This is by no means an exhaustive list of all business models that exist – but, hopefully, it gets you thinking about how you might structure your business and push on with your startup.
The advertising business model has been around a long time and has become more sophisticated as the world has transitioned from print to online. The fundamentals of the model revolve around creating content that people want to read or watch and then displaying advertising to your readers or viewers.
In an advertising business model, you have to satisfy two customer groups: your readers or viewers, and your advertisers.Your readers may or may not be paying you, but your advertisers certainly are. An advertising business model is sometimes combined with a crowd-sourcing model where you get your content for free from users instead of paying content creators to develop content.
Examples: CBS, The New York Times, YouTube
The affiliate business model is related to the advertising business model but has some specific differences. Most frequently found online, the affiliate model uses links embedded in content instead of visual advertisements that are easily identifiable.
For example, if you run a book review website, you could embed affiliate links to Amazon within your reviews that allow people to buy the book you are reviewing. Amazon will pay you a small commission for every sale that you refer to them.
Examples: TheWireCutter.com, TopTenReviews.com
Brokerage businesses connect buyers and sellers and help facilitate a transaction. They charge a fee for each transaction to either the buyer or the seller and sometimes both.
One of the most common brokerage businesses is a real estate agency, but there are many other types of brokerages such as freight brokers and brokers who help construction companies find buyers for dirt that they excavate from new foundations.
Examples: ReMax, RoadRunner Transportation Systems
Some businesses take existing products or services and add a custom element to the transaction that makes every sale unique for the given customer.
For example, think of custom travel agents who book trips and experiences for wealthy clients. You can also find customization happening at a larger scale with products like Nike’s custom sneakers.
Examples: NIKEiD, Journy
If you can bring together a large number of people to contribute content to your site, then you’re crowdsourcing. Crowdsourcing business models are most frequently paired with advertising models to generate revenue, but there are many other iterations of the model. Threadless, for example, lets designers submit t-shirt designs and gives the designers a percentage of sales.
Companies that are trying to solve difficult problems often publish their problems openly for anyone to try and solve. Successful solutions get rewards and the company can then grow their business. The key to a successful crowdsourcing business is providing the right rewards to entice the “crowd” while also enabling you to build a viable business.
Examples: Threadless, YouTube, P&G Connect and Develop, Cuusoo
If you want to make and sell something in stores, you typically work through a series of middlemen to get your product from the factory to the store shelf.
Disintermediation is when you sidestep everyone in the supply chain and sell directly to consumers, allowing you to potentially lower costs to your customers and have a direct relationship them as well.
Examples: Casper, Dell
Instead of selling an entire product, you can sell just part of that product with a fractionalization business model.
One of the best examples of this business model is timeshares, where a group of people owns only a portion of a vacation home, enabling them to use it for a certain number of weeks every year.
Examples: Disney Vacation Club, NetJets
Franchising is common in the restaurant industry, but you’ll also find it in all sorts of service industries from cleaning businesses to staffing agencies.
In a franchise business model, you are selling the recipe for starting and running a successful business to someone else. You’re often also selling access to a national brand and support services that help the new franchise owner get up and running. In effect, you’re selling access to a successful business model that you’ve developed.
Examples: Ace Hardware, McDonald’s, Allstate
With a freemium business model, you’re giving away part of your product or service for free and charging for premium features or services.
Freemium isn’t the same as a free trial where customers only get access to a product or service for a limited period of time. Instead, freemium models allow for unlimited use of basic features for free and only charge customers who want access to more advanced functionality. For more on the freemium model (and other pricing models popular with SaaS – Service as a Software – businesses).
Examples: MailChimp, Evernote, LinkedIn
Leasing might seem similar to fractionalization, but they are actually very different. In fractionalization, you are selling perpetual access to part of something. Leasing, on the other hand, is like renting. At the end of a lease agreement, a customer needs to return the product that they were renting from you.
Leasing is most commonly used for high-priced products where customers may not be able to afford a full purchase but could instead afford to rent the product for a while.
Examples: Cars, DirectCapital
With a low-touch business model, companies lower their prices by providing fewer services. Some of the best examples of this type of business model are budget airlines and furniture sellers like IKEA. In both of these cases, the low-touch business model means that customers need to either purchase additional services or do some things themselves in order to keep costs down.
Examples: IKEA, Ryan Air
Marketplaces allow sellers to list items for sale and provide customers with easy tools for connecting to sellers.
The marketplace business model can generate revenue from a variety of sources including fees to the buyer or the seller for a successful transaction, additional services for helping advertise seller’s products, and insurance so buyers have peace of mind. The marketplace model has been used for both products and services.
Examples: eBay, Airbnb
Instead of pre-purchasing a certain amount of something, such as electricity or cell phone minutes, customers get charged for actual usage at the end of a billing period. The pay-as-you-go model is most common in home utilities, but it has been applied to things like printer ink.
Examples: Water companies, HP Instant Ink
- Razor blade
The razor blade business model is named after the product that essentially invented the model: sell a durable product below cost to increase volume sales of a high-margin, disposable component of that product.
This is why razor blade companies practically give away the razor handle, assuming that you’ll continue to buy a large volume of blades over the long term. The goal is to tie a customer into a system, ensuring that there are many additional, ongoing purchases over time.
Examples: Gillette, Inkjet printers, Xbox, Amazon’s Kindle
- Reverse razor blade
Flipping the razor blade model around, you can offer a high-margin product and promote sales of a low-margin companion product.
Similar to the razor blade model, customers are often choosing to join an ecosystem of products. But, unlike the razor blade model, the initial purchase is the big sale where a company makes most of its money. The add-ons are just there to keep customers using the initially expensive product.
Examples: Apple’s iPod & iTunes, and now MacBooks & Pages, Numbers, and Keynote
- Reverse auction
A reverse auction business model turns auctions upside down and has sellers present their lowest prices to buyers. Buyers then have the option to choose the lowest price presented to them.
You can see reverse auctions in action when contractors bid to do work on a construction project. You also see reverse auctions anytime you shop for a mortgage or other type of loan.
Examples: Priceline.com, LendingTree
Subscription business models are becoming more and more common. In this business model, consumers get charged a subscription fee to get access to a service.
While magazine and newspaper subscriptions have been around for a long time, the model has now spread to software and online services and is even showing up in service industries.
Examples: Netflix, Salesforce, Comcast
- API | Data
The API (Application programming interface) business model startups serve the emerging developer economy, typically monetizing via a subscription, SaaS (Software as a Service) like model based on API usage, in other cases monetizing via transaction fees if processing currency.
Examples: Stripe and Twilio.