What is product value?
- Introduction to marketing strategy
- Introduction to marketing templates
- What is a marketing strategy?
- How to set marketing goals
- Marketing vs. advertising
- What is a creative brief?
- How to define buyer personas
- Understanding the buyer's journey
- What is competitive differentiation?
- 10Ps marketing matrix
- 2x2 prioritization matrix
- Business model
- Customer journey map
- Lean canvas
- Porter's 5 forces
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- Strategic roadmap
- SWOT analysis
- Collections: Business model
- Collections: SWOT
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- What is product discovery?
- How to do market research
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- Asking the right questions to drive innovation
- Competitive analysis
- Customer interview
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- Pros and cons
- Collections: Customer research
- Collections: Competitor analysis
- Collections: Marketing competitor analysis
- How to brainstorm product ideas
- Brainstorming techniques for product builders
- How to gather customer feedback
- What is idea management?
- 4 steps for product ideation
- How to estimate the value of new product ideas
- How to prioritize product ideas
- What is idea management software?
- Introduction to marketing idea management
- How to gather marketing feedback from teammates
- Brainstorming new marketing ideas
- How to estimate the value of new marketing ideas
- Brainstorming meeting
- Brainstorming session
- Ideas portal guide
- Sticky note pack
- User story map
- Roadmapping: Your starter guide
- Business roadmap
- Innovation roadmap
- Marketing roadmap
- Product roadmap
- Product portfolio roadmap
- Project roadmap
- Technology roadmap
- What to include on your product roadmap
- How to visualize data on your product roadmap
- What milestones should be included on a roadmap?
- How often should roadmap planning happen?
- How to build a roadmap for a new product
- How to choose a product roadmap tool
- How to build a brilliant roadmap
- How to build an agile roadmap
- Product roadmap examples
- How to customize the right roadmap for your audience
- How to report on progress against your roadmap
- How to communicate your product roadmap to customers
- What is a content marketing roadmap?
- What is a digital marketing roadmap?
- What is an integrated marketing roadmap?
- What is a portfolio marketing roadmap?
- How to choose a marketing roadmap tool
- Epics roadmap
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- Collections: Product roadmap
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- What is product planning?
- How product managers use Gantt charts
- Introduction to release management
- How to plan product releases across teams
- What is a product backlog?
- Product backlog vs. release backlog vs. sprint backlog
- How to refine the product backlog
- How to estimate team capacity
- What is requirements management?
- What is a market requirements document (MRD)?
- How to manage your product requirements document (PRD)
- What are product features?
- What is user story mapping?
- How to prioritize product features
- Common product prioritization frameworks
- JTBD prioritization framework
- Introduction to marketing plans
- What is a marketing plan?
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- What is a content marketing plan?
- Why is content marketing important?
- What is a social media plan?
- How to create a marketing budget
- Kanban board
- Feature requirement
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- Collections: Product development process
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- What is user experience design?
- What is the role of a UX designer?
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- How product teams use wireframes
- Wireframe vs. mockup vs. prototype
- Collections: Creative brief
- Common product development methodologies
- Common agile development methodologies
- What is agile product management?
- What is agile software development?
- What is waterfall product management?
- What is agile transformation?
- Agile vs. lean
- Agile vs. waterfall
- What is an agile roadmap?
- What is an agile retrospective?
- Best practices of agile development teams
- What is a burndown chart?
- What is issue tracking?
- Introduction to agile metrics
- Agile glossary
- What is kanban?
- How development teams implement kanban
- How is kanban used by product managers?
- How to set up a kanban board
- Kanban vs. scrum
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- What are scrum roles?
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- Product release vs. sprint in scrum
- Themes, epics, stories, and tasks
- How to implement scrum
- How to choose a scrum certification
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- What is the role of a product manager in SAFe®?
- PI planning
- Sprint retrospective
- Collections: Sprint retrospective
- How to test your product before launch
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- How to plan a marketing launch
- Collections: Product launch checklist
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- How to measure product value
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- What are the stages of product development?
- What is the product lifecycle?
- What is a product management maturity model?
- What is product development software?
- Why product teams need virtual whiteboarding software
- Introduction to marketing methods
- What is agile marketing?
- What is digital marketing?
- What is product marketing?
- What is social media marketing?
- What is B2B marketing?
- Collections: Product management
- What is the role of a product manager?
- 10 skills to succeed as a product manager
- The Most Common Product Management Job Titles
- What does a product manager do each day?
- What is the role of a product operations manager?
- How to become a product manager
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- How are marketing teams organized?
- Which tools do marketers use?
- Interview questions for marketing managers
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- How to make a career switch into marketing
- Job interview
- Collections: Product manager resume
- How to structure your product development team
- Best practices for managing a product development team
- Which tools do product managers use?
- Tips for effective collaboration between product managers and engineers
- How do product managers work with other teams?
- Meeting agenda
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- Collections: Product management meeting
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- Product development definitions
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The Easy Guide to the Business Model Canvas
Got a new business idea, but don’t know how to put it to work? Want to improve your existing business model? Overwhelmed by writing your business plan? There is a one-page technique that can provide you the solution you are looking for, and that’s the business model canvas.
In this guide, you’ll have the Business Model Canvas explained, along with steps on how to create one. All business model canvas examples in the post can be edited online.
What is a Business Model Canvas
A business model is simply a plan describing how a business intends to make money. It explains who your customer base is and how you deliver value to them and the related details of financing. And the business model canvas lets you define these different components on a single page.
The Business Model Canvas is a strategic management tool that lets you visualize and assess your business idea or concept. It’s a one-page document containing nine boxes that represent different fundamental elements of a business.
The business model canvas beats the traditional business plan that spans across several pages, by offering a much easier way to understand the different core elements of a business.
The right side of the canvas focuses on the customer or the market (external factors that are not under your control) while the left side of the canvas focuses on the business (internal factors that are mostly under your control). In the middle, you get the value propositions that represent the exchange of value between your business and your customers.
The business model canvas was originally developed by Alex Osterwalder and Yves Pigneur and introduced in their book ‘ Business Model Generation ’ as a visual framework for planning, developing and testing the business model(s) of an organization.
Why You Need a Business Model Canvas
- The BMC provides a quick overview of the business model and is devoid of the unnecessary details compared to the traditional business plan.
- The visual nature of the business model canvas makes it easier to refer to and understand by anyone.
- It’s easier to edit and it can be easily shared with employees and stakeholders.
- The business model canvas can be used by large corporations as well as startups with just a few employees.
- It clarifies how different aspects of the business are related to each other.
- You can use a BMC template to guide a brainstorming session on defining your business model effectively.
How to Make a Business Model Canvas
There are nine building blocks in the business model canvas and they are customer value proposition, customer segments, channels, customer relationships, revenue streams, key resources, key partners, key activities, and cost structure.
When filling out a Business Model Canvas, you will brainstorm and conduct research on each of these elements. The data you collect can be placed in each relevant section of the canvas. So have a business model canvas ready when you start the exercise.
What are the 9 Components of the Business Model Canvas?
- Customer Segments
- Customer Relationships
- Revenue Streams
Key Activities
Key resources, key partners.
- Cost Structure
- Value Proposition
Let’s look into what the 9 components of the BMC are in more detail.
Customer segments
These are the groups of people or companies that you are trying to target and sell your product or service to.
Segmenting your customers based on similarities such as geographical area, gender, age, behaviors, interests, etc. gives you the opportunity to better serve their needs, specifically by customizing the solution you are providing them.
After a thorough analysis of your customer segments, you can determine who you should serve and ignore. Then create customer personas for each of the selected customer segments.
There are different customer segments a business model can target and they are;
- Mass market: A business model that focuses on mass markets doesn’t group its customers into segments. Instead, it focuses on the general population or a large group of people with similar needs. For example, a product like a phone.
- Niche market: Here the focus is centered on a specific group of people with unique needs and traits. Here the value propositions, distribution channels, and customer relationships should be customized to meet their specific requirements. An example would be buyers of sports shoes.
- Segmented: Based on slightly different needs, there could be different groups within the main customer segment. Accordingly, you can create different value propositions, distribution channels, etc. to meet the different needs of these segments.
- Diversified: A diversified market segment includes customers with very different needs.
- Multi-sided markets: this includes interdependent customer segments. For example, a credit card company caters to both their credit card holders as well as merchants who accept those cards.
Use STP Model templates for segmenting your market and developing ideal marketing campaigns
Visualize, assess, and update your business model. Collaborate on brainstorming with your team on your next business model innovation.
Customer relationships
In this section, you need to establish the type of relationship you will have with each of your customer segments or how you will interact with them throughout their journey with your company.
There are several types of customer relationships
- Personal assistance: you interact with the customer in person or by email, through phone call or other means.
- Dedicated personal assistance: you assign a dedicated customer representative to an individual customer.
- Self-service: here you maintain no relationship with the customer, but provides what the customer needs to help themselves.
- Automated services: this includes automated processes or machinery that helps customers perform services themselves.
- Communities: these include online communities where customers can help each other solve their own problems with regard to the product or service.
- Co-creation: here the company allows the customer to get involved in the designing or development of the product. For example, YouTube has given its users the opportunity to create content for its audience.
You can understand the kind of relationship your customer has with your company through a customer journey map . It will help you identify the different stages your customers go through when interacting with your company. And it will help you make sense of how to acquire, retain and grow your customers.
This block is to describe how your company will communicate with and reach out to your customers. Channels are the touchpoints that let your customers connect with your company.
Channels play a role in raising awareness of your product or service among customers and delivering your value propositions to them. Channels can also be used to allow customers the avenue to buy products or services and offer post-purchase support.
There are two types of channels
- Owned channels: company website, social media sites, in-house sales, etc.
- Partner channels: partner-owned websites, wholesale distribution, retail, etc.
Revenue streams
Revenues streams are the sources from which a company generates money by selling their product or service to the customers. And in this block, you should describe how you will earn revenue from your value propositions.
A revenue stream can belong to one of the following revenue models,
- Transaction-based revenue: made from customers who make a one-time payment
- Recurring revenue: made from ongoing payments for continuing services or post-sale services
There are several ways you can generate revenue from
- Asset sales: by selling the rights of ownership for a product to a buyer
- Usage fee: by charging the customer for the use of its product or service
- Subscription fee: by charging the customer for using its product regularly and consistently
- Lending/ leasing/ renting: the customer pays to get exclusive rights to use an asset for a fixed period of time
- Licensing: customer pays to get permission to use the company’s intellectual property
- Brokerage fees: revenue generated by acting as an intermediary between two or more parties
- Advertising: by charging the customer to advertise a product, service or brand using company platforms
What are the activities/ tasks that need to be completed to fulfill your business purpose? In this section, you should list down all the key activities you need to do to make your business model work.
These key activities should focus on fulfilling its value proposition, reaching customer segments and maintaining customer relationships, and generating revenue.
There are 3 categories of key activities;
- Production: designing, manufacturing and delivering a product in significant quantities and/ or of superior quality.
- Problem-solving: finding new solutions to individual problems faced by customers.
- Platform/ network: Creating and maintaining platforms. For example, Microsoft provides a reliable operating system to support third-party software products.
This is where you list down which key resources or the main inputs you need to carry out your key activities in order to create your value proposition.
There are several types of key resources and they are
- Human (employees)
- Financial (cash, lines of credit, etc.)
- Intellectual (brand, patents, IP, copyright)
- Physical (equipment, inventory, buildings)
Key partners are the external companies or suppliers that will help you carry out your key activities. These partnerships are forged in oder to reduce risks and acquire resources.
Types of partnerships are
- Strategic alliance: partnership between non-competitors
- Coopetition: strategic partnership between partners
- Joint ventures: partners developing a new business
- Buyer-supplier relationships: ensure reliable supplies
Cost structure
In this block, you identify all the costs associated with operating your business model.
You’ll need to focus on evaluating the cost of creating and delivering your value propositions, creating revenue streams, and maintaining customer relationships. And this will be easier to do so once you have defined your key resources, activities, and partners.
Businesses can either be cost-driven (focuses on minimizing costs whenever possible) and value-driven (focuses on providing maximum value to the customer).
Value propositions
This is the building block that is at the heart of the business model canvas. And it represents your unique solution (product or service) for a problem faced by a customer segment, or that creates value for the customer segment.
A value proposition should be unique or should be different from that of your competitors. If you are offering a new product, it should be innovative and disruptive. And if you are offering a product that already exists in the market, it should stand out with new features and attributes.
Value propositions can be either quantitative (price and speed of service) or qualitative (customer experience or design).
What Are Your Thoughts on the Business Model Canvas?
Once you have completed your business model canvas, you can share it with your organization and stakeholders and get their feedback as well. The business model canvas is a living document, therefore after completing it you need to revisit and ensure that it is relevant, updated and accurate.
What best practices do you follow when creating a business model canvas? Do share your tips with us in the comments section below.
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Amanda Athuraliya is the communication specialist/content writer at Creately, online diagramming and collaboration tool. She is an avid reader, a budding writer and a passionate researcher who loves to write about all kinds of topics.
Original text
Do you want to increase the odds that your business startup will be a success? Then download this step-by-step business plan template and use it to lay the groundwork for your new business.
Writing a business plan gives you an opportunity to carefully think through every step of starting your company so you can better prepare and handle any challenges.
While a thorough business plan is essential in the financing process, it's helpful even if you don’t need outside financing.
Creating a business plan can:
- Help you discover any weaknesses in your business idea so you can address them before you open for business
- Identify business opportunities you may not have considered and plan how to take advantage of them
- Analyze the market and competition to strengthen your idea
- Give you a chance to plan strategies for dealing with potential challenges so they don’t derail your startup
- Convince potential partners, customers, and key employees that you’re serious about your idea and persuade them to work with you
- Force you to calculate when your business will make a profit and how much money you need to reach that point, so you can be prepared with adequate startup capital
- Determine your target market and how to reach them
Laying out a detailed, step-by-step plan gives you a blueprint you can refer to during the startup process and helps you maintain your momentum.
What this business plan template includes
Writing a business plan for a startup can sometimes seem overwhelming. To make the process easier and more manageable, this template will guide you step-by-step through writing it. The template includes easy-to-follow instructions for completing each section of the business plan, questions to help you think through each aspect, and corresponding fillable worksheet/s for key sections.
After you complete the 11 worksheets, you will have a working business plan for your startup to show your SCORE mentor .
The business plan sections covered in this template include:
- Executive Summary
- Company Description
- Products and Services
- Marketing Plan
- Operational Plan
- Management and Organization
- Startup Expenses and Capitalization
- Financial Plan
The Appendices include documents that supplement information in the body of the plan. These might be contracts, leases, purchase orders, intellectual property, key managers’ resumes, market research data, or anything that supports assumptions or statements made in the plan.
The last section of the template, “Refining Your Plan,” explains ways you may need to modify your plan for specific purposes, such as getting a bank loan, or for specific industries, such as retail or manufacturing.
Complete the Business Plan Template for a Startup Business to create a working business plan for your startup.
Then, contact your local SCORE mentor to review and refine your plan either online or in person.
For more than 100 years, Deluxe Corporation has sought to create the tools that help shape our economy. Since 1915, Deluxe has recognized the vital role that small business plays in our communities, from job creation to business development. For these reasons, the Deluxe Corporation Foundation provides financial support to nonprofits that help entrepreneurs and small business owners succeed. Our grants to SCORE have totaled more than $1.5M in recent years, with the majority of these funds supporting the creation and updates of online training and certification for SCORE mentors.
Business Planning & Financial Statements Template Gallery Download SCORE’s templates to help you plan for a new business startup or grow your existing business.
An Easier Way to Prepare Your Business Plan -The Business Model Canvas The Business Model Canvas (BMC) is a one-page business plan that allows you to test and validate the key parts of your business in a manageable format.
Copyright © 2023 SCORE Association, SCORE.org
Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.
21 Different Types of Business Models With Examples
Having a solid, well-thought-out business model is essential for both new and established companies. These models work to attract new customers and anticipate any upcoming trends or unseen challenges. It also can allow the company to differentiate itself from competitors. Potential investors use business models to quickly and effectively analyze a company’s plans and flesh out information such as how they plan to generate income. Even if you are a small business with no plans of taking on investment, knowing and understanding your business model is crucial to your success.
There are many different types of business models to choose from. It can become overwhelming to decide which model would work best for a company’s individual needs and preferences. This article will analyze and define 21 of the top business models currently used to better understand what each type offers your company.
What is a Business Model?
Through the years, the term business model has had several different definitions. But essentially, a business model is simply an outline of how a company plans to make money with its product or service . Peter Drucker defined the term as “assumptions about what a company gets paid for”. A t their core, they all work to identify revenue sources, the customer base for their products and services, and the expenses the company anticipates to allocate to marketing these products and services.
Understanding your business model is important for many reasons. One of those reasons is that when you understand your business model, you are also closer to answering many other important questions about your business. When your business model is clear you get a better idea of who your customers are. And once you understand that, you also can answer the question “how does our business model add value to our customer”.
Not knowing, understanding, and choosing the right business model can be detrimental to your business. Later in the article, we explain how choosing the wrong business model is costing one company hundreds of millions of dollars. But for now, all you need to know that if your business model does not match up well with your product and what the market demands, you may soon see your profits dwindle as competition increases.
If you are not sure if you have the right business model for your business, or if your current business model is running out of gas, read our list of 21 business models to see if there is another, better, solution for you.
21 Types of Business Models
1. freemium business model.
Freemium is a combination of the words free and premium. Companies following the freemium business model offer the most basic version of their product or service for free to entice consumers to purchase the more advanced features, capabilities, or add-ons of the product or service in the future. The freemium business model works for new companies by cultivating strong relationships with customers. It also works best for internet-based service companies.
Freemium business model examples:
2. subscription-based model.
Image by mjimages from Pixabay
The subscription-based model allows companies to charge consumers monthly or yearly subscription fees to access their product or service. This model depends on these consumers continuing to love and utilize the service. To keep consumers satisfied and paying monthly subscription fees, companies need to continually improve their products or services to keep up with changing trends or competitors. The subscription-based model is popular with streaming services like Hulu, Netflix, and Spotify. It is also popular among monthly subscription boxes for beauty and fashion such as Ipsy or FabFitFun. The ideal profit margin varies depending on the type of subscription.
Physical subscription based businesses should aim for 30%-40% profit margins. Streaming services do not directly report profit margins but the figures can somewhat be figured out by the average revenue per user. Although it may be hard to find those numbers for all services, most services only make between $4-$10 revenue per user.
Subscription-based model examples
- Streaming services
- Dollar Shave Club
- XBox Game Pass
3. Peer-to-Peer Business Model
Image by postcardtrip
In a peer-to-peer business model, a company acts as the go-between businesses and the customers interested in purchasing their products or services. The companies using this model provide the platforms, navigate the regulations, and set pricing for the products or services. A well-known example of this business model would be ride-sharing services such as Lyft and Uber. These platforms allow people to receive rides to and from requested destinations by those who apply to be drivers for the service.
Peer-to-peer business model examples
4. franchise model.
Sometimes the franchise model is referred to as a hybrid model. It provides a sense of working for oneself with the added security of having a company’s backing with familiar trademarks and products. There is a legal and commercial relationship between the franchisor, the parent company owner (usually a corporation), and the franchisee. The franchisee (or business owner) is allowed to sell the franchisor’s products or services in exchange for paying a royalty fee. Both parties sign contracts to clarify the specifics, spelling out each side’s role in the business relationship.
Franchise model examples
- Merry Maids Residential Cleaning
5. Direct Sales Business Model
In the direct sales model, a company’s employees will be the ones who demonstrate and sell the products or services being offered directly to the intended consumers. This effectively eliminates steps within the distribution process, such as wholesalers and the regional distribution centers. Direct sales is a great way to build strong, lasting customer relationships. One common direct selling types is single-level marketing (SLM). This is when a salesperson is compensated for their sales. Another second type is called multilevel marketing (MLM). This model is when a person is compensated for sales made by salespersons recruited by them and under their authority.
Direct sales business model examples:
- Stella & Dot
6. Affiliate Marketing Business Model
People using the affiliate marketing business model promote and sell products from other companies online to get paid a percentage of the sales they make. This business model is common with “influencers” on Instagram or other leading social media apps. They will post about a company’s product to entice their followers to buy it through them. Many of their followers will buy the product through the supplied link. It is a win-win situation for both the influencer marketing the product and the company selling it. Affiliate business models are also popular among bloggers and online publishers.
There are 4 primary ways an affiliate can earn money from an affiliate program.
- Pay Per Sale (PPS) – Affiliate earns a commission when a sale is made.
- Pay Per Click (PPC) – Affiliate earns a commission whenever an affiliate link is clicked.
- Pay Per Impression (PPI) – Affiliate earns a commission when a visitor lands on the merchant’s site.
- Pay Per Lead (PPL) – Affiliate earns a commission when someone clicks on affiliate link and then takes an action such signing up for a free trial or completing a form.
Affiliate marketing business model examples:
- Amazon Affiliates
- Commission Junction (CJ Affiliate)
7. E-Commerce Business Model
Photo by PhotoMIX Company
Electronic commerce, or “e-commerce,” is a business model in which companies and individuals buy and sell products and services online. Because the business is entirely online, the products and services offered are nearly limitless. An e-commerce business offers companies the extra convenience of not needing a physical store. This increases the selection of products available to consumers. A business might combine the e-commerce model with the drop-shipping model.
Types of E-commerce business models
- B2B: Business to Business Ecommerce- The B2B model focuses on providing products from one business to another.
- B2c: Business to Consumer Ecommerce- B2C model focuses on businesses providing products to the consumer base
- C2C: Consumer to Consumer Ecommerce- C2C model focuses on consumers selling directly to other consumers. Sites like eBay and Craigslist are examples of C2C companies.
- C2B: Consumer to Business Ecommerce- This model is when a consumer sells products or services to businesses. Those in this line of work will often times be freelancers and sole proprietors.
8. Drop-Shipping Business Model
Companies using the drop-shipping business model sell various products on their websites, but supplying and shipping these products is done by a third-party wholesaler. The significant upside to this business model is that you do not need to pay for or maintain inventory for any of the products you sell. It can be costly to store, package, and mail out orders. In the drop-shipping model, a third party (which is typically the wholesaler) will handle the logistics of shipping and making sure the customers receive the products they ordered. The individual who marketed the products gets a percentage of the sales.
9. Vertically Integrated Business Model
The vertically integrated supply chain business model is when the company controls both supply and distribution. The company controls all costs of production, inventory stocked, marketing, and pricing. Because the company has complete control of the product from start to finish, it can decrease transportation costs and improve sales and profitability.
Vertically integrated business model examples
10. consulting business model.
There are two parts to the consulting business model. First, hiring experts or developing a list of freelancing consultants, and second, charging a fee to provide access to these experts by your clients. Typically, your experts will provide a service that speaks to the consumer’s needs. Hopefully, the customer will return to you as further needs arise. Common examples of this could be online tutoring, mentoring, and freelance work in several different fields.
11. Ad-Supported Business Model
Advertising is a significant component in why some companies are incredibly profitable and why some will financially fail. Failure to advertise a product or service can lead to people not even knowing a company exists. The ad-supported business model emphasizes the importance of advertising and the sales generated from it. Popular platforms to advertise products or services include print media, online media, and television.
Ad-supported business model examples
12. enterprise business model.
In the enterprise business model, specific aspects of a business are modeled, such as infrastructures and asset groups. The company leaders will see what needs to be altered within the business to maximize profits. The enterprise model is more about evaluating how the business is functioning than it is about the overall structure of the business.
13. Lock-In Business Model or Lock-In Strategy
The lock-in business model takes customer loyalty and kicks it up a notch. This is done by essentially locking customers into a company’s product or service by making it difficult to abandon the company without dealing with negative consequences. Some of these consequences include increased costs or making it difficult to switch. For example, Apple compels customers to stick with them by making it extremely simple to sync every Apple product. But, also make it challenging to use their products alongside competitors. For example, the Apple watch is nearly impossible to use with an Android phone. A lock-in business model ideally leads to customers sticking with one company for the long haul.
Lock-in examples:
- Apple utilizes this strategy
- Some major banks utilize this strategy as well
- Microsoft Office Suite
14. Multi-Brand Business Mod el
Old Spice has done a brilliant job marketing their multi-brand business with clever and hilarious advertisements.
With the multi-brand business model, a parent company will offer similar products with different brand names to increase their market share. By doing this, the company effectively reduces any potential competition. A company with many similar products at different price points will appeal to a significant number of customers.
Multi-brand companies examples:
- Procter & Gamble
15. Razor and Blade Model
The razor and blade model works by selling products or services to consumers at a lower price. Then later selling a related product or service to the consumer for increased profits. The name razor and blade comes from King Gillette. Gillette effectively worked to overtake the men’s razor market by offering a sturdy and reliable razor that required the use of blades only sold by Gillette. As a result, the company cornered the market on razors for a time and is still dominate today.
Examples of razor and blade business model:
- Playstation
- Computer printer manufactures
16. Distribution Based Business Model
The distribution-based business model facilitates the distribution of products or services offered from the manufacturers to the consumers. With this model, the business ensures that the mode of distribution chosen to get the product or service to the consumer is the most direct, and more importantly, the most cost-efficient manner possible. No one distribution method is universal for all companies. The chosen methods depend on such factors as your product’s perishability, target market, and geographic area covered by your company.
17. Direct-to-Consumers Business Model
With the direct-to-consumer business model, consumers buy products or services directly from a company’s website, eliminating the middle-man. The model not only saves the company money but can be convenient for the customer as well. Consumers would have to physically visit a store to purchase the product they desire but know they can order the product directly from the company or manufacturer. There is no longer a need for a brick-and-mortar store, saving the company money. The company tends to have greater control over their branding and stronger relationships with their customers with this model, leading them to buy from the company again.
In recent years, however, the DTC model has struggled to scale on its own for many larger companies. One of the pioneer companies in this type of business model was the DTC mattress company Casper. This company was once seen as a unicorn startup a decade ago but has seen its market share and valuation plummet. The company’s IPO attempt in 2020 was nothing short of a disaster. At one point, Casper was valued at more than $1 billion. But, at the time of its regulatory filing, it had cut its IPO target share price to $12 to $13 from $17 to $19. That valued the company at around $500 million. A lawsuit was even filed accusing Casper of misleading investors into pouring $100 million into its IPO, knowing its financial prospects were far dimmer than it promised.
Examples of direct-to-customers business model:
- Apple Store
- Warby Parker
- Casper Mattresses
18. Low-Touch Business Model
Some customers want the least amount of interaction with the company possible. Businesses that want to meet that need should adopt a low-touch business model. Products sold using this model can be consumed or used with little interference from salespersons or customer service. Due to the pandemic of 2020, many businesses learned to adapt to the threat. These businesses adopted low-touch strategies to help keep their doors open. For example, more take out restaurants began using kiosks for ordering instead of placing an order with a human team member.
Other sectors such as hotels began using virtual check-ins through apps. This limited contact with other guests in the hotel lobby as well as employees of the hotel. As we return to normal, it is believed that many of these businesses will retain their low-touch option and many other businesses will begin using this practice also.
Low-touch business model examples:
- Wal-mart Online
- e-commerce sites
19. Fractionalization Business Model
In this model, companies will sell partial usage of their product or service to consumers, such as offering a timeshare deal for a condominium in a desirable location. Consumers will receive full benefits of the timeshare when they are there, but they can only be there for a pre-determined time each year.
20. Pay-As-You-Go Model
Photo credit: Mike Motzart
As the name suggests, consumers will pay for the service or product as they use it. Meaning there is no recurring bill or subscription necessary. This model should entice those who do not like to be tied down. If the product or service is of high quality and worth the price paid, they will continue using it.
Pay-as-you-go model examples:
- Cell phone carriers
- Power companies
- Internet service providers
21.User-Generated Content Business Model
User-generated content business is a type of content distribution platform where the users create the content. Social media platforms and sites like Youtube and Quora are successful due to the content that is nearly 100% user-generated. This model eliminates the need to create content as a primary way to engage visitors. This is another type of business model that is often combined with the advertising model. But unlike traditional content distribution platforms like CNN and Fox News, UGC sites typically adopt the personality of their users.
User-generated content business model:
- Online forums
In conclusion, the different types of business models mentioned will appeal to a wide range of companies’ needs and preferences, including highly niched marketed ones. When picking a company’s business model, it is vital to consider what would be appropriate for the company as a whole and the intended consumer. Which model will entice the target market to buy (and continue to buy) from the company? Using the right business model will maximize profits and provide clear, practical ideas to sustain profitability for years to come.
Additional photo credits: Under CC
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Tom is a member of the Editorial Team at StartUp Mindset. He has over 6 years of experience with writing on business, entrepreneurship, and other topics. He mainly focuses on online businesses, digital publishing, marketing and eCommerce startups.
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Direct Sales
Franchise model, freemium model, subscription model, the bottom line.
- Fundamental Analysis
Which Business Model Is Best? Depends on the Industry
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:max_bytes(150000):strip_icc():format(webp)/Group1805-3b9f749674f0434184ef75020339bd35.jpg "traditional business model examples")
A company's business model is an important representation of how a company does business. Despite the size of the business or the industry in which a business operates, a business model details how an organization creates and delivers products or services, specific business processes, infrastructure, customer acquisition strategies, and the intended customer base. Business models come in a variety of forms. Direct sales, franchise, freemium , and subscription models are among the common kinds.
Key Takeaways
- There are several ways for a business to make a buck, but a handful of tried-and-true business models dominate the market.
- They include direct sales, subscription-based, freemium, and the franchise model.
- Depending on what your business makes or does, one of those revenue-generating models will probably rise to the top as the most appropriate way to run your business.
Under a direct sales business model, sales of products or services generate revenue through a network of salespeople, who sell directly to customers. Typically, no fixed retail location exists under a direct sales business model. Instead, individual salespeople are connected with a large parent company and given the tools to become individual entrepreneurs .
Direct sales take place through presentations or demonstrations of the product or service in a one-on-one setting or during a hosted party at a prospect's home or business. Business owners in direct sales earn a portion of their sales, while the company providing the product retains the remaining revenue. Companies such as Avon, Arbonne, and Herbalife are examples of the direct sales business model.
Under a franchise business model, business owners purchase another organization's business strategy. Instead of creating a new product and the distribution chain to deliver that product to consumers, the franchisee purchases an ownership stake in a business model that has already been successfully developed. The company offering its proprietary product or service, its business processes and its brand is known as the franchisor, and it benefits from a reduction in capital output used to build new locations.
Franchise owners earn a portion of the revenue generated by their locations, and the franchisor collects licensing fees in addition to a percentage of sales revenue from the franchisee. Popular companies that depend on the franchise business model for growth include McDonald's and Subway.
For companies that offer personal or business services via the internet, the freemium business model is common. Under a freemium model, a business gives away a service at no cost to the consumer as a way to establish the foundation for future transactions. By offering basic-level services for free, companies build relationships with customers, eventually offering them advanced services, add-ons, or an ad-free user experience for an extra cost. The freemium model tends to work well for Internet-based businesses with small customer acquisition costs , but high lifetime value. Spotify and Skype both operate under a freemium business model.
Businesses that operate in an industry with high customer acquisition costs may opt for a subscription or recurring revenue business model. The objective of a subscription business model is to retain customers under a long-term contract and secure recurring revenue from the repeat purchase of a product or service.
Online subscription business models usually require the customer to sign up for automatic payment plans. They may charge a cancellation fee for a contract that ends before the preset time frame. Credit monitoring organizations, such as Experian and Equifax, use a subscription business model, as do utility and phone companies.
There are as many types of business models as there are types of business. Direct sales, franchising, advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrids as well, such as businesses that combine internet retail with brick-and-mortar stores, or sporting organizations like the NBA .
But not every industry lends itself to all types of business models. Moreover, within these broad categories, each business plan is unique. Consider the shaving industry. Gillette is happy to sell its Mach3 razor handle at cost or lower in order to get steady customers for its more profitable razor blades. The business model rests on giving away the handle to get those blade sales. This twist on the broader freemium business model is now known as the razor-razorblade model ; but it can also apply to companies in any business that sells a product at a deep discount in order to supply a dependent good at a considerably higher price. The bottom line is pick the business model that makes the most sense for the products or services that you offer.
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50+ business model examples
Discover innovative business models, see visualizations of their different revenue streams, and copy ideas for your startup.
- Who is this guide for?
How to choose the right business model
Business model inspiration, companies to learn from, who is this guide for.
When in need of a business model for your next startup or corporate venture, there are more than a couple of options to explore. To make your decision-making a little easier, we’ve analyzed 50 innovative revenue models and partnership ideas.
Browse these business model examples to spot the ideas that are fit for your company’s needs, and let these use cases inspire you to start building your own business plan.
At Board of Innovation, we specialize in innovation and business design. If you feel you need help moving forward, you can get in touch .
In this deck, you will find a comprehensive guide through business models from different companies and industries.
This guide will help you understand how each business model works, the products or services they offer, and what makes it unique. These key insights will help you in the selection process of a business model that works best for you.
Have you ever wondered how some companies are profitable?
In this deck, we deep dive into business models used by companies in multiple industries. Using our Business Model Kit , we offer a visual overview of how each business profits from the model that drives it. .
Free (or nearly free) for the user:
- Early exit strategy
- Pay-what-you-want (PWYW)
- Tip jar/donation
- Freemium model
- Barter or swapping for services
- Barter or swapping for products
Third party options:
- Advertisement (ad-based) model
- Affiliate/referral fee
- Get-one-give-one model (G1G1)
- Franchise model
Mixed business model:
- Razor and blade model
- Crowdfunding
- Open source model
- No frills model (discount or budget model)
Broker/matchmaking:
- Commission-based model:
- Auction model
Paid (direct sales business model):
- Subscription model
- Premium model
- Pay-per-use model
- Add-ons/In-app purchases
- License fees
- Single purchase model
- Pay-as-you-go model (PAYG)
Grab is an on-demand ride service that has since expanded to everyday services like deliveries, financial services and more – making it a superapp. It charges a service fee of 20% ~ 30% for every transaction that goes through its platform.
Hubs charges clients for each industrial manufacturing job they begin through the platform. Prices are determined by a machine learning algorithm.
Patients Like Me offers a free health community service to its users. They make money by selling the data, generated by the community, to pharmaceutical companies.
WHOOP offers a wearable fitness gadget that gives personalized recommendations and feedback. WHOOP charges a monthly subscription fee to access the data on the platform, while the first device is free.
Digit is a financial service application that monitors financial behavior and automates its users’ savings. Digit receives a fixed monthly fee of $5 from its users. On top of that, it can leverage the funds it has under management for greater returns
Kiva is the first online non-profit lending platform for underserved populations.As a non-profit, Kiva doesn’t profit from loans received — lenders donate to Kiva to cover operating costs. The remainder of costs are covered through grants, supporters, and field partners.
Appear Here is the Airbnb of retail spaces — an online marketplace to list, find, and book short-term retail spaces. After the landlord sets a daily, weekly and monthly price, Appear Here takes commission between 12% - 15% on a completed transaction, while the space owners pay no listing fee.
Kaggle makes money in two ways: With Kaggle competition, they receive a “listening fee” for each competition posted on the platform. Also, they provide a service for matching companies to the top 0.5% of their community, which they call Kaggle Connect.
23andMe makes money with personal genetic tests, providing reports on lineage discovery & +240 health conditions. It’s believed that their DNA research studies & surveys will soon be an additional way of making money, with a mainly B2B focus instead of B2C.
Friendsurance works as a broker between Policy Holders and existing Insurance Partners. They’re letting customers share risks with friends, allowing them to lower prices due to reduced fraud & process costs, better risk pools, etc.
AliveCor makes money by selling ECG devices ($199) that fit on existing smartphones and via their AliveInsights Service – a professional analysis service that makes it easy to get expert insight on your ECG readings.
Glow sells “data insights” regarding conceiving to Research Institutions & gives exposure to trustworthy Infertility Treatment Clinics. The data is generated by users who use the Glow free fertility-tracking app.
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The Transformative Business Model
- Stelios Kavadias,
- Kostas Ladas,
- Christoph Loch
A business model that can link a new technology to an emerging market need is the key to industry transformation. When Apple coupled the iPod with iTunes, it revolutionized the audio devices market. But most attempts to introduce a new model fail. The authors did an in-depth analysis of 40 companies that had launched new business models in a variety of industries, and here they present the key takeaways from their research.
They looked for recurring features in the models and found six: personalization, a closed-loop process, asset sharing, usage-based pricing, a collaborative ecosystem, and an agile and adaptive organization. No model displayed all of them, but having a higher number of features usually correlated with a greater chance of success at transformation. (The taxi service Uber can claim five of the six.)
Companies that are thinking about changing their business model or entering an industry with a new model can rate themselves on the six features to assess the likelihood that they’ll be transformative.
How to tell if you have one
Idea in Brief
The question.
No new technology can transform an industry unless a business model can link it to an emerging market need. How can you tell whether a model will succeed in doing that?
The Research
The authors undertook an in-depth analysis of 40 companies that launched new business models in a variety of industries. Some had transformed their industries; others looked promising but ultimately didn’t succeed.
The Findings
Transformative business models tend to include three or more of these features: (1) personalization, (2) a closed-loop process, (3) asset sharing, (4) usage-based pricing, (5) a collaborative ecosystem, and (6) an agile and adaptive organization.
We usually associate an industry’s transformation with the adoption of a new technology. But although new technologies are often major factors, they have never transformed an industry on their own. What does achieve such a transformation is a business model that can link a new technology to an emerging market need.
MP3 technology is a classic case in point. Early MP3 devices represented an order-of-magnitude increase in capacity over magnetic tapes and CDs: Users could carry thousands of songs on a small device. But MP3 players revolutionized the audio devices market only after Apple coupled the iPod with iTunes in a new business model, swiftly moving music-recording sales from the physical to the virtual world.
What, exactly, enables a business model to deliver on a technology’s potential? To answer that question, we embarked on an in-depth analysis of 40 companies that had launched new business models in a variety of industries. Some succeeded in radically altering their industries; others looked promising but ultimately did not succeed. In this article we present the key takeaways from our research and suggest how they can help innovators transform industries.
How Business Models Work
Definitions of “business model” vary, but most people would agree that it describes how a company creates and captures value. The features of the model define the customer value proposition and the pricing mechanism, indicate how the company will organize itself and whom it will partner with to produce value, and specify how it will structure its supply chain. Basically, a business model is a system whose various features interact, often in complex ways, to determine the company’s success.
In any given industry, a dominant business model tends to emerge over time. In the absence of market distortions, the model will reflect the most efficient way to allocate and organize resources. Most attempts to introduce a new model fail—but occasionally one succeeds in overturning the dominant model, usually by leveraging a new technology. If new entrants use the model to displace incumbents, or if competitors adopt it, then the industry has been transformed.
Consider Airbnb, which upended the hotel industry. Founded in 2008, the company has experienced phenomenal growth: It now has more rooms than either InterContinental Hotels or Hilton Worldwide. As of this writing, Airbnb represents 19.5% of the hotel room supply in New York and operates in 192 countries, in which it accounts for 5.4% of room supply (up from 3.6% in 2015).
The founders of Airbnb realized that platform technology made it feasible to craft an entirely new business model that would challenge the traditional economics of the hotel business. Unlike conventional hotel chains, Airbnb does not own or manage property—it allows users to rent any livable space (from a sofa to a mansion) through an online platform that matches individuals looking for accommodations with home owners willing to share a room or a house. Airbnb manages the platform and takes a percentage of the rent.
Because its income does not depend on owning or managing physical assets, Airbnb needs no large investments to scale up and thus can charge lower prices (usually 30% lower than hotels charge). Moreover, since the home owners are responsible for managing and maintaining the property and any services they may offer, Airbnb’s risks (not to mention operational costs) are much lower than those of traditional hotels. On the customer side, Airbnb’s model redefines the value proposition by offering a more personal service—and a cheaper one.
Before platform technology existed, there was no reason to change the hotel business in any meaningful way. But after its introduction, the dominant business model became vulnerable to attack from anyone who could leverage that technology to create a more compelling value proposition for customers. The new business model serves as the interface between what technology enables and what the marketplace wants.
Let’s look now at what features make a business model transformative.
The Six Keys to Success
We selected the 40 new business models we analyzed on the basis of how many mentions they received in the high-quality, high-circulation business press. All of them seemed to have the potential to transform their industries, but only a subset had succeeded in doing so. We looked for recurring features in the models and found six. No company displayed all of them, but as we shall see, a higher number of these features usually correlated with a higher chance of success at transformation.
1. A more personalized product or service.
Many new models offer products or services that are better tailored than the dominant models to customers’ individual and immediate needs. Companies often leverage technology to achieve this at competitive prices.
2. A closed-loop process.
Many models replace a linear consumption process (in which products are made, used, and then disposed of) with a closed loop, in which used products are recycled. This shift reduces overall resource costs.
3. Asset sharing.
Some innovations succeed because they enable the sharing of costly assets—Airbnb allows home owners to share them with travelers, and Uber shares assets with car owners. Sometimes assets may be shared across a supply chain. The sharing typically happens by means of two-sided online marketplaces that unlock value for both sides: I get money from renting my spare room, and you get a cheaper and perhaps nicer place to stay. Sharing also reduces entry barriers to many industries, because an entrant need not own the assets in question; it can merely act as an intermediary.
4. Usage-based pricing.
Some models charge customers when they use the product or service, rather than requiring them to buy something outright. The customers benefit because they incur costs only as offerings generate value; the company benefits because the number of customers is likely to grow.
5. A more collaborative ecosystem.
Some innovations are successful because a new technology improves collaboration with supply chain partners and helps allocate business risks more appropriately, making cost reductions possible.
6. An agile and adaptive organization.
Innovators sometimes use technology to move away from traditional hierarchical models of decision making in order to make decisions that better reflect market needs and allow real-time adaptation to changes in those needs. The result is often greater value for the customer at less cost to the company.
Each feature on this list is tied to long-term trends in both technology and demand. On the tech side, one trend is the development of sensors that allow cheaper and broader data capture. Another is that big data, artificial intelligence, and machine learning are enabling companies to turn enormous amounts of unstructured data into rules and decisions. A third is that connected devices (the internet of things) and cloud technology are permitting decentralized and widespread data manipulation and analysis. And a fourth is that developments in manufacturing (think nanotechnology and 3-D printing) are creating more possibilities for distributed and small-scale production.
On the market side, although the steady progress of developing countries has led to a stable increase in demand worldwide, it is complicated by a greater diversity in customer preferences (both across and within countries). Higher factor prices (despite the commodity price reductions of 2015) and heightened regulation (notably on environmental effects and business conduct) further increase the challenges for companies looking to gain market share.
All six features represent potential solutions for linking market demand and technological capability. For example, greater personalization in the value proposition responds to the fragmentation of consumer preferences and the resultant demand for more-diverse offerings. That personalization has been made possible by sensors that collect data from connected devices via the cloud; the data is analyzed by big data solutions and turned into services—such as recommendations and alerts—that are different for each user.
From Innovation to Transformation
In theory, the more of the six features a new business model has, the greater its potential to transform a given industry should be. We tested that hypothesis by analyzing how many features each of the 40 new models displayed and comparing the results with its actual performance.
How Many Boxes Should a Model Tick?
We gave each model one point for each feature on which it outperformed the incumbent business model. We then assessed its transformative success according to the degree to which the model had attracted market share (displacing incumbents) and the extent to which other companies had copied it. Our results strongly suggest (that’s the best one can get from statistical analyses) that business models with transformative potential tend to have three or more of the six features.
The taxi service company Uber ticks no fewer than five boxes. Its business model is built on asset sharing —the drivers use their own cars. Uber has developed a collaborative ecosystem in which the driver assumes the risk of winning rides, while the platform helps minimize that risk through the application of big data. The platform also creates agility through an internal decision-making system that responds to market changes in real time. This lets Uber apply usage-based pricing and direct drivers to locations where the probability of finding a fare is high.
Finally, Uber uses a scheme whereby customers rate drivers. Via the big data platform, a would-be customer can see on his or her mobile device the closest drivers and their ratings. The rating system pushes drivers to offer clean cars and quality service, and it also provides at least a bit of personalization . Allowing the customer to decide between the closest car and the one (maybe a bit farther out) with the highest rating may not sound like much, but it is still far ahead of traditional taxi services.
The implication of our finding is straightforward: If you are thinking about changing your business model or entering an industry with a new model, you can rate yourself on how well your model performs on the six features. If you don’t beat the competition on any of them, your chances of success are low. But if your model significantly outdoes the current model on three or more features, you are well positioned to succeed.
Uber has five key features of a potentially transformative business model.
To rate yourself on a feature, you must first define what it actually means in your industry. For example, in financial services personalization may mean tailored loan terms (including interest rates, monthly payments, and loan duration), whereas in retail it may mean customized T-shirt designs or one-off dresses. In education it may mean that the support provided to students changes according to their individual strengths and weaknesses, and in health care it may mean data-enabled, targeted medicine. Only when performance is expressed in such industry-specific ways can a company develop metrics to evaluate and compare its model on the key features and begin to think about how to differentiate itself by using new technologies.
Healx: A Case Study
Informed by our business model framework, we advised (and Cambridge Judge Business School’s business accelerator supported) the tech venture Healx, which focuses on the treatment of patients with rare diseases in the emerging field of personalized medicine. A big challenge for pharmaceutical companies in this domain is that rare-disease markets are very small, so companies usually have to charge astronomical prices. (One drug, Soliris, used in the treatment of paroxysmal nocturnal hemoglobinuria, costs about $500,000 per patient-year.) Some potential treatments are, however, being used for more-common diseases with large patient markets. They could be repurposed to suit the needs of rare-disease sufferers, but they typically work only for people with specific genetic profiles.
Enter Healx, with a platform that leverages big data technology and analytics across multiple databases owned by various organizations within global life sciences and health care to efficiently match treatments to rare-disease patients. Its initial business model hit three of our six key features. First, Healx’s value proposition was about asset sharing (for example, making available clinical-trial databases that record the effectiveness of most drugs across therapeutic areas and diseases, including rare ones). Second, the business promised more personalization by revealing drugs with high potential for treating the rare diseases covered. Finally, Healx’s model would, in theory, create a collaborative ecosystem by bringing together big pharma (which has the treatment and trial data) and health care providers (which have data about effectiveness and incompatibility reactions and also personal genome descriptions).
Healx’s latest business model brings personalization to the highest level.
How did we measure performance along those features? To assess personalization, we compared the amount of drug data currently provided to sufferers of rare diseases with the amount that Healx could provide, which initially covered 1,000 of the 7,000 rare diseases that have formal advocacy groups worldwide. These groups represent some 350 million people, 95% of whom currently get no even reasonably relevant drug recommendations. We measured asset sharing by looking at the proportion of known data on rare-disease-relevant drugs that Healx could access—about 20% in its start-up phase. Finally, we assessed its collaborative ecosystem by looking at how many of the main data-holding institutions participated—about a quarter.
At first Healx struggled to get pharma companies to join the platform; they were concerned that their treatment data would leak to competitors. But the Healx team spotted an opportunity to give companies an incentive. In 2014 the United Kingdom’s National Health Service introduced a new rule for pharmaceutical companies: If an expensive treatment doesn’t work for a patient, the company responsible can be forced to reimburse NHS providers for its cost. The reimbursement amounts were disease-specific and counted in the thousands of British pounds.
Treatment failure is often caused by specificities in individual genomes, and Healx’s managers realized that their technology could help companies predict such failures with high accuracy, potentially saving millions of pounds a year.
More recently, Healx has developed a machine-learning algorithm that can use a patient’s biological information not only to match drugs to disease symptoms but also to predict exactly which drug will achieve what level of effectiveness for that particular patient. The latest version of its business model brings personalization to the maximum possible level and adds agility, because the treating clinician—armed with the biological data and the algorithm—can make better treatment decisions directly with the patient and doesn’t have to rely on fixed rules of thumb about which of the few available off-label drugs to use. In this way, Healx is able to support decentralized, real-time, accurate decision making.
This version of the Healx model has even more transformation potential—it exhibits four of the six features; it has already generated revenue from customers; and in the long term it could empower patients by giving them much more information before they consult a medical practitioner. Although it is still too early to tell whether that potential will be realized, Healx is clearly a venture to watch. It has earned a number of prizes (including the 2015 Life Science Business of the Year and the 2016 Graduate Business of the Year in the Cambridge cluster) and sizable investments from several global funds.
You cannot guarantee the success of an innovation (unless you choose a market niche so small as to be insignificant). But you can load the dice by ensuring that your business model links market needs with emerging technologies. The more such links you can make, the more likely you are to transform your industry.
- Stelios Kavadias is the Margaret Thatcher Professor of Enterprise Studies in Innovation and Growth at the University of Cambridge’s Judge Business School and the director of its Entrepreneurship Centre.
- Kostas Ladas is an associate at the Entrepreneurship Centre at Cambridge Judge Business School.
- CL Christoph Loch is a professor at and the director (dean) of the University of Cambridge’s Judge Business School.
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What Is a Business Model? Explained With Types & Examples
- Written by Ayush Jalan
Capital is the lifeblood of any business. From building a startup to sustaining an MNC, your business model affects every decision you take. It’s one thing to have a great business idea and a whole other thing to turn it into a long-term profitable mechanism.
In this article, we’ll see what is a business model, factors to consider when choosing one, and 15 of the most successful business models to look into.
What is a Business Model?
A business model is the DNA of a company. It dictates how you earn profits, price your products, and manage costs. It envelops all the necessary processes that need to happen to convert returns on your investments.
Picking a business model for startups is especially tricky as it greatly influences the funding they raise. Investors study your business model to evaluate its viability, profitability, and sustainability.
A business model answers these six important questions:
- Who is your target audience?
- What are you planning to offer them?
- How are you going to market your offerings?
- What are the costs involved?
- What is your pricing strategy?
- What are your revenue streams?
Which Business Model Should You Choose?
A few things to consider while choosing a business model are:
Consumer buying behavior:
Flexibility:, competitors:, industry leaders:, 15 types of business models with examples, 1. brick and mortar.
Brick and mortar is a traditional business model. Any business that sells its products directly in physical stores or offices uses this business model.
While this business model has been the standard for ages, the rise in internet access has led to an increase in online stores—negatively affecting physical counterparts.
Examples: grocery stores, restaurants, and coffee shops.
2. E-commerce
The polar opposite of the brick-and-mortar model is the e-commerce business model. It is opted for by companies that sell their products or services on the internet via e-stores.
Since these businesses operate virtually, they don’t need a physical outlet. Over the years, e-commerce has transformed how people shop , making it convenient, easy, and seamless for consumers.
Examples: Shopify, Alibaba, PayPal.
3. Bricks and clicks
A hybrid of the above two is the bricks-and-clicks business model. Companies that use this model sell their products online as well as in physical stores.
Many traditional brick-and-mortar businesses have started selling online to steal a piece of the e-commerce pie. Conversely, e-commerce companies are setting up physical stores to increase visibility and brand loyalty.
Examples: Zara, Walmart, Amazon, and Target.
4. Manufacturer
The manufacturer business model refers to the companies that use raw materials to produce goods or assemble parts to create finished products. These companies either sell directly to customers or intermediaries.
Examples: Toyota, General Motors, Samsung, LG, Sony.
5. Wholesale
Wholesalers buy large quantities of finished products from manufacturers and sell them to multiple retailers or distributors in smaller quantities. They are a key intermediary in the supply chain.
Examples: Costco, Walmart, and Johnson & Johnson.
Retailers are the last intermediary in the supply chain. They buy products from wholesalers, distributors, or even directly from manufacturers and sell them to consumers.
Nowadays, there are many businesses and individuals who make money through Amazon, for example, while also using many of its benefits.
Examples: Target, The Home Depot, Best Buy, Casper.
7. Subscription
The increasingly popular subscription business model allows companies to charge their customers a recurring fee for continual benefits. Think SaaS companies and subscription box companies.
Examples: Netflix, Disney+, Amazon Prime Video, FabFitFun, BirchBox, and Dollar Shave Club.
8. Freemium
The freemium business model is quite similar to a subscription model. Except, it includes a free version on top of the paid service. The latter is usually displayed as a premium variant.
For instance, Hulu offers a 7-day free trial while Spotify offers a free version that can be used indefinitely.
Examples: MailChimp, Evernote, LinkedIn, and DropBox.
9. Franchise
In this model, a franchisor company grants the rights over its brand identity, intellectual rights, and resources to a franchisee company in exchange for a fee called royalty.
For instance, McDonald’s permits its franchisees to run their restaurants under its brand name. In exchange, the franchisee pays an initial fee and a cut of the revenue incurred.
Examples: Subway, Domino’s, UPS Store, Coca-Cola, Nestlé, and Hyundai.
10. Razor and blades
The name ‘razor and blades’ comes from the pricing tactic used by the popular Boston-based company Gillette. The company sold its razor handles at a lower price to increase the sales of its razor blades.
In a nutshell, companies sell a primary ‘razor’ product at a low margin to boost the sales of its complementary ‘blade’ products which are sold at a high margin.
Examples: Microsoft Xbox, Sony PlayStation, Nespresso.
11. Reverse razor and blades
Contrary to the above, in the reverse razor and blades business model, companies sell the primary ‘razor’ product at a high margin and sell complementary ‘blade’ products at a bargain.
For instance, Amazon sells the Kindle Paperwhite at a high price because it allows buyers to further purchase ebooks at a discounted price.
Example: Apple sells iPhones at a premium price and allows users access to affordable complementary services like Apple Music and App Store.
12. Advertising
Advertising is one the oldest business models wherein an advertiser pays to get their product promoted on a publisher’s platform. Earlier, this used to be limited to newspapers, magazines, and storefronts.
Today, advertising is a highly saturated business model covering platforms such as social media, video games, job portals, billboards, email, mobile apps, etc.
Examples: Google, YouTube, TikTok, Meta, Twitter, and LinkedIn.
13. Crowdsourcing
In this model, a company solicits contributions like ideas and services from a crowd of unaffiliated providers. These contributions are then pooled into a unified platform controlled by the company to create something of value.
There are multiple types of crowdsourcing but perhaps the most recognizable one is used by Wikipedia. Here, volunteers contribute to creating and adding value to the platform accessible to everyone. The hosting company, Wikimedia Foundation, makes money via donations.
Example: McDonald’s asked fans to create new burger recipes under its “My Burger” campaign. The most acclaimed ones were then added to the menu to try and increase sales.
14. Hidden revenue model
All social media companies use the hidden revenue model. Unlike other models, this business model allows companies to offer their products to consumers for free—concealing their revenue.
Instead, they make money via third parties in the form of advertising. This helps keep the product free to use or subsidized enough to be available at a very low price.
Examples: Google, YouTube, TikTok, Facebook, Twitter, and LinkedIn.
15. Peer-to-peer
In this model, companies provide a platform for two parties to collaborate or make transactions. The company acts as a middleman overseeing the trade by establishing regulations to reduce the risks for both parties.
A perfect example is Airbnb; it allows hosts to rent out their properties to hostees. The company makes money via commissions from both parties.
Examples: Uber, Freelancer, OLX, Craigslist.
Actualize Your Potential with a Tailored Business Model
Choosing the right business model can be quite tricky since there’s so much at stake. However, with adequate research and testing, you can be sure to find a model or combination of models that work best for you.
Opting for a business model that has a proven track record can be a safer choice if you’re unsure of your startup’s viability. Although, if you’re willing to take some risk, creating a new model or tweaking existing ones can prove to reap more profits eventually
Fill-in-the-blanks in templates and automatic financials make it easy.
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Business Model: A business model is a company's plan for how it will generate revenues and make a profit . It explains what products or services the business plans to manufacture and market, and ...
They can be companies of any size and in almost any industry. 3. Fee-for-service model. A fee-for-service is just what it sounds like: A business charges a set fee for a specific service. A ...
Introducing a better business model into an existing market is the definition of a disruptive innovation, as written about by Clay Christensen. ... sidestepping traditional middlemen. Example ...
The traditional business model requires more capital than its digital counterpart. The former needs place, furniture, transport, staff, and other utilities. Digital businesses are cost-effective in this aspect. ... For example, you can't try a mobile phone before purchasing it from Amazon. You rely on customer reviews and the specifications ...
Ramon Casadesus-Masanell is a professor at Harvard Business School and the author, with Joan E. Ricart, of "How to Design a Winning Business Model" (HBR January-February 2011). JR. Joan E ...
The ecommerce model includes the business-to-consumer, business-to-business, consumer-to-business and consumer-to-consumer models. Example: A jewelry maker with a small staff relies on online sales. It receives revenue without the expense of maintaining a physical store. 16. Manufacturer business model.
A business model is simply the overarching plan of a company to generate a profit by selling a service or a product. The business model provides an outline of the plans of the company to produce a product or service and to market it. This plan also includes the expenses that will occur with manufacture and marketing of the service or product.
A vivid example is Netflix, with three monthly plans: Basic for $8.99, Standard for $12.99, and Premium for $15.99. The subscription-based business model is suitable for service-based or content websites. The ultimate challenge for a company is to offer valuable content that will make customers return to the vendor constantly.
The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea. The structure ditches a linear format in favor of a cell-based template.
The traditional business model of QoS is that NSPs will sell QoS explicitly, for example, as an additional item on top of the connectivity service, and let users decide whether to buy it. •. QoS can be sold as soft assurance or hard assurance. In the soft-assurance model, there is no guarantee that the SLA will always be met.
For established enterprises, a business model is often a living document that is reviewed and adapted over the years. For companies launching products and services or entering new markets, a business model helps ensure that decisions are tied back to the overall business strategy.And for early-stage startups, a simple one-page business model enables founders to explore the mechanics of a ...
The Business Model Canvas is a strategic management tool that lets you visualize and assess your business idea or concept. It's a one-page document containing nine boxes that represent different fundamental elements of a business. The business model canvas beats the traditional business plan that spans across several pages, by offering a much ...
14 business model examples. Business models can take a variety of forms and involve different manufacturing and shipping methods. ... Physical retail is when you sell your products in-person directly to consumers in a B2C business model. This could be in a traditional brick-and-mortar store or through temporary retail activations like pop-up ...
What this business plan template includes. Writing a business plan for a startup can sometimes seem overwhelming. To make the process easier and more manageable, this template will guide you step-by-step through writing it. The template includes easy-to-follow instructions for completing each section of the business plan, questions to help you ...
For example, our baker startup can attract a broader audience and boost revenue by offering a wider selection of traditional baked goods alongside its gluten-free and keto-focused specialties. 4 ...
Franchise model examples. Subway. McDonald's. UPS Store. Dunkin'. Merry Maids Residential Cleaning. 5. Direct Sales Business Model. In the direct sales model, a company's employees will be the ones who demonstrate and sell the products or services being offered directly to the intended consumers.
Direct sales, franchising, advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrids as well, such as businesses that combine internet ...
Don Scott-Kemmis. This study provides examples of innovation in business models in several Australian firms in different sectors. and also discussed several industry-wide cases of business model ...
Companies to learn from. Slide 1: In the first slide of each business model example, you'll find enough information to understand the inner workings of each company. Slide 2: In the second slide of each business model example, you'll watch out Business Model Kit in action, seeing which elements play key roles in making each model work.
4. Usage-based pricing. Some models charge customers when they use the product or service, rather than requiring them to buy something outright. The customers benefit because they incur costs only ...
15 Types of Business Models with Examples 1. Brick and mortar. Brick and mortar is a traditional business model. Any business that sells its products directly in physical stores or offices uses this business model. While this business model has been the standard for ages, the rise in internet access has led to an increase in online stores ...