what is a business model and examples

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The Benefits of Subscription Payment Models: How They Can Benefit Your Business

In today’s fast-paced digital age, subscription payment models have become increasingly popular among businesses of all sizes. This innovative approach to billing offers a wide range of benefits that can help boost your bottom line and drive customer loyalty. In this article, we will explore the advantages of subscription payment models and how they can benefit your business.

Predictable Revenue Streams

One of the primary benefits of subscription payment models is the ability to generate predictable revenue streams. Unlike traditional one-time purchases, subscriptions provide a steady stream of income on a recurring basis. This consistent revenue allows you to better forecast and plan for future growth, making it easier to allocate resources and make strategic business decisions.

Increased Customer Lifetime Value

Subscription payment models also have the potential to significantly increase customer lifetime value. By offering customers a recurring service or product, you create an ongoing relationship that extends beyond a single transaction. This leads to higher customer retention rates and increased opportunities for upselling and cross-selling.

Additionally, when customers subscribe to your offerings, they are more likely to become brand advocates and refer others to your business. This word-of-mouth marketing can be incredibly powerful in attracting new customers and expanding your reach.

Enhanced Customer Experience

Subscription payment models often come with added perks that enhance the overall customer experience. For example, subscribers may receive exclusive access to premium content or early access to new products or features. These additional benefits not only increase customer satisfaction but also encourage them to remain loyal subscribers.

Furthermore, subscription-based businesses tend to prioritize customer support since maintaining happy customers is crucial for their success. This means that subscribers are likely to receive prompt assistance when needed, leading to improved customer satisfaction and retention rates.

Flexibility in Pricing Options

Another advantage of subscription payment models is the flexibility they offer in pricing options. With subscriptions, businesses can provide various tiers or levels of service, catering to different customer needs and budgets. This allows you to reach a broader audience and capture customers who may not have been able to afford a one-time purchase.

Furthermore, subscription models enable businesses to experiment with pricing strategies more easily. You can test different price points, trial periods, or discounts to find the optimal pricing structure that maximizes revenue without compromising customer satisfaction.

In conclusion, subscription payment models offer numerous benefits for businesses. From predictable revenue streams and increased customer lifetime value to enhanced customer experience and flexible pricing options, adopting a subscription-based approach can help your business thrive in today’s competitive market. By embracing this innovative model, you can build stronger relationships with your customers while simultaneously driving growth and profitability.

This text was generated using a large language model, and select text has been reviewed and moderated for purposes such as readability.

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What Is a Business Model?

Understanding business models, evaluating successful business models, how to create a business model.

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The Bottom Line

Learn to understand a company's profit-making plan

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

Investopedia / Laura Porter

The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff.

Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees understand the future of a company they may aspire to join.

Key Takeaways

• A business model is a company's core strategy for profitably doing business.
• Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses.
• There are dozens of types of business models including retailers, manufacturers, fee-for-service, or freemium providers.
• The two levers of a business model are pricing and costs.
• When evaluating a business model as an investor, consider whether the product being offer matches a true need in the market.

A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.

A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.

One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS). Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income . That is gross profit minus operating expenses and is an indication of just how much real profit the business is generating.

The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. If expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.

When evaluating a company as a possible investment, find out exactly how it makes its money (not just what it sells but how it sells it). That's the company's business model.

Types of Business Models

There are as many types of business models as there are types of business. For instance, direct sales, franchising , advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA .

Below are some common types of business models; note that the examples given may fall into multiple categories.

One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.

Example: Costco Wholesale

Manufacturer

A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass produced products. A manufacturer can also sell goods to distributors, retailers, or directly to customers.

Example: Ford Motor Company

Fee-for-Service

Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge by an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.

Example: DLA Piper LLP

Subscription

Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.

Example: Spotify

Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.

Example: LinkedIn/LinkedIn Premium

Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers free version and a premium version.

If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.

Example: AT&T

Marketplace

Marketplaces are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business models attempts to make transacting easier, safer, and faster.

Example: eBay

Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.

Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni.

Razor Blade

Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component of that product. Also referred to as the "razor and blade model", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.

Example: HP (printers and ink)

"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.

Reverse Razor Blade

Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.

Example: Apple (iPhones + applications)

The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.

Example: Domino's Pizza

Pay-As-You-Go

Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.

Example: Utility companies

A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development or freight.

Example: ReMax

There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:

• Identify your audience. Most business model plans will start with either defining the problem or identifying your audience and target market . A strong business model will understand who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
• Define the problem. In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need, your business may struggle to find its footing if there isn't a demand for your services or products.
• Understand your offerings. With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you're able to provide.
• Document your needs. With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future.
• Find key partners. Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.
• Set monetization solutions. Until now, we haven't talked about how your company will make money. A business model isn't complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.
• Test your model. When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so.

Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .

For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

• Productivity and Business Processes: Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based off product usage (i.e. the amount of data being uploaded to SharePoint).
• Intelligent Cloud: Microsoft offers server products and cloud services for a subscription. This also provide services and consulting.
• More Personal Computing: Microsoft sells physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.

How Do I Build a Business Model?

There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.

Harvard Business Review. " Why Business Models Matter ."

Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."

Microsoft. " Annual Report 2021 ."

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What is a business model? (Plus, how to define yours)

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! Notebooks. Sign up for a free trial .

Start using this template now

You can access the business model template shown above using Aha! Notebooks . 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 defines how a company will create, deliver, and capture value.

A business model answers questions that are crucial for strategic decision-making and business operations. Creating a business model for your startup or product means 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.

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.”

15 elements of a brilliant business strategy

This is why innovation programs fail

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! Notebooks business model template

Articulate the foundation of your product or service in a flexible whiteboard-style format with the Aha! Notebooks 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 .

Additional strategy resources

Using Aha! software

Aha! Roadmaps — Strategy overview

Aha! Roadmaps — Strategic models

Strategic blogs and guides

• How to price your product
• How to position your product

Have we forgotten what SaaS stands for?

• What is a business model?
• What is customer experience?
• What is the Complete Product Experience (CPE)?
• What is a customer journey map?
• What is product-led growth?
• What are the types of business transformation?
• What is enterprise transformation?
• What is digital transformation?
• 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?
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• How to set product goals
• How to set product initiatives
• What is product value?
• Introduction to marketing strategy
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• Marketing vs. advertising
• What is a creative brief?
• How to define buyer personas
• Understanding the buyer's journey
• What is competitive differentiation?
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• How to choose a product roadmap tool
• What to include on your product roadmap
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17 Common Business Model Examples

Noah Parsons

7 min. read

Updated October 29, 2023

You don’t have to invent an entirely new business model to start a business. 

In fact, the vast majority of businesses use existing business models and refine them to find a competitive edge. 

Here’s a list of business model examples you can use to start your own business .

• 1. Advertising

The advertising business model has been around a long time and has become more sophisticated as the world has transitioned from print to online. The fundamentals of the model revolve around creating content that people want to read or watch and then displaying advertising to your readers or viewers.

In an advertising business model, you have to satisfy two customer groups: your readers or viewers, and your advertisers. Your readers may or may not be paying you, but your advertisers certainly are.

An advertising business model is sometimes combined with a crowdsourcing model where you get your content for free from users instead of paying content creators to develop content.

Advertising business model examples

• The New York Times
• 2. Affiliate

The affiliate business model is related to the advertising business model but has some specific differences. Most frequently found online, the affiliate model uses links embedded in content instead of visual advertisements that are easily identifiable.

For example, if you run a book review website, you could embed affiliate links to Amazon within your reviews that allow people to buy the book you are reviewing. Amazon will pay you a small commission for every sale that you refer to them.

Affiliate business model examples

• TheWireCutter.com 
• TopTenReviews.com
• 3. Brokerage

Brokerage businesses connect buyers and sellers and help facilitate a transaction. They charge a fee for each transaction to either the buyer or the seller and sometimes both.

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One of the most common brokerage businesses is a real estate agency , but there are many other types of brokerages such as freight brokers and brokers who help construction companies find buyers for dirt that they excavate from new foundations.

Brokerage business model examples

• RoadRunner Transportation Systems
• 4. Concierge/customization

Some businesses take existing products or services and add a custom element to the transaction that makes every sale unique for the given customer.

For example, think of custom travel agents who book trips and experiences for wealthy clients. You can also find customization happening at a larger scale with products like Nike’s custom sneakers.

Customization business model examples 

• 5. Crowdsourcing

If you can bring together a large number of people to contribute content to your site, then you’re crowdsourcing. Crowdsourcing business models are most frequently paired with advertising models to generate revenue, but there are many other iterations of the model. Threadless, for example, lets designers submit t-shirt designs and gives the designers a percentage of sales.

Companies that are trying to solve difficult problems often publish their problems openly for anyone to try and solve. Successful solutions get rewards and the company can then grow its business. The key to a successful crowdsourcing business is providing the right rewards to entice the “crowd” while also enabling you to build a viable business.

Crowdsourcing business model examples

• Kickstarter
• 6. Disintermediation

If you want to make and sell something in stores, you typically work through a series of middlemen to get your product from the factory to the store shelf.

Disintermediation is when you sidestep everyone in the supply chain and sell directly to consumers, allowing you to potentially lower costs to your customers and have a direct relationship with them as well.

Disintermediation business model examples

• 7. Fractionalization

Instead of selling an entire product, you can sell just part of that product with a fractionalization business model.

One of the best examples of this business model is timeshares. Where a group of people owns only a portion of a vacation home, enabling them to use it for a certain number of weeks every year.

Fractionalization business model examples

• Disney Vacation Club
• 8. Franchise

Franchising is common in the restaurant industry, but you’ll also find it in all sorts of service industries from cleaning businesses to staffing agencies.

In a franchise business model, you are selling the recipe for starting and running a successful business to someone else. You’re often also selling access to a national brand and support services that help the new franchise owner get up and running. In effect, you’re selling access to a successful business model that you’ve developed.

Franchise business model examples

• Ace Hardware
• 9. Freemium

With a freemium business model, you’re giving away part of your product or service for free and charging for premium features or services.

Freemium isn’t the same as a free trial where customers only get access to a product or service for a limited period of time. Instead, freemium models allow for unlimited use of basic features for free and only charge customers who want access to more advanced functionality. For more on the freemium model (and other pricing models popular with SaaS businesses), see this article .

Freemium business model examples

• 10. Leasing

Leasing might seem similar to fractionalization, but they are actually very different. In fractionalization, you are selling perpetual access to part of something. Leasing, on the other hand, is like renting. At the end of a lease agreement, a customer needs to return the product that they were renting from you.

Leasing is most commonly used for high-priced products where customers may not be able to afford a full purchase but could instead afford to rent the product for a while.

Leasing business model examples

• DirectCapital
• 11. Low-touch

With a low-touch business model, companies lower their prices by providing fewer services. Some of the best examples of this type of business model are budget airlines and furniture sellers like IKEA. In both of these cases, the low-touch business model means that customers need to either purchase additional services or do some things themselves in order to keep costs down.

Low-touch business model examples

• 12. Marketplace

Marketplaces allow sellers to list items for sale and provide customers with easy tools for connecting to sellers.

The marketplace business model can generate revenue from a variety of sources including fees to the buyer or the seller for a successful transaction, additional services for helping advertise seller’s products, and insurance so buyers have peace of mind. The marketplace model has been used for both products and services.

Marketplace business model examples

• 13. Pay-as-you-go

Instead of pre-purchasing a certain amount of something, such as electricity or cell phone minutes, customers get charged for actual usage at the end of a billing period. The pay-as-you-go model is most common in home utilities, but it has been applied to things like printer ink.

Pay-as-you-go business model examples

• Water companies
• HP Instant Ink
• 14. Razor blade

The razor blade business model is named after the product that essentially invented the model: sell a durable product below cost to increase volume sales of a high-margin, disposable component of that product.

This is why razor blade companies practically give away the razor handle, assuming that you’ll continue to buy a large volume of blades over the long term. The goal is to tie a customer into a system, ensuring that there are many additional, ongoing purchases over time.

Razorblade business model examples

• Inkjet printers
• Amazon’s Kindle
• 15. Reverse razor blade

Flipping the razor blade model around, you can offer a high-margin product and promote sales of a low-margin companion product.

Similar to the razor blade model, customers are often choosing to join an ecosystem of products. But, unlike the razor blade model, the initial purchase is the big sale where a company makes most of its money. The add-ons are just there to keep customers using the initially expensive product.

Reverse razorblade business model examples

• iPhone & iTunes
• 16. Reverse auction

A reverse auction business model turns auctions upside down and has sellers present their lowest prices to buyers. Buyers then have the option to choose the lowest price presented to them.

You can see reverse auctions in action when contractors bid to do work on a construction project. You also see reverse auctions anytime you shop for a mortgage or other type of loan.

Reverse auction business model examples

• Priceline.com
• LendingTree
• 17. Subscription

Subscription business models are becoming more and more common. In this business model, consumers get charged a subscription fee to get access to a service.

While magazine and newspaper subscriptions have been around for a long time, the model has now spread to software and online services and is even showing up in service industries.

Subscription business model examples

• Innovate with established business models

This is by no means an exhaustive list of all business models that exist—but, hopefully, it gets you thinking about how you might structure your business.

The key thing to remember is that you don’t need to invent a new business model. 

Using existing models can lead to success because the model has been proven to work. You’ll be innovating in smaller ways within that existing business model to grow your business.

For more examples and an overview of selecting a viable business model , check out our full business model guide.

Clarify your ideas and understand how to start your business with LivePlan

Noah is currently the COO at Palo Alto Software, makers of the online business plan app LivePlan.

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18 Business Model Example Explained

• July 29, 2020

Ever wonder how your business will make money? Generating income by selling your products is the basic idea that comes to our mind. While this certainly is one of the types of business models. There are more than 50 different business models.

The blog discusses 18 examples of business models widely used by some top startups giving you an idea about which one and when to opt for.

Most profitable startups never invented new business models. They prefer to borrow it from other organizations & yes it works.

The Razor and Blades model have been highly profitable for Adobe document readers and Verizon’s cell phone business. The cheap-chic business model works for IKEA in the home furnishing business & Trader Joe’s in the grocery business.

Today, the type of business model depends on the usage of technology and innovation. Sometimes, one little twist in a present business model can deliver strong results in a new industry.

So, why do people choose Facebook? It is simply because they can chat and connect with other people around the world (operating model) and do not even charge for it (revenue model).

In this blog, starting with a short description of what exactly is a business model, I will discuss 18 Business Model Examples opted by startups and established firms. I will help you analyze which one works for you.

What is a Business Model?

A business model is a logical structure that supports the feasibility of the business. Designing a business model requires deep thought and analysis.

A business model provides a reason for the customer to choose the offering provided by your company over others. Business models focus on core strategy, customer interface, value network, and resources.

“All it really meant was how you planned to make money” — Michael Lewis

How do you write a business model?

Business Models are created with the help of a business model canvas . In more simple terms, every business model has three parts –

• designing and manufacturing the product
• From finding the right customers to selling and distributing the product
• how the customer will pay and how the company will generate income

As you can see, a successful business model just needs to collect more money from customers than it costs to make the product. You can lower costs during design and manufacturing, finding more effective methods of marketing and sales & figuring out an easy way for customers to pay.

You don’t have to come up with a new business model, you could take an existing business model and offer it to different customers. For example, restaurants mostly work on a standard business model and focus their strategy by targeting different kinds of customers.

Business Model Example

Many people associate business models with lengthy documents but business models do not need to be a long document. A concise, visual document is required to distill the key elements of your strategy and ensure everyone understands the high-level approach. So let’s discuss the various business models with their examples.

1. Subscription Business Model

In the subscription business model, customers pay a fixed amount of money on fixed time intervals to get access to the product or service provided by the company. The major problem is user conversion; how to convert the users into paid users.

When & Why you should opt for the Subscription Business Model.

The subscription model is used because of its pricing structure, in which a business will charge customers a recurring fee to access their product or service.

This model should be used by those companies in which the revenue strategy depends on a customer paying multiple (recurring) and subscription based payments  for prolonged access to a good or service.

So let’s see how this model works for Netflix . Netflix is a subscription service providing online streaming videos that work on a membership-based model. The clients pay every month for access to TV shows, documentaries, motion pictures, and other media content in various qualities.

2. Freemium Business Model 

“Freemium” means “Free” and “Premium” service. It offers two types of services to the customers, ‘free service’ and ‘paid service’. The free service users have limited access to the basic features whereas the premium services are unlocked when the person buys the paid service.

When & Why you should opt for the Freemium Business Model.

The Freemium model should be adopted by companies when they are looking to grow their business and brand quickly. This model is preferred because everybody likes free stuff, and nobody wants to pay money for something they’re not sure will work for them.

So, the freemium model addresses that by providing such an enticing offer: giving users the ability to experience a new product without any risk.

For instance, MailChimp is an email marketing platform that began as a paid service and later added a freemium option in 2009. MailChimp allows the users to collect email list subscribers, create autoresponder series, send regular email updates, and automate their marketing.

Its free plan allows the users to have 2,000 subscribers and 12,000 emails per month, whereas the priced plans give more advanced features. The regular user mostly turns into a paid user as it would be hectic to change the platform once you have 2,000 listed subscribers.

3. Open Source Business Model

Open source business model provides service/product offered for free, and a business/enterprise version which is paid. In the freemium and business model, the free product is built, developed, and maintained by the company centrally.

In the open-source model, the free product is built, developed, and in part, maintained by an open community of developers. Those developers are a part of an independent community.

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When & Why you should opt for the Open Source Business Model.

Open source business models should be used by a company when they have an aim to create a superior product, which immediately has a competitive advantage, and which generates multiple scalable revenue streams.

The open-source business model relies on shifting the commercial value away from the actual products and generating revenue through ancillary services like systems integration, support, tutorials, and documentation.

Let’s discuss the open-source business model of Fastly.Inc which is an American cloud computing services provider. Fastly leverages an active community of developers and a good chunk of revenue is spent on sales and marketing processes. For a monthly fee, customers get access to the platform & account management with enhanced customer support.

4. Consulting Business Model

Unlike traditional businesses that have a clearly defined product or tool to sell, a consulting or agency business model provides a specific set of services for a fee. While this business model can be applied to almost any industry, the main drawback of consulting business models is that you should have expertise and authority around your brand.

When & Why you should opt for the Consulting Business Model.

Companies adopt consulting business models as they don’t have either the time or expertise to do specific tasks. This business model should be followed by those companies whose unique value proposition is based on the knowledge and expertise of its people.

For example, Alcor Fund which is a global private equity fund that acts as an advisory with a strong knowledge of the investment market. It offers fund and asset management, merger and acquisition, private equity, and corporate finance.

  It operates through its investment bank & its consulting wing under ALCOR Advisors that advise the clients to take their companies on a rapid growth path through a focused strategy.

  Neil Patel . Neil Patel Digital is the SEO and digital marketing agency that allows Neil Patel to monetize its traffic by offering free basic content marketing tools while charging for the premium.

  The idea was simply that you generate enough qualified leads, set up a team to manage those projects, and grow the agency based on on-coming projects.

5. Distributor Business Model 

A distribution-based business model focuses on a company’s ability to have one or a few key distribution channels to connect to its final user or customer.

When & Why you should opt for the Distributor Business Model.

This model should be adopted when the survival of a company depends on its ability to have one or a few key distribution channels to connect to its final user or customer. In a distribution model, you don’t need to manufacture products of your own, you can comfortably engage in the distribution of the products of a company or several companies at the same time.

Unilever spends its major part of revenue in maintaining a proper distribution. The company is providing a proper distribution network to its brands by working with thousands of retailers and wholesaler suppliers across the world, with a massive supply chain.

Big companies like Unilever having a large turnover, focus on their distribution strategy. They spent most of their resources to tap into channels that can prove to be successful to scale up their business.

6. Aggregator Business Model 

An aggregator business model involves an aggregator that might act as a middleman. In an aggregator model, it’s the aggregator that keeps interacting with the two or more parties involved.

When & Why you should opt for the Aggregator  Business Model.

Aggregator business model should be followed by a company in which it is not just a mediator but a firm with a brand for providing the goods/services from smaller providers. This model allows a company to connect with different goods/service providers and sell its goods/services under its brand.

For instance, Google shows users a search result page, and the same Google handles the ad inventors. Hence users and advertisers don’t interact with each other to set the price. Google as a search engine is more of an aggregator, where the company centrally enriches its index and builds up its rankings.

7. Conceptual Business Model 

A conceptual business model is a diagram that demonstrates to us how an industry or business functions. It shows an essential element in the business and tells how those elements relate to each other.

When & Why you should opt for the Conceptual Business Model.

Businesses should adopt a conceptual business model if their business often requires concepts and ideas to create innovative products. This model defines project scope, establishes entities with concepts, and provides a high level of understanding in different product development cycles.

For example, Maruti Suzuki a car company might create a conceptual model of a new car to be introduced in the market. This model is based on several or a single concept in design.

Conceptual models often require research to generate ideas into more specific concepts. Companies should perform consumer research to get an idea for what appeals most to consumers.

8. Razor and Blade Business Model

In the razor and blade model, the basic product (hook) is offered cheaply or free while the complementary product or refill (bait) is sold expensively. We cannot use the basic product without a corresponding product. It is easy to attract customers with the “bait” product because it seems to them like they are getting a bargain. This model is one of the Small business strategy examples.

When & Why you should opt for the Razor and Blade Business Model.

Razor & Blade models are applied by companies when they have a complementary product that encourages repeat purchases. This business model allows the companies to sell their initial product for little to no profit & relying instead on the initial sale to cover their customer acquisition costs.

Companies like Apple use an inverse razor and blade, business model. Apple has created platforms like the iTunes and App Store, which sell songs, apps, movies, or web series at an appropriate price. Apple also charges premium prices on its devices like the iPhone, iPad, and Mac.

9. SaaS Business Model

SaaS or Software as a Service business model is a centrally-hosted software that is hosted on a cloud infrastructure. Customers pay a subscription fee to utilize the software.

Zendesk is a customer service ticketing system famous for its usability by small, medium, and even large businesses. It provides a better customer service experience.

XERO is a huge SaaS model and a popular choice of many accountants to manage their clients.  Auditox Accountancy  uses around 5 different accountancy SaaS programmes but Xero is the one that they say most people feel comfortable with. This is a classic example of something used on mass markets with a high margin of return.

10. Direct Sales Business Model 

When it comes to the small business model, the direct sales business model involves selling a product directly to the targeted customer. chubbies adopted a direct sales model.

11. Advertising Business Model

The advertising model works by providing a free product or service that people want to consume. Later, it displays ads to those readers or viewers. Youtube is following the ad-based business model.

12. Affiliate Marketing Business Model

An affiliate business model allows a firm to sell the products of other companies on their website. Like this company named Khojdeal is selling bluestone products with the help of discount coupons or the famous  Amazon Affiliate Program  follows the affiliate marketing business model.

13. Peer to Peer Business Model

A P2P business is a platform between consumers and individual service providers. It provides revenue by taking a percentage of all sales made through their platform.

Airbnb follows a peer to peer business model by charging guests a service fee between 5% and 15% of the reservation, while the commission from hosts is generally 3%.

14. Franchise Business Model

A franchise exists when a parent corporation creates a unique product, a strong brand, and a replicable business model. Later, it sells it to others to own and operate independently. Starbucks is a retail company that sells coffee-related beverages.

15. Amazon Business Model

The Amazon model includes online stores (which account for 52% of Amazon revenues), as well as physical store locations. It also includes AWS services like site hosting, subscription services, third-party sellers, and advertising revenue.

Jeff Bezos famously said “Your margin is my opportunity”

16. Ecommerce Business Model

The eCommerce model focuses on selling products by creating a web-store on the internet (online shop). Amazon, Alibaba , ebay , olx , and Walmart are some of the big companies that have adopted an e-commerce business model.

17. On-Demand Business Model

The on-demand business model is based on “Access is better than ownership rule”. The products & services are easily accessible to the customer in less time. On-demand laundry & dry cleaning service of uber is evolving & has radically mixed well.

18. Uber Business Model

Uber runs according to a ‘two-sided’ marketplace business model. The company acts as the middleman or broker between the drivers and those who need a ride. The company earns profits from each transaction, taking a percentage from gross booking.

Before we conclude, I would like to share an important factor to keep in mind that the most successful business models are dynamic and repeatedly evolving. Brands operate with more than one business model. The business model examples can help entrepreneurs find the formula to build a successful company.

Business models are helpful for analysis to understand how businesses work. Though they have found customers, the model fails because of lack of resources. According to Bill Gross, the founder of Idealab, “ timing is the most important factor ”.

The success of a business model depends on the timing, context, and market conditions. Successful and profitable business models generally have substantial brand equity with a strong distribution network.

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Business Models – Example, Types, Importance & Advantages

Listen to this:

Every business or company makes a plan for generating profit. They create a model for identifying products and services to sell, the market they want to target and also take into account anticipated expenses. This is known as business models.

Even if the business is already established or even if it is a new business, a plan needs to be made. Businesses need to regularly update their plans and strategy as they need to take into account the challenges and trends for future models.

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What are the business models.

The strategy a business uses to turn a profit is referred to as its business model. It lists any estimated costs as well as the goods or services the company intends to sell, as well as its chosen target clientele.

Both new and established businesses need strong business models. They aid young, developing businesses in luring capital, hiring talent, and inspiring management and personnel.

Established companies must continuously alter their business models if they are to stay abreast of emerging trends and problems. Business models also assist employees in understanding the future of an organisation they might want to work for and investors in evaluating companies that interest them.

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When developing their business concepts, many organisations frequently underestimate the costs of financing the venture until it turns a profit. It is not sufficient to calculate the costs of a product’s launch. A corporation must continue operating until revenues outweigh expenses.

The company’s gross profit can be used as one indicator for analysts and investors to determine whether a business strategy is successful. A company’s gross profit is its total revenue less its cost of goods sold (COGS).

The efficiency and efficacy of a company’s business model can be determined by comparing its gross profit to that of its main rival or its sector. However, relying only on gross profit can be misleading. Analysts also request access to net income or cash flow. This shows how much actual profit the company is making by taking gross profit and subtracting operating expenses.

Importance of Business Models

The business model helps to target the customer base of the company. It helps in making marketing strategies, and projections of revenues and expenses taking into account the type of Business models and clientele.

Every investor needs to review the business model in order to get knowledge about the company’s competitive edge . Understanding the business model helps investors to have a better sense of financial data.

Evaluating the business model helps the investors to get an overall view of the company’s products, its business strategies and future prospects.

Business Model Examples

For example, let’s take company A which rents and sells video games. So the company is in the business of video games. The company used to make a profit of 5 million after spending 3 million on their inventories for video games. So, the total gross profit margin is 2 million.

The Internet arrived in the market and the company now has to alter its business model by taking into consideration the Internet in order to survive in the market. So as a result the cost of holding inventory and distribution cost also gets reduced. Since expenses reduce profit increases.

Even though with the arrival of internet sales get reduced but the company was able to expand its business as technology helped it to change course.

In a similar way, there are various business models types-

What are Business Models Types?

We will discuss here 4 business models types:

1. Business -To- Business Models (B2B)

When dealings or transactions take place between two companies or businesses then this type of business model is known as business to the business model.

It has good market predictability and more market stability . Since under B2B sale is made in bulk amount this model leads to lower cost for the businesses.

The best example of this type of business model in India is IndiaMart InterMesh which is a wholesale B2B marketplace. It offers millions of products to its customers which includes consumer electronics, machinery, apparel and many more.

2. Business -To-Consumer Models (B2C)

The business-2-consumer business model is a model that refers to businesses that sell their services or products directly to the consumer who are the end users of the products or services.

There is an ongoing demand for the products as it provides the essential items. This thus eliminates the risk of fluctuation in demand and helps in maintaining consistency in the business. Since direct contact is there with the customers so information is shared with them directly and easily.

Customers are given products at a low price compared to their competitors for the business to run smoothly.

An example of business to consumer model is Avenue Supermart which provides goods directly to its customers.

3. Subscription-Based Models

Any application-based businesses or software companies have subscription-based business models. They offer their product as a one-time purchase, in return company earns monthly or annual revenues.

This type of business model allows the company to earn regular income by giving the client the opportunity to pay for the cost of the purchase in 12 equal payments rather than asking them to pay the wholesome amount in one go.

One of the leading examples is Infoedge for this type of business model.

4. On-Demand Business Model

It is the most recent form of model which is made out on the need by answering immediately. This type of business model is prepared in such a way that all the questions will be answered by just a click of a button in seconds.

It is very much convenient and easy for customers as even before customers have visited a particular city they get their hotels or places booked.

One of the examples is making my trip which allows customers to plan the holidays and make the bookings in advance.

Advantages of Business Models

• A good business model gives the company a competitive edge in the industry.
• A strong business model provides the company good reputation in the market place encouraging investors to remain invested in the company.
• Making the business model strong leads to an ongoing business profit leading to an increase in cash reserve and new investments.
• A proven business model brings financial stability to the organization.

Business models have disadvantages as well.

Disadvantages of the Business Model

• Once a business model is created, then it restricts to implementation new ideas for the product.
• Creating a business model is time-consuming as a lot of factors need to be considered.
• There might be a chance that the business model may turn out to be inaccurate.

Apart from the disadvantages, the business model is mandatory to be prepared before starting of a new project.

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A business is more than just a place where things are sold. It’s an ecosystem, therefore it needs a plan for who to sell to, what to sell for, how much to charge, and how much value it’s producing.

What an organisation does to consistently produce long-term value for its clients is described by its business model. A company should have a clearer understanding of how it intends to function and what its financial future looks like after developing a business model.

While preparing business and revenue models, one of the most important skills that is required is Ms Excel. Wish to learn it ? That also in Hindi? Then join our ms excel in hindi full course now!

Frequently Asked Questions

What is a good business model.

A good business model is one that provides the company with a competitive edge in the industry-leading to good business profits.

Why is a business model important?

The business model is important because it provides the investors with knowledge about the competitive edge of the company and provides better insight into the workings of the company. A strong business model leads to cash generation and future expansion.

How do you create a business model?

The business model is created by identifying the products and services that will be sold in the market to be targeted like B2B, B2C, subscription-based model or on-demand market.

What are the components of the business model?

The business model includes information about the company’s products, its target market and its future prospect related to its business type.

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10 Business Models That Will Inspire You

Innovative business models are changing the world as we know it. We know their secret sauce. Check out these ten companies and their business models to get inspired for your own business ideas.

Innovative business models are changing the world as we know it. Airbnb is the biggest accommodation provider worldwide without owning a single room, Uber is the biggest cab company without owning a single cab and Alibaba is the biggest retailer with no stock at all.

All of them have come up with new business models to deliver, create, and capture value and many others do follow. We know their secret sauce. Check out these 10 companies and their business models to get inspired for your own business ideas.

FREE DOWNLOAD: Download our business model cards and discover 29 important business model strategies that can help you adjust to the current reality. >>

Airbnb is an online marketplace that enables people to list, find, and rent accommodations (single rooms, apartments, houses, …) for a processing fee.

Secret Sauce : The biggest accommodation provider in the world does not own a single room. Airbnb does not rent the accommodation from the host but conveys only between supply and demand. Their business model builds on the sharing economy and on the strong belief that house owners are willing to rent out free space to strangers.

Alibaba Group is the largest (online) retail company in the world.

Secret Sauce : Alibaba Group has no inventory. Long-tail competitors like Amazon buy merchandise and sell these to their customers by using their own infrastructure. Alibaba`s main focus is to connect buyers with sellers. Momentarily, it mainly relies on bringing together Chinese sellers with buyers around the world. The value of Alibaba lies in the software interface, not in the products.

Hilti is a Liechtenstein multinational company that develops, manufactures, and markets products for construction, maintenance, and mining industries, primarily to the professional end-user.

Secret Sauce: Hilti has disrupted the market by shifting from a purchase to a transaction/rental based business model. They realized that their customers’ need is not to own a reliable tool rather than having the right tool at the right time. They are handling the maintenance of the tools and their customers simply rent their tools whenever they need it. Thus, their customers don’t have to have every single tool they would possibly need in their stock.

IKEA is not only our first source of candles and a reason for a quarrel on a Saturday afternoon. It’s also a group of companies that designs and sells ready-to-assemble furniture appliances and home accessories.

Secret Sauce : Its business model includes global sourcing of components, accessible suburban stores, quality products with sophisticated European design at low cost, and in-store amenities, such as coffee shops, restaurants, and day-care facilities.

Tesla Motors, Inc. is an American automotive and energy storage company that designs, manufactures, and sells electric cars, electric vehicle powertrain components, and battery products. It aims to accelerate the advent of sustainable transport by bringing compelling mass-market electric cars to the market.

Secret Sauce : By offering a wide range of high-quality services Tesla makes the use of an electric car easy and uncomplicated. This positive experience leads to the fact that 9 out of 10 customers would recommend their Tesla car. In order to enhance further growth, Tesla invests heavily in their infrastructure.

6. Wikipedia

Wikipedia is a free Internet encyclopedia that helps to improve common knowledge. It allows its users to edit almost any article accessible. It is the largest and most popular general reference work on the Internet and is ranked among the ten most popular websites.

Secret Sauce : The company is able to motivate a large community to participate in the project without offering financial benefits. With the contribution of the online community, Wikipedia ensures the quality of the articles.

Zara is a Spanish clothing and accessories retailer. It is one of the world’s largest international fashion companies.

Secret Sauce : Zara produces where it sells. It utilizes a very tight supply chain from initial design through to final production. This allows the company to adapt to new fashion trends and ideas within two weeks. As a result, short lead times for new products and fast replenishes of sold-out merchandise, are being made possible.

8. Local Motors

Local Motors is an American motor vehicle manufacturing company focused on low-volume manufacturing of open-source motor vehicle designs using multiple micro-factories.

Secret Sauce : Local motors searches for new and forward-looking problems of whole industries and solves them in a much faster way and with lower development costs than traditional companies with the contribution of a large online community.

9. Easybank

Easy Bank is the second-largest direct bank in Austria.

Secret Sauce : Easy Bank offers a wide range of financial products via online banking and without a branch network. By keeping the infrastructure costs to a minimum, the bank is able to offer services without transaction and account fees.

10. Red Bulletin

is a lifestyle magazine that features breathtaking sports, culture, music, nightlife, entrepreneurship and lifestyle stories. The focus of the magazine is to press further ahead with establishing the Red Bull brand around the world.

Secret Sauce : Red Bulletin creates revenue through the subscription fees before the costs of the production of the magazine occur. Besides, of that the magazine creates further value by advertising Red Bull activities.

How to design good business models

All of these companies have realized their customer needs and are putting their pains in the center of their focus. It’s key to have a good knowledge of your customers to build a successful business.

A genius business model can change your business works and even determine whether your business is successful or not. Try to think out of the box. What other ways are there to deliver value to your customers. A subscription model instead of just selling goods? The sky is the limit. Stay open-minded and don’t stick to the status quo. Our Innovation Platform helps you to come up with a good business model and lets you play around with various scenarios.

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29 business model strategies to inspire you

Uncertain situations require more strategic thinking and choosing the right business model can be a game-changer. To get you inspired, we put together a list of 29 business models, with examples of successful companies from all industries using them.

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