10 Business Models You Need to Know

Shalom Solomon 3rd February, 2021

Recently, while going through Oluwatosin's Money Africa page on facebook (you should check out their social media platforms and website, great content), I came across this post about a young company that made millions in revenue last year. The shocking part of the story was that, it achieved this feat without a business name, it was not a registered business either! Somehow, the conversation derailed to business Models and how what works for one business is not suitable for another.

Through the comment section, I got to discover that a lot of businesses do not have an existing business model. On the other hand, some business owners have a business model but are not even aware that such a concept exists.

So, we'll be talking about what business models are, why you need a business model and some types of business models with examples of business enterprises that use them.

Photo Credit: Pixabay

What is a Business Model?

You know that point when you first got your business idea?

Do you remember asking yourself, how do I make profit from this?

Well, the answer to that question is your business model.

A business model in it's most basic form shows how your business makes profit.

A business model is the blue print of how a business intends to reach out to it's target market and make profit higher than its cost.

So, it is basically figuring out to make money from your business.

An ideal business model is tailored to show the target market, products or services, the way the business operates and how the business handles it's finances.

One thing you need to keep in mind is that, business models are not set in stone. You can adjust your business model to suit changes in the environment and your business.

A good example is given by Alan Gleeson where there are two movie rental businesses; let's call them X and Y.

Both companies make 5 million in revenue and spend 4 million on cost. Thus making a profit of 1 million, right?

Now, company Y after sometime notices the shift to the internet and decides to start streaming movies online thus reducing cost to 2 million.

Company X on the other hand remains faithfully to the initial business model. Both companies still have the same revenue but company Y has higher profit because of reduced cost.

Why do you need a business model?

In the words of Souroubh Das, how can you tell anyone what your business intends to do and how it intends to achieve this without a business model.

Businesses and investors looking to partner with your business would need to know what your business model is and how you intend to use it to achieve your long term and short term goals.

They'd want to know how your business would add value to them and your target market.

Some Business Models Include:

1. Bait and Hook

This is my favorite business model. It is also called the razor and blade business model. Here, the business sells off its primary product at the cost price, a very low price or sometimes free (the bait). Then covers any loss by selling another product at a higher rate. This would be a product the customer would need to keep coming back to buy in order to use their primary product (the hook).

It is called the razor blade model because it was created and first used by a razor company. The company sold it's razor handles at a ridiculously low price (the bait) and then the customers would have to to buy razors from them to use it (the hook).

Examples of Businesses using this model: Gillette, Comcast and Standard Oil.

2. Reverse Bait and Hook Model

The name is kinda self explanatory, no? Businesses that use this model sell their primary product at very high prices and give away free or almost free products and services after.

Think of the primary product as a ticket to an amusement park with lots of free fun stuff and rides in it.

Apple uses this model to sell their products. Apple products albeit expensive, have free benefits that come with them like iOS updates.

3. Business- to-Business model (B2B)

This business model, deals directly with other businesses as customers. A majority of B2B companies make raw materials for other businesses.

Marketing on the B2B model involves a well laid out description of why a business should patronize your business, are your products safe, how patronizing your services would lead to increased sales.

So, advertising on TV and social media platforms is not suitable for B2B companies. An ideal form of marketing is email marketing or direct contact with the businesses you'd want to work with.

4. Business-to-Consumer (B2C)

The B2C business model deals directly with the consumers. They market their products or services to people who would use them directly.

Therefore social media marketing and other forms of marketing can work perfectly for this model.

Retailers mostly use the Business to Consumer model.

5. Brick and Mortar Model

This is probably the oldest model in use. It is also the most common. Brick and mortar model involves the business having a physical office or building where it's customers can come and make transactions.

6. E-commerce Model

E-commerce is the modern opposite of the brick and mortar model. The business does not have a physical point of contact. Instead, it has a virtual or an online platform for transactions and to carry out it's business operations.

A lot of small online businesses use this model and do not have a real office or shop; every business operation is done on the business' website.

7. Brick and Click

This model is a hybrid of the brick and mortar model and the e-commerce model. This is the major model most business use. A lot of brick and mortar businesses are going digital. So, they have both an online presence and a physical building also.

Customers who are too far form the office or operational headquarters can order for a product or service online and those close to the business' physical base of operations can go there directly.

8. Subscription

This model involves customers paying a specific amount from time to time to continue using the products or services of a business.

A common example is Netflix.

9. Freemium

The freemium model is used by most mobile and desktop applications. It is similar to the bait and Hook model.

For the Fremium model, a part of the services are offered for free and a subscription is required for higher benefits or updates.

This model is great for getting new customer while getting revenue from the old ones. AudioMack for example offers an ad free experience and unlimited downloads for premium upgrade.

Other Apps that use this model are YouTube and CamScanner.

10. Network marketing

Network marketing is a business model in which a distributor network is used to build a business. Network marketing involves using a pyramid system where distributors buy the company's products and sell to others. The distributors are given a commission for each sale made and also when their downlines (those registered under them) make sales.

Popular businesses using this model are Oriflame and Longrich.

These are by no means all the business models in use today, they are infact a few.

And more are still being introduced.

Businesses can use more than one model at a time. Your business can be a Subscription based e-commerce company.

You can combine B2B and B2C models and supply products and services to businesses and consumers alike.

Creating a solid business model is important as it is part of the reasons why many businesses succeed or fail.

Also, remember, you can always change if your business model isn't working out for you.

Have a nice day.