Before setting off on a new business adventure, you have to decide what type of business you want yours to be. You need to determine what kind of service or product you’ll offer and how you’ll sell them. You have to choose a business model.
This guide will cover:
- What is a business model?
- How do business models work?
- What are the most common types of business models?
- How Countingup can help your business model
What is a business model?
A business model is a company’s outline of what it is and what it does to make a profit. Business models lay the foundations of a business down: identifying what products or services you’ll sell, your target market, expected expenses, and critically, how you’ll promote your business.
Whether a business is new or old and established, sound business models help attract investment and customers, recruit talent and market the company. You should update your business model as your company grows and develops. Otherwise, you might fail to notice trends and challenges ahead. Business models also help investors determine whether your company is a good fit for their investments. Note that there is some overlap between business models versus plans. The key difference is that a business plan is a detailed version of how you’ll work within your model.
How do business models work?
A major part of your business model will be your value proposition: your unique selling point or USP. Your USP is a description of what you offer and why your customers or clients should want to pay for them. USPs should be stated in a way that makes you stand out from the crowd and makes your business seem more desirable than your competitors. The next step in building your business model is positioning your USP to attract customers best.
Sometimes models are set by the wider industry where new businesses simply join the existing method of attracting customers. However, some highly successful businesses can grow from introducing existing models to a new category of products. Therefore, make sure to consider all your options as you’re setting up and planning your business.
What are the most common types of business models?
There are over 50 different business models to choose from. We’ve listed the most common business models for small companies below:
The advertising business model revolves around creating content that helps your business sell products to customers or clients. Advertising used to revolve around print but has now mostly transitioned to online or TV ads. The idea is to present people with content they want to see, hear or read, and entice them to buy what’s featured within the content.
Your adverts can be as simple as placing a logo where your audience will see it, or publishing engaging and thoughtful content to interest your audience.
Examples: John Lewis Christmas advert, Coca-Cola’s ‘Share a Coke’ campaign
A marketplace model is where a business holds a key position where customers are likely to find them in a physical or online location.
Marketplaces often operate as large spaces where customers know they’ll be able to find nearly anything they need or want. Therefore, your business can operate as one of the options available and bring in customers who might be interested in what you have to offer.
Certain marketplaces or platforms will charge your business for operating within their commercial space so make sure you can afford the premium rates for customer footfall and interest.
Examples: Shopping centres and high street shops, or online vendors on Amazon or eBay
Subscription business models are becoming more and more common. In this business model, consumers are charged a subscription fee to get access to a service or to have products delivered to them – typically monthly or annually.
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. Freelancers like graphic designers or consultants can use this model to grow their business and establish a customer base.
Examples: Content creators on Patreon, Hello Fresh
A mix of free and paid services, the freemium model is mainly used by tech companies in the Software as a Service (SaaS) or apps business model. To grow business and acquire customers, companies offer free (lite) versions to customers for a limited time or with limited features. To unlock the upgraded features, the customer has to opt for paid services. This can help small businesses improve their product and grow their customer base.
Examples: Mobile or desktop software, online blogs
The consulting business model is relevant to expert professionals looking to profit by advising less experienced industry players. This model typically works where smaller or newer businesses hire experienced and qualified people to provide consulting services for their plans for expansion change in operations.
If you’ve decided to start a consulting business, you can consider charging an hourly rate or taking a percentage share after completing a project.
Examples: Operations or accounting and finance consultant, a legal expert in a niche area
As a business working in wholesale distribution, you work as a third-party, connecting buyers and sellers. The main difference between wholesale and retail business is who your customers are; wholesalers typically sell to other businesses while retailers sell directly to customers.
Wholesale distribution businesses can sell a vast collection of products and make a profit by charging buyers a higher rate than what they bought the products for at their wholesale value.
Unfortunately, depending on where you’re positioned in a supply chain, your profit margin might be limited – this is because the products you buy and sell might have to be distributed further to end retailers.
Example: Materials or groceries wholesalers
This business model works similar to the freemium model: a product is offered for free with additional functionality provided when customers pay. However, the accessories model works specifically by providing add-ons and expansions to the base-level product, rather than offering a limited version from the beginning.
This way, customers can be easily introduced to your product or service and will be enticed to stay around for new features as they’re provided.
Examples: Children’s toys, expansion packs for video game software
How to spend more time on your business model
Bookkeeping and tax admin can be stressful, especially if you’ve never done it before. That’s where Countingup comes in. The business current account with free built-in accounting software automates the time-consuming aspects of your financial admin so you can focus more time on getting your business model right.
The best part? It can all be done in the palm of your hand with a simple app.
Find out more here and sign up for free today.