Thursday 23rd of April 2020
A business model is the first thing that comes to mind when you become an entrepreneur. It is a f
...ramework that ascertains how the entity will make...
A business model is the first thing that comes to mind when you become an entrepreneur. It is a framework that ascertains how the entity will make money. It is needed by start-ups as well as established businesses when they enter a new market or change their organisational setup. It involves identifying the basic purpose of the venture and how it plans to accomplish it. The components of a successful business model include determining the products to be sold, the target market, how to reach the customers and the cost of marketing.
The commercial world is filled with a variety of businesses with specific business models required for maintaining optimum sales. Also, several business owners change their business model when they expand or pivot due to changing customer behaviour. Thus, entrepreneurs must understand the different types of business models to build a plan for creating value for their entity. Here is a list of the most common models with examples for a deeper understanding of the concept.
Different Types of Business Models with Examples
Aspiring entrepreneurs who are starting-up or have purchased one of the existing businesses for sale Perth can choose from any of the widely accepted business models to become successful. They may differ in the concept but focus on what the business intends to do and how it will do it.
A manufacturer model entails producing parts, components or complete products. Depending on product type, they sell them to other manufacturers, retailers and customers.
Example: Any business involved in the production of goods like steel, textile, medicines, and furniture, such as Caltex, BHP, Fonterra Co-op Group, Amcor, etc.
Distribution companies are responsible for taking the finished goods to the sellers. They act as middlemen who purchase wholesale products and sell them to retailers for a profit.
Example: Pro Prep and Fulfillment and Chalmers Industries
A retailer model is one where the business sells finished goods directly to the consumers. It is also called the B2C model and involves buying products at a lower price in bulk and selling them for a higher margin. It is a highly competitive market segment and requires effective management to stay profitable.
Example: Businesses that cater to the daily needs of consumers follow this model, such as online stores, supermarkets, and grocery stores, like Kmart, Aldi, Kogan, etc.
Businesses that charge a fee for their service follow this model. They increase their profits by acquiring more clients and charging a higher rate for the specialised service.
Example: Accounting services, lawyer’s fees, real estate agents, etc.
Businesses that make consumers buy a long-term subscription plan to make ongoing payments follow the subscription model. Usually, software providers and digital marketing service providers use this approach.
Example: Netflix and Uber
Digital marketplaces like Amazon work on this model. They provide sellers with a popular platform to sell their products and get paid a part of the profits. Many aspiring entrepreneurs either use this model or purchase a business for sale in Perth to become their own bosses. When individuals use this model to generate income, it is known as the C2C model.
Example: eBay, Gumtree and Woolworths
Franchising allows the franchisee to sell and market the products of the franchisor and use his trademarks. The owners of individual franchise units in the network emulate the policies and processes of the owner to generate income. In exchange for this, the franchisor receives an initial payment and ongoing royalties.
Example: Several home-grown chains use this model, such as 7-Eleven, Roll’d, PoolWerx, Just Cuts, etc.
The bundling business model requires selling a bundle of products together to buyers at a lower price. It helps increase sales and retains customers because of the discounted rates. Thus, it is often used as a tactic to increase sales without spending on customer acquisition. However, maintaining profits is challenging because of lower pricing.
Example: Telstra provides bundle offers for mobile and data plans
The Freemium business model allows customers to access some features of the product for free and asks for payment for using advanced features. Most software companies use this model to sell their products.
Example: Australian Financial Review provides some news articles for free online, while accessing most of the content on the site requires payment.
This model involves charging customers based on the usage of the product instead of asking for a fixed price. They may charge a small amount to offer the service and then calculate the monthly bill based on the usage of the service. Utility service providers follow this approach to generate income.
Example: Energy Australia bills customers based on the pay-as-you-go model.
The razor blade model is derived from the sale of razor blades. In this approach, the seller offers the product at a lower price because they know that its accessories will bring ongoing income and an excellent return on investment. It is similar to razor blade companies providing the razor at an affordable cost because the buyers will need to replace the blades frequently, which boosts revenue.
Example: Epson printers that require an expensive cartridge refill after a few months of use.
As the name suggests, it is the opposite of the razor blade model. Using this concept, a company sells its product at a high margin and then offers accessories at a lower price. It helps in making upfront profits.
Example: Apple sells iPhone at a premium and its accessories at a lower cost.
The advertising business model works on the premise of offering advertising space to others for a price. It is the business model used by print media, such as newspapers and magazines. They earn their profits from the businesses advertising through their medium rather than the sale of their publications.
The affiliate business model also works along the same lines wherein social media influencers promote a brand and earn a commission for sales achieved through their recommendations.
Example: Newspapers like the Sydney Morning Herald, the Age, and social media influencers like Lauren Curtis and Wengie.
Wrapping Up
Several brands use more than one business model or keep changing their strategy to earn better revenue. They must assess which model will fit their offerings to get the best output before adopting it. The examples mentioned above showcase the best utilisation of these business models.
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