Choosing a business model is one of the most critical factors setting up your company as it determines your product, how the world views your company and most importantly, how you make your money.
For internet businesses, there are five main options
Advertising
The Facebook model, a free product for users, revenue is generated by targeted advertising. This is fine for high traffic websites as they have the critical mass to generate enough revenue to cover their costs. Startups and small businesses with a fraction of the user will struggle to survive with this model.
3rd Party
This is similar to advertising as revenue comes from another business who pays your business to integrate their products into your website or software. This method is also used by Facebook, approximately 12% of its revenue comes from external companies that run games applications.
Payments
Payments are regular transactions over the Internet. Obviously, this is the best model for eCommerce businesses.
Subscription
The number of businesses that choose a subscription model is increasing with the growth of software as a service (saas) and delivery boxes.
Freemium
The “Freemium” business model means that you maintain a free version of your site and a premium version. The assumption is that some of your free users will upgrade the service to the premium model.
Similar to the advertising model, you should be careful with this model. If your conversion rate to premium is low your business will struggle to survive, let alone make a profit.
There are no right answers with business models, it really depends on how much value your customers place on your business. Value is a perception and changes over time. Be prepared to change your business model as your company evolves. Your product may start a free product but over time if it is valued by your customers they may be willing to pay for it.
Make Your Business A Success
The key to a successful business can be found in our Business Success Formula. If you structure your business using the Business Success Formula as your blueprint you will decrease your chance of failure significantly.
We assess your business and implement our business success formula in our business assessment service The Business 360. It provides you with all the information to 10x your business in a matter of weeks. You can check it out here.
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