What Is a Business Model? Types and Examples for 2023

When starting a business, you have many options to consider. What business model to pursue is one of your most significant decisions, outside of the goods you decide to sell or your marketing plan.

Get a high-level breakdown of the eight main business model options so you can start out by making the best choices. Understanding each of these approaches is crucial if you want to pick the best one for your small business.

Each business model has advantages and disadvantages, and one may be better for you and your company than the others depending on your product, market, and cost structure.

What is a Business Model?

busi·ness mod·el

a design for the successful operation of a business, identifying revenue sources, customer base, products, and details of financing

A business model is a company’s core framework for operating profitably and providing value for customers. Features of an effective business model explain the customer value proposition and pricing strategy.

The model identifies the company’s products and services, target market, and future expenses.

Why are Business Models important?

Both new and established businesses need strong business models. By spotting growth opportunities, they assist companies in understanding their customers, retaining employee motivation, luring investment, and supplying a sustainable competitive advantage.

Consider your company’s business model as a living asset. It’s beneficial to update it frequently to stay on top of current trends and challenges.

Active business model innovation demonstrates to stakeholders your capacity for adaptation and ability to meet shifting market demands if you intend to raise capital or partner with someone.

Common Business Model types for e-commerce

There are four main e-commerce business model types:

✔️ Business to consumer (B2C)

✔️ Business to business (B2B)

✔️ Consumer-to-consumer (C2C)

✔️ Consumer to business (C2B)

1. Business to consumer (B2C)

– The business-to-consumer (B2C) business model describes transactions between a company and a single customer, such as purchasing a shirt from a company’s website. E-commerce and brick-and-mortar are both parts of the business to the consumer.

2. Business to Business (B2B)

– Any trade between two businesses is referred to as “business to business” (B2B).

This category typically includes wholesale transactions. Business-to-business services are permissible for both e-commerce and brick-and-mortar establishments.

For instance, a coffee company may sell its beans in bulk to coffee shops in addition to consumers on its website (B2C).

3. Consumer-to-consumer (C2C)

– The consumer-to-consumer (C2C), or peer-to-peer, business model is when a consumer sells a product or service to another consumer. Selling a used laptop on Facebook Marketplace falls under this category. Individual sellers often begin selling on online marketplaces and then start an online store to build a brand and capture more profits.

4. Consumer to business (C2B)

– The growth of the creator economy stimulated the development of consumer-to-business (C2B) businesses.

When a consumer sells their own goods or services to a company or organization, that business model is being used.

This kind of business model is what you would employ if you wanted to start an online photography business or become an influencer.

14 Business Model Examples

Different manufacturing and shipping processes are used in different business models. Let’s examine a few original business models that you can employ to launch your venture.

#1 Dropshipping

People who prefer to keep startup costs as low as possible and are less concerned with margins are drawn to dropshipping.

For someone who doesn’t want to keep and manage inventory, it’s a great business model.

When a customer purchases a product from your store, dropshipping involves both B2C and B2B transactions (you pay the drop shipper to provide the product and fulfillment services on your behalf).

Pros of Dropshipping
▪️ Low cost to start – You never carry inventory, so you don’t have inventory costs, which are typically the biggest outlay for a new e-commerce business.
▪️ Low risk – Since you don’t actually buy your inventory upfront, you don’t run the risk of having unsold inventory on hand.
▪️ Streamline sales – Dropshipping vendors will handle the picking, packing, and shipping of your goods on your behalf. You can manage your business using this option’s convenience and effectiveness from anywhere in the world.

Cons of Dropshipping
▪️ High competition – Many people are using dropshipping because it has such low entry requirements. The competition is fierce, and it can be challenging to stand out from the crowd.
▪️ Small margins – Due to low margins, it is challenging to compete with paid advertising space, so you will need to focus more on developing content, services, etc. In order to make a respectable profit, you must sell in significant volume.
▪️ Backorders – inventory synchronization. Because you depend on someone else’s inventory, there may be occasions when you contact the wholesaler with a shipment request but the item is out of stock. These delays might negatively affect your company.

#2 Retail

In a B2C business model, physical retail refers to in-person sales of your goods to customers. It might happen in a conventional brick-and-mortar store or at transient retail activations like pop-up shops, markets, and events.

Retail operations sometimes serve as B2B business models. Selling any products to businesses and wholesale transactions both fall under this definition. For instance, if you sell office furniture, your retail location is probably both B2C and B2B.

Pros of Retail
▪️ Establish solid rapport with your customers – Face-to-face interactions with customers present special chances to forge and cultivate relationships.
▪️ Increase sales – Online-only businesses must communicate with customers digitally. You can reach in-store customers through physical retail while also attracting online customers to your website. Additionally, in-person interactions with your products are more engaging for customers than online images are.
▪️ No hassle in shipping – When you conduct business in person, you can avoid the costs, administrative hassles, and potential for expensive returns associated with order fulfillment.

Cons of Retail
▪️ High above – There are numerous upfront costs associated with opening a physical retail location, not to mention ongoing operating costs.
▪️ Lack of Flexibility – While an online store offers you the option to make tweaks and adjustments with just a few clicks, such overhauls to your physical retail space require more effort.
▪️ A greater number of tasks – Running an online business is hectic enough without having to worry about running a storefront. When you own a physical store, you’ll have more to keep track of than if you only operated online.

#4 Manufacturing or Making

For those who have a novel idea or a variant of an already existing idea for a B2C or B2B business model, manufacturing your product is beneficial. It is also appropriate for those whose product’s market has already been established.
Manufacturing can be viewed from two angles:

  1. Private label. A manufacturer develops and markets a private-label product under the company’s brand. Everything is under the company’s control, including the ingredients used, the packaging, and the design of the labels. For companies that want to develop original products, private-label manufacturing is best.

  2. White label. A white-label product is created by one manufacturer and sold to various retailers under their own brand names. They’re generic products that you can sell to broader customer segments.

Additionally to manufacturers, there are makers—entrepreneurs who market their own handmade goods. You can really take control of production at this point. Limitations, time, and scalability are paid for by the ability to precisely control quality and your brand.

This choice is for the DIYer—someone with original ideas, the ability to manufacture the goods physically, and the financial means to do so. The most crucial point to make in this instance is that not all products can be made by hand. Your product options are constrained by your abilities and resources.

Pros of manufacturing or making your own products
▪️ The lowest price per unit – The lowest cost per unit is frequently found in manufacturing, giving you the highest profit margins on your product.
▪️ More control – Without any limitations, you are free to create your own brand, set your own prices, and manage the quality of your finished product.
▪️ Agility – You can increase your business’s agility to the greatest extent by producing your own products. Quality, features, and even the entire product can be changed instantly.

Cons of manufacturing or making your own products
▪️ Minimum purchase amounts. Initial order startup costs can be quite high. Your inventory investment could be thousands or tens of thousands of dollars, depending on the manufacturer’s prices and the cost of your product.
▪️ Outsourcing risks. You run a lot of risks that are out of your control when you rely on other people. Nothing will put a stop to your business like being duped by an international supplier.
▪️ An upfront payment. To get started, both routes cost money and take time. Prototyping, sampling, fine-tuning, and production can all take a while in the manufacturing process. And the main expenses related to producing your own goods are labor, raw material purchases, and inventory storage.
Time-consuming. Depending on your product choice, making your own products can be a time-consuming process, leaving you less time to focus on actually building your business.

#4 Wholesale

If you want to launch your business quickly or if you want to sell a range of goods and brands, buying wholesale is a good choice. Since there are numerous products that can be purchased at wholesale prices, wholesaling offers a variety of opportunities.

A B2C business model allows you to sell the products to consumers after making the initial purchase, which is a B2B transaction.

Pros of wholesale
▪️ Selling established products. Purchasing in bulk usually carries less risk. Dealing with established brands eliminates the possibility of wasting time and resources creating a product that no one will buy.
▪️ Brand familiarity. Selling well-known brands can position your company by encircling your own brand with positive associations.

Cons of wholesale
▪️ Differentiation of products. Selling products that have already achieved success can be advantageous or detrimental. You’ll have to work extra hard to stand out from the competition and persuade potential customers to buy from you because the products are sold by a variety of retailers.
▪️ Price regulation. You must somewhat follow their rules if you sell other brands. To prevent you from offering discounts on their products, some brands will impose price controls.
▪️ Management of inventories. There probably will be a minimum order for each product when buying wholesale. The minimum order will vary by product and manufacturer, but you will need to manage inventory for reorders as well as stock and hold inventory.
• Interacting with suppliers. Dealing with multiple supply partners can be difficult to manage if you carry a variety of products. The requirements may change from one supplier to the next.

The wholesale business model could be viewed as a security compromise between dropshipping and manufacturing.

Although every situation is different, it’s common to see a 50% margin on wholesale goods that are resold at retail prices.

#5 Print on Demand

Print-on-demand is a way to market custom products with your designs on them.

This is typical for B2C companies, but client gifts, conference swag bags, etc. also apply to B2B companies. In the case of print-on-demand, all you need to do is create the design; when a customer orders a product with that design, a third-party printing service will produce, package, and send the order.

This business model lowers the barrier to entry for selling online, much like dropshipping. There isn’t much of an upfront investment because you don’t have to pay for a product until you make a sale. Additionally, your printing partner takes care of everything from printing to packing to shipping.

Print-on-demand is a great business model for creatives. You can sell products like:

  • Duffle bags
  • Yoga leggings
  • Face masks
  • Watch bands
  • Canvas prints and posters
  • Throw pillows
  • Blankets

On-demand products typically yield thinner profit margins, depending on your pricing strategy and customer acquisition costs. But it’s a good low-risk business model for those new to e-commerce or who want to test different revenue streams for their existing business.

Pros of print on demand
▪️ Create products quickly. Once you create the design, you can make the product and sell it in your online store in minutes.
▪️ Automated shipping. Shipping and fulfillment is handled by your supplier. After you make the sale, you’re only responsible for providing great customer service.
▪️ The lower cost upfront. Since you don’t hold any inventory, it’s easy to add and remove products, test new business ideas, and create products for niche markets.

Cons of print on demand
▪️ Less control over shipping. Shipping costs can get complicated, as they often vary for different products. Your options also may be limited if you want to create a standout unboxing experience
▪️ Limited customization. What you can customize depends on the vendor and the product. You’ll have to determine base costs, printing techniques, and available sizes when deciding which products to customize.

#6 Digital Products

A nonphysical asset or media type is referred to as a “digital product” if it can be sold and distributed repeatedly online without needing to replenish inventory. Digital files that can be downloaded, streamed, or transferred, like MP3s, PDFs, videos, plug-ins, and templates are frequently used to create these products.

Although the initial costs of making a digital product can be high, their variable costs are typically low. Delivering an asset to customers is incredibly affordable once you’ve created it.

Pros of digital products
▪️ Lower overhead costs – You don’t hold any inventory or run up any shipping charges.
▪️ Scalability – Orders can be delivered instantly, letting you be hands-off with fulfillment. As the business grows, you can easily convert tasks into automation to free up time.
▪️ Extensive product offerings – There are various routes you can take: a freemium model where you provide products for free with upgradable features, monthly paid subscriptions for access to exclusive content, or licenses to use your digital products. You can build a business solely around digital products or incorporate them into your existing business.

Cons of digital products
▪️ High competition. People can probably find free alternatives to your digital products. You’ll have to consider the niche you target, provide superior products, and know how to build your brand in order to succeed. It’s helpful to do a SWOT analysis of your competition to find an edge.
▪️ Piracy and theft. You’re at risk of people stealing and reusing your products as their own.
▪️ Selling restrictions. For example, you can only sell physical products through Facebook and Instagram according to their commerce policy.

#7 Subscription

Customers pay a recurring fee—typically monthly or yearly—to access a product or service under a subscription business model. Businesses can benefit from ongoing customer relationships with the aid of subscription models. They will continue to pay you if they still think your offer is worthwhile.

You can launch a subscription business in a variety of sectors, regardless of whether you’re an online retailer or educator, including:

  • Streaming services
  • Monthly subscription boxes
  • Membership communities
  • Food services

Higher revenues and better customer relationships can result from using a recurring revenue model. Through a subscription membership, the more valuable your product or service is to customers the longer they use it.

Pros of subscriptions
▪️ Reliable income. You can forecast sales, plan inventory, and determine how much to reinvest for business growth with the aid of monthly recurring revenue.
▪️ More available cash. Your startup will have more cash flow (and peace of mind) if you receive monthly payments in advance.
▪️ Consistent clients. Regular purchases give you a better understanding of consumer behavior, allowing you to improve your products over time and draw customers back for more.
▪️ Simpler opportunities for upselling and cross-selling. Customers will develop more trust in you as they use your products more frequently. Due to the fact that they are already aware of your value to them, selling them additional products is made simpler.

Cons of subscriptions
▪️ Significant churn risk. Churn is a disadvantage of the subscription business model. For people to continue paying you, you must maintain their interest and engagement.
▪️ A variety of goods. If products don’t change frequently, they get boring. Every month, Netflix adds and deletes movies. Trunk Club guarantees to put money into your evolving fashion tastes over time. To keep a subscription business running, you must keep your products fresh.

Small issues, big problems. The majority of subscription services offer the same thing to their customers on the same day each month. Even though it seems straightforward, if your system has even a small flaw, it could become problematic.

#8 Affiliate

In an affiliate business model, you are compensated with a commission or referral fee for sending customers to your affiliate partner’s website.

Due to the fact that affiliates are typically regular people who recommend goods or services to other customers, affiliate marketing is frequently considered a C2C business model. But C2B might also be relevant.

Affiliates can be used in a business model in a variety of ways. Your company can also benefit from the influence of affiliate networks by hiring a team of brand ambassadors to spread the word about you.

Pros of affiliate
▪️ Possibility of passive income This presents a fantastic opportunity for passive marketing and income, whether you’re the affiliate or the brand. You have a network of brand ambassadors working for you. Create a website with affiliate links as an affiliate, then sit back and watch it expand.
▪️ Possibility of working together. You can collaborate with a wide variety of brands as an affiliate. You are given new opportunities and are exposed to things you might not have otherwise encountered.

Cons of affiliate
▪️ Small profits. Affiliates frequently receive a share of the money made from the referrals they make. Since many affiliate programs only pay out a small percentage, getting many referrals to convert is necessary to earn a significant payout.
▪️ Requires a network. The best affiliates already have their own network or audience. You must make an investment to establish one if you don’t already.

Find your successful Business Model

The majority of goods will fit into one of these fundamental business models. You might not have the option of selecting an e-commerce business model depending on your product or niche.

How you plan to sell your products will determine a lot of things. Naturally, some products will fit into particular categories. Your future business plan will be partially defined and shaped by the model you ultimately choose to sell under.

Use the various business models listed above as a solid foundation. Then, keep coming up with innovative ways to give your customers value. You’ll soon begin to understand the value of a sound business plan, steer clear of one of the many common business blunders, and begin your entrepreneurial journey in the right direction.

If you’re enjoying reading my blogs, you can consider visiting my other topics here. Or you can also visit my YouTube Channel for more free tips and learnings. Click Here!

Share the Post:

Related Posts

CHAT GPT-4: new features

Chat GPT-4 confirms long-running rumors about its enhancements to the OpenAI’s ChatGPT’s already astounding language abilities. Here is everything we

Read More