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The 5 Types of Business Models You Should Be Aware Of

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The 5 Types of Business Models You Should Be Aware Of

Does your company have an established business model? A comprehensive business model is a crucial element for every startup business because it determines the value of your business. It also comes in handy if you’re looking to apply for instant business loans. Therefore, your business model should outline how stakeholders – customers, suppliers, and everyone involved – can benefit from your business. 

Don’t Mistake a Business Model from a Business Plan

Many people think that a business model is just like a business plan. A business plan contains financial projections, business goals, management plans, and marketing strategies that are yet to be implemented. Business plans are often drafted to impress potential lenders and investors; leaving no room for experimentation. 

On the other hand, a business model is all about finding which strategy brings the most value to stakeholders. It requires experimentation and tinkering until you can find a model that works best for your business. With that in mind, you often have to design different variations of the same business model and test them out in the real world. 

Related: How GenM Is At The Forefront Of Providing Free Education

The Key Elements of a Business Model

There is no one-size-fits-all when it comes to business models. But to give entrepreneurs an idea, a “business model canvas” can help you get started. According to the canvas, there are nine important elements for a successful business model:

  • Key Partners
  • Key Activities
  • Value Proposition
  • Customer Relationship
  • Customer Segment
  • Key Resource
  • Distribution Channels
  • Cost Structure
  • Revenue Stream

But as technology evolves, so does the business model canvas. The lean startup canvas is derived from the business model canvas and it involves experimentation, customer feedback, and iterative design. The key elements for the lean canvas include the following:

  • Problem
  • Solution
  • Key Metrics
  • Value Proposition
  • Unfair Advantage
  • Channels
  • Customer Segments
  • Cost Structure 
  • Revenue Stream

Before choosing the type of business model for your business (you can also create a new methodology if you like), it’s important to understand and evaluate your business. 

5 Different Types of Business Models

As mentioned, there are different ways to establish value. Take a closer look at five different types of business models across varying industries. 

Razor and Blade Revenue Model

Did you know that blades are often more expensive than razors? This concept is the basis for the razor and blade revenue model, or also known as bait and hook. With this type of business model, an item is sold at a lower price to increase the sales of a complementary product. 

For example, Microsoft didn’t profit from the sales of their Xbox One X game console. However, they do get $7 for every $60 video game that users purchase to use the console. Another example would be Keurig Green Mountain’s single-serve coffee brewers which are sold at a fair price. But for the K-cup coffee pods that needed to go with the coffee brewer? Not so much. 

Hidden Revenue Business Model

Have you ever wondered how Facebook, Google, and other online platforms make money? If you didn’t have an idea, that’s because they’re implementing the hidden revenue business model. Google and Facebook are free to use, but they do monetize the user data. 

When you do a quick Google search or ‘like’ a post on Facebook, these companies gather data to get you profiled. The data gathered will be sold anonymously to businesses so they can use it to target ads. It’s called “hidden revenue” because we don’t even have an idea that information is being sold. 

Peer-to-Peer Business Model

Peer-to-peer (P2P) business model strives to create value for product demand and offer. In a P2P business model, your company is the intermediary that often profits by commissions. A common example of a P2P business model is Airbnb. This platform allows seamless transactions between hosts and guests. The company only intervenes to build trust and lower the risk for both parties. 

Freemium Business Model

Spotify, Netflix, OneDrive, and Evernote are some of the popular applications that offer freemium versions. Offering free versions of your product/services is an effective way to grow and expand your business. As the name implies, freemiums are a combination of a free and paid service. 

Companies offer a basic version of the product, which will still work like the premium product but often has limited storage or features. Free versions are generally used to generate leads and invite them to upgrade their accounts or to advertise your product or service. 

Buy-One-Give-One Business Model

The buy-one-give-one business model (also known as “one for one”) is a social entrepreneurship business model. Blake Mycoskie of TOMS Shoes developed this type of business model. It essentially involves giving one item for every product purchased. In this case, for every pair of TOMS purchased, the company gives away another pair to underprivileged kids.

Another example would be from a company called SoapBox. They sell bathroom products like liquid hand soap, bar soaps, body wash, etc. For every product sold, a bar of soap is given to someone who needs it. Bars of soap is one of the most requested products in homeless shelters. 

Instant Business Loans to Remedy Cash Flow Issues

Experimenting on different types of business models to see what works best can be time-consuming, but it’s definitely worth it in the end. If you ever find yourself short on cash in the middle of a business model experiment, SMB Compass can help. We offer instant business loans to small businesses and startup companies in the United States, including yours. Call us today at (888) 853-8922 for a free financial consultation. 

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