Business Models: A Comprehensive Guide In 4 Points
Introduction
It’s not simply about finishing your business plan or choosing which goods to pursue to create business models. It’s about figuring out how your clients can generate ongoing value.
In this article we will learn about, what are business models, business models examples, types of business models, and how to create business models.
- What are business models?
- Types of business models
- Importance of business models
- Business Models Examples
1. What are business models?
At its heart, a definition of how your company makes money is your business model. It’s an overview of how you offer value at an acceptable cost to your clients.
These instruments enable entrepreneurs to experiment, measure, and well, model various ways in which their costs and revenue streams could be organized. Spreadsheets enable entrepreneurs to make rapid, hypothetical adjustments to their business model and to see instantly how the change will affect their company now and in the future.
A business model is a high-level strategy to run a business in a particular marketplace profitably. The value proposition is a primary component of the business model. This is a description of the products or services provided by a business and why they are attractive to consumers or customers, preferably described in a way that distinguishes the product or service from its rivals.
2. Types of business models
There are different types of business models meant for different businesses. Some of the basic types of business models are:
- The producer: A producer makes raw materials from finished goods. It can be sold directly to the customers or sold to a middleman, i.e. another company that eventually sells it to the consumer. Instances-Ford, 3M, General Electric.
- Retailer: A dealer buys and resells goods from producers to retailers or the public. Instances-Auto Dealerships.
- Storekeeper: After buying the goods from a distributor or wholesaler, a manufacturer sells them directly to the public. Instances-Amazon, Tesco.
- Franchising: A producer, distributor, or retailer may be a franchise. Instead of producing a new product, the franchisee uses the concept and name of the parent company while paying royalties to it. E.g., McDonald’s, Pizza Hut.
- Brick And the Mortar: Brick-and-mortar is a conventional business model where retailers, wholesalers, and producers deal face-to-face with customers in an office, shop, or store owned or leased by the company.
- Ecommerce Facilities: An update to the conventional brick-and-mortar business model is the e-commerce business model. By developing a web-store on the internet, it focuses on selling items.
- Bricks And Clicks: A business that has both an online and offline presence enables consumers to pick up items from physical stores when placing an order online. This model provides the company versatility as it is available online for consumers who live in places where there are no brick-and-mortar stores. Almost all clothing companies nowadays for instance.
- Freemium: This is one of the Internet’s most popular business models. Although charging a certain premium for additional add-ons, businesses provide essential services to consumers for free. So with different clients, there will be several plans with different benefits.
- Subscribing: This business model could be the most appropriate choice if consumer acquisition costs are high. The subscription business model helps you to retain customers with a long-term contract and through repeated transactions to get recurring revenue from them. Examples include Dollar Shave Club, Netflix.
- Aggregator: The business model of Aggregator is a newly established model where the company offers its services under its own name to several service providers in a niche. The cash is received by commissions. Instances-Uber, Airbnb, Oyo.
3. Importance of business models
The business models serve as the company’s model and a guide for its growth (or failure). It is the only paperwork that makes clear-
- The business idea is the consumer demand on which the organization capitalizes.
- The target market to which the organization caters.
- The concerns that the organization plans to tackle.
- The solution that the organization provides and how it produces consumer satisfaction.
- How the organization receives its clients.
- The operating model that the organization follows.
- How the corporation makes cash and what expenses are incurred to get the same.
4. Business Models Examples
Consider a contrast between two opposing business plans in which two businesses rent and sell films. After investing $4 million in their movie inventories, both firms made $5 million in sales. This means that each business makes an approximate gross profit of $5 million minus $4 million, or $1 million. They both have the same gross profit margin, divided by sales, measured as 20 percent of gross profit.
But with the advent of the internet, things will change. Rather than renting or selling physical copies, Company B prefers to watch movies online. In a good way, this transition disrupts the business model. The license fees do not adjust, but the expense of keeping inventory is greatly reduced. The move actually reduces the cost of storage and distribution by $2 million. The company’s latest gross profit is $5 million, minus $2 million, or $3 million. 60 percent of the new gross profit margin.
Company A, meanwhile, is not updating its business plan and is stuck with a lower gross profit margin. As a consequence, profits are starting to slide downwards. Company B is not yet making more profits, but its business model has been revolutionized, and its expenses have been drastically reduced.
Conclusion
Most claim that copying and pasting are about Business Models. Instead, experimentation is like that. Business Models can provide valid templates that we can evaluate, but we only get a specific model that is difficult to reproduce when those ingredients are combined, that is when a competitive advantage is generated.
Business models are not plans for the business. Although several start-ups consult Business Models when it is time for investors to develop their pitch.
Business Models experimentation will prove more sustainable in an age where technology becomes commoditized over time since it is more difficult to reverse engineer (as it comprises many building blocks that sometimes are hard to understand also to the same company rolling out the successful business model). Company modeling is a continuous exploration journey. It’s never stopping. The entire Business model will change as an organization scales or develops alternatives for scale, and the question of whether it will be viable for the next period of growth and scalability remains open.
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