Exploring Different Types of Business Models
Being an entrepreneur can be thrilling, but it can also be pretty stressful. A business model is meant to help you with that; it details how you will provide value to customers and convert it into revenue you can enjoy. With several options at your fingertips, it's important to make sure you understand all of them to pick the right one for you. Let's explore some of the most prevalent options in a way that's easy to understand.
1. Direct Sales Model
This is probably the simplest of your options—you market and sell your products or services straight to your customers, eliminating any need for middlemen. It doesn't matter whether you sell in person, on an online platform, or even by making your sales door-to-door, the concept revolves around engaging with your customers in a straight line.
Pros:
- You Have Full Control: You oversee the entire customer experience, from the initial contact to the completed transaction. You limit the chances of a bad encounter by tenfold by doing so, and if there is one, you can fix the situation right away.
- Increased Profits: By removing wholesalers or retailers from the equation, you retain a larger portion of the revenue from each sale. Your expenses would be limited to keeping the lights on and paying your employees and no one else would be a bother.
Examples in Practice: Apple and Bath & Body Works use their own stores to sell their products, instead of giving it to a retailer. Although Apple does have someone else manufacture their products, they ensure they have full control over the face of their brand, which helps them tremendously, giving them financial independence and flexibility.
2. Subscription Model
In a subscription model, customers pay a recurring fee(usually monthly or annually), to continue utilizing your services. This concept is similar to subscribing to a magazine-but it can also extend to various offerings such as software, streaming platforms, and meal delivery services. For some, it's more like monthly installments instead of asking the customer to pay a large upfront price, making the numbers less intimidating.
Pros:
- Stable Revenue: You make a stable amount of profit a month, and can better anticipate what to do next to be better. If there are ups and downs in your revenue it would be a bit easier to see where it's coming from and what you need to improve/fix.
- Customer Loyalty: Regular payments encourage customers to remain committed over the long term, and make it more likely for them to come back. You may buy a certain bottle of shampoo only once, but you still pay your streaming services on a monthly basis.
Practical Examples: Consider Netflix, Hulu, or Amazon Prime. These companies utilize this model to maintain customer engagement and ensure consistent revenue. They focus more on keeping their current customers than trying to create more, which has been a more common trend in several departments as of late.
3. "Freemium" Model
The freemium model bases itself around starting small with customers, with a free trial or a sample to engage their customers with the product first. If they like it, they can buy the full-sized version of the product, or upgrade to a paid "premium" version that offers additional services that they wouldn't have gotten otherwise. It is especially trending among apps and other platforms these days, offering a version that's enjoyable first and then little packages to buy to make it better.
Pros:
- Broaden Your Audience: Everyone loves free things. By offering a free option, you can first create value and a name for yourself that can later translate to a source of money, and adjust your "freemuim" options based on your needs.
- Accelerate Growth: The free version allows for rapid user base expansion, creating opportunities for future upselling. Advertisements are also ten times easier, and you can make up your profits by adding advertisements to the free version.
Notable Examples: Spotify provides free accounts but charges for premium functionalities, while Dropbox follows a similar model by offering more storage and enhanced tools for a fee. Sephora offers small samples of products that customers can buy later on if they enjoy it.
While these certainly aren't all of them(it's only three, the human race has got to be smarter than that), they're definitely a good place to start. Stay tuned though, because your options don't end here. In a later article, we'll make sure to go over a few more so you don't have any blind spots in your vision. :)
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Sources:
Houston, Melissa. "8 Lucrative Business Models for Entrepreneurs." Forbes, 25 Mar. 2024, www.forbes.com/sites/melissahouston/2024/03/25/8-lucrative-business-models-for-entrepreneurs/
"7 Types of Business Models (and How to Choose the Right One)." I Will Teach You to Be Rich, 12 Apr. 2024, www.iwillteachyoutoberich.com/types-of-business-models/.