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5 Business Models You Can Consider When Starting Any Business

5 Business Models You Can Consider When Starting Any Business

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5 Business Models You Can Consider When Starting Any Business

The business model is at the core of any successful startup­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­. The model you use for your startup will determine its lifeline since revenue generation is the core of any business.

The business model articulates the rationality of your business as you are going to need to offer your customers more value.

There are lots of options to consider when it comes to revenue generation. As a founder, it is your job to figure out which one works best with your business.

Most of these business models will depend on the industry that you are in and here at Founder360°, we have compiled 5 popular business models that have been tested and proven with relevant examples to guide you.

 

Subscription Model

This is a model where a customer must pay a (monthly or yearly or seasonal) price to have access to a product or service. It provides a simple, convenient and money-saver purchase process for the customer, as the customer is assured of receiving the product/service every month or within the scheduled delivery time without reordering.

The startup is assured of a predictable and constant revenue stream from subscribed individuals for the duration of the subscriber’s agreement. This not only reduces the risks within the business but also creates an attachment between the customer and the product.

Typical examples include Netflix which provides affordable monthly subscription service for its TV shows and movies;

Read: 5 Common Tax Mistakes that Small Businesses are Prone to Make

Direct Sales Model

In a direct sales model, a business uses a network of its salespeople to sell their products directly to the end consumer. This stands in contrast to retail marketing, where a business sells its products in large volumes to distributors and stores rather than directly to end consumers.

This business model allows you to cost savings by removing the wholesale or retail option out of the equation since large retail outlets may demand slotting fees to place a product on the shelves or insist the company to pay for heavy advertising. 

Moreover, direct sales allow the startup to also develop stronger relationships with customers since the interaction is face to face or even through social media and leading to loyalty hence repeat customers yielding more profit.

 

Freemium Model

This is a business model whereby a startup offers a basic service to customers for free while charging for premium services which advanced features and add-ons to paying members. One of the advantages of this kind of model is that the startup is able to attract a user base with minimal costs thus scaling and customers are able to try out your service for free without commitment. This helps the startup validate and gain trust from customers before they make any financial commitments.

Successful companies that have used this model include LinkedIn, Dropbox and HootSuite.

Dropbox’s freemium approach allows users to easily backup and shares their files inclusive of photos from any platform (computer or mobile device) and you get 2GB of space while its paying plan version has a significantly larger amount of space at 1TB for only $9.99 per month.

 

On-Demand Model

This is a model that allows start-ups to use efficient and intuitive technology to offer products and services to customers as they need. The customer will request the products and services through a mobile app created by the startup. This has driven the consumer’s appetite for greater efficiency and speed when it comes to accessing products.

You have to build or leverage existing technology and the start-up doesn’t have to own any physical infrastructure as the model is very much scalable and cost-effective. In addition to using freelance labour thus managing human resource cost effectively. Moreover, it provides more income revenue streams for solo-prenuers who have services to offer and no platform to use.

Best examples of this kind of models are Uber, Airbnb Instacart, Sendy and Kisafi.com among others. Uber is undoubtedly one of the most successful on-demand services in the world.

 

Franchise Model

Under a franchise model, an individual or a company (franchisee) buys the right to carry on a particular name or trademark usually within a location, for an agreed-upon term from another company (franchisor).

The franchisee is granted a license to use the franchisor’s company’s trademarks, systems, signage, software, and other proprietary tools and systems in accordance with the guidelines within a contract.

This business model is advantageous since business owners purchase the license will acquire most of the other organization’s business strategy. In addition, the business will get into the market in a much smoother way since the brand is usually a popular one with consumers.

Best examples include McDonald’s, Subway which is a fast food franchise and InterContinental Hotels and Resorts and Hilton Hotels & Resorts which are hotel franchises

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