Business Model Examples (With Definition and Uses)

By Indeed Editorial Team

Published 9 November 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Companies use business models to determine how to create value and make money. A business model is important as it's the basis for a business's viability and a necessary tool for validating assumptions about the customer and the market. Understanding what business models are and knowing how to use them can help you increase the viability and success of business ideas. In this article, we define what business models are, provide examples, explain how companies use them and discuss how they differ from business plans.

What is a business model?

A business model is a system that outlines how a company is going to create value and generate revenue and profits. Business models are essential to the viability and success of any company because they articulate the unique selling points and value propositions of the organisation.

When creating a business model, a company identifies the specific problems its product or service is going to solve, describes the features and functions that are going to help it solve the problem, determines the target market and customer segments and evaluates growth potential. This makes it essential for new and existing organisations to have an in-depth understanding of the different business model examples they can use to achieve their strategic goals.

Related: What Is a Business Plan? (Definition, Benefits and Guide)

How do companies use business model examples?

For many new and growth-stage companies, organisations launching new products or services or those expanding into new markets, business model examples help validate their assumptions about the product or service, the customer, the market and the competition. These companies use their business models to identify customer and market research objectives, determine problems other companies haven't solved and find out the specific features, functions and price points that are acceptable to their target audience. With a well-designed business model, new and expanding companies can ensure that their marketing and product development decisions support the strategic organisational objectives.

Established companies usually have an existing business model that has proven to deliver results. For such companies, business models serve as a blueprint for adapting to change. Larger companies review their business models every year or based on the prevailing market and customer sentiments. They use data from the market, customer feedback, industry changes and in-house research and development efforts to streamline their business models to ensure it remains relevant and helps the company satisfy customers, maintain its competitive advantage and achieve revenue and other organisational objectives.

Related: What Is Business Development and Is It Sales?

How do business models differ from business plans?

Companies require both business models and business plans to succeed. Here are some differences between a business model and a business plan:

Focus

A business model describes how a company is going to meet customer requirements and generate revenue. It answers questions related to the companies pertaining to:

  • market

  • offering

  • monetisation

  • unique value proposition

  • innovation

  • competitive advantage

  • profit model

  • sales performance

  • sustainability

Meanwhile, a business plan is a more comprehensive document that describes every aspect of the business. It covers strategic areas of the business, including:

  • business structure and legal status

  • marketing

  • financial plans

  • mission statements

  • revenue predictions

A business plan creates a roadmap to start, run and grow the business over a specific period. The business model provides a framework to implement the content of the business plan and turn the business idea into a system that solves problems, satisfies customers and generates revenue and profit.

Related: Types of Funding for Businesses (Definition and Importance)

Audience

The primary target of a business plan is potential investors, such as banks, private equity and other sources of funding. Entrepreneurs, founders and business leaders typically create business plans to convince investors to fund and support their ideas with funds, grants and other forms of capital. Conversely, business models are often for the use of the executives, owners and internal members of a company. They serve as a guide to implement the strategies in the business plan and a blueprint for realising organisational objectives.

Related: Stakeholder vs. Shareholder: Definitions and Key Differences

Preparation

It's easier to prepare business models compared to business plans. Depending on the focus of your business model, the document can be as short as a single page. This means that managers can complete it within one or two days. Conversely, business plans are comprehensive documents prepared for the consumption of external parties. Some business plans require up to three to five weeks, and those for large corporations can require months of extensive research, writing, feedback and revision.

Why are business models important?

Business models are essential because they allow companies to add value to customers and monetise new ideas. With business models, established and new businesses can tie their ideas to specific deliverables based on customer and market research. Business models can also provide flexibility since companies can choose from a wide range of models to achieve their goals.

8 types of business models

Because of the wide variety of businesses, business models continue to evolve. Remember that you likely won't find one model to fit every business. Here are eight business models and examples of each:

1. One-for-one business model

In a one-for-one business model, a company donates an item to charity for every item purchased. This model typically appeals to customers who appreciate businesses with a charitable nature. Because they appreciate the company's efforts, they may feel encouraged to buy a product, allowing both customers and companies to commit to a philanthropic endeavour.

Example: A shoe company donates one pair of a simple style to an international charity for every high-priced pair purchased. The company builds a profit while creating a positive brand with customers.

2. Hidden revenue business model

With this model, users don't necessarily pay for their services. Companies still earn revenue from different sources. Compensation may be a fixed payment, a percentage of sales derived from the promotion or both.

Example: A search engine receives advertising money from businesses that bid on keywords even though the site's users don't pay for the use of the search engine.

3. Open-source business model

An open-source business model offers both a complimentary service or product and a paid business version. Though open-source and freemium have some aspects in common, they aren't the same model. While a freemium business model involves a free product built and created by a company centrally, an open-source business model includes a free product built and designed by an open community of developers.

Example: A software company offers a free, open-source version but charges for support services or upscaled versions for enterprise users.

Related: What Is a Startup? (With Definition and Characteristics)

4. Bricks and clicks

A bricks and clicks business model is essentially an extension of an in-store shopping experience. In this model, stores offer online ordering with the option of in-store pickup or online-exclusive items. This allows them to offer additional flexibility to current customers and appeal to potential consumers.

Example: A department store maintains both a physical store and an online purchase site. To promote its e-commerce site, it offers customers the option of picking up their items at the store, having them delivered to their homes or saving money by buying additional services.

5. Distributor business model

Companies have one to three key distribution channels in a distributor business model to reach their final customer. If a company uses this model, it may not manufacture its products. Instead, it can focus on product distribution. With this business model, distributors can set prices to earn a profit and use various promotional strategies to ensure sales.

Example: An auto parts company buys its products from a manufacturing company and resells them to its customer base or various retailers.

6. Aggregator business model

In an aggregator business model, an aggregator acts as an intermediary between the involved parties. This model lets a company work with various goods and service providers and lets it sell its offerings under its brand. This form of business model is common in the travel industry.

Example: A home-selling website pulls in information from various real estate companies and lists all the homes on one site, typically with a well-known brand. All the houses are provided under a single brand but by different real estate sellers.

7. Conceptual business model

This business model is a diagram that details an industry's or business's functions. Companies that require concepts and ideas to create unique or innovative products can benefit from a conceptual business model. This type of business model typically involves research to develop new ideas.

Example: A car company creates a conceptual model of a new car to be introduced in the market. It develops the design after consumer research to understand what appeals most to consumers.

8. Razor blade business model

In a razor blade business model, companies offer a primary product cheaply and a complementary product or refill at an expensive rate. The latter essentially serves as bait, since it seems like customers receive a bargain. When a company offers a cheaper product, it hopes its customers eventually purchase more expensive accessories. Companies use this model when they have a complementary product that can encourage customers to make another purchase.

Example: A manufacturer sells printers at a low price, but the products require a specific type of ink that the company sells at a premium price. To use the cheaper printer, it's necessary to buy the company's ink and other accessories.

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