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A Look at the Different Types of Business Models

written by: •edited by: Tricia Goss•updated: 4/14/2012

Thinking of starting a new business? Before writing a business plan, figure out what your business model will be. Find out the types of business models and how to lay the groundwork for what products and/or services your business will sell, what customers it will sell to and how it will reach them.

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    What Are Business Models?

    240px-Shokunin businessman svg 

    Business models describe core aspects of a business such as mission and purpose, organizational structure and business strategies. There are different types of business models summarize how a business will operate. Specifically, what products or services it will sell, to whom it will sell them and how it will sell them. Figuring out the business model should be done before a business plan and is used to lay the groundwork for a business plan. The business plan differs in that it details more about mission, organizational structure, operations, financing and future projection. Templates can be used to develop a comprehensive model for a new business. These are great tools for initial business startups because they force owners to think and evaluate what their business will be about before investing enormous amounts of time and money in a business venture.

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    Types Of Business Models

    Online Business identifies nine types of business models that can be briefly defined -

    1. Community-based model – the business earns money from the community that it operates in. For instance, companies that used members of the community to create the product or service they sell. Bright Hub, Demand Studios and Associated Content are examples.
    2. Merchant model – the business sells a product or service to its customer through a storefront.
    3. Subscription model – the business earns money by selling subscriptions to its products or services. Magazines can be classified under this model.
    4. Infomedia model – the business makes money by selling information about a topic to its customers. The information can come in the form of tapes, videos or seminar. Anthony Robbins and many exercise gurus fall under this model.
    5. Affiliate business model – the business earns money by referring its visitors to related products and services. Many blogs make money through Google Ads, which advertise affiliate products on their websites.
    6. Advertising model – the business makes money by selling advertising space in its products. Magazines and television stations are classified under this model.
    7. Brokerage model – the business makes money on commissions from selling a product or services. Real estate and financial trading companies make money through the brokerage model.
    8. Direct manufacturer model – the business makes money from selling its product or service directly to other businesses who then sell them retail to their customers. All companies that sell consumer products and services wholesale would fall under this model.
    9. Utility business model – the business make money by selling the usage of its products and services. Utility companies such as power, phone and cable operate under this type of model.

    If you have an idea for a business model, study the above existing models carefully and consider how your business idea may fit into one or more. Take the time to research existing companies to get a clear idea as to how they make money on their products and services.

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    Choosing a Successful Business Model for Today's Market

    Many types of business models are more popular now because of technology and consumer trends in spending. For instance, trends such as online banking and shopping greatly influence business models that companies use. For instance, Netflix is far more popular now than Blockbuster because it sells its subscription-based movie rental services to customers online as opposed to in a physical storefront.

    When considering new business startups, think about business models that will minimize startup costs and attract customers from new markets. Using social media to reach audiences can actually save on traditional marketing activities. Nowadays, you can tweet to your customers, use Facebook, twitter and blogs instead of using costly websites. For example, infomedia models, community-based and affiliate models work great with new social media outlets.

    Also, businesses based on niche markets (often called cottage businesses) can successfully capitalize on serving new customer markets such as power moms (soccer moms who were once career women), seniors and children. The goal in these types of businesses is to know the needs of the customers well and keep business and operating costs as low as possible. There have also been successful business models that have capitalized on trends in the marketplace and what customers need because of their lifestyles. For instance, mobile companies and businesses that produce iPad applications are increasing their market share and thus their revenue because customers need their products and services today.

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    Master Your business – Business Model Template

    Online Business Watch

    Image Credits

    Photo courtesy of WikiMedia Commons