Everything About Business Models and Why it is Important
22 Jul, 2021
7 min read
Innovation and problem solving are at the heart of any business. With the rapid growth in technology, there is a huge demand and craze among people to have their startups. The primary aim is to solve real-world problems with the help of technology and make society better. When setting up a company, you need to take care of many complexities and many things like business model, market research, defining the target market and audience, understanding users’ needs, etc.
The most important part is defining the business model for your company as it defines how the company will work, and the company’s culture. These things are essential to know more about any company and ultimately define the success or failure of the business.
A business model is a way to define the process by which your business earns money. It defines the products and service business plan to sell. A business model is for both established as well as startup companies. In fact, established companies should keep on redefining their business model time and again as needed to keep up with the changing trends and pace of the market. If you are thinking about starting an ecommerce business and which business model to choose, you are at the right place. Here, we will discuss why business models are important and the different types of them.
The business model helps in aligning business operations and helping companies to work efficiently. It even defines how people perform their work and helps them to develop a process.
One of the major impacts of the business model is it helps in improving the process of communication inter-team and with cross-functional teams. A business model defines the common unified language and methodology for communicating with the team, which helps the entire organization by being transparent and on the same page. It decreases the chances of miscommunication amongst the team members and helps share the needed knowledge via documented methods.
It is necessary to provide importance to well-designed business processes and rules to ensure that the business workflow is consistent all over the organization. Business process modeling makes it easy to provide consistency in various processes by providing business guidelines which eliminates guesswork and streamlines the operations.
The process of simulation and analysis steps of the business process model provides a detailed understanding of the process flows. It helps managers know which process is working in optimized ways, helps in improving the process cycle time, enables better resource utilization, and allows modeling the process before implementing it. All these things help in decreasing miscommunication and unnecessary back and forth.
All the benefits we discussed above will bring you more clarity on ways you can run your business and stay on the top of the game.
Hence, make sure to use the business model and refine it repeatedly to work productively in the market. A business with the proper business model is agile and has control over its process as well as consistency over the products it builds.
Going further, let’s see different business models that can help you decide how to start an ecommerce business and which is perfect for your business.
The advertising business model is the oldest one and has changed according to the types of content being created,i.e., from print media to digital. The fundamentals of the advertising model are similar to that of print advertising. It revolves around creating content that people want to read or watch and then show ads to your reader or viewers. In this model, you have two customer groups, i.e., your readers and your advertisers. Your readers might pay or not, but your advertisers are paying you. An advertising business model comes with a crowdsourcing model in which you get your content free from users instead of paying to content creators.
Affiliate model is extremely helpful to start up companies as they are trying to build a customer base and increase their reach. Using affiliate links for your products or services you can reach out to content creators who help you by promoting your products and services. As a result, your business gets better reach, more users, increase in revenue, and increase in sales.
You will have to decide on the fixed amount for the content creator when anyone comes from their affiliated link. Regardless of your business size and model, affiliate marketing is beneficial for your company.
This business model is for those who customize their products or services according to their customers’ needs. This helps them to increase their customer base by providing them with a better experience. Customization has become a new way of serving customers. It allows users to create and customize products on their own which reflects their choice. Looking at this craze, many companies provide customized products to their customers. Nike is one of the leading companies when it comes to customizing shoes on their online product design tool named “Nike By You”, herein you can design your entire shoes like colors, base, ankle cuff, laces, etc. and can place an order directly from the website.
The crowdsourcing model is about bringing many people to contribute content to your site, solve problems, etc. there are many different variations of this model. Depending on the problem you are trying to solve, decide the best crowdsourcing model for you.
For example: if you are a company that is solving some real-world problems with technology and are struggling with it, you can crowdsource it. You can make the problem available to the public and try to solve it with the help of the community. Further, whoever solves the problem receives a fixed amount of money. Furthermore, depending on your business model, you can modify it and implement the model.
The disintermediation model is about selling directly to consumers at very low prices. This excludes all the middle people between the consumers and you. Businesses can sell the products at their own terms and conditions and cost to the users. The exclusion of middle man also decreases the product’s cost and helps businesses sell directly to the customers and build relationships.
The franchise is a standard business model in the restaurant industry, but you will also find it in many industries. In this business model, you will share your secret about the ways to run your business with others, as a result it eventually helps your franchise to grow. Implement this model if you are planning to expand your business and reach more customers.
This model is perfect for people who are in the housing business. It allows users to use your services in fractional format. Vacation homes are the perfect example of this. It allows users to rent vacation homes for the time being and enjoy it. You can do a similar thing with digital products as well. Users can use some of the services in a fractionalized manner and help you increase your project leads.
Example: One of the best examples of this business model is AirBnB. It allows users to sell and rent living spaces for some time. Both the parties can contact each other via the application and exchange their details. This helps the host family to earn money and guests can get accomodation at a lesser cost and spend on exploring other places.
The Freemium model helps to allow your users to use your products and services entirely for free. To monetize this model, you can use advertisements, and users can choose a premium model if they want to go ad-free. Users can access all the basic features in the freemium model, and if they need access to advanced features, they can opt-in to the premium version. A perfect example of this is Spotify. It allows users to access the basic features like listening to music, creating playlists, like and dislike, custom playlists, and more. But, if they want to listen to it ad-free, download, or want to listen to high-quality music, users need to go premium.
Marketplace allows users to buy and sell their products. There are multiple ways businesses can earn income from marketplace models by including some fees from buyers or sellers on each successful transaction, advertising seller’s products, providing insurance to buyers, etc. It is common place for buyers and sellers to come together to purchase and sell their products.
Example: Amazon, Flipkart, and any online e-commerce platform. People can purchase almost anything and everything online easily. This model has picked up pace since the boom of ecommerce.
Leasing is a different fractionalization. In leasing, you are renting a part of something to your customers, which they eventually have to return to you. It is a sound or high price product that customers cannot afford and would like to rent or test. You can say things like cars, certain software, housing, etc. Depending on your business model, you can make the tweaks in this model and use it.
Pay as you go business model allows users to use the services first and then make the payment depending on the usage. This is the common business model used in telecommunications, streaming platforms, SaaS solutions, and more. It helps you get a loyal customer base and provide users with the perfect solution to their needs. This model has become so known due to leading cloud service providers that companies can see the advantage.
The subscription-based model lets users subscribe to the particular service if they are happy. This model already exists with e-magazines and online publishers, but now with the major transformation in technology, many online platforms are opting for it. Customers can pay a certain fixed amount to enjoy their subscription. Online music streaming platforms like iTunes, Spotify, video streaming platforms like Netflix, Amazon Prime, etc. are perfect examples of this.
This model focuses on selling products at a low cost and allowing customers to come back to business. The low cost of the product makes it easy for customers to keep coming back to the business. This model is useful in the basic amenities, allowing customers to come back to businesses for essential items.
Flipping the razor blade model, you get a reverse razor blade model, but the product margin is very high. But, unlike the razor blade in this model, companies make huge profits upon selling each product. Companies provide other products like add-ons which customers need to pay for. For example, when you buy any Apple products, you buy other add-ons like Airpods, charging brick, Apple Pencil in iPads, etc., they are leaders in this model. So, if your business is about high-margin products, a reverse razor blade is the answer.
There are plenty of business models available in the market, depending on your business requirements and users’ needs you need to define your model. Companies can simply not exist without a proper business model and pre-defined workflow processes. The business model helps you define and set the tone of your business and lets you set the tone of your organization. If you are still confused over business models and need help, you can reach us. Our experts will understand your business requirements and define the business model.
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