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
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.
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 their revenue comes from external companies that run games applications.
Payments are regular transactions over the Internet. Obviously, this is the best model for eCommerce businesses.
The number of businesses that choose subscription model is increasing with the growth of software as a service (saas) and delivery boxes.
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.