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 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.

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.
 

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.

 
Conclusion
 

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.

We at Alcor help founders build their idea from scratch to the growth stage. Explore your
fundraising options with us on Venture capital, private equity, debt funding and more.