An average of around half a million new start-ups are founded in the U.S. every year.
One of the most important decisions which determine the success and failure of each start-up is the business model which is adopted.
You can have the most creative and innovative idea around but if you don't have a business model of making money, then you're not going to last long.
There are many different types of business models out there. You just need to choose the one which is right for your enterprise.
In this article, you'll discover seven types of business models and the benefits of each one. Let's go!
1. The Middleman Model
Can you spot a gap in the market?
The middleman model recognizes when a market is dominated by a single company.
The monopoly of a single company usually results in high prices for consumers.
Therefore, there is a strong opportunity for competitors to fill the market gap.
For example, Warby Parker is an example of the Middleman model. Until 2010, the eyewear market was dominated by the Luxottica, who set the price bar extremely high.
Warby Parker took advantage of the complacency of Luxottica by undercutting the price of eyewear. Along with a clever branding campaign, Warby Parker has marketed themselves as a money saver for consumers.
As a middleman, you can take advantage of high prices to pitch yourself to savvy-buyers. You can also take control of the negotiations with suppliers.
2. The Marketplace Model
The internet has spawned the growth of the marketplace business place. Just as with a traditional marketplace, you can bring together the supply and demand for goods and services.
An example of this business model in practice is the travel company Airbnb. Airbnb is part of the so-called sharing economy which has transformed many industries.
The marketplace business model is an extremely effective method of making a profit. You have almost no overheads and no inventory.
You can operate the entire company via the internet. You don't need to worry about supply and demand too much. Then, you take a slice of the pie as your fee for every transaction.
3. The Subscription Model
Can you believe that the number of subscription model based companies has grown by over 800 percent by the year 2014?
Consumers want to receive a convenient service. They want to know that the product or service they paid for will be delivered on a routine basis.
In particular, the tech companies, Netflix and Spotify have paved the way for TV and music content to be available to consumers for an affordable monthly fee. However, other companies, such as Dollar Shave Club, have started to provide consumers with the kinds of things they run out of, namely razors for shaving.
Many consumers favor the subscription model because it makes budgeting easy. You know exactly how much you're being charged for a service or product each month.
This works both ways. The company also gets to forecast revenues effectively because they know approximately the number of subscribers.
4. The Tailor-Made Model
Nowadays consumers don't just want an off-the-shelf product or service. They want a tailor-made, customized version created personally for them.
This is especially common in the fashion industry. For example, a number of companies are providing custom-made pants, shirts, and suits.
But also, the giant corporation Coca-Cola introduced personalized bottle packaging. Now you can select a coke bottle with your name on it.
This is definitely worth considering for your company. We know that consumers are willing to pay over 25 percent more for a custom-made product.
5. The Freemium Model
The old adage that nothing in life is free no longer holds water.
The Freemium business model has started to provide consumers with a service for free. But why?
Well, consumers can either access the free standard service, or the premium service. The former usually includes commercials and limited use (e.g. Spotify). The latter allows you to get perks (e.g. early releases) and no ads.
An example of this model is the business-style social media network, LinkedIn. Anyone can access the free version, but you get a number of benefits for signing up to the premium version.
This may also work by providing customers with a free trial. This allows you to hook the customer by giving them a taste of your service or product. After this, they're more willing to pay for the privilege.
6. The Franchise Model
In business, Branding is so important to building a successful company. Once you have developed your brand, you may consider selling the rights to use it.
This is known as franchising. Instead of managing the operations of each unit of your business, you merely sell the business model and brand to entrepreneurs.
This is an extremely successful method of growing your business without taking many risks or increasing your expenditure.
The most successful franchise businesses are McDonalds and 7Eleven. Both of these corporations are huge. But everyone starts small and builds up.
You can learn more about how to decide between a chain or franchise model business with this guide from Dealstruck.
7. The Virtual Goods Business Model
Nowadays, you don't actually need to sell consumers a physical product or provide a tangible service. You can go with the virtual goods business model.
A popular example of this business model is the game Candy Crush. We know that Candy Crush is addictive for many of us. However, you may be surprised to discover that only 4 percent of users spend money on in-game goods. This doesn't matter because the margins are so high.
The virtual good business model is an excellent way of reaching out to a broad audience. Once you've developed the game or platform, everything you make is profit.
The Different Types of Business Models
The idea that a business is just a seller and a buyer of a product or service coming together to exchange is too simple.
There are almost as many types of business models as there are businesses. But some are more successful than others.
To discover more about business advice and insights, check out our blog today.