Business models. You probably heard this phrase before, but aren’t quite sure what it’s all about or why you need it.
In this post I’ll cover everything you need to know about business models, including our 2019 updated list of business model examples.🔍
Understanding and building your business model is a great way to ensure you know your target customer and audience, as well as making sure there is a market for your product, and to analyse the competition and opportunities within the products, services etc you are interested in.
If you just want to get straight to the examples, scroll down to the heading -> Top 16 examples of business models 2019 💰
Let’s dive in!👌🏼
What is a business model?📈
Table of Contents
- 1 What is a business model?📈
- 2 Why you need a business model
- 3 Top 16 examples of business models of 2019
- 3.1 1. Advertising with Ads
- 3.2 2. Affiliate business
- 3.3 3. Brokerage
- 3.4 4. Concierge/ Individual product business
- 3.5 5. Disintermediation
- 3.6 6. Fractionalization
- 3.7 7. Francise
- 3.8 8. Freemium
- 3.9 9. Leasing
- 3.10 10. Low-touch
- 3.11 11. Marketplace
- 3.12 12. Pay-as-you-go
- 3.13 13. Subscription
- 3.14 14. Ecommerce / E-commerce business
- 3.15 15. Dropshipping business
- 3.16 16 .Software as a service (SaaS)
A business model is a brief description of what product/service your company offer, who your ideal customer is, how the business is going to get customers, how the product/service would be sold and a budget for the startup of the company. There is no real “right” or “wrong” business models, but I’ll include some important topics to consider when making your business in the list below.
The business model should includes a wide range of information such as the characteristics of the product or service you want to sell, how much does the product cost to make, what price can you sell the product to, as well a detailed description of the product or service.
You’ll need to make some assumptions when creating your business model, such as how you are going to advertise to your target audience and customers, if you don’t know, contact a marketing agency to help you or get a mentor who can guide you through the process.
Ideas to what you should include in your business model and business plan
- Founder team (who owns the company)
- Motivation, financial situation and goals for the team
- Key partners (important suppliers or partners)
- Key activities (important activities and who does what in the team)
- Key ressources (important ressources could be a patent, software, website, demo product etc)
- What is the product, how much does it cost to manufacture /buy + margins of the product
- Design of the product
- How do you want to sell the products (distribution channels)
- What problem does your product/service solve?
- Customers / Audience
- Who is your ideal customer
- What are the competing products/ alternative solutions
- How does your business differentiate from the competition
- Niche market, mass market or?
- How do you create value for your customers
- Budget for the first 1-2 years
- How do get sales and revenue, and what is the expected loss/profit
- Fixed and variable costs, any expensive assets or highly profitable assets to scale
Why you need a business model
Here I listed a few reasons why you’ll need a business model🔧
1. The Bank
Some times you’ll need a business model because of your bank if you want to get a loan to get started with your business. They want to know more in-depth what your business is all about, and make sure it’s somewhat “realistic” that you can obtain your budgets and goals.
2. Yourself or your business partner
If this it is the first time you’re starting a business, this is a good idea for you to get the overview of what the idea of your business are. How you are going to make money, how much revenue you need to break-even and not lose money etc. This is especially important if you more than 1 founder of the company, because you and your business partner might have different expectations, and therefore a good way of clarifying everything in the business model before starting out.
3. For investors
Similar to the bank, potential investors want to know what your business is, especially the numbers. Be realistic when creating budgets and forecasts when starting out. Investors would probably think your are unserious if you don’t have a proper business plan and business model if you want them to invest in your company.
If you want to learn more about business models, or if you are ready to make your own for you company, download the FREE template below.
Click here to download a FREE business model template. 💻💵
There are many different types of business models, and many good and bad examples. AirBnB is a great example of a business which really benefitted from a good and strategic business plan. However let’s dive in to the 16 best business model examples.
Top 16 examples of business models of 2019
1. Advertising with Ads
Advertising with ads is a common business models for online businesses. A typical example could be if you host a website where you create awesome, helpful content for your readers (maybe like our website😎?). By doing so you can generate traffic to your blog or website, once this happen you will be able to place ads.
The typical ad placement on website is the generic “google adsense” as you might have heard of many times. Google adsense is used by millions of website and is easy to setup, however they often doesn’t pay very well, and you go choose to go for a more premium ad network once you got more traffic (often more than 50k – 100k pageviews a month).
In an advertising business model you have to serve 2 people, the reader and the ad buyer.
If the reader or visitor doesn’t like your website or content, chances are they will quickly bounce from your website, and therefore you will generate no clicks for the ad buyer for your site. Placing too many ads will allow for good exposure for the ad buyers but will often annoy the visitor and therefore you will need to find the perfect balance when choosing this business model.
- Can be pretty much any website on the internet with ads (banner, in-content, sidebar ads etc)
- Easy to setup
- Needs only focus on the traffic
- Doesn’t require any maintenance
- Depending on ad-network CPM and CPC might be low and will then require a lot of traffic in order to gain any substantial revenue from the website
- Can be annoying for the audience and visitors of the website
Affiliate business model is another great example and very common business strategy to earn money online. Using an affiliate business model is often referred as affiliate marketing, because of it’s popularity of affiliating products and services.
As an affiliate you will gain a commission every time you you refer someone to a lead sign-up or sale. This happens through affiliate links which looks like normal links but contains an affiliate specific link which embedded the tracking of your traffic and visitors.
Affiliate marketing is used by many businesses all around the world and you can sign-up to an affiliate network to explore all the different offers, products and service you will be able to market and advertise. You might have heard of Clickbank or Maxbounty and even Amazon. All of these platforms offer all kind of product you can refer and advertise and you can choose as many or as little as you like.
Toptenreviews.com, Createandgo.com, Patflynn.com etc.
- Very high earning potential
- Relatively easy to get started with affiliate marketing
- Requires some kind of funnel or sales pitch or landingpage for your offers
- Requires people to trust you in order to generate sales and leads
- Can be difficult to find good offers
A brokerage business models is when you connect a buyer and a seller to help facilitate a transaction. The brokerage business then charges a fee, a commission or a cut of each transaction made through them or their platform. This can be done from either the seller or the buyer or both.
The most common example of a brokerage business is a real estate agency. However there are many other brokerage businesses such as stock-investing platforms, where the buyer of the stock pay a small fee in order to make the transaction and the trade.
Often the brokerage is used to both connect buyers and sellers but also to guide and help both seller and buyer in the process and make sure the transaction is secure and fast.
ReMax, RoadRunner Transportation Systems, Real estate, Stock / bond trading platforms etc.
- High demand of this service
- Depending on the industry asymmetrical information can lead to high profit margins
- Expensive to get started
- Requires a lot of compliance
- Requires a lot of knowledge from the industry and market
- Tough competition
4. Concierge/ Individual product business
There is not official name for this type of business model but it involves a business where every product or service can be customised individually. This can be a custom designed shoe by the customer (Nike have done this), food, travelling or anything else where the customer have influence about how the product or service is created.
A typical example could be a travel agent where they customise and book a trip for you that matches your experience, budget, goals, location etc. Then all of the “products” sold by the travel agent would be unique.
This is a business model that is more difficult to scale up because of the individualisation for each customer, but on the other hand can be very unique from your competition. Using this business is easier to differentiate you from the rest of the competition and therefore you will often be able to charge a higher price for your product or service.
Nike, Travel agents, Journy
This is a business model that are made up because of the ever increasing competition. Customers want everything for nothing! So instead of having any middle in your business to distribute or resell your products, your business decides to sell directly to the customers.
This business model is mainly focused around physical products and is often related to clothes, accessories, electronics and similar items.
Disintermediation is when you sidestep everyone else in the value chain and sell directly to your customers. Doing this give your business 2 opportunities to either get bigger margins on your products or resell your product to a lower price to your customers, or a combination of both.
This will also allow a direct connection and communication between you and your customers
- Bigger margins
- Better control over your logistics and deliveries
- Direct communication with your customers
- Can be more time consuming managing
- Might not be able to generate as much revenue without the retail partners
- Is more difficult/expensive to expand
Creating a business around a fractionalization business model is more rare but none the less still works.
This business model is when your business sell a fraction of a product, instead of selling the entire product.
The best example of businesses using this business model is timeshares, where a group of people can share multiple vacation homes, but only owns a little portion each. This enables each member of the timeshare to use the house(s) or apartment(s) certain weeks of the year.
- A group of people can share the cost of a more expensive product or service
- Very few products benefit from this business model
Franchise is a common business model for restaurant, café and clothing businesses and you might know a lot of examples already. A franchise is a business model you’re selling a concept with a receipt or script of how to start and run a specific style of company with your concept. The good thing about franchise is you can use a working concept with procedures, branding and sales materiale that have already proof of concept.
If you want to start a franchise yourself fx with McDonalds you’ll also get support og learning materiale with how to handle the staff, logistics and much more.
By using a franchise you are locked within the boundaries of a the concept and the owner of the franchise concept so you have to adapt to whatever changes and policies they have. However you’ll gain acces to a an already successful running business where you can stat generating a profit from the beginning.
If you want to start a franchise yourself, using franchise as a concept to expand is a way easier and cheaper way to expand because the franchise buyer will pay for the cost of starting their franchise shop within your concept.
Therefore there are many benefits from both joining or creating a franchise.
McDonalds, Allstate, Ace Hardware
- If owning a concept, franchise is cheaper to expand
- If joining a franchise, it’s easier to get startet with a successful business from the start
- Good way to outsource
- Very scaleable to grow a business
- Very fixed concept when joining a franchise
- Unable to adapt to quick changes
Freemium business models have become very popular in the last 5-10 years. The core of a freemium business model is a business where part of the product or service is given free with a premium. Therefore “free” + “premium” = Freemium. Freemium is not the same as 14 days free trial, but an actually working product for free.
When using a freemium business model the business basically allows users to sign up for free and get unlimited use of their service, depending on the company more or less features will be included in the free membership of the product. Users will then be able to upgrade to the premium model if they want more functionality, no ads, premium features, more speed or whatever the company has to offer.
Freemium is mostly used with SaaS or other online businesses where the company is able to give something for free, without directly “loosing” money.
Learn more about Saas business models later in this post.
Spotify, Trello, Slack, Mailchimp, Evernote, Dropbox
- Easier and cheaper to convert new users (because they can start for free)
- Amazing for scaling and growing an online business
- Can be expensive if most users doesn’t upgrade to premium/paid plans
- Will still require a good free plan in order to satisfy the users and make them upgrade
- Some industries might “require” a free plan because users are used to this “feature”
Leasing is another common business model which is essentially is a rental or a loan-financed buy. Depending on if the leasing form the at the end of the leasing agreement the user often returns the product (often a car or similar asset) that they were “renting”. Other leasing offer a possibility of buying the asset after the end of the leasing period.
Leasing is mostly used for higher priced items and assets that you would normally not want or be able to buy cash. Instead of a short-term and expensive rent, a lease is sometimes a cheaper and better solution.
- Easier way of get a higher priced item, if you don’t want or a unable to buy
- Depending or the lease contract, less risk -> because you would be able to just “drop-off” the car or the asset after the leasing period, and the risk is on the financing company
- Can be restricted in some ways because of the leasing agreement compared to just buying the item/product
- Not always a cheaper solution, make sure to do your research
With a low-touch business model, companies offer lower prices compared to their competition by providing fewer or lower quality services. The best examples of such businesses are airlines like Ryan Air or furniture sellers like IKEA. The low-touch business model is applied here with both business cases because the customer often needs to purchase additional services to fully “unlock” the product “potential”. IKEA and Ryan as examples can use this business model to keep costs down and attract more customers, however quality aren’t prioritised with this business model.
Ryan Air, IKEA
- Can be competitive with prices
- Will attract a lot of customers
- Often low margins
- Often low quality product or services
Marketplace business models are based often as online businesses. The most common example might be Amazon and Ebay, which act as a marketplace. This business model is where the company service or product is the actually marketplace and then other people or businesses can then use the platform to buy, trade and sell their own items and products.
The marketplace then allows the sellers to list their products on the website and provide customers with customer service, secure payment, return polices etc. This business model can generate revenue from all kinds of sources but some of the more common ways are a % payment fee of all transactions, a monthly fee for all sellers, providing premium features for sellers with more functionality etc.
The marketplace business models can both be used for services and physical products and be very profitable with enough traffic, and sellers. The biggest downside is the getting the business up and running since you would need both sellers and buyers right from the beginning but you have 2 issues.
Buyers won’t join your platform without any sellers.
Sellers won’t join your platform without any buyers.
Therefor you would need some clever marketing and sales team in order to get up and running with your marketplace platform.
AirBnB, Amazon, Ebay
- Does not require that you create your own product to generate revenue
- Can be extremely scaleable
- Very profitable with the right
- Would need customer service regarding both sellers and buyers (each of them are your own “customers”)
- Very difficult to start
- Can be expensive to create the right marketplace
- Dominated by a few big companies
Pay-as-you-go businesses have products or services based on a pricing that vary on the usage of their customers. Instead of purchase of a product 100% upfront and then you can use it, the customer pay as they use it. The most common example is electricity, when you pay for the exact amount you use and nothing more. This can also be for smartphone data-usage etc.
Customers often pay at the end of the billing cycle and then their usage is calculated to determine the final price of the product.
The pay as you go business model is mostly used for home utilities but is also very known for printer ink.
Water companies, Electricity, HP instant ink
- Customers like to pay for “only what they use”
- Very flexible pricing
- Can’t be applied to many industries
- Not always as profitable as other alternative business models
A subscription based business model is another very know and very common business model, used by a lot of companies all over the world. I guess you already know a lot of examples. The core of subscription based business model is when you have to create a subscription often with weekly, monthly or yearly payments.
Customers then get charged a flat amount to get access to digital platform, service or sometimes a subscription of Razor blades or similar products you would need to renew and buy.
Subscription based businesses are also seen as magazines, newspaper (New York Times) etc where the customer pay every month to get access to the product. This business model is especially applied to many online businesses with digital products or services such as Shopify, Dropbox, Spotify, SaaS companies and many more.
Netflix, Spotify, Salesforce, Dropbox
- High life time value of customers
- Can be very profitable in the long run
- Very stable revenue and cashflow
- Not all customers want a subscription for the product or service
14. Ecommerce / E-commerce business
Ecommerce or webshop businesses is a business model where a company sell physical products online. An ecommerce based company only sell products online on and are solely depended on their online web traffic and marketing.
Ecommerce businesses rely on good marketing and branding skills to get succes, but is often fairly cheap to setup compared to other business models. This type of business need a website (wordpress, shopify, wic etc) to sell their products and a CMS system to mange orders and customers. The business would need some products to sell and can be products you manufacture yourself, get dropshipped (read more below), manufactured elsewhere or products you resell.
In todays world many businesses just have the ecommerce shop as a part of their business, because they want to offer both a physical store and experience as well as an online experience for their customers. Because so many people shop online, having and ecommerce business or ecommerce based sales-channel is extremely important
Any business that sell products online
- Cheap to setup an ecommerce store
- Fast and easy setup
- General low entry barrier
- Great control over the value-chain and shipping
- A must-have for any business who sell physical products
- Tough competition for organic keywords with SEO
- Tough competition for marketplaces like Amazon with a lot of traffic and high conversion rates
15. Dropshipping business
Dropshipping is a subcategory of ecommerce, where the business only focus on sales, marketing and customer service and everything regarding shipping and manufacturing is outsourced. The outsourcing part of the business is often handled by asian companies in India or China because of the low labor cost etc.
When running a dropshipping store you don’t have to have any inventory to store all your products or spend any time on packaging and delivery of the products you sell. With dropshipping you will get lower margins than with regular ecommerce where you buy or manufacture in wholesale (buying in bulk orders) and you manage the logistics with your own company.
However with dropshipping you’ll free up more time and space by having your dropshipping manufacture partner to handle alle the shipping, manufacturing etc.
Bluecrate.com, any other ecommerce shop that doesn’t ship by themselves.
- Easiest, fastest and cheapest business to start
- Very low entry barrier
- Doesn’t need to hold inventory
- Lower margins because of the outsourcing of shipping, packaging, handling etc.
- Easy for competitors to copy your winning products
- Tough competition
16 .Software as a service (SaaS)
Software as a service businesses are getting more and more popular every day. This type of business is solely for digital online products, therefore the name “software as a service”. This type of business model is related to a company which offers a software which can help their customer with some kind of a problem. This can be a B2B SaaS or B2C, but often B2B related software.
Examples within the marketing industry could be Semrush.com, Ahrefs.com, Moz.com and many more which offer a SEO tool which can help businesses and marketing agencies to analyse and better rank their websites according to relevant Google metrics.
Software as a service companies also often use a combination of a pricing plan with a subscription, so the customer pays for every month or week of the usage of the software.
Moz.com, Ahrefs.com, Semrush.com
- High margins because it’s a software
- Can easy charge a premium if the software solves a real problem
- Good opportunities to make your product 100% unique from the competition
- Expensive to get started
- Requires great inhouse software engineering skills or expensive outsourcing to create and maintain