Starting a new business is exciting. There’s a lot to think about and your confidence is probably high. Got a great idea? Tick. Ready to put the hard work in? Tick. However, even with a unique idea and the motivation to succeed, you must use a business model that has the potential to make money.
A good business model is fluid. It allows for change if the business begins to move in a different direction from the one you originally envisaged. Tools like a business model canvas template let you do this. All you have to do is plug in key data and then you have a useful strategic overview of the business.
To learn more about choosing the right business model, read on for an overview of the most common business models and what to consider when making a final decision.
Popular Business Models
Franchises have a lot of advantages. You are buying into an existing, profitable business, and receive ongoing help. Huge global branded chains such as McDonald’s and Starbucks are great examples of franchise business opportunities. Some franchises demand a lot of start-up capital, but there are plenty of more affordable ones out there.
The internet has created a wealth of opportunities for startup wannabes. It’s relatively easy and inexpensive to start an e-commerce business in the retail sector. Website builders like WordPress have e-commerce plugins, so you can build a professional store in a few clicks. If you have a product to sell, this is the perfect business model.
Subscription businesses are not a new concept, but the internet has made this business model a viable option for a larger number of people. Once you have a product people want to buy, it’s very easy to sell it as a subscription service. Software-as-a-Service (SaaS) is a good example; product subscription boxes are another.
Website owners can make money by selling advertising space on their sites. Depending on how much traffic your site has, this can be a nice little earner.
Razor Blade Model
The classic razor blade business model is named after the way disposable razors were sold at a below-market price, with the company making money on replacement blades. Printer sales work in a similar way: desktop printers are extremely cheap, but replacement ink cartridges are ridiculously expensive.
Choosing the Right Model
The above is a quick overview of the most popular business models, but there are many more out there. What’s important is choosing the one that best suits your product/service.
The Customer Experience
Consider your target customers. Creating a positive customer experience is crucial if the business is to last long-term. After all, it’s easy to make one sale if your advertising pitch is great, but if none of your customers ever return, the business has a limited lifespan.
Don’t be too focused on profit, at least not in the beginning. The key to success is to build a loyal customer base first. The business model you choose should meet your customer expectations.
Analyze the Competition
Look at what your competitors are doing. What business model are they using? If they already have a successful business, the business model they chose was likely a profitable one. Don’t try and reinvent the wheel. There’s a lot of merit in opting to use the same business model. You might be selling the same or similar products/services but look at how you can differentiate your offering from that of your competitor.
Monetizing Your Product
Think about how your customers are going to buy what you are selling. Some products are suited to a subscription service, whereas others, for example, high-end fashion accessories, may benefit from a quality e-commerce store, or even a bricks and mortar boutique.
Make sure your business model aligns with your target customer and how they are likely to buy your product/service.
Be Prepared to Experiment
It’s important to be flexible and refine your approach as you gain experience. As we said at the beginning of this article, your business model should be fluid. Be willing to adapt your ideas if a strategy doesn’t work out as planned. For example, you might begin with an e-commerce store and then switch to a subscription model for your products.
Try more than one business model and see which one fits the best. As long as your value proposition ensures a customer chooses you over a competitor, there is space in the marketplace for your business, even when that space is very crowded.