what are the most common business models

image of most common business models

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Are you looking for ways to unlock your long-term business value? If you nod, remember that a business model can streamline your business process.

A business model defines, understands, and designs your industry-specific business. Business models can be confusing for new entrepreneurs.

For more information, see business models and company examples. Use these startup business models.

Franchise model

Franchising lets the franchisor license its resources and brand name for company growth. Intellectual property and royalties for a franchise to sell its products and services.

McDonald’s has 93% franchised restaurants worldwide.

Multi-sided platform

Multi-sided businesses serve both sides of the business. LinkedIn provides subscription services to job seekers and HR managers to fill positions. 

 LinkedIn, Freelancer.com

Cash machine model

Cash conversion cycle (CCC). It measures a company’s cash-to-goods-to-cash cycle. Low-profit companies with a disruptive market position use this model. Amazon’s online store generates huge profits before paying suppliers. Amazon runs its supply chain on vendor credit.

Freemium model

Tech companies using SaaS or apps use the freemium model, which mixes free and paid services. Companies offer free (lite) versions for a limited time or with limited features to gain customers. Paid services unlock upgraded features.

Zoom, Dropbox, MailChimp, Evernote.

subscription model

This model lets customers pay a monthly or annual fee for services. In this case, the company must give customers enough value to return to the website. 

It lets companies segment the market and offer a set number of content items under tiered pricing plans.

Netflix, LinkedIn, Amazon Prime, Dollar Shave Club.

Peer-to-peer business

In this model, a company creates value for demand and supply by acting as a middleman. It differs from B2B or B2C business-to-consumer relationships. Commissions fund it. Airbnb allows host-hostee transactions.

Airbnb, Uber, eBay, Offerup, Freelancer.com, 

One-to-one model

Social entrepreneurship is the one-for-one model. It mixes profit and non-profit services. Many companies are adapting to socially conscious millennials, though their long-term viability is still being determined. TOMS Shoes donates shoes to impoverished children worldwide for every pair sold.   

TOMS Shoes, Warby Parker (donated eyeglasses), Two-degree Food, Soapbox Soaps.  

Hidden profit model

This model generates revenue from other sources while users don’t pay for services. Businesses pay Google to bid on keywords, but users don’t.

Google, Facebook, Instagram, Twitter.

Razor-blade business model

In this model, the razor is cheap, and the blade is expensive. Printer-cartridge business model. For instance, buying an inkjet printer was a one-time expense, but replacing ink cartridges is a recurring cost. If you can lock in loyal customers, the model works well.

Xbox or PlayStation games, HP printers, Nespresso coffee machines, AT&T 2-year contract phones.

Pro tip: Use this model to sell an associated item to generate recurring revenue repeatedly.

Reverse razor-and-blade business model

The business model contradicts the razor blade model. It means offering low-priced products to encourage high-priced purchases.

This business model offers a premium product once and earns more from secondary items over time. 

Example: Apple perfects this business model. Apple’s iPhone, iPad, and Mac devices cost more than its App Store and iTunes apps, movies, songs, etc. 

Direct-sales model

Remember Tupperware house parties, where products are sold directly to customers? Salespeople receive commissions. Although technology has replaced direct sales in many ways, many companies still prefer a personal touch.

Tupperware, Avon, Arbonne, and Herbalife.

Affiliate marketing model

Companies profit by featuring, reviewing, and recommending other companies products and services. Consider product review sites. Vendor companies pay these websites for sales leads.

NerdWallet, Capterra, MoneySavingExpert.com, the wirecutter.

Consulting model

Consulting firms hire skilled workers and assign them to client projects. These companies charge hourly or take a percentage of the cost reduction project’s success. This model underpins multibillion-dollar companies like Mckinsey and Boston Consulting Group.

Deloitte, McKinsey, BCG, software or website developers.

Pro tip: if you’re a subject matter expert (SME) and the project’s duration is uncertain due to client requirements changing, a consulting business model is a great way to charge clients.

agency model

This project-based model hires an outside firm to complete a task. Companies without internal expertise hire agencies for customized solutions. Mad Men? Acclaimed Netflix series about advertising agencies and clients. Digital marketing, design & architecture, survey, promotion, media, public relations, branding, website development, social media, etc., are niche agencies.

TBWA\Media Arts Lab (Apple’s preferred ad agency) and Leo Burnett Company (United Airlines, McDonald’s, Kellogg’s)  

User-generated content business model

This business model lets users answer questions and write reviews on websites for free.

Videos, reviews, pictures, blog posts, testimonials, and other user-generated content power this model. Social media-accessible.

Companies buy user-generated content to promote their brands.

Examples: YouTube, Quora, Yelp, Yahoo Answers, and Reddit.

Online educational business model

This business model offers students and teachers flat course fees or subscriptions to educational resources. It’s freemium, course fees, and subscription-based.

Khan Academy, LinkedIn Learning, Coursera, Udemy, edX.

Instant news business model

This model shares and updates news instantly without intermediaries.

This model allows trusted primary or secondary sources to directly communicate breaking news or urgent announcements through open and reliable channels to their audience.

Some social media platforms have become the go-to for instant news from primary sources like presidents and CEOs in recent years. 

Twitter is best. Trending hashtags provide real-time news.

Multi-brand model

This model markets multiple similar products but competes with each other under a single company with different brand names. It creates economies of scale and empires.

Procter & Gamble, Unilever, and Nestle.

E-commerce model

E-commerce connects buyers and sellers via an online platform (online shop).

E-commerce models include B2B, B2C, C2C, and C2B.

Amazon, Alibaba, eBay, OLX, Walmart.

Distribution-based business model

This model is used by a company with a few key distribution channels to reach its customers.

This model allows businesses to sell through dealers, brokers, supermarkets, and retailers.  

Unilever spends most of its revenue on distribution.

Drop-shipping model

Cost-effective and exciting business model. Drop-shipping involves contacting many suppliers/wholesalers to sell their products online. A wholesaler drops-ships products from the manufacturer to business owners’ website customers. The third-party handles shipping and logistics so that the business owner can use something other than inventory.

Pro tip: It’s a great way to cheaply start a niche e-commerce business website.

Doba, Oberlo, Dropship Direct, and Wholesale 2B.

Enterprise model

The enterprise business model focuses on big deals with large clients. Complex sales with many potential clients underpin it. Fortune 500 clients typically spend billions.

Boeing, Raytheon, SpaceX, and Goldman Sachs are enterprise business models because they sell to large businesses or governments. 

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