example of business plan revenue model

Revenue Models: 17 Types, Examples & Template [2023]

Revenue Models

How does (or will ) your business make money? It sounds almost too simple to ask, but having a clear understanding of your business' revenue model can be one of the most important ways to focus on key activities--and actually move the needles you care about most.

For indie businesses, settling on the right revenue model type rarely happens on first attempt. Instead, it's common to bounce around from subscriptions to digital products, membership communities and affiliate offerings until something finally *clicks* for you and your business.

This revenue models list component and template is intended to help you sort, consider and rank a list of common revenue models. In future, I'll be linking this table to related marketing channels, real data from other indie businesses and related templates--for now, let's take a quick look at the revenue models listed.

17 Common Revenue Model Examples

• Subscription
• Licensing (Digital Prod.)
• Advertising
• Affiliate Commission
• Project-Based Services
• Retainer-Based Services
• Tickets, Events, Workshops
• Manufacture (D2C)
• Library Access
• Community Access
• Marketplace

1. Subscription

The most common revenue model for SaaS and membership-based businesses. Customers pay a recurring fee, typically on a monthly or yearly basis, in exchange for access to your product or service.

Pros of subscription model

• Recurring revenue is more predictable and can be helpful in forecasting
• Can be a great way to build long-term relationships with customers
• Customers who are paying on a recurring basis are typically more engaged and have a higher lifetime value

Cons of subscription model:

• Can be difficult to acquire customers who are willing to pay a recurring fee
• Can be difficult to increase prices without losing customers
• There is always the risk of churn (customers cancelling their subscription)

The markup revenue model is most common in retail and ecommerce businesses, where goods are bought at wholesale prices and then sold to customers at a higher price.

Pros of markup model:

• Can be easier to get started since you don't need to develop a unique product or service
• There is less risk involved since you're not investing in developing or producing a good or service
• Can be easier to scale since you can simply buy more inventory as needed

Cons of markup model:

• Can be difficult to compete on price alone
• You may need to invest in marketing and branding to differentiate your business
• There can be slim margins if you're not careful with your pricing

3. Licensing (Digital Prod.)

The licensing revenue model is most common for digital products, where customers pay a one-time fee for access to your product.

Pros of licensing model:

• Can be a great way to generate one-time revenue from customers
• Customers who pays for a license typically have a higher perceived value of your product
• Can be easier to scale since you're not selling a physical good or service

Cons of licensing model:

• Can be difficult to acquire customers who are willing to pay a one-time fee
• There is always the risk of piracy (customers sharing your product without paying)
• Can be difficult to upsell customers or generate recurring revenue

4. Advertising

The advertising revenue model is most common for online businesses, where businesses sell advertising space on their website or in their email newsletter.

Pros of advertising model:

• Can be a great way to generate revenue from customers who are not ready to buy your product or service
• Advertising can be a complementary revenue stream to other revenue models

Cons of advertising model:

• Advertising can be disruptive to the user experience
• Advertising rates can fluctuate based on market conditions
• You may need to invest in marketing and branding to attract advertisers

5. Donation

The donation revenue model is most common for non-profit organizations, where customers donate money to support the cause or organization.

Pros of donation model:

• Can be a great way to generate revenue from customers who are passionate about your cause
• Donations are typically tax-deductible for the donor
• There is less pressure to generate revenue since donations are not expected to be recurring

Cons of donation model:

• Can be difficult to acquire customers who are willing to donate money
• May need to invest in marketing and branding to attract donors
• Donations can fluctuate based on economic conditions

6. Affiliate commission

The affiliate commission revenue model is another common for online businesses, where businesses pay a commission to affiliates for referring customers.

Pros of affiliate commission model:

• Can be a great way to generate revenue from customers who are already interested in your content
• Affiliates can provide valuable marketing and promotion for your business
• Can be easier to scale since you're not producing all the products you sell

Cons of affiliate commission model:

• Not always easy to find good affiliate programs
• You may need to invest in marketing and branding to attract affiliates, as well as readers
• Commissions can vary based on affiliate performance

7. Sponsors

The sponsorship revenue model is becoming increasingly common for online creators.

Pros of sponsorship model:

• Can be a great way to generate revenue from businesses or individuals who support your cause
• Sponsors typically have a high perceived value of your organization

Cons of sponsorship model:

• Can be difficult to acquire sponsors who are willing to pay
• May need to invest in marketing and branding to attract sponsors
• Sponsorship can fluctuate based on economic conditions

8. Data Sales

The data sales revenue model is most common for online businesses, where businesses sell data that they have collected.

Pros of data sales model:

• Scale advantages
• Data can be a valuable commodity for businesses

Cons of data sales model:

• Difficult to acquire unique data sets
• Longer sales cycle
• Data rates can fluctuate based on market conditions

9. Project-Based Services

The project-based services revenue model is most common for businesses that provide consulting or other services.

Pros of project-based services model:

• Can be a great way to generate revenue from customers who need your services
• Projects can be customized to the customer's needs

Cons of project-based services model:

• Very hands-on
• Need to keep your pipeline filled
• Projects can fluctuate based on economic conditions

10. Retainer-based services

The retainer-based services revenue model is most common recurring stream for businesses that provide consulting or other services.

Pros of retainer-based services model:

• Can be a good way to introduce recurring revenue to a services business
• Customers typically pay upfront for your services

Cons of retainer-based services model:

• Need to find a service that's profitable on retainer;
• Reducing churn;
• Pricing your retainer.

11. Tickets, Events, Workshops

The ticketing revenue model is most common for businesses that host events or workshops.

Pros of ticketing model:

• Can be a great way to generate revenue from customers who are interested in your event
• Tickets can be sold in advance of the event
• Virtual events and workshops can be easier to scale since you're not selling a physical good or service

Cons of ticketing model:

• Need to consistently market events
• Margins need to be high for it to be sustainable
• Often need to pay staff to help facilitate event

12. Royalties

The royalty revenue model is most common for businesses that sell digital content, such as books, music, or software.

Pros of royalty model:

• Royalties can be collected on a per-sale or per-use basis
• Highly asynchronous

Cons of royalty model:

• Can be difficult to track sales and commissions
• Typically low % commission
• Royalties can be volatile from year to year

13. Manufacture (D2C)

The manufacture model, going direct to customer, is probably the most familiar. You make a product and then sell it to the customer, whether that’s through your own store, a third-party retailer, or some other means.

Pros of Manufacture (D2C)

• You have complete control over your product
• You can build your own brand
• You can reach customers directly

Cons of Manufacture (D2C)

• It can be expensive to get started
• You have to invest in marketing and branding
• You have to manage inventory and shipping

14. Library Access

The library access model is common for businesses that offer digital content, such as books, music, or software. Customers can access your content through a subscription or pay-per-use basis.

Pros of Library Access

• Can reach a wide audience of potential customers
• Can generate revenue from customers who are interested in your content

Cons of Library Access

• Possibility of duplicating digital content without license
• Retaining users after they pay for first access
• Offering a unique library

15. Rent/Lease

The rent/lease revenue model is common for businesses that offer physical goods, such as equipment or vehicles. Customers can rent or lease your products on a short-term basis.

Pros of Rent/Lease

• Can generate revenue from customers who need your equipment
• Can be quite 'Passive' income
• Scalable if margins and demand are high enough

Cons of Rent/Lease

• High expenses upfront
• Potential damages costs

16. Community Access

The community access revenue model is common for businesses that offer physical goods or services. Customers can access your product or service through a subscription or pay-per-use basis.

Pros of Community Access

• Compounding as the community grows
• Plenty of online community software and tech popping up

Cons of Community Access

• Difficult to upgrade to a 'paid tier'
• Community moderation can be time-consuming
• Sustaining high community engagement

17. Marketplace

The marketplace revenue model is common for businesses that offer a platform for other businesses to sell their products or services. Customers can access the marketplace through a subscription or pay-per-use basis.

Pros of Marketplace

• Buyers will typically bring their own customers
• Can generate revenue from both sides of the market: buyers and sellers
• Don't need to produce your own products (beyond the marketplace itself)

Cons of Marketplace

• Quality control can be difficult
• Chicken-egg problem: getting your very first buyers and sellers
• Settling disputes and investing in customer support

Choosing A Revenue Model For Your Business

This Notion template database also includes some properties to help you understand more about the various revenue models listed, and how they compare with one another on a few important factors. These are:

• Volume needed;
• Typical Margins;
• Capital needed upfront;
• Relationship to customer (direct or indirect);
• Scalability;
• Revenue model examples; and

Volume Needed

The volume needed property gives an indication (on a scale from 'Very Low' to 'Very High') of how many customers are typically needed for this type of revenue model to work. For example, a subscription revenue model that charges $1.99/month will need a Very High volume of customers in order for the model to work; whereas a high-ticket services business may only need 1 or 2 big clients per year.

Typical Margins

The typical margins property is there to help you understand how profitable this revenue model can be, given the right circumstances, per sale or customer. For example, a business selling digital products will typically have very high margins (if they are priced correctly), whereas a business that relies on advertising as its primary revenue source may have lower margins.

Capital Needed Upfront

The capital needed upfront column describes (loosely) of how much money you will need to spend in order to get the business up-and-running. For example, a subscription business can be started with very little capital as there are no inventory or product development costs; whereas a manufacturing business may need a lot of money to get started as there are significant inventory and product development costs.

Relationship to Customer (Direct or Indirect)

The relationship to customer property gives an indication of whether the revenue model is direct, indirect or two-sided (e.g. marketplaces). A direct revenue model is one where you have a direct relationship with the customer; whereas an indirect revenue model is one where you do not have a direct relationship with the customer.

For example, a subscription business has a direct relationship with the customer as they are paying the business directly for a product/service; whereas an advertising-based revenue model has an indirect relationship with the customer as they are paying the advertiser, not the business.

Scalability

The scalability property gives an indication of how easy it is to scale this type of revenue model. A scalable revenue model is one that can grow without a significant increase in costs; whereas a non-scalable business is one that has fixed costs which limit its growth.

For example, a subscription business is usually more scalable than a manufacturing business as there are no inventory or product development costs; whereas a business that relies on a small number of high-value clients is usually less scalable as it is difficult for you to service more such clients with the same number of hours in a day.

Revenue Model Examples

This column provides an example of a real business that is deploying this revenue model. I've tried to select primarily indie businesses, however this isn't the case for all of the businesses listed (where I couldn't find an indie business, I chose something that may be relevant or a company that I just generally like).

It's also worth noting that many of the businesses listed under a certain revenue model type employ multiple revenue models, alongside the stream that they're listed under. This is quite common for indie businesses (to have multiple revenue streams) and can be a good hedge against any single revenue stream going dry.

As you look through the list of possible revenue models, you can give each a ranking and sort the list based on those that are best suited.  

Getting Started

Duplicate this template into your own Notion workspace, and start ranking the various revenue models as they suit your own business, today.

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Revenue models: 11 types and how to pick the right one

Finding the right revenue model for your company and products is an incredibly important part of starting and expanding your business. It's a key part of building a brand. Explore popular revenue models and how to choose the right one.

What is a revenue model?

• 11 different types of revenue models

Costs associated with revenue models 

• How to choose your revenue model

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In one of the most famous lines from the 1941 classic Citizen Kane , Mr. Bernstein proclaims: “ It's no trick to make an awful lot of money... if what you want is to do is make a lot of money .” If only that statement were as true as it seemed. It's probably more accurate to say, “There are a lot of ways to make a lot of money.”

That’s particularly true for software businesses, with the rise of the mobile internet stimulating an explosion in the number of viable revenue models. Choosing which revenue model works best for your SaaS business, though, is not easy (even if that's all you want to do is choose a revenue model for your SaaS business). Your choice will help determine your sales strategy , and from there the growth rates, the amount of money you’ll need to invest initially, and the kind of relationship you’re likely to build with your customers. More than that — the choice determines the future of your business. Let’s take a look at some of the most popular revenue models used today — why they’re popular, why they work, and why they will (or won’t) work for you.

A revenue model is the income generating framework that is part of a company’s business model. Common revenue models include subscription, licensing and markup. The revenue model helps businesses determine their revenue generation strategies such as: which revenue source to prioritize, understanding target customers, and how to price their products.

Revenue models often get conflated with revenue streams, probably because each is a single revenue generation source. They are also confused with business models, of which revenue models are a part. Revenue models help business owners determine how to manage their revenue streams and are required to complete a business model.

Without a considered revenue model, your business will incur costs it cannot sustain. With a revenue model, you can set, track, and forecast business growth based on specific customer segments.

11 different types of revenue models 

There is no such thing as a perfect revenue model, but the popularity of some of the methods below suggests that many of them are well-tailored for the current state of the market. Here we’ll walk through each type of revenue model and when they may be most beneficial and applicable.

1. Subscription

The  subscription model  is the “vanilla” SaaS revenue model, not that there’s anything boring about a well-worked subscription plan. Businesses charge a customer every month or year for use of a product or service. All revenue is deferred and then fulfilled in installments. The subscription model is perhaps the most popular among SaaS companies because of its versatility, promise of  recurring revenue , and high value:customer lifetime balance.  Done right it's a one-way-ticket to sustainable growth .

Companies working with recurring revenue models, such as  subscription or licensing , see more value from a customer across a given customer lifetime. Being able to offer a variety of value options means your company can respond to more than one set of customer needs, expanding your appeal. Hubstaff’s subscription plan, seen below, is a classic of the genre:

Hubstaff’s various plans are distinct from one another in price and feature. This flexibility in the subscription model means that tentative or lower-budgeted customers can still get what they need, all the while maintaining visibility of what extra they could get for a few dollars more a month.

The freemium model is often described as a subscription revenue model, but in fact it’s an acquisition model, not a revenue model. Freemium involves giving users free access to an app and then selling subscriptions for a premium tier that includes more features.

Markup is a very common revenue model for buyer companies (i.e., companies that buy the products they sell). It’s as simple as can be: Take the cost of goods you just bought, mark it up X%, and make a profit margin on the original purchase. There are various subgenres of the markup model, including the following:

• Wholesale: Sale of goods or merchandise to retailers, business users, or other wholesalers
• Retail: Identification of demand, and satisfaction of it through a supply chain via a number of possible outlets, including physical and ecommercial ones

Markup is particularly used by mediators like ecommerce marketplaces — Amazon, for example. On average, Amazon charges a seller who uses their site 15% of the sale, plus  FBA fees  (including storage, pick & pack, shipping).

5. Pay-Per-User

One of the most enduring legacies of SaaS in the world of business is the introduction of pay-per-user (PPU). It involves giving a customer potentially unlimited to access to a range of features while charging them only for the services they use. At the dawn of SaaS, as the software required no physical delivery and deployed so quickly and cheaply, PPU appeared to be the most sensible revenue model. However, as natural as it seemed back in the day,  pay-per-user is not popular  anymore. Ascribing value to your product is one of the key considerations of your revenue model, and that includes demonstrating why it’s worth your target customers’ valuable dollars, not just making everything so cheap and easy that they can’t refuse. The issue with PPU, then, is that it’s rarely where value is ascribed to your product. Moreover, PPU kills your Monthly Active User metric. The per-user metric is not the most useful to customers in terms of deriving value — its take-it-or-leave-it approach actively works against your Daily Active Users number, and thus contributes to your churn rate.

6. Donation

As evidenced by the rise and rise of  Kickstarter - and  Patreon -based ventures, altruism is, if unpredictable, a pretty effective revenue model by itself. Relying on the donations of regular users is a common revenue model for nonprofits, online media (i.e., YouTubers) and independent news outlets.

7. Affiliate

What is  affiliate marketing ? This new, popular model works by promoting referral links to relevant products and collecting commission on any subsequent sales of those products. Leverage your product’s synergy with another product in an adjacent space and you both stand to gain. The affiliate model can be as simple as including in an article an outlink to a book or other product mentioned or offering your customers specialized recommendations relative to purchase history (again, Amazon is a master of this art). Some companies, such as Etsy, even have a  specific program  for their affiliates, where other companies can earn a commission on qualifying sales that result from featuring links to Etsy products and services. The affiliate revenue model is increasingly popular, owing to the way it dovetails effectively with other revenue models, particularly ad-based models.

8. Arbitrage

Applicable mainly to sellers or marketplace-oriented companies, the arbitrage revenue model uses the price difference in two different markets of the same good/service to make a profit. You buy in one market (a security/currency/commodity) and simultaneously sell in another market, at a higher price, what you just bought, pocketing the temporary price difference. Arbitrage is popular with  affiliate marketers , as well as with many cryptocurrency firms, SFOX being a prime example.

9. Commission

This transactional revenue model involves a middleman charging commission for each transaction it handles between two parties or for any lead it provides to the other party. It’s particularly popular with online marketplaces and aggregators, as well as businesses like independent music distributors. It’s particularly easy to get up and running with a commission-based business model because you’re working off of existing products. However, unless your field is well-conditioned for a monopoly, and unless your company is (or can become) that monopoly, you’ll find the commission model  very tough to scale .

10. Data Sales

Ever heard the phrase, “If you can’t see how the money’s made, you’re the product”? That’s data-selling in action. Many companies  selling digital goods  and services could not exist without core underlying data assets. In the data sale revenue model, this data is sold directly to a consumer or business customer. While certain companies will use data sale as their primary revenue model, the use of  data sales  to augment another revenue model is virtually ubiquitous. While some are using it as an  entrepreneurial venture , it is also the subject of considerable justified  public concern  and should be handled with care in the event you decide to go with it as your revenue model.

11. Web/Direct Sales

The old-fashioned revenue model made new, web sales and direct sales involve payment for goods or services through a digital medium. Web sales involve a customer finding your product via outbound marketing (or a web search) and can used for software, hardware, and subscription-based offerings. Direct sales revolve around inbound marketing and is good for handling multiple buyers and influencers in big-ticket markets.

A good revenue model is not just about squeezing as much revenue possible out of a sales cycle; it’s also about balancing your ambitions in the market with your resourcing requirements. A startup revenue model may be significantly different than one for an established business because their resources are vastly different. When choosing your model, factoring in costs is paramount to ensure profitability.

Cost of revenue

The first cost you’ll be likely to factor in is your cost of goods — how much it costs to produce the goods or service that you then sell. For hardware, this can comprise testing and manufacture; for software, it’ll include the whole development cycle. Regardless of what you produce, administrative overheads will also apply. You will find cost of goods a considerably less comprehensive metric than cost of revenue, which is the total cost of manufacturing and delivering a product or service to consumers. That includes everything we’ve just covered, plus distribution and marketing costs. Cost of revenue is more often used in SaaS and other service-oriented industries because it makes the many costs incurred outside of production in SaaS easier to track.

Prototyping costs

Prototyping is a fundamental aspect of any production cycle and, unfortunately, is one of the most expensive. While testing prototypes or beta versions of your new product, even the smallest revisions can necessitate costly changes to your production/development process. This usually comprises a base-level cost, plus iteration costs on top of that. When forecasting prototyping costs, it’s wise to plan for several iterations; it’s highly unlikely you’ll get everything right the first time around, especially if your product is innovative or is composed of a number of features.

Equipment costs

One of the beautiful things about being a SaaS company is that there are no production lines to run. Nevertheless, equipment costs still factor into the bottom line. Firmware,  app development tools , server rental, plus any other administrative services bought on subscription (e.g. Slack or Hubstaff) will play a part in your equipment costs, but, generally, equipment costs should be the easiest of all to forecast.

Labor costs

An underpaid workforce is an unhappy workforce (if it’s a workforce at all); wage costs come out of your bottom line. Based on the interaction of salary and commission in your  compensation plan , as well as the type of commission you offer (entirely open-ended or capped? Will there be accelerators/decelerators involved?), you will have to plan for your expenditure on labor costs differently.

Advertising & marketing costs

Your advertising and marketing costs will be determined by the following:

• The size of your respective advertising and marketing teams
• The scale of exposure you’re shooting for
• Your method of approach to advertising and marketing: undefinedundefinedundefined

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Your revenue model is unique

So many revenue sources, so many revenue models, so little time. There are some fundamental differences between revenue models. For instance, if you’re a SaaS company producing your own software product, you’re unlikely to get all that far with an arbitrage model. Likewise, if your product is a medium or if you’re a seller, a subscription-based revenue model won’t do the trick. A product with a high ceiling for potential revenue is not best served by a donation model. Nevertheless, the choice of a main revenue model out of the batch that do work for your product, and how you then combine them with appropriate aspects of other models, is yours, and yours only. Your product and the market should be in mind at all times while you’re settling on, adding to, and refining your model. After that, bringing in the revenue itself should be as easy as  Citizen Kane  said.

Related reading

Revenue Model Types in Software Business: Examples and Model Choice

• 12 min read
• Last updated: 28 Dec, 2022
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Here's our video breakdown of revenue models

For those exploring the world of business strategy planning, we’ll elaborate on the definition of the revenue model, and the correlation between business models and revenue streams. We’ll also analyze different types of revenue models and look at some examples to scrutinize the pros and cons of each approach. Finally, we’ll reflect on how to choose or develop a model for your business.

What is a revenue model?

A revenue model is a plan for earning revenue from a business or project. It explains different mechanisms of revenue generation and its sources. Since selling software products is an online business, a plan for making money from it is also called an eCommerce revenue model. The simplest example of a revenue model is a high-traffic blog that places ads to make money. Web resources that present content, e.g., news (value), to the public will make use of its traffic (audience) to place ads. The ads in turn will generate revenue that a website will use to cover its maintenance costs and staff salaries, leaving the profit. Revenue models are often confused with business models and revenue streams. To avoid any misinterpretations, let’s quickly define these three terms that form a business strategy.

Revenue model vs business model

A business model (BM) is a broad term outlining everything concerning the main aspects of the business, all of which are contained in the answers to the following questions.

• What value will we create?
• How will we deliver it?
• How will we bring in revenue?
• How will we earn profit?

Numerous forms of business models can’t be classified in a single list because each part is highly individual to the industry, type of product/service, audience, or profitability. Business models are often depicted strategically on a business model canvas . This is a compound representation of all the key elements of a BM.

A  business model canvas template by AltexSoft

So the BM describes how a business will work from the standpoint of value generation. Revenue models, on the other hand, are a part of the business model used to describe how the company gets gross sales.

Revenue model vs revenue stream

A revenue model is used to manage a company’s revenue streams, predict income, and modify revenue strategy. The revenue itself is one of the main KPIs for a business. Measuring it annually or quarterly allows you to understand how your business operates in general and whether you should change the way you sell the products or charge for them. But what are revenue streams ? A revenue stream is a single source of revenue that a business has. There can be many of them. Streams are often divided by customer segments that bring revenue via a given method. The two terms – revenue stream and revenue model – are often used interchangeably, since, from a business perspective, the subscription revenue model will have a revenue stream coming from subscriptions. However, models can name multiple streams divided into customer segments, while the principle of revenue generation (subscription) will remain the same.

Revenue model types

Any start-up, tech company, or digital business may combine different revenue models. The revenue model will look different depending on the industry and the product/service type. Here we will pay more attention to the most common revenue models used in the software industry and online business.

Transaction-based revenue model

A transaction-based model is a classic way a business can earn money. The revenue is generated by directly selling an item or a service to a customer. The customer can be another company (B2B) or a consumer (B2C). The price of the product or service constitutes the production costs and margin. By increasing the margin, the business can generate more income from sales. Selling products or services entails using different pricing tactics. While some of them may be considered separate revenue models, these tactics are often used in pairs. Because pricing tactics can be seen as pricing plans in a software business, we can clearly define the following types. Licensing/one-time purchase. This entails selling a software product by license that can be used by a single user or a group of users. The general idea is to offer a product that requires making only one payment for it, e.g., Microsoft Windows, Apache Server, and some video games. Subscription/recurring payment. Unlike licensing, a user receives access to the software by paying a subscription fee on a monthly/annual basis, e.g., Netflix, Spotify, and Adobe products. Pay-per-use. This pricing tactic is mostly used by different cloud-based products and services that charge you for the computing powers/memory/resources/time used. Examples are Amazon Web Services and Google Cloud Platform. Freemium/upselling. Freemium is a type of app monetization in which a user may access the main product for free, but will be charged for additional functions, services, bonuses, plugins, or extensions, e.g., Skype, Evernote, LinkedIn, and many video games. Hybrid pricing. Sometimes pricing plans are a mixture of more than one. So that freemium plan might morph into some form of pay-per-use tiered plan. After passing some limit in computation or resources, a user can be forced to use or offered another type of pricing. Examples are Mailchimp, Amazon Web Services, and SalesForce. Various combinations of pricing tactics can be used simultaneously, which is more often seen in cloud-based products that offer multiple payment options at once. The revenue model in this case remains based on the transaction and purchases made by the customers. The difference in pricing tactics will modify how the revenue is generated and basically depends on the type of product/service you sell. The pros. You have full control over the pricing strategy. The cons. The cons will depend on the industry/product type and pricing tactics, as the model itself imposes a constant generation of sales with the help of advertising and marketing strategies. The only con we might mention here is the financial burden connected with sales you will carry on your own. Transaction-based revenue model examples. Nearly any company that produces and sells its products uses this type of revenue model. Examples are Samsung, Rolls Royce, Nike, Microsoft, Apple, Boeing, and McDonald’s, to name a few.

Advertisement-based revenue model

The advertisement-based revenue model is a plan with which businesses make money by selling ad spaces. It is one of the most standard methods of producing top-line growth, and it’s valid both for online and offline businesses. It’s often used by websites/applications/marketplaces or any other web resource that attracts huge amounts of traffic. The pros. Having a high-traffic resource allows you to monetize the ad space nearly instantly. Often, there is a strong demand for advertising space, especially with organic traffic and platforms with the target audience. The cons. Running advertising campaigns to gain web visibility on various platforms like social networks is a standard marketing activity with targeting instruments more precise than ever. However, advertisements are everywhere, so you might think twice about whether you want to distract a user by placing an ad in your app – even if it is a secondary revenue stream. Ad-based revenue model examples. YouTube, Instagram, Facebook, and Google are just a few prominent examples. All these platforms generate revenue by displaying advertisements to users and charging businesses for exposure. In addition to promotion, these platforms may also generate revenue through other sources, such as premium subscriptions or licensing agreements.

Commission-based revenue models

A commission-based revenue model is one of the most common ways businesses make money today. A commission is a sum of money a retailer adds to the total cost of a product or service. A commission may be charged per marketplace or transaction and can be assigned as a

• flat rate, a fixed sum of money for any type of transaction, e.g., a $450/300/1500 transaction is charged with a $20 commission;
• percent of transaction size, e.g., a $100 transaction is charged with a 10 percent commission – $10; or
• tiered commission, a percent or flat rate that grows based on the transaction volume, e.g., 50,000 transactions are charged a 4 percent commission, 150,000 transactions a 7 percent commission.

Marketplaces and eCommerce platforms, in particular, utilize commissions the most. Another large category includes businesses that connect service providers/renters with consumers. Think of any ride-hailing company, food delivery, online travel agency (OTA) , or alternative accommodation services. The pros. Revenue is easily predictable because of the sheer fee. The cons. There are many problems bound to the concept of a commission, but the major one goes to the scalability of a business that’s attached to a transaction size or volume. In general, dependency on the product supplier’s sales makes generating revenue require upfront investments and competitive superiority. Commission-based revenue model examples. Airbnb is a platform that allows individuals to list and rent their homes or apartments as short-term rentals . It generates revenue by charging a commission on each booking made through its platform. The commission is typically a percentage of the total booking cost and is paid by the host (property owner). Other examples are Booking.com, Uber, Lyft, Ticketmaster, Priceline, and Upwork.

Markup revenue model

Markup is the type of revenue model with which you buy a product at a certain cost and then sell it for a higher price: The difference between the two is your profit margin. This model is often used by wholesale, retail, and service-based businesses. For example, a wholesaler may be a bed bank — a B2B company that purchases rooms from accommodation providers in bulk at a discounted, static price for specific dates, and sells them to OTAs , travel agents, destination management companies, airlines, or tour operators. Pros. Markup revenue models are straightforward, allowing businesses to easily calculate their profit margins on each sale. With this approach, businesses can be flexible with their pricing by adjusting the markup to reflect changes in the cost of goods or changes in market conditions. Cons. While markups provide a great deal of flexibility, some organizations may not have enough resources to manage revenue and apply changes to their markup strategy based on the market state. So they set a uniform markup for all of their products or services. This may lead to prices being too low or too high and businesses may not be able to fully capitalize on the value of certain products. Markup revenue model examples. In addition to bed banks, airline consolidators leverage a markup model to earn revenue: They are brokers that book flight seats in bulk at discount rates and then resell them to travel agencies. Examples are Mondee, Picasso Travel, and Centrav.

Affiliate revenue model

The affiliate model is similar to the commission-based model. The main difference is that, with the affiliate model, you do not sell the product or service on your own platform, but rather redirect the customer to the original provider's platform to make the purchase and earn a commission on any resulting sales. An affiliate model is a contract between a supplier of a product/service and a promoter. A promoter can be another business/media resource/blogger that recommends a supplier’s product. The earnings will come as a percentage of sales or fees for the number of registrations done via referral links. Businesses utilizing the affiliate model include metasearch engines as a unique example. Metasearch tools can be found almost everywhere. Their main difference with retailers is that they don’t sell products directly but offer comparison and search as a value. Advertising and affiliate programs are the main revenue models used to get earnings in this case. The pros. Just like the advertisement-based revenue model, once you have a huge traffic resource, you might apply for an affiliate program to earn money. This will bring you income without any investments because you will basically generate traffic and leads for the affiliate program provider. The cons. Unfortunately, the percentage of affiliate programs promised to the promoter is quite low. Sometimes it fluctuates between 1-2 percent and requires a high volume of sales generated through your links. Affiliate revenue model examples. Blogging and event-promoting platforms like Broadway.com or TheaterMania generate revenue using this model. Among other examples are Amazon affiliate websites, e.g., Cloud Living and ThisIsWhyImBroke.

Interest revenue model

An interest or investment revenue model relates to any type of business that generates revenue in the form of interest on their loans or deposit payments. These are most often banking or electronic wallet companies that work with financial operations. The revenue is generated by making a loan to a customer or by a customer depositing or investing money (or other resources) into the business. At the end of a return period, a percentage of the loan sum will return as revenue. Debit/credit money provided with the bank accounts also relates to this model. That’s just one of the ways financial companies can make money, combining it with transaction fees for using their e-wallet/bank account. The pros. The interest rate provides a clear view of what revenue a business will generate, as the percentage stays unchanged until the return period is over. The cons. The regulations of an interest rate impact both the customer and the business. Sometimes it depends on the economic environment. Think of currency rate changes that influence potential and existing borrowers. Interest revenue model examples. Many banks, credit card companies, and other financial institutions use the interest revenue model. For example, peer-to-peer lending platforms, such as LendingClub and Prosper, generate revenue by charging interest on loans funded by investors.

Donation-based or pay-what-you-want revenue models

This is a revenue model based on investments made by businesses or customers on a voluntary basis. The product or service itself is free to use by default, so that’s the primary value a company brings to the customer. The revenue is generated in the form of donations, or sometimes in the form of “pay-what-you-want.” It’s important to mention that there is a difference between a donation-based business and a charity organization. A donation-based company is still required to pay taxes. The pros. Because of the free access to the product, some companies manage to get increasingly popular, resulting in donations becoming a major part of their revenue. The cons. The model is never used on its own and the revenue generated by it remains a secondary source because of its random/unstable nature. Donation-based revenue model examples. AdBlock generates revenue through donations from users who support the development and maintenance of the software. At the same time, AdBlock offers a premium version of the software for a fee, which includes additional features and support. Among other examples is Wikipedia which relies on donations as a significant source of revenue. Additionally, the platform makes money through grants and partnerships. There are many other revenue models, and a business or project may use more than one revenue model. It is important for businesses and projects to carefully consider their revenue model as it can have a significant impact on the overall success of the venture.

How to choose a revenue model for your business?

Before choosing a revenue model, you need a fully developed business strategy that will include a prepared business model with all its key instances. That means you must take a few steps prior to selecting the revenue model. Define your value proposition. Map out your product strategy by describing what the product is and what value it brings to the customer. Not all products can be sold: Can you recall the last time you upgraded your WinRAR to a full license? Also, you can analyze the future traffic for your app to understand if you can use ads in it. Explore the market state and customer groups. This step is to define your user persona and understand how these users usually buy things. Some markets are inclined to purchase just one product, some are inclined to ignore upgrades or in-app purchases. A good example in this field is the death of music-selling platforms that were totally replaced by subscription-based streaming services like YouTube Music, Apple Music, Spotify, and others. You may also explore the techniques on how to market your product in our dedicated article. Analyze competitors and their products. You’ll need to learn what mechanisms and revenue streams your competitors use and how they manage their costs. This information will probably show you the market’s pitfalls and dead ends. Looking at this simple matrix below, we can analyze the capabilities and needs of your company to help you decide the type of revenue model to use.

How to choose a revenue model framewor k

Depending on your business model, the product or service you’re presenting to the user is a subject of exchange. This is your value proposition on the market, so you are in charge of choosing what you want to get back based on the market factors, target audience, etc. Paid value proposition. In most cases, your value proposition costs money to use. Whether it’s a service or a software product, a customer will need to pay in some form to gain access to your value. Your revenue model in this case will be based on transactions. So develop pricing tactics that will depend on the nature of the product, the type of audience you’re trying to reach, the type of deployment, specifics of product usage, etc. Free-to-use value proposition. If the value proposition doesn’t require money to use or you choose it to be free, then you need a third party to generate revenue for you. This could be anything based on the previously mentioned types, whether it’s ad space, donations, affiliate programs, or reselling. The combination of the two will basically present you with the revenue streams that will focus on each of the customer segments. In the case of the paid value proposition, each pricing plan will be a separate revenue stream.

Maximizing Profitability: Explore Effective Revenue Models for Your Business

Choosing the right revenue model can help you earn more and create an effective pricing strategy. Explore the different types of revenue models here.

Imagine you're walking down the street on a hot summer day and see the neighborhood kids setting up a lemonade stand. Nothing sounds better on a day like this than an ice-cold lemonade. You approach their stand and find the price is $2 for a cup. While you know it wouldn't cost $2 to make just a glass of lemonade at home, you are willing to pay this price because you are thirsty and also want to support the kids.

From a business perspective, these kids are making a good amount of profit from their lemonade stand. They're actually using a markup revenue model where they increase the price of a cup of lemonade to account for their operating costs. It seems like the perfect model for making money. However, this might not be the case in every business situation. Depending on the scale and complexity of your business model , you need to consider different methods of developing revenue streams.

There are various revenue models implemented by businesses across the board. Many business models are far more complex than a simple lemonade stand and thus require a different revenue model strategy. There are subscription-based, advertising, and commission-based models, to name a few—but what is a revenue model, and how do you choose one?

If you're considering which revenue model to incorporate into your business strategy, keep reading to learn more.

What is a revenue model?

A revenue model is a blueprint for how a company produces income from its services or products. Simply put, it outlines the methods through which a business makes money. There are several components within a revenue model, including how you price your products and which sales channels you choose. A revenue model is established to answer how a company plans to financially optimize its business model.

Revenue models can be seen as roadmaps for understanding how your business will operate financially. They define how a company generates revenue, covers costs, and eventually turns a profit. A revenue model should outline the various sources of income to help guide decision-making related to the overall business strategy.

Benefits of implementing revenue models

Developing a revenue model is an essential step for growing your business. Here are some of the main benefits of implementing revenue models:

Financial sustainability

An effective revenue model establishes consistent income streams, providing financial security and sustainability. Your revenue model should help you understand how much revenue to expect so you can properly plan expenses, growth, and investments.

Pricing strategy

Factors such as market demand, competition, and product costs are considered within a revenue model. Each of these factors can inform your pricing strategy. Based on the revenue model, you can determine which prices maximize revenue while remaining appealing to customers.

Profitability analysis

Revenue models show how your business generates revenue. Understanding the costs incurred by creating your products or services, along with the generated revenue, allows you to analyze the profit margin of your business. Subsequently, you can make informed decisions to improve your resource allocation and pricing strategy.

Scalability

Growth is key to your business revenue model thriving. Implementing a revenue model provides insight into the scalability potential of your business. You can easily assess potential revenue growth by attracting more customers and introducing new products or services. Knowledge is power—the more information you have about how your business operates, the better you can plan for the future and make smarter investments.

Decision-making

A sound revenue model produces meaningful insights to influence strategic decision-making. Your revenue model indicates which products or services generate the highest income, enabling you to better allocate resources and focus on areas with the highest profitability potential.

Investor confidence

A smart revenue model will inspire investor and stakeholder confidence. Potential investors will be impressed by a well-defined revenue model that demonstrates a clear plan for generating multiple revenue streams.

Types of revenue models

There are various revenue models that can be implemented based on your specific business operations and needs. Understanding when and how to choose different types of revenue models will help you better calculate revenue growth rates.

Here are just a few revenue model examples:

Advertisement-based

An advertising revenue model is a popular type of revenue model. The main source of income is generated by displaying advertisements. In this model, your company sells advertising space to other businesses or brands who want to advertise with your customer base and users. How your business earns revenue is by charging advertisers for ad placements.

Pros of advertising-based revenue models

• Successful advertisement-based revenue models typically generate significant income.
• An advertising model can greatly boost revenue streams if you have a large user base or a popular platform.
• There's a low barrier to entry, meaning it's relatively easy to set up and requires minimal investment upfront.
• This revenue model also offers flexibility and opportunities for diversification since you can provide many ad types and have a full roster of advertisers.

Cons of advertising-based revenue models

• Advertisers aren't guaranteed.
• You need to attract advertisers who are willing to pay for placements on your platform.
• The advertising market constantly fluctuates, meaning your revenue may fluctuate whenever advertisers reduce their budgets and don't buy ad space.
• You must also consider user experience and how incorporating display ads will impact your engagement.

YouTube is well-known for using an advertising model. Content creators on the platform can monetize their content by displaying ads on their videos. YouTube earns revenue by selling advertising space to companies that want to reach a vast audience. In this case, content creators can also receive a share of the ad revenue based on several metrics, including clicks, view time, and impressions.

The affiliate model is a more common type of revenue model. It's where a company or person makes a profit by promoting and selling products on behalf of another business. In the affiliate revenue model, an affiliate acts as the middleman between potential customers and the products or services.

Pros of affiliate revenue models

• Affiliate models are generally low-risk and cost-effective.
• As an affiliate, you don't need to create your own products, nor do you handle inventory or customer segments.
• It offers the potential for passive income by earning commissions without active involvement.
• You can also generate income from various affiliate partners, making this model great for diversification and scalability.

Cons of affiliate revenue models

• As an affiliate, you have little to no control over the products or services you promote. This means that negative customer experiences may harm your reputation.
• This type of model also creates revenue dependence on partners.
• Generating a profit with affiliate marketing may be easy, but intense competition and market saturation can make it difficult to generate significant income.

Affiliate marketing is a common revenue model. Amazon Associates is an example of an affiliate revenue model that allows individuals or businesses to make money through commissions on Amazon products they promote. Amazon provides unique affiliate links that lead to participants earning a percentage of the sales on products they advertise.

Commission-based

Similar to the affiliate model, commission-based revenue models allow companies to generate revenue by receiving a commission from each transaction it facilitates. Again, the company acts as a mediator between sellers and buyers.

Pros of commission-based revenue models

• The commission-based revenue model can be extremely scalable.
• The more users you gain, the more transactions will occur, leading to an increase in revenue growth.
• Another benefit of this model type is risk-sharing between the company and the sellers.

Cons of commission-based revenue models

• One of the major downsides to this model is dependency on transaction volume. If there are few transactions happening, the opportunities for generating revenue significantly decrease.
• You'll also experience limited control over pricing, which can lead to price competition among sellers and lower commission rates.

Airbnb uses a commission-based model. The platform makes money by connecting individuals with accommodation. Airbnb earns a commission on every booking made on the platform, making the company reliant on users securing lodging through their platform in order to generate revenue.

Another popular revenue model is donation-based. This strategy is implemented by soliciting and accepting voluntary donations instead of selling services or products.

Pros of donation revenue models

• One of the main benefits of a donation revenue model is the flexibility of revenue generation.
• Organizations can receive revenue streams from diverse donors.
• It's one of the most common revenue models implemented by charitable organizations and comes with tax benefits.

Cons of donation revenue models

• The downside of relying on donations is having an unsteady and uncertain revenue stream.
• Organizations are dependent on donors and are also required to spend money and time on fundraising.
• There are certain stipulations associated with receiving donations and how that money can be used

The Red Cross uses a donation revenue model. As a global humanitarian organization, the Red Cross relies on voluntary contributions to fund its services and programs. The Red Cross doesn't sell products, but they provide services for the community. The donation model is used to support the execution of these services.

The markup model entails a pricing strategy of marking up the cost or adding a margin on top to ensure financial viability. This strategy is used to cover expenses and generate profit despite external factors.

Pros of markup revenue models

• A markup revenue model is simple in practice.
• It doesn't require complex calculations and ensures the profit calculation is straightforward and transparent.
• The markup model also offers flexibility in pricing, meaning businesses can adjust the markup percentage depending on market conditions, supply, competition, and more.

Cons of markup revenue models

• The markup model can be difficult to implement in competitive markets.
• Competing while maintaining profit margins can be challenging when competitors implement aggressive pricing.

The retail industry generally relies on the markup model. There are specific production costs associated with making a pair of shoes. Retailers typically purchase the shoes from wholesalers at a fixed price. Then, they add a markup percentage to determine the selling price so it covers operating expenses and allows the retailer to earn money.

An interest revenue model refers to businesses generating income by earning interest. In this case, companies are making money by leveraging interest rates rather than making direct sales.

Pros of interest revenue models

• Interest models allow companies to earn passive income and diversify their revenue streams.
• This revenue model is also highly scalable and can benefit from changes in interest rates, leading to enhanced earning potential.

Cons of interest revenue models

• There's a level of risk associated with the interest revenue model. Risks include borrowers defaulting on loans, interest rate fluctuations, regulatory and compliance laws, and intense market competition.

Credit card companies use the interest operating model. They lend money to borrowers and earn interest back based on interest rates. These companies manage credit and loan portfolios while taking advantage of interest rates to increase profitability.

Subscription

A subscription revenue model relies on customers who subscribe and pay for your products or services. Customers pay fees to access the company's collection of products or services, allowing for steady revenue sources. The subscription-based revenue model allows a company to generate revenue by offering long-term subscriptions, resulting in consistent income such as monthly recurring revenue .

Pros of subscription revenue models

• The subscription model provides a reliable and predictable revenue stream.
• Customers pay in regular installments, allowing businesses to easily forecast finances.
• This revenue model also promotes customer retention and loyalty while lending itself to upselling and cross-selling opportunities.

Cons of subscription revenue models

• Acquiring customers with the subscription model can be challenging, meaning you may need to spend more time and money on marketing and sales.
• Customers can also cancel their subscriptions, leading to an increase in customer turnover.

Netflix is one of the most popular subscription revenue model examples. Users pay a monthly fee to access the streaming platform. Revenue generation results from monthly subscriptions. Not all subscription models are successful, but Netflix is the best example of how a subscription model can succeed in making money.

Which revenue model is right for you?

Choosing which revenue model is right for your business will depend on a variety of factors, such as your target audience, operating costs, and overall business model.

The first step for choosing a revenue model is to understand your market and the needs of your target audience. For example, media organizations will have different audiences than healthcare companies. Conduct market research to understand your customers and their needs, preferences, and pain points. These findings will inform your business strategy and how you decide to conduct business operations.

The next step is to specify your value proposition by clearly defining the unique value of your product or service. Identify key benefits and determine what sets your business apart from the competition. Consider how your business performs in terms of innovation, convenience, and quality. Communicating these benefits clearly and concisely enables your target customers to connect with your company.

Know your product or service inside-out. Understanding how your product functions, what it offers to target customers, and what your mission is will help you determine your company's business model. The ultimate goal is to generate revenue, so the more you understand your product or service, the better you can make sound business decisions.

There are several common revenue models to choose from. Online businesses, such as an e-commerce platform, might consider an advertising revenue model to diversify income streams. A local bakery may opt for other revenue models more suitable for their needs and production model. Select a revenue model after thorough research and consideration to ensure a steady and effective revenue stream.

Grow your profits with the right revenue model

Business models rely on generating income. The best way to grow your profits is to choose a revenue model that fits your company's unique needs. A company's revenue streams are dependent on more than just direct sales. Make sure to consider all different revenue model types when developing your strategy. A smart strategy is essential for a scalable business .

Whether you're just getting started or considering a switch in your revenue model, you can land more sales by leveraging market insights . Unlock your full earning potential by exploring the different tools and resources available for choosing a revenue model and growing your business. Rely on actionable data to make informed business decisions and hit your targets.

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The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff.

Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees understand the future of a company they may aspire to join.

Key Takeaways

• A business model is a company's core strategy for profitably doing business.
• Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses.
• There are dozens of types of business models including retailers, manufacturers, fee-for-service, or freemium providers.
• The two levers of a business model are pricing and costs.
• When evaluating a business model as an investor, consider whether the product being offered matches a true need in the market.

Investopedia / Laura Porter

A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.

A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.

One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS). Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income . That is gross profit minus operating expenses and is an indication of just how much real profit the business is generating.

The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. If expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.

When evaluating a company as a possible investment, find out exactly how it makes its money (not just what it sells but how it sells it). That's the company's business model.

Types of Business Models

There are as many types of business models as there are types of business. For instance, direct sales, franchising , advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA .

Below are some common types of business models; note that the examples given may fall into multiple categories.

One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.

Example: Costco Wholesale

Manufacturer

A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass produced products. A manufacturer can also sell goods to distributors, retailers, or directly to customers.

Example: Ford Motor Company

Fee-for-Service

Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge by an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.

Example: DLA Piper LLP

Subscription

Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.

Example: Spotify

Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.

Example: LinkedIn/LinkedIn Premium

Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers a free version and a premium version.

If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.

Example: AT&T

Marketplace

Marketplaces are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business model attempts to make transacting easier, safer, and faster.

Example: eBay

Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.

Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni.

Razor Blade

Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component of that product. Also referred to as the "razor and blade model", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.

Example: HP (printers and ink)

"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.

Reverse Razor Blade

Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.

Example: Apple (iPhones + applications)

The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.

Example: Domino's Pizza

Pay-As-You-Go

Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.

Example: Utility companies

A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development or freight.

Example: ReMax

There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:

• Identify your audience. Most business model plans will start with either defining the problem or identifying your audience and target market . A strong business model will understand who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
• Define the problem. In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need, your business may struggle to find its footing if there isn't a demand for your services or products.
• Understand your offerings. With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you're able to provide.
• Document your needs. With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future.
• Find key partners. Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.
• Set monetization solutions. Until now, we haven't talked about how your company will make money. A business model isn't complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.
• Test your model. When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so.

Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .

For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

• Productivity and Business Processes: Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based off product usage (i.e. the amount of data being uploaded to SharePoint).
• Intelligent Cloud: Microsoft offers server products and cloud services for a subscription. This also provide services and consulting.
• More Personal Computing: Microsoft sells physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.

How Do I Build a Business Model?

There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.

Harvard Business Review. " Why Business Models Matter ."

Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."

Microsoft. " Annual Report 2023 ."

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The 7 Best Business Plan Examples (2024)

As an aspiring entrepreneur gearing up to start your own business , you likely know the importance of drafting a business plan. However, you might not be entirely sure where to begin or what specific details to include. That’s where examining business plan examples can be beneficial. Sample business plans serve as real-world templates to help you craft your own plan with confidence. They also provide insight into the key sections that make up a business plan, as well as demonstrate how to structure and present your ideas effectively.

Example business plan

To understand how to write a business plan, let’s study an example structured using a seven-part template. Here’s a quick overview of those parts:

• Executive summary: A quick overview of your business and the contents of your business plan.
• Company description: More info about your company, its goals and mission, and why you started it in the first place.
• Market analysis: Research about the market and industry your business will operate in, including a competitive analysis about the companies you’ll be up against.
• Products and services: A detailed description of what you’ll be selling to your customers.
• Marketing plan: A strategic outline of how you plan to market and promote your business before, during, and after your company launches into the market.
• Logistics and operations plan: An explanation of the systems, processes, and tools that are needed to run your business in the background.
• Financial plan: A map of your short-term (and even long-term) financial goals and the costs to run the business. If you’re looking for funding, this is the place to discuss your request and needs.

7 business plan examples (section by section)

In this section, you’ll find hypothetical and real-world examples of each aspect of a business plan to show you how the whole thing comes together. 

• Executive summary

Your executive summary offers a high-level overview of the rest of your business plan. You’ll want to include a brief description of your company, market research, competitor analysis, and financial information. 

In this free business plan template, the executive summary is three paragraphs and occupies nearly half the page:

• Company description

You might go more in-depth with your company description and include the following sections:

• Nature of the business. Mention the general category of business you fall under. Are you a manufacturer, wholesaler, or retailer of your products?
• Background information. Talk about your past experiences and skills, and how you’ve combined them to fill in the market. 
• Business structure. This section outlines how you registered your company —as a corporation, sole proprietorship, LLC, or other business type.
• Industry. Which business sector do you operate in? The answer might be technology, merchandising, or another industry.
• Team. Whether you’re the sole full-time employee of your business or you have contractors to support your daily workflow, this is your chance to put them under the spotlight.

You can also repurpose your company description elsewhere, like on your About page, Instagram page, or other properties that ask for a boilerplate description of your business. Hair extensions brand Luxy Hair has a blurb on it’s About page that could easily be repurposed as a company description for its business plan. 

• Market analysis

Market analysis comprises research on product supply and demand, your target market, the competitive landscape, and industry trends. You might do a SWOT analysis to learn where you stand and identify market gaps that you could exploit to establish your footing. Here’s an example of a SWOT analysis for a hypothetical ecommerce business: 

You’ll also want to run a competitive analysis as part of the market analysis component of your business plan. This will show you who you’re up against and give you ideas on how to gain an edge over the competition. 

• Products and services

This part of your business plan describes your product or service, how it will be priced, and the ways it will compete against similar offerings in the market. Don’t go into too much detail here—a few lines are enough to introduce your item to the reader.

• Marketing plan

Potential investors will want to know how you’ll get the word out about your business. So it’s essential to build a marketing plan that highlights the promotion and customer acquisition strategies you’re planning to adopt. 

Most marketing plans focus on the four Ps: product, price, place, and promotion. However, it’s easier when you break it down by the different marketing channels . Mention how you intend to promote your business using blogs, email, social media, and word-of-mouth marketing. 

Here’s an example of a hypothetical marketing plan for a real estate website:

Logistics and operations

This section of your business plan provides information about your production, facilities, equipment, shipping and fulfillment, and inventory.

Financial plan

The financial plan (a.k.a. financial statement) offers a breakdown of your sales, revenue, expenses, profit, and other financial metrics. You’ll want to include all the numbers and concrete data to project your current and projected financial state.

In this business plan example, the financial statement for ecommerce brand Nature’s Candy includes forecasted revenue, expenses, and net profit in graphs.

It then goes deeper into the financials, citing:

• Funding needs
• Project cash-flow statement
• Project profit-and-loss statement
• Projected balance sheet

You can use Shopify’s financial plan template to create your own income statement, cash-flow statement, and balance sheet. 

Types of business plans (and what to write for each)

A one-page business plan is a pared down version of a standard business plan that’s easy for potential investors and partners to understand. You’ll want to include all of these sections, but make sure they’re abbreviated and summarized:

• Logistics and operations plan
• Financials 

A startup business plan is meant to secure outside funding for a new business. Typically, there’s a big focus on the financials, as well as other sections that help determine the viability of your business idea—market analysis, for example. Shopify has a great business plan template for startups that include all the below points:

• Market research: in depth
• Financials: in depth

Your internal business plan acts as the enforcer of your company’s vision. It reminds your team of the long-term objective and keeps them strategically aligned toward the same goal. Be sure to include:

• Market research

Feasibility 

A feasibility business plan is essentially a feasibility study that helps you evaluate whether your product or idea is worthy of a full business plan. Include the following sections:

A strategic (or growth) business plan lays out your long-term vision and goals. This means your predictions stretch further into the future, and you aim for greater growth and revenue. While crafting this document, you use all the parts of a usual business plan but add more to each one:

• Products and services: for launch and expansion
• Market analysis: detailed analysis
• Marketing plan: detailed strategy
• Logistics and operations plan: detailed plan
• Financials: detailed projections

Free business plan templates

Now that you’re familiar with what’s included and how to format a business plan, let’s go over a few templates you can fill out or draw inspiration from.

Bplans’ free business plan template

Bplans’ free business plan template focuses a lot on the financial side of running a business. It has many pages just for your financial plan and statements. Once you fill it out, you’ll see exactly where your business stands financially and what you need to do to keep it on track or make it better.

PandaDoc’s free business plan template

PandaDoc’s free business plan template is detailed and guides you through every section, so you don’t have to figure everything out on your own. Filling it out, you’ll grasp the ins and outs of your business and how each part fits together. It’s also handy because it connects to PandaDoc’s e-signature for easy signing, ideal for businesses with partners or a board.

Miro’s Business Model Canvas Template

Miro’s Business Model Canvas Template helps you map out the essentials of your business, like partnerships, core activities, and what makes you different. It’s a collaborative tool for you and your team to learn how everything in your business is linked.

Better business planning equals better business outcomes

Building a business plan is key to establishing a clear direction and strategy for your venture. With a solid plan in hand, you’ll know what steps to take for achieving each of your business goals. Kickstart your business planning and set yourself up for success with a defined roadmap—utilizing the sample business plans above to inform your approach.

Business plan FAQ

What are the 3 main points of a business plan.

• Concept. Explain what your business does and the main idea behind it. This is where you tell people what you plan to achieve with your business.
• Contents. Explain what you’re selling or offering. Point out who you’re selling to and who else is selling something similar. This part concerns your products or services, who will buy them, and who you’re up against.
• Cash flow. Explain how money will move in and out of your business. Discuss the money you need to start and keep the business going, the costs of running your business, and how much money you expect to make.

How do I write a simple business plan?

To create a simple business plan, start with an executive summary that details your business vision and objectives. Follow this with a concise description of your company’s structure, your market analysis, and information about your products or services. Conclude your plan with financial projections that outline your expected revenue, expenses, and profitability.

What is the best format to write a business plan?

The optimal format for a business plan arranges your plan in a clear and structured way, helping potential investors get a quick grasp of what your business is about and what you aim to achieve. Always start with a summary of your plan and finish with the financial details or any extra information at the end.

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What Is a Revenue Model?

Published: October 06, 2021

Deciding how you’ll generate revenue is one of the most challenging decisions for a business to make, aside from coming up with what you’ll actually sell.

You want to ensure that you’re accounting for production costs, salaries for workers, what your consumers are willing to pay, and that you generate enough to continue business operations. You also want to make sure that your strategy fits with what you’re trying to sell.

Various revenue models will help you set your business on the right path. In this post, we’ll outline what they are and how to choose the right one for your company.

What is a revenue model?

A revenue model dictates how a business will charge customers for a product or service to generate revenue. Revenue models prioritize the most effective ways to make money based on what is offered and who pays for it.

Revenue models are not to be confused with pricing models , which is when a business considers the products’ value and target audience  to establish the best possible price for what they are selling to maximize profits. Once the pricing strategy is set, the revenue model will dictate how customers pay that price when they purchase.

RevOps  teams also use pricing models to predict and forecast revenue  for future business planning. Knowing where your money is coming from and how you’ll get it makes it easier to predict how often it will come in.

There are various revenue models that businesses use, and we’ll cover some below.

Types of Revenue Models

Recurring revenue model.

Recurring revenue model , sometimes called the subscription revenue model, generates revenue by charging customers at specific intervals (monthly, quarterly, annually, etc.) for access to a product or service. Businesses using this model are guaranteed to receive payment at each interval so long as customers don’t cancel their plans.

Recurring Revenue Model Example

Businesses that benefit from recurring revenue models are service-based (like providing software), product-based (like subscription boxes), or content-based (like newspapers or streaming services). Businesses you may be familiar with that use this strategy are Spotify, Amazon, and Hello Fresh.

Affiliate Revenue Model

Businesses using affiliate revenue models  generate revenue through commission, as they sell items from other retailers on their site or vice versa.

Sellers work with different businesses to advertise and sell their products, tracking transactions with an affiliate link . When someone makes a purchase, the unique link notes the responsible affiliate, and commission is paid.

Affiliate Revenue Model Example

Businesses you may be familiar with that use the affiliate revenue model include Amazon affiliate links and ticket promoting services. Influencers also use this model to advertise products from businesses and entice users to purchase them through custom links.

Advertising Revenue Model

The advertising revenue model involves selling advertising space to other businesses. This space is sought after because the advertiser (who is selling the space) has high traffic and large audiences that the buyer (who is purchasing the space) wants to benefit from to give their business, product, or service visibility.

Advertising Revenue Model Example

Various types of online businesses use this model, like YouTube and Google, and so do traditional outlets like newspapers and magazines.

Sales Revenue Model

The sales revenue model states that you make money by selling goods and services to consumers, online and in person. Therefore, any business that directly sells products and services uses this model.

Sales Revenue Model Example

Clothing stores that only sell their products in a storefront or business-specific retail website use the sales revenue model as they sell directly to consumers with no third-party involvement.

SaaS Revenue Model

The Software as a Service (SaaS)  revenue model is similar to the recurring revenue model as users are charged on an interval basis to use software. Businesses using this model focus on customer retention, as revenue is only guaranteed if you keep your customers. The image below is the HubSpot Marketing Hub pricing page that uses the SaaS recurring subscription model pricing.

SaaS Revenue Model Example

Businesses using this revenue model include video conferencing tool Zoom, communication platform Slack, and Adobe Suite.

How to Choose a Revenue Model

Choosing a revenue model is entirely dependent on your specific business needs and your pricing strategy.

There is no one-size-fits-all solution, and some businesses have multiple revenue streams within their revenue model. For example, if you use a recurring revenue model, you still may sell advertising space on your website to other businesses because you have a high-traffic page.

There are some key factors to keep in mind, though:

1. Understand your audience.

When picking a revenue model, the most important thing to remember is the target market and audience your pricing strategy has identified. You want to understand their pain points and what model makes the most sense for charging them.

For example, if you’re a service that sells meal kits, your target audience is likely busy and wants the convenience of food that is set up and easy to make after a long day. Using the recurring revenue model makes sense, as you’ll automatically charge them on an interval basis, and they won’t have to remember to submit payment — speaking directly to their desire for convenience .

2. Understand your product or service.

It’s also essential to have an in-depth understanding of your product or service and how your audience will use it. For example, if you sell shoes, your audience likely won’t need a new pair every month, so it may make sense to go with the Sales Revenue Model. Instead, your customers can come to you directly every time they need a new pair.

Choose the Model That Best Fits Your Needs

Ultimately, choosing a revenue model is centered around understanding what makes the most sense for what you’re selling and what makes the most sense (and will be most convenient) for the audiences you’re targeting.

Take time to develop your pricing strategy, choose a revenue model aligned with it, and begin generating revenue.

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8 Types of Business Models & the Value They Deliver

• 26 May 2016

You want to start a company but aren’t sure about a viable business model. How might you create something that people are willing to pay for and could earn you a profit?

Before diving into potential strategies, it’s important to understand what a business is and does. At its heart, a business generates value for its customers. A business model is a specific method used to create and deliver this value.

What Is Value in Business?

A successful business creates something of value . The world is filled with opportunities to fulfill people’s wants and needs, and your job as an entrepreneur is to find a way to capitalize on these opportunities.

A viable business model is one that allows a business to charge a price for the value it’s creating, such that the business brings in enough money to make it worthwhile and continue operating over time. Whatever the business is offering must also satisfy the customer’s needs and quality expectations.

It’s important to note that value is subjective. What’s valuable to one person may not be to another. Moreover, the concept of value excludes any moral judgments about the intrinsic worth of an offering. For example, while most would agree that human life is more valuable than sports, some professional athletes make far more money than the average brain surgeon.

Nonetheless, the concept of value provides a useful bedrock on which to begin building your business model. In particular, consider what forms of value people are willing to pay for. Here are eight potential business models and the forms of value they deliver—as well as the pros and cons of each—to help you get started.

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8 Types of Business Models to Explore

A product is a tangible item of value. To run a successful product-focused business, try to produce the item for as low a cost as possible while maintaining a reasonable level of quality. Once the item is produced, your objective should be to sell as many units as you can for as high a price as people are willing to pay to maximize profit.

Products are all around us. From laptops to books to HBS Online courses (products don’t have to be physical), products are a classic form of value with high upside if you can get them right.

• Pros: Many products can be easily duplicated. Thus, firms can achieve economies of scale after bearing some upfront costs of production.
• Cons: Physical products need to be stored as inventory, which can increase costs. They can also be damaged or lost more easily than, say, a service.

Related: How to Create an Effective Value Proposition

A service involves offering assistance to someone else for a fee. To make money from your service, provide a skill to others that they either can’t or don’t want to do themselves. If possible, repeatedly provide this benefit to them at a high quality.

Like products, services are in abundance, especially in the knowledge economy. From hairdressers to construction workers to consultants to teachers, people with lucrative skills can earn good money for their time.

• Pros: If you have a skill in high demand or a skill that very few others have, you can charge a fair price for your time and stand out in your field.
• Cons: If you don’t charge enough for your services, or many people have your skill, your business may not be as lucrative.

3. Shared Assets

A shared asset is a resource that many people can use. Such resources allow the owner to create or purchase the item once and then charge customers for its use. To run a profitable business around shared assets, you need to balance the tradeoff of serving as many customers as you can without affecting the overall quality of the experience.

For instance, think of a fitness center. A gym typically buys treadmills, ellipticals, free weights, bikes, and other equipment and charges customers monthly membership fees for access to these shared assets. The key is to charge customers enough to maintain and, if needed, replace their assets over time. Finding the right range of customers is the key to making a shared asset model work.

• Pros: This model provides people access to a lot of assets they wouldn’t otherwise have access to. In addition, many people are willing to pay a lot for access to trendy social spaces.
• Cons: Because they don’t own the assets, customers have little incentive to treat your resources well. Make sure you have enough in your budget for quick fixes, if necessary.

4. Subscription

A subscription is a type of program in which a user pays a recurring fee for access to certain specified benefits. These benefits often include the recurring provision of products or services. Unlike a shared asset, however, your experience with the product or service isn’t affected by others.

To have a successful subscription-based offering, build a subscriber base by providing reliable value over time while attracting new customers.

The number of subscription services has exploded in recent years. From magazines to streaming services to grocery and wine delivery subscriptions, businesses are turning to the subscription-based model, often with great success.

• Pros: This model provides certainty in the form of predictable revenue streams, making financial forecasting a bit easier. It also benefits from a loyal customer base and customer inertia (for instance, customers may forget to cancel their subscription).
• Cons: To run this model, your business operations must be strong. If you can’t deliver value consistently over time, you may want to consider a different business model.

5. Lease/Rental

A lease involves obtaining an asset and renting it out for an agreed-upon amount of time in exchange for a fee. You can lease virtually anything, but it’s in your best interest to rent assets that are durable enough to be returned in good condition. This ensures you can lease the good multiple times and, perhaps, eventually sell it.

To profit from leases, the key is to ensure that the revenue you get from leasing the asset before it loses value is greater than the purchase price. This requires you to price the rental of the item strategically and potentially not lease to those who may not return it in good condition. This is why many rentals of high-value items require references, credit checks, or other background information that can predict how someone may return the leased item.

• Pros: You don’t have to have a novel idea to make money using a lease business model . You can purchase assets and rent them to others who wouldn’t buy them for full value and earn a premium.
• Cons: You need to protect yourself from unexpected damage to your assets. One way to do so is through insurance.

6. Insurance

Insurance entails the transfer of risk from a customer to a seller of an insurance policy. In exchange for the insurance company (the seller of the policy) taking on the risk of a specified event occurring, they receive periodic payments ("premiums" in insurance lingo) from the policyholder. If the specified event doesn’t happen, the insurance company keeps the money, but if it does, the company has to pay the policyholder.

In a sense, insurance is the sale of safety—it provides value by protecting people from unlikely, but catastrophic, risks. Policyholders can take insurance out on almost anything: life, health, house, car, boat, and more. To run a successful insurance company, you have to accurately estimate the likelihood of bad events occurring and charge higher premiums than the claims you pay out to your customers.

• Pros: If you calculate risk accurately, you’re guaranteed to make money using the insurance business model.
• Cons: It can be difficult to accurately calculate the likelihood of specific events occurring. Insurance only works because it spreads risk over large numbers of policyholders. Insurance companies can fail if a large portion of policyholders is impacted by a widespread, negative event they didn’t see coming (for example, the Global financial crisis in 2007 and 2008).

Related: 5 Steps to Validate Your Business Idea

7. Reselling

Reselling is the purchasing of an asset from one seller and the subsequent sale of that asset to an end buyer at a premium price. Reselling is the process through which most major retailers purchase the products they then sell to buyers. For example, think of farmers supplying fruits and vegetables to a grocery store or manufacturers selling goods to a hardware store.

Companies make money through resale by purchasing large quantities of items (usually at a bulk discount) from wholesalers and selling single items for a higher price to individuals. This price raise is called a markup.

• Pros: Markups can often be high for retail sales, enabling you to earn a profit on the items you resell. For example, a bottle of water might cost 10 cents to produce, whereas a customer may be willing to pay $1.50 or more for the same bottle.
• Cons: You need to be able to gain access to quality products at low costs for the reselling business model to work. You’ll also need the physical space to store inventory to manage sales cycles.

8. Agency/Promotion

Agents create value by marketing an asset, which they don’t own, to an interested buyer. They then earn a fee or a commission for bringing the buyer and seller together. Thus, instead of using their own assets to create value, they team up with others to help promote them to the world.

Running a successful agency requires good connections, excellent negotiation skills , and a willingness to work with a diverse set of individuals. One example is a sports agent who promotes players to teams and negotiates on their behalf to get the best deal. In return, they typically receive compensation equal to a certain percentage of the contract.

• Pros: You can highly profit from expertise and connections in your industry, be it publishing, acting, advertising, or something else.
• Cons: You only get paid if you seal the deal, so you have to be able to live with some uncertainty.

Setting Your Business Up for Success

These eight types of business models each have pros and cons and deliver value in their own ways. If you’re looking to start a business and need a place to start, one of these could be the best fit for your venture and entrepreneurial skill set .

Interested in honing your entrepreneurial skills? Explore our four-week online course Entrepreneurship Essentials and our other entrepreneurship and innovation courses to learn the language of the business world.

This post was updated on February 19, 2021, and is a compilation of two posts, previously published on May 26, 2016, and June 2, 2016.

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Revenue Modeling: How to Build a Revenue Model for Your Business Plan

1. introduction to revenue modeling, 2. understanding revenue streams, 3. identifying key revenue drivers, 4. analyzing market potential, 5. choosing the right pricing strategy, 6. forecasting revenue growth, 7. evaluating revenue model risks, 8. implementing and monitoring the revenue model, 9. adjusting and optimizing the revenue model.

### Understanding Revenue Modeling

Revenue modeling is the process of estimating and projecting a company's future income based on various factors, such as product sales, subscriptions, licensing fees, and other revenue streams. It involves analyzing historical data , market trends, customer behavior, and external influences to create a comprehensive model that predicts future revenue.

#### Different Perspectives on Revenue Modeling

1. Financial Perspective:

- From a financial standpoint, revenue modeling is about creating accurate forecasts that guide financial planning . It helps answer questions like:

- "How much revenue can we expect in the next quarter?"

- "What impact will pricing changes have on our overall revenue?"

- Financial analysts use quantitative techniques, such as time series analysis , regression models, and scenario-based simulations, to build robust revenue models.

2. Strategic Perspective:

- Strategically, revenue modeling informs business decisions . It shapes product development, marketing strategies, and expansion plans.

- Consider the perspective of a startup launching a new software product:

- The revenue model (e.g., subscription-based, freemium, or one-time purchase) influences product features and pricing.

- Market positioning and target audience play a crucial role in revenue projections.

- Strategic decisions like entering new markets or diversifying revenue streams impact the overall model.

3. Operational Perspective:

- Operationally, revenue modeling affects day-to-day activities. Sales teams, customer support, and production teams rely on revenue projections.

- For instance:

- Sales teams need accurate forecasts to set achievable targets.

- Inventory management depends on expected sales volumes.

- Customer support staffing aligns with projected customer growth.

#### Key Components of a Revenue Model

Let's break down the essential elements of a revenue model:

1. Pricing Structure:

- Define how you charge customers (e.g., subscription, pay-per-use, licensing).

- Example: A SaaS company charges $50/month per user for its project management software .

2. Unit Metrics:

- Identify the units of measurement for revenue (e.g., product units sold, website visits, ad impressions).

- Example: An e-commerce business tracks revenue per order.

3. Pricing Drivers:

- Understand the factors influencing pricing and revenue.

- Example: A hotel's revenue depends on occupancy rates, room rates, and additional services (spa, restaurant).

4. Customer Segmentation:

- Categorize customers based on behavior , demographics, or usage patterns.

- Example: A streaming service may have premium subscribers, ad-supported users, and trial users.

5. Growth Assumptions:

- Estimate how your customer base will grow over time.

- Example: A mobile app expects 10% monthly user growth.

#### Real-World Example: Airbnb

Imagine you're building a revenue model for Airbnb:

- Pricing Structure: Airbnb charges hosts a percentage fee (e.g., 3%) for each booking and guests a service fee (e.g., 10%).

- Unit Metrics: Revenue is tied to the number of bookings made through the platform.

- Pricing Drivers: Factors include occupancy rates, average nightly rates, and geographic location.

- Customer Segmentation: Hosts and guests fall into different segments.

- Growth Assumptions: Projections consider global travel trends and Airbnb's market share.

Remember, revenue modeling isn't static—it evolves as your business grows, market dynamics change, and new opportunities arise. Regularly revisit and refine your model to stay aligned with reality.

In summary, revenue modeling is both an art and a science . It combines quantitative analysis with strategic vision, allowing businesses to navigate the complex landscape of revenue generation. Whether you're a startup founder, a financial analyst, or a seasoned entrepreneur, mastering revenue modeling is essential for sustainable growth.

Introduction to Revenue Modeling - Revenue Modeling: How to Build a Revenue Model for Your Business Plan

understanding Revenue streams is a crucial aspect of building a comprehensive revenue model for your business plan. In this section, we will delve into the various perspectives and insights related to revenue streams.

1. Diversification: One key concept is the importance of diversifying your revenue streams . By having multiple sources of income , you can mitigate risks and ensure stability. For example, a software company may generate revenue through software sales, subscription fees, and consulting services.

2. Direct vs. Indirect Revenue: It's essential to differentiate between direct and indirect revenue streams. Direct revenue comes from selling products or services directly to customers, while indirect revenue is generated through partnerships, advertising, or licensing agreements. For instance, a mobile app may generate direct revenue through in-app purchases and indirect revenue through advertisements.

3. recurring revenue : Recurring revenue streams provide a predictable and steady income. This can be achieved through subscription-based models , membership fees, or ongoing service contracts. For instance, a streaming platform charges a monthly subscription fee to access its content.

4. Ancillary Revenue: Ancillary revenue refers to additional income generated from complementary products or services. For example, a hotel may offer room bookings as its primary revenue stream but also generate ancillary revenue through spa services, restaurant sales, or event hosting.

5. freemium model : The freemium model combines free and premium offerings to generate revenue. Basic features or services are provided for free, enticing users to upgrade to a paid version for enhanced functionality or additional features. This model is commonly used in software applications and online platforms .

6. licensing and Intellectual property : Revenue can also be generated through licensing intellectual property, such as patents, trademarks, or copyrights. Companies can grant others the right to use their intellectual property in exchange for licensing fees or royalties .

7. E-commerce and Online Sales: With the rise of e-commerce, online sales have become a significant revenue stream for many businesses. This includes selling products directly through an online store, participating in marketplaces like Amazon, or leveraging affiliate marketing programs.

Remember, these are just

Understanding Revenue Streams - Revenue Modeling: How to Build a Revenue Model for Your Business Plan

Identifying key revenue drivers is a crucial aspect of building a revenue model for your business plan . In this section, we will explore various perspectives and insights to help you understand the factors that contribute to revenue generation.

1. Market Demand: Understanding the demand for your product or service is essential in identifying revenue drivers . analyze market trends , customer preferences, and competitive landscape to determine the potential size of your target market .

2. pricing strategy : Your pricing strategy plays a significant role in revenue generation . Consider factors such as production costs, competitor pricing, and perceived value to set optimal prices that maximize revenue while remaining competitive.

3. Customer Acquisition: Acquiring new customers is vital for revenue growth. Identify effective marketing channels, develop compelling messaging, and implement customer acquisition strategies to attract and convert potential customers .

4. Customer Retention: Retaining existing customers is equally important as acquiring new ones. Implement customer retention strategies such as loyalty programs , personalized experiences, and excellent customer service to foster long-term relationships and drive repeat purchases .

5. Upselling and Cross-selling: Increasing revenue from existing customers can be achieved through upselling and cross-selling techniques . Identify opportunities to offer complementary products or services , upgrade options, or bundle offerings to encourage customers to spend more.

6. Partnerships and Alliances: Collaborating with strategic partners or forming alliances can open new revenue streams. Explore potential partnerships that align with your business objectives and leverage each other's customer base, expertise, or distribution channels.

7. Product Innovation: Continuously innovating and improving your product or service can drive revenue growth . stay updated with market trends, customer feedback, and emerging technologies to enhance your offerings and attract new customers .

8. Geographic Expansion: Expanding into new geographic markets can unlock additional revenue opportunities. conduct market research , assess regulatory requirements, and develop localized strategies to successfully enter new markets .

Remember, these are just a few examples of revenue drivers. It's important to analyze your specific business model , industry dynamics, and customer behavior to identify the key drivers that will contribute to your revenue growth.

Identifying Key Revenue Drivers - Revenue Modeling: How to Build a Revenue Model for Your Business Plan

Analyzing market Potential is a crucial aspect when building a revenue model for your business plan. This section delves into the various perspectives and insights related to understanding the market potential of your product or service.

1. market research : Conducting thorough market research is essential to analyze the potential of your target market . This involves gathering data on customer demographics, market trends, competitors, and consumer behavior. By understanding the market landscape , you can identify opportunities and make informed decisions.

2. total Addressable market (TAM): The TAM represents the total market demand for a specific product or service . It provides an estimate of the maximum revenue potential if you were to capture the entire market share. Calculating the TAM involves assessing the size of the target market and the average spending per customer.

3. Serviceable Available Market (SAM): The SAM represents the portion of the TAM that your business can realistically target. It takes into account factors such as geographical limitations, customer segments, and market accessibility. Analyzing the SAM helps you identify the specific market segments you should focus on.

4. market segmentation : market segmentation involves dividing the target market into distinct groups based on shared characteristics, needs, or preferences. By segmenting the market, you can tailor your marketing strategies and offerings to better meet the needs of each segment. For example, a software company may segment its market based on company size or industry.

5. Competitive Analysis: Assessing your competitors is crucial to understanding the market potential. Analyze their strengths, weaknesses, market share, pricing strategies, and unique selling propositions . This analysis helps you identify gaps in the market and differentiate your product or service .

6. Customer Insights: Gathering insights from potential customers through surveys, interviews, or focus groups can provide valuable information about their needs, preferences, and pain points. Understanding your target customers' motivations and challenges allows you to align your offerings with their expectations.

7. Market Trends: Stay updated on market trends, technological advancements, and industry developments.

Analyzing Market Potential - Revenue Modeling: How to Build a Revenue Model for Your Business Plan

## Understanding the Importance of Pricing

Pricing isn't just about setting a number; it's a strategic decision that aligns with your business goals . Here are some perspectives to consider:

1. cost-Based pricing :

- Definition: Cost-based pricing involves setting prices based on production costs, including materials, labor, and overhead.

- Simplicity: Easy to calculate.

- Cost Recovery: Ensures cost recovery.

- Ignores Market Dynamics: Ignores demand and competitive factors.

- Profit Margin Variability: Profit margins may vary significantly.

- Example: A bakery prices its cakes by adding a fixed percentage markup to ingredient costs.

2. Value-Based Pricing:

- Definition: Value-based pricing ties the price to the perceived value delivered to customers.

- Customer-Centric: Reflects what customers are willing to pay.

- higher margins : Allows for higher profit margins.

- Complexity: Requires understanding customer psychology.

- Market Segmentation: Different customers perceive different values.

- Example: A premium smartphone manufacturer prices its devices higher due to advanced features and brand reputation.

3. Competitor-Based Pricing:

- Definition: Sets prices based on competitors' pricing.

- Market Alignment: Keeps you competitive.

- Quick Decision: Easy to implement.

- Lack of Differentiation: Ignores unique value propositions.

- Race to the Bottom: May lead to price wars.

- Example: A ride-sharing service adjusts fares based on what other services charge.

4. Dynamic Pricing:

- Definition: Adjusts prices in real-time based on demand, supply, or other external factors.

- Optimized Revenue: Maximizes revenue during peak times.

- Adaptability: Responds to market fluctuations.

- Perception Challenges: Customers may feel manipulated.

- Complex Implementation: Requires robust algorithms.

- Example: Airlines and hotels adjust prices based on booking patterns and availability.

5. Penetration Pricing:

- Definition: Initially setting low prices to gain market share .

- Market Entry: Attracts price-sensitive customers .

- Fast Adoption: Accelerates product adoption.

- Profit Sacrifice: Initial profits may be low.

- Brand Perception: May be associated with lower quality.

- Example: A new streaming service offers a free trial period to attract subscribers.

6. Premium Pricing:

- Definition: Sets prices higher than competitors to position as a luxury or exclusive brand.

- Brand Image: Enhances brand prestige.

- Higher Margins: Commands premium profits.

- Limited Market: Appeals to a niche audience.

- Risk of Alienation: May exclude price-sensitive customers.

- Example: luxury fashion brands like Chanel or Rolex.

Remember that pricing isn't static; it evolves with market dynamics, customer feedback, and business growth . Regularly evaluate your pricing strategy and adapt as needed to stay competitive and profitable.

Choosing the Right Pricing Strategy - Revenue Modeling: How to Build a Revenue Model for Your Business Plan

forecasting revenue growth is a crucial aspect of building a robust revenue model for your business plan. It involves predicting the future financial performance of your company based on various factors and insights from different perspectives. By accurately forecasting revenue growth, you can make informed decisions, set realistic goals , and allocate resources effectively .

1. historical Data analysis : Start by analyzing your company's past revenue performance. Look for trends, patterns, and seasonality to identify any recurring revenue drivers or fluctuations. This analysis will serve as a foundation for future projections.

2. market research : Conduct thorough market research to understand industry trends, customer behavior, and competitive landscape. Identify potential market opportunities, emerging technologies, and consumer preferences that could impact your revenue growth .

3. Customer Segmentation: Segment your customer base based on demographics, buying behavior, and preferences. This will help you tailor your revenue forecasts to specific customer segments and identify growth opportunities within each segment .

4. sales Pipeline analysis : Evaluate your sales pipeline to assess the potential revenue from existing leads and prospects. Consider the conversion rates at each stage of the sales process and factor in the average deal size to estimate future revenue .

5. Pricing Strategy: Analyze your pricing strategy and its impact on revenue growth. Assess the elasticity of demand, competitor pricing, and customer willingness to pay . Adjusting your pricing strategy can significantly influence revenue projections.

6. product Development and innovation : Consider the impact of new product launches, product enhancements, or innovations on revenue growth. Identify potential upselling or cross-selling opportunities to existing customers .

7. External Factors: Take into account external factors such as economic conditions, regulatory changes, and industry disruptions. These factors can significantly impact revenue growth and should be considered in your forecasts.

Now, let's illustrate these concepts with a few examples:

Example 1: Suppose you run an e-commerce business . By analyzing historical data, you notice a surge in revenue during the holiday season. You can forecast revenue growth by projecting similar seasonal spikes and tailoring marketing campaigns to capitalize on this trend.

Example 2: If you operate a software-as-a-service (SaaS) company, understanding customer churn rates and customer lifetime value is crucial for revenue forecasting. By analyzing these metrics, you can estimate future revenue based on customer retention and acquisition strategies.

Remember, accurate revenue forecasting requires a combination of data analysis , market research, and strategic insights. Continuously monitor and update your revenue forecasts as new information becomes available to ensure your business plan remains agile and adaptable.

Forecasting Revenue Growth - Revenue Modeling: How to Build a Revenue Model for Your Business Plan

Evaluating Revenue Model Risks is a crucial aspect of building a revenue model for your business plan. In this section, we will delve into the various risks that can impact your revenue model and provide insights from different perspectives.

1. Market Risk: One of the primary risks to consider is the market risk. This involves analyzing the demand and competition in your target market. For example, if your business operates in a highly saturated market with intense competition, it may be challenging to generate sustainable revenue.

2. Pricing Risk: Pricing plays a significant role in revenue generation. setting the right price for your products or services is crucial. If your pricing strategy is too high , it may deter potential customers, while setting it too low may lead to revenue loss. Conducting market research and competitor analysis can help mitigate this risk.

3. customer Acquisition risk : Acquiring customers is essential for revenue growth. However, there is always a risk associated with customer acquisition . Factors such as customer preferences, changing market trends , and marketing effectiveness can impact your ability to attract and retain customers .

4. Technology Risk: In today's digital age, technology plays a vital role in revenue generation. However, relying heavily on technology can pose risks. Technical glitches, cybersecurity threats, or outdated systems can disrupt your revenue streams. Regularly updating and investing in robust technology infrastructure can mitigate this risk.

5. regulatory and Compliance risk : Operating within the legal framework is crucial for any business. Failure to comply with regulations and laws can result in penalties, legal disputes, and reputational damage. Understanding and adhering to industry-specific regulations can help mitigate regulatory and compliance risks.

6. Economic Risk: Economic factors such as inflation, recession, or changes in consumer spending patterns can impact your revenue model. Conducting thorough economic analysis and staying updated with market trends can help you anticipate and mitigate economic risks .

7. Scalability Risk: As your business grows, scalability becomes a critical factor. If your revenue model is not scalable, it may hinder your ability to expand and generate sustainable revenue. Evaluating scalability risks involves assessing your business processes, resources, and operational capabilities.

Remember, these are just a few examples of revenue model risks. It is essential to conduct a comprehensive analysis based on your specific business and industry. By identifying and addressing these risks , you can build a robust revenue model that maximizes your revenue potential.

Evaluating Revenue Model Risks - Revenue Modeling: How to Build a Revenue Model for Your Business Plan

Implementing and monitoring the revenue model is a crucial aspect of building a successful business plan. This section delves into the various considerations and strategies involved in effectively managing and optimizing your revenue streams .

1. Understand Your Business Model: Before implementing a revenue model, it's essential to have a clear understanding of your business model . analyze your target market , customer segments, and value proposition to identify the most suitable revenue streams.

2. choose the Right Pricing strategy : Pricing plays a significant role in revenue generation. Consider factors such as production costs, competition, customer willingness to pay, and perceived value when determining your pricing strategy. Examples of pricing strategies include cost-plus pricing, value-based pricing, and penetration pricing.

3. diversify Revenue streams : Relying on a single revenue stream can be risky. Explore opportunities to diversify your revenue streams by offering complementary products or services , exploring partnerships, or expanding into new markets. This approach helps mitigate risks and increases overall revenue potential.

4. monitor Key Performance indicators (KPIs): Tracking relevant KPIs is crucial for evaluating the effectiveness of your revenue model. Examples of KPIs include customer acquisition cost (CAC), customer lifetime value (CLV), average revenue per user (ARPU), and churn rate. Regularly monitor these metrics to identify areas for improvement and make data-driven decisions .

5. Optimize Pricing and Packaging: Continuously evaluate and optimize your pricing and packaging strategies based on market dynamics and customer feedback . Conduct market research, gather customer insights , and conduct A/B testing to identify the most effective pricing and packaging options.

6. Leverage Technology: Utilize technology solutions such as customer relationship management (CRM) systems, revenue management software, and analytics tools to streamline revenue management processes. These tools can provide valuable insights , automate tasks, and enhance decision-making .

7. foster Customer loyalty : building strong customer relationships and fostering loyalty is essential for long-term revenue growth. Implement customer retention strategies such as loyalty programs , personalized marketing campaigns , and exceptional customer service to maximize customer lifetime value and reduce churn .

Remember, implementing and monitoring the revenue model is an ongoing process. Regularly review and adapt your strategies based on market trends, customer feedback, and business goals to ensure sustainable revenue growth .

Implementing and Monitoring the Revenue Model - Revenue Modeling: How to Build a Revenue Model for Your Business Plan

1. Identify Revenue Streams: Start by analyzing your current revenue streams and identifying any potential gaps or areas for improvement. Consider both existing and potential revenue sources that align with your business goals .

2. Customer Segmentation: Segment your customer base to better understand their needs, preferences, and purchasing behaviors. This will enable you to tailor your revenue model to specific customer segments and optimize revenue generation .

3. Pricing Strategy: Evaluate your pricing strategy to ensure it aligns with market trends, customer expectations, and the value you provide. Consider factors such as competitive pricing, value-based pricing, and pricing elasticity to optimize revenue generation.

4. Product Bundling and Upselling: Explore opportunities for product bundling and upselling to increase the average transaction value. By offering complementary products or services together or encouraging customers to upgrade, you can maximize revenue potential .

5. Subscription Models: Consider implementing subscription-based revenue models, such as monthly or annual subscriptions, to establish recurring revenue streams . This can provide stability and predictability in your revenue generation.

6. Partnerships and Alliances: Collaborate with strategic partners or form alliances to expand your reach and tap into new customer segments. Joint ventures, co-marketing initiatives, or affiliate programs can help drive additional revenue streams .

7. data-Driven Decision making : leverage data analytics and insights to make informed decisions about your revenue model. analyze customer behavior , market trends, and financial metrics to identify areas for optimization and revenue growth .

8. Continuous Testing and Iteration: Implement a culture of continuous testing and iteration to refine your revenue model over time. Monitor key performance indicators , gather customer feedback , and adapt your approach based on insights gained.

Remember, these are just a few strategies to consider when adjusting and optimizing your revenue model. Each business is unique, so it's important to tailor these insights to your specific context and goals. By implementing these strategies and continuously evaluating your revenue model, you can drive sustainable revenue growth for your business.

Adjusting and Optimizing the Revenue Model - Revenue Modeling: How to Build a Revenue Model for Your Business Plan

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How to Create a Revenue Model in 7 Steps

One of the most important things you can do to ensure the financial health of your business is to create an infallible revenue model. Your revenue model gives you a necessary understanding of your cash flow and needs and is your way of demonstrating - to yourself and to potential investors - how you plan to earn revenue and maximize your profitability. 

Choosing a revenue model that fits you perfectly isn’t easy. As the framework of how a startup will generate income, a proper revenue model needs to consider prices, revenue sources, income and expense statements, and many other elements. It’s crucial to get this right, too, because a perfect match needs to help your business out in those diverse aspects. From sales to growth, choosing the right revenue model is especially vital for long term projections. It’s just central to any business model! To help your final choice, we put together the best 5 steps to a revenue model for startups. We hope these aid in making the right kind of difference for your company to make positive game-changing decisions. 

What is a revenue model?

Said plainly for a startup, a revenue model means understanding how the company will make money. In other words, a revenue model is a map out of important business aspects in earning a startup valuable revenue. It’s not the same as a business model , though it’s a significant part of it. 

Popular revenue models provide different benefits. We just need to pick the one that’s best suited for our company. In that sense, even a revenue model template can be a great way to find the model that’s just right for our business. Because, as we said, choosing the right revenue model is critical. That’s primarily the case because picking the wrong one can equal a company failing overall. And we certainly live to avoid that. 

How do you make a revenue model?

Just like building a house needs a blueprint, your business needs a money plan. It's called a "revenue model," and it's all about how your business makes money.

Whether you're starting or running a business, a clear revenue model is super important. It's like your financial map, showing where your money comes from, how much you can charge, and how many sales you might make.

Here, we'll make it simple with four easy steps. These steps will help you understand your business, set prices, and predict how much money you can make.

1. Understand Your Business:

• Begin by gaining a deep understanding of your business, its purpose, and the value it provides. What problem does your business solve? Who are your potential customers, and what do they need?
• Identify your unique selling points (USPs) or what makes your business stand out from competitors.
• Consider your business's strengths and weaknesses, as well as external factors like market trends and competition.

2. Find Income Sources:

• Determine all the possible ways your business can generate income. Common income sources include:
• Selling physical products: If you sell items, think about the types of products, their prices, and the sales volume you expect.
• Offering services: If your business provides services, identify the different services you can offer and how much you can charge for each.
• Subscriptions or memberships: Explore options for recurring income from subscription-based services or membership programs.
• Licensing or royalties: If you own intellectual property like patents or copyrights, consider licensing them to others for a fee.
• Each income source should align with your business's core strengths and customer needs.

3. Set Prices and Predict Sales:

• Determine the prices for your products or services. It's crucial to find a balance between covering your costs and providing value to your customers.
• Estimate how many units of your product or hours of service you can sell within a specific period. This involves forecasting your sales volume.
• Consider factors that can influence your sales, such as marketing efforts, market demand, and seasonality.
• Create different scenarios, like best-case and worst-case, to prepare for different outcomes.

4. Monitor and Adjust:

• Once your business is up and running, closely monitor your revenue and expenses. Track your actual income against your initial predictions.
• Be ready to adjust your revenue model if necessary. If your sales aren't meeting expectations, you might need to revisit your pricing strategy or marketing tactics.
• Continuously analyze market conditions and customer feedback to stay adaptable. A successful revenue model often evolves as your business grows.

Remember that creating a revenue model is an ongoing process. Regularly review and refine your approach to ensure it remains aligned with your business goals and market dynamics.

All these assumptions and more can be solved and monitored using any of the Slidebean Financial Model Templates

Key information to write a revenue model

Let’s define some of the essential pieces of information to start writing a revenue model. First, get all of your sales data along with income and expense statements. Just in case, you can know these by other names, as well. They go by a statement of earnings, for example, a profit and loss statement (P&L for short), and even as a statement of operations. 

In short, the above are documents that reflect your income and expenses , of course. Yet, in the income one, you’ll list revenues from your business offer sales before you subtract any top-line expenses, for instance. This should include net income (or loss) over a specific timeframe. And, contrary to a balance sheet, these don’t just focus on a single moment of your startup’s trajectory. 

Anyways, once those financial documents are handy, you’ll also need to understand the market in which you’re operating and to which you’re inserting. Seek a clear idea of how many customers exist who are likely consumers of your services and products. As this is also a big side topic, we’ll leave you with our Go To Market Strategy Presentation Structure as reference for later, in case you need it. 

Note that the more thorough job you do in gathering all this information, the better your backup will be. And that’s just the kind of support we’re looking to create, to choose the most accurate revenue model that’s right for your startup. 

Once you’ve gathered the above data, make a list of revenue models. Filter them by those you can actually use. What’s important here is that primary and secondary models will matter and come in handy if you offer different services and products. You might quickly need a different model for each product or service offer. 

We’ll now make the steps to writing a solid revenue model for your startup clearer in the following section. 

Revenue model webinar and other useful tools

To learn how to develop a revenue model that’s right for you, there are also webinars and a step-by-step modeling tutorial to integrate. These tools include an easily downloadable and customized financial model spreadsheet you can count in with that. Coupled with more literature on building a financial model for a SaaS Business or our financial model insight webpage, the more resources you can check, the better. They’ll all enable you more and more to extract the best out of your upcoming efforts. 

Financial Modeling Consultants

At Slidebean, we understand the importance of having a solid financial model for your business. That's why we launched this comprehensive course, tailored to empower you with the tools and techniques you need to create accurate and effective financial models for your startup.

In today's competitive startup world, having a strong financial model can give you a significant edge. And what better way to gain that edge than by learning from experts in the field? Our workshop is designed to teach you the tools and techniques needed to create financial models that will help you make informed business decisions and secure funding.

Don't miss this opportunity to take your financial modeling skills to the next level and give your business the boost it needs. Sign up for our workshop today and let's work together to take your startup to the next level.

At Slidebean, we are committed to helping startup founders like you succeed. So, don't wait any longer, register for the Financial Modeling Workshop now and let's get started on building a solid financial foundation for your business.

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Written by Jesse Sumrak | May 14, 2023

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Business plans might seem like an old-school stiff-collared practice, but they deserve a place in the startup realm, too. It’s probably not going to be the frame-worthy document you hang in the office—yet, it may one day be deserving of the privilege.

Whether you’re looking to win the heart of an angel investor or convince a bank to lend you money, you’ll need a business plan. And not just any ol’ notes and scribble on the back of a pizza box or napkin—you’ll need a professional, standardized report.

Bah. Sounds like homework, right?

Yes. Yes, it does.

However, just like bookkeeping, loan applications, and 404 redirects, business plans are an essential step in cementing your business foundation.

Don’t worry. We’ll show you how to write a business plan without boring you to tears. We’ve jam-packed this article with all the business plan examples, templates, and tips you need to take your non-existent proposal from concept to completion.

Table of Contents

What Is a Business Plan?

Tips to Make Your Small Business Plan Ironclad

How to Write a Business Plan in 6 Steps

Startup Business Plan Template

Business Plan Examples

Work on Making Your Business Plan

How to Write a Business Plan FAQs

What is a business plan why do you desperately need one.

A business plan is a roadmap that outlines:

• Who your business is, what it does, and who it serves
• Where your business is now
• Where you want it to go
• How you’re going to make it happen
• What might stop you from taking your business from Point A to Point B
• How you’ll overcome the predicted obstacles

While it’s not required when starting a business, having a business plan is helpful for a few reasons:

• Secure a Bank Loan: Before approving you for a business loan, banks will want to see that your business is legitimate and can repay the loan. They want to know how you’re going to use the loan and how you’ll make monthly payments on your debt. Lenders want to see a sound business strategy that doesn’t end in loan default.
• Win Over Investors: Like lenders, investors want to know they’re going to make a return on their investment. They need to see your business plan to have the confidence to hand you money.
• Stay Focused: It’s easy to get lost chasing the next big thing. Your business plan keeps you on track and focused on the big picture. Your business plan can prevent you from wasting time and resources on something that isn’t aligned with your business goals.

Beyond the reasoning, let’s look at what the data says:

• Simply writing a business plan can boost your average annual growth by 30%
• Entrepreneurs who create a formal business plan are 16% more likely to succeed than those who don’t
• A study looking at 65 fast-growth companies found that 71% had small business plans
• The process and output of creating a business plan have shown to improve business performance

Convinced yet? If those numbers and reasons don’t have you scrambling for pen and paper, who knows what will.

Don’t Skip: Business Startup Costs Checklist

Before we get into the nitty-gritty steps of how to write a business plan, let’s look at some high-level tips to get you started in the right direction:

Be Professional and Legit

You might be tempted to get cutesy or revolutionary with your business plan—resist the urge. While you should let your brand and creativity shine with everything you produce, business plans fall more into the realm of professional documents.

Think of your business plan the same way as your terms and conditions, employee contracts, or financial statements. You want your plan to be as uniform as possible so investors, lenders, partners, and prospective employees can find the information they need to make important decisions.

If you want to create a fun summary business plan for internal consumption, then, by all means, go right ahead. However, for the purpose of writing this external-facing document, keep it legit.

Know Your Audience

Your official business plan document is for lenders, investors, partners, and big-time prospective employees. Keep these names and faces in your mind as you draft your plan.

Think about what they might be interested in seeing, what questions they’ll ask, and what might convince (or scare) them. Cut the jargon and tailor your language so these individuals can understand.

Remember, these are busy people. They’re likely looking at hundreds of applicants and startup investments every month. Keep your business plan succinct and to the point. Include the most pertinent information and omit the sections that won’t impact their decision-making.

Invest Time Researching

You might not have answers to all the sections you should include in your business plan. Don’t skip over these!

Your audience will want:

• Detailed information about your customers
• Numbers and solid math to back up your financial claims and estimates
• Deep insights about your competitors and potential threats
• Data to support market opportunities and strategy

Your answers can’t be hypothetical or opinionated. You need research to back up your claims. If you don’t have that data yet, then invest time and money in collecting it. That information isn’t just critical for your business plan—it’s essential for owning, operating, and growing your company.

Stay Realistic

Your business may be ambitious, but reign in the enthusiasm just a teeny-tiny bit. The last thing you want to do is have an angel investor call BS and say “I’m out” before even giving you a chance.

The folks looking at your business and evaluating your plan have been around the block—they know a thing or two about fact and fiction. Your plan should be a blueprint for success. It should be the step-by-step roadmap for how you’re going from Point A to Point B.

How to Write a Business Plan—6 Essential Elements

Not every business plan looks the same, but most share a few common elements. Here’s what they typically include:

• Executive Summary
• Business Overview
• Products and Services
• Market Analysis
• Competitive Analysis
• Financial Strategy

Below, we’ll break down each of these sections in more detail.

1. Executive Summary

While your executive summary is the first page of your business plan, it’s the section you’ll write last. That’s because it summarizes your entire business plan into a succinct one-pager.

Begin with an executive summary that introduces the reader to your business and gives them an overview of what’s inside the business plan.

Your executive summary highlights key points of your plan. Consider this your elevator pitch. You want to put all your juiciest strengths and opportunities strategically in this section.

2. Business Overview

In this section, you can dive deeper into the elements of your business, including answering:

• What’s your business structure? Sole proprietorship, LLC, corporation, etc.
• Where is it located?
• Who owns the business? Does it have employees?
• What problem does it solve, and how?
• What’s your mission statement? Your mission statement briefly describes why you are in business. To write a proper mission statement, brainstorm your business’s core values and who you serve.

Don’t overlook your mission statement. This powerful sentence or paragraph could be the inspiration that drives an investor to take an interest in your business. Here are a few examples of powerful mission statements that just might give you the goosebumps:

• Patagonia: Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.
• Tesla: To accelerate the world’s transition to sustainable energy.
• InvisionApp : Question Assumptions. Think Deeply. Iterate as a Lifestyle. Details, Details. Design is Everywhere. Integrity.
• TED : Spread ideas.
• Warby Parker : To offer designer eyewear at a revolutionary price while leading the way for socially conscious businesses.

3. Products and Services

As the owner, you know your business and the industry inside and out. However, whoever’s reading your document might not. You’re going to need to break down your products and services in minute detail.

For example, if you own a SaaS business, you’re going to need to explain how this business model works and what you’re selling.

You’ll need to include:

• What services you sell: Describe the services you provide and how these will help your target audience.
• What products you sell: Describe your products (and types if applicable) and how they will solve a need for your target and provide value.
• How much you charge: If you’re selling services, will you charge hourly, per project, retainer, or a mixture of all of these? If you’re selling products, what are the price ranges?

4. Market Analysis

Your market analysis essentially explains how your products and services address customer concerns and pain points. This section will include research and data on the state and direction of your industry and target market.

This research should reveal lucrative opportunities and how your business is uniquely positioned to seize the advantage. You’ll also want to touch on your marketing strategy and how it will (or does) work for your audience.

Include a detailed analysis of your target customers. This describes the people you serve and sell your product to. Be careful not to go too broad here—you don’t want to fall into the common entrepreneurial trap of trying to sell to everyone and thereby not differentiating yourself enough to survive the competition.

The market analysis section will include your unique value proposition. Your unique value proposition (UVP) is the thing that makes you stand out from your competitors. This is your key to success.

If you don’t have a UVP, you don’t have a way to take on competitors who are already in this space. Here’s an example of an ecommerce internet business plan outlining their competitive edge:

FireStarters’ competitive advantage is offering product lines that make a statement but won’t leave you broke. The major brands are expensive and not distinctive enough to satisfy the changing taste of our target customers. FireStarters offers products that are just ahead of the curve and so affordable that our customers will return to the website often to check out what’s new.

5. Competitive Analysis

Your competitive analysis examines the strengths and weaknesses of competing businesses in your market or industry. This will include direct and indirect competitors. It can also include threats and opportunities, like economic concerns or legal restraints.

The best way to sum up this section is with a classic SWOT analysis. This will explain your company’s position in relation to your competitors.

6. Financial Strategy

Your financial strategy will sum up your revenue, expenses, profit (or loss), and financial plan for the future. It’ll explain how you make money, where your cash flow goes, and how you’ll become profitable or stay profitable.

This is one of the most important sections for lenders and investors. Have you ever watched Shark Tank? They always ask about the company’s financial situation. How has it performed in the past? What’s the ongoing outlook moving forward? How does the business plan to make it happen?

Answer all of these questions in your financial strategy so that your audience doesn’t have to ask. Go ahead and include forecasts and graphs in your plan, too:

• Balance sheet: This includes your assets, liabilities, and equity.
• Profit & Loss (P&L) statement: This details your income and expenses over a given period.
• Cash flow statement: Similar to the P&L, this one will show all cash flowing into and out of the business each month.

It takes cash to change the world—lenders and investors get it. If you’re short on funding, explain how much money you’ll need and how you’ll use the capital. Where are you looking for financing? Are you looking to take out a business loan, or would you rather trade equity for capital instead?

Read More: 16 Financial Concepts Every Entrepreneur Needs to Know

Startup Business Plan Template (Copy/Paste Outline)

Ready to write your own business plan? Copy/paste the startup business plan template below and fill in the blanks.

Executive Summary Remember, do this last. Summarize who you are and your business plan in one page.

Business Overview Describe your business. What’s it do? Who owns it? How’s it structured? What’s the mission statement?

Products and Services Detail the products and services you offer. How do they work? What do you charge?

Market Analysis Write about the state of the market and opportunities. Use date. Describe your customers. Include your UVP.

Competitive Analysis Outline the competitors in your market and industry. Include threats and opportunities. Add a SWOT analysis of your business.

Financial Strategy Sum up your revenue, expenses, profit (or loss), and financial plan for the future. If you’re applying for a loan, include how you’ll use the funding to progress the business.

5 Frame-Worthy Business Plan Examples

Want to explore other templates and examples? We got you covered. Check out these 5 business plan examples you can use as inspiration when writing your plan:

• SBA Wooden Grain Toy Company
• SBA We Can Do It Consulting
• OrcaSmart Business Plan Sample
• Plum Business Plan Template
• PandaDoc Free Business Plan Templates

Get to Work on Making Your Business Plan

If you find you’re getting stuck on perfecting your document, opt for a simple one-page business plan —and then get to work. You can always polish up your official plan later as you learn more about your business and the industry.

Remember, business plans are not a requirement for starting a business—they’re only truly essential if a bank or investor is asking for it.

Ask others to review your business plan. Get feedback from other startups and successful business owners. They’ll likely be able to see holes in your planning or undetected opportunities—just make sure these individuals aren’t your competitors (or potential competitors).

Your business plan isn’t a one-and-done report—it’s a living, breathing document. You’ll make changes to it as you grow and evolve. When the market or your customers change, your plan will need to change to adapt.

That means when you’re finished with this exercise, it’s not time to print your plan out and stuff it in a file cabinet somewhere. No, it should sit on your desk as a day-to-day reference. Use it (and update it) as you make decisions about your product, customers, and financial plan.

Review your business plan frequently, update it routinely, and follow the path you’ve developed to the future you’re building.

Keep Learning: New Product Development Process in 8 Easy Steps

What financial information should be included in a business plan?

Be as detailed as you can without assuming too much. For example, include your expected revenue, expenses, profit, and growth for the future.

What are some common mistakes to avoid when writing a business plan?

The most common mistake is turning your business plan into a textbook. A business plan is an internal guide and an external pitching tool. Cut the fat and only include the most relevant information to start and run your business.

Who should review my business plan before I submit it?

Co-founders, investors, or a board of advisors. Otherwise, reach out to a trusted mentor, your local chamber of commerce, or someone you know that runs a business.

Ready to Write Your Business Plan?

Don’t let creating a business plan hold you back from starting your business. Writing documents might not be your thing—that doesn’t mean your business is a bad idea.

Let us help you get started.

Join our free training to learn how to start an online side hustle in 30 days or less. We’ll provide you with a proven roadmap for how to find, validate, and pursue a profitable business idea (even if you have zero entrepreneurial experience).

Stuck on the ideas part? No problem. When you attend the masterclass, we’ll send you a free ebook with 100 of the hottest side hustle trends right now. It’s chock full of brilliant business ideas to get you up and running in the right direction.

About Jesse Sumrak

Jesse Sumrak is a writing zealot focused on creating killer content. He’s spent almost a decade writing about startup, marketing, and entrepreneurship topics, having built and sold his own post-apocalyptic fitness bootstrapped business. A writer by day and a peak bagger by night (and early early morning), you can usually find Jesse preparing for the apocalypse on a precipitous peak somewhere in the Rocky Mountains of Colorado.

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How to: build an effective revenue plan to achieve your business goals.

We got hold of ACME’s revenue plan and the step-by-step process of how they built it. Apply the framework to build your own revenue plan.

Introduction

Step 1: identify your revenue goal, step 2: analyze past performance to define benchmarks, step 3: apply benchmarks to your revenue target, step 4: allocate your resources, step 5: build a ramp-up plan, leverage ai for watertight revenue operating plans, table of contents.

Selling and marketing are harder than ever. Old-school tactics are pushing modern buyers away, leaving revenue teams frustrated, inefficient, and unable to compete. In No Forms. No Spam. No Cold Calls , Latané Conant delivers the recipe for scalable, repeatable, data-driven sales and marketing strategies that work today.

In this How-To, we provide a practical, tactical dive into some of the strategies outlined in Chapter 4. 

In her book No Forms. No Spam. No Cold Calls , 6sense CMO Latané Conant outlines her vision for a revolution in sales and marketing. But revolutions aren’t achieved without strong planning and the willingness to adapt. And few things require better planning — and a willingness to adapt — than a company’s revenue plan.

A revenue plan is a framework for how a company expects to make money. A great revenue plan starts with and responds to data.

As Conant writes, “I like to call it a revenue operating model (rather than a revenue model), because this isn’t a set-it-and-forget-it endeavor. What you’re creating is a living, breathing plan. You make assumptions and you operate against those assumptions. So as you learn more and assumptions change, your plan has to adapt accordingly.”

This process begins with a hard look at past performance. Don’t worry if you can’t immediately fill in every metric we’ll soon be discussing. You may have gaps that will need to be filled in with best guesses or industry benchmarks.

The goal is to create a starting point — and this How-To can help.

Meet ‘ACME Corp.’

To properly illustrate how you might apply these insights to your own business, we’ll periodically shine a spotlight on the activities of “ACME Corp.”, a fictitious company that’s presently creating its own revenue operating model.

Since ACME exists solely as an example for our story, it doesn’t much matter what industry ACME is in, or what industries it serves, or how many people it employs. Its purpose is to simply illustrate how choices can affect its pipeline targets and revenue growth. (Put another way: It’s all about the money, honey.)

Five Steps to Creating a Revenue Plan

Sales processes differ from company to company, as do revenue models. For our purposes, ACME’s revenue operating model is based on  an account-based sales funnel . However, the principles we’ll see ACME use can apply to any company’s plan.

We’ve divided this process into five key stages; we’ll provide how-to steps to take for each stage, They are:

• Identify your revenue goal
• Analyze past performance to define benchmarks
• Apply benchmarks to your revenue target
• Allocate your resources
• Build a ramp-up plan

Our entire process starts off with a deceptively simple question: What’s your revenue goal? It might be based on:

• A percentage increase of last year’s performance
• Hitting a revenue number you define, such as $100M in annual recurring revenue (ARR), or
• Achieving a revenue goal defined by your CEO and board

In any case, unless you’re a brand-new company, your revenue goal is your target end-of-year ARR, minus existing customer revenue and pipeline.

Example: How ACME Determines Its Revenue Goal

As we mentioned earlier, we’ll turn our attention to the fictitious ACME Corp. to highlight how a company like yours might approach its revenue operating plan.

In the case of ACME’s revenue goal, the company’s CEO wants to increase its revenue by over 50% this year … so she sets a goal of $25 million net-new ARR for the year.

With the revenue goal set, ACME’s revenue leaders must determine whether they can realistically hit it with their existing resources. (More on this later.)

This means the next step in the process is looking back at its historical sales performance.

The basis of any revenue plan is to:

• Know the revenue number you need to hit
• Determine what you need to achieve at each stage of the buying journey to get there

Thanks to Step 1, you have your organization’s revenue goal. To understand what you need to achieve at each stage of the buying journey, you need benchmarks around likely performance. This should be based on your historical data, or if you don’t have any — external benchmarking .

If you’re using historical performance, to ensure your metrics are meaningful, you should analyze data that spans your typical sales cycle. This could range from three months for transactional deals, and up to 18 months for long deals.

Your team should be interrogating the data to discover key benchmarks for sales cycles, conversion rates , and average deal sizes. To give you an idea of how to approach this task, let’s see how ACME Corp. is doing it.

How ACME Defined Its Benchmarks

As we learned above, ACME has its revenue goal of $25 million net-new ARR. However, it still needs benchmarks around each stage of the buying journey to map out how the revenue team can achieve that.

ACME assesses historical data that spans its average deal cycle of six months, looking back to analyze past sales cycles, conversion rates, and average deal sizes to create metrics for each stage of their buying journey.

Account-Based Buying Journey Stages

By looking at the typical account-based buying journey, you can define the stages where you’ll need metrics to benchmark your performance. Here are the  account-based metrics  your team can review historical data for:

• Number of accounts in the Target Account List (TAL)
• Number of accounts in TAL that are in-market
• What % of accounts reached by marketing engaged with ads or content?
• What % reached the Awareness & Consideration stage?
• What % became a SQL or 6QA (aka a  6sense-Qualified Account )
• What % accepted a meeting with a BDR?
• What % booked a meeting with an account executive?
• What % became qualified pipeline?
• What % signed a deal?
• Average deal size
• Time between each stage (and overall sales cycle)

As we’ll see in the next step, you don’t need metrics for every single stage … but the more benchmarks you have, the more accurate your revenue operating plan will be.

Knowing your sales cycle, deal size, and average conversion rate from engaged accounts enables you to start making predictions and a basic plan. Say, for example, your:

• Average deal size is $200,000
• Conversion rate from engaged account to customer is 10%
• Sales cycle is six months

Since 1-in-10 engaged accounts are expected to sign a deal, we can assume that an engaged account has an average value of $20,000 in six months.

But you can go beyond these basic benchmarks to dive deeper and look at what numbers to expect at each stage of the buying journey . Here’s how ACME did it.

How ACME Applied Its Data to Plot a Plan

Once ACME uncovered the historic data for conversion at each buying stage, it became a math exercise to determine how many accounts ACME needed at each buying stage in order to achieve its revenue goal of $25 million.

Analysis of ACME’s past data revealed:

• It had been effectively reaching 80% of its In-Market Ideal Customer Profiles  (IICP) with marketing messages
• Of those, 30% began conducting serious research
• Of those, 15% became a 6sense Qualified Account (6QA) / sales qualified lead
• Of those, 75% booked a BDR meeting
• Of those, 40% booked a meeting with an AE
• Of those, 75% began exploring the solution, validation, and negotiating
• Of those, 50% signed a deal

ACME’s Past Performance

With its IICP of 75,000 accounts, that came to 303.75 deals — or roughly $15.2 million in revenue. That’s about $10 million short of ACME’s new revenue goal.

So how could the company hit $25 million? Its leaders ran the math in reverse to see what it would take.

Calculating ACME’s New Targets

Without making any changes or improvements to its marketing and sales process, ACME needed the equivalent of roughly 123,000 in-market accounts, 4,430 6QAs, or 3,330 BDR meetings to hit its new revenue goal. 

With an understanding of these numbers, ACME’s next step was working out whether it had the resources to handle the volume.

While it’s a mistake to forget seasonality and assume a linear progression of revenue generation throughout the year, dividing planned activities by days, weeks, or months helps to generate a ballpark figure for resource allocation.

You can map your targets against your current resources to better understand how far current team sizes and budget will get you towards your revenue goal.  

Mapping ACME’s Resource Allocation

As seen in the chart above, to hit its $25 million goal, ACME must book 3,333 BDR meetings. The team mapped this against approximately 260 business days in a year (in the U.S.) to reveal a target of almost 13 meetings a day. 

ACME then examined past BDR performance and workload to assess whether its current headcount of two full-time BDRs could handle the volume, or if it was time to grow the team. ACME applied the same logic across its revenue team to estimate headcount. Could three AEs cover five initial calls a day, plus many follow-up conversations with buyers? 

Increasing the revenue target by 66% was always going to require investment. But by breaking down the numbers and understanding how quickly engaged prospects convert into qualified sales opportunities, ACME could start to map out how much of an investment it needed to make in people, and where to make it. 

Calculating Required Marketing Budget 

Alongside headcount, your marketing team should look at how much budget you used to reach your previous goals. You can then divide your budget by a key measurement metric, e.g. a 6QA or SQL, to understand your marketing spend to reach this goal. 

This is an important step to tie marketing back to revenue and helps you project future outputs in light of targets or budgetary changes. Here’s how it looked for ACME.

ACME’s Marketing Performance

With last year’s budget of $1 million, Acme’s marketing team generated 2,700 6QAs (or alternately, SQLs). To get the cost per 6QA, they divided the budget by the number of 6QAs generated, equalling $370. (6QA could be replaced by another metric of choice, using the same formula.)

So what would happen as ACME attempted to ramp up its revenue? To plan for this year’s budget, ACME multiplied the cost per 6QA by the new target of 4,432, giving a proposed budget of close to $1,640,000.  

By also examining the cost per channel from last year, ACME’s CMO then mapped out the budget by channel to assess whether they had the resources to hit the new targets.

The resource allocation exercise unsurprisingly showed ACME would need more investment to hit its higher targets, so the revenue team set about building a ramp-up plan to reach its new goals.

Before investing heavily in new headcount and huge budgets, you must ensure you’re getting the most from your current investment. Efficient growth doesn’t come solely from increased demand. It comes from increasing conversion rates, too. 

The law of diminishing returns means bettering conversion metrics at any stage in the funnel drives out-sized growth vs increasing activities. 

How ACME Plans to Ramp Up 

For example, looking at ACME’s past performance, a 1% increase in conversion between the Awareness and Consideration stage to 6QA would mean 180 more 6QAs. Following the metrics further down the funnel, that meant 20 more deals, and $1 million more revenue. Not bad at all.

So ACME’s revenue leaders went back further, to the very top of the cascade of their conversion percentages, and the total number of in-market accounts they were attempting to reach. 

The team agreed to tighten their targeting to IICPs — which means going after accounts that are ready to buy and therefore most likely to close first. 

Using this targeted approach, ACME can increase conversion at every stage of the funnel, driving efficient growth. By honing its focus on the accounts most likely to purchase, ACME has improved its chances of winning deals more efficiently.

As revenues lift and more resources free-up for growth, ACME can look to widen its Target Account List (TAL), which will add more IICP prospects to its funnel … and bring in more opportunities for additional sales reps to work. 

By combining this more targeted approach with an increase in activities, ACME expects to smash its revenue goal. 

Following this How-To guide and ACME’s lead gives you a framework for your own revenue operating plan. But it’s by no means perfect — this plan is susceptible to human error, diminishing returns, seasonality, and threats.

To build a watertight plan, companies are turning to AI to help identify the best accounts, and accounts that are in-market. The AI does the hard work for you, gathering data from across business units to get a complete picture. 

This robust data can then be effortlessly combined with past and present performance, alongside trends, seasonality, and threats to create real-time forecasts that can accurately predict future pipeline and inform your revenue operating plan. 

Learn More in Our ‘No Forms. No Spam. No Cold Calls’ Resource Center

Interested in learning more about taking your sales and marketing effort to the next level by uncovering and targeting the accounts most likely to buy? Visit our Resource Center to find more How-To’s like this one inspired from the pages of Conant’s book.

All of 6sense’s proceeds from book sales go to GoodSense , the charitable arm of 6sense whose mission is to do our part for our community and beyond.

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Business Model Canvas: Explained with Examples

Got a new business idea, but don’t know how to put it to work? Want to improve your existing business model? Overwhelmed by writing your business plan? There is a one-page technique that can provide you the solution you are looking for, and that’s the business model canvas.

In this guide, you’ll have the Business Model Canvas explained, along with steps on how to create one. All business model canvas examples in the post can be edited online.

What is a Business Model Canvas

A business model is simply a plan describing how a business intends to make money. It explains who your customer base is and how you deliver value to them and the related details of financing. And the business model canvas lets you define these different components on a single page.   

The Business Model Canvas is a strategic management tool that lets you visualize and assess your business idea or concept. It’s a one-page document containing nine boxes that represent different fundamental elements of a business.  

The business model canvas beats the traditional business plan that spans across several pages, by offering a much easier way to understand the different core elements of a business.

The right side of the canvas focuses on the customer or the market (external factors that are not under your control) while the left side of the canvas focuses on the business (internal factors that are mostly under your control). In the middle, you get the value propositions that represent the exchange of value between your business and your customers.

The business model canvas was originally developed by Alex Osterwalder and Yves Pigneur and introduced in their book ‘ Business Model Generation ’ as a visual framework for planning, developing and testing the business model(s) of an organization.

What Are the Benefits of Using a Business Model Canvas

Why do you need a business model canvas? The answer is simple. The business model canvas offers several benefits for businesses and entrepreneurs. It is a valuable tool and provides a visual and structured approach to designing, analyzing, optimizing, and communicating your business model.

• The business model canvas provides a comprehensive overview of a business model’s essential aspects. The BMC provides a quick outline of the business model and is devoid of unnecessary details compared to the traditional business plan.
• The comprehensive overview also ensures that the team considers all required components of their business model and can identify gaps or areas for improvement.
• The BMC allows the team to have a holistic and shared understanding of the business model while enabling them to align and collaborate effectively.
• The visual nature of the business model canvas makes it easier to refer to and understand by anyone. The business model canvas combines all vital business model elements in a single, easy-to-understand canvas.
• The BMC can be considered a strategic analysis tool as it enables you to examine a business model’s strengths, weaknesses, opportunities, and challenges.
• It’s easier to edit and can be easily shared with employees and stakeholders.
• The BMC is a flexible and adaptable tool that can be updated and revised as the business evolves. Keep your business agile and responsive to market changes and customer needs.
• The business model canvas can be used by large corporations and startups with just a few employees.
• The business model canvas effectively facilitates discussions among team members, investors, partners, customers, and other stakeholders. It clarifies how different aspects of the business are related and ensures a shared understanding of the business model.
• You can use a BMC template to facilitate discussions and guide brainstorming brainstorming sessions to generate insights and ideas to refine the business model and make strategic decisions.
• The BMC is action-oriented, encouraging businesses to identify activities and initiatives to improve their business model to drive business growth.
• A business model canvas provides a structured approach for businesses to explore possibilities and experiment with new ideas. This encourages creativity and innovation, which in turn encourages team members to think outside the box.

How to Make a Business Model Canvas

Here’s a step-by-step guide on how to create a business canvas model.

Step 1: Gather your team and the required material Bring a team or a group of people from your company together to collaborate. It is better to bring in a diverse group to cover all aspects.

While you can create a business model canvas with whiteboards, sticky notes, and markers, using an online platform like Creately will ensure that your work can be accessed from anywhere, anytime. Create a workspace in Creately and provide editing/reviewing permission to start.

Step 2: Set the context Clearly define the purpose and the scope of what you want to map out and visualize in the business model canvas. Narrow down the business or idea you want to analyze with the team and its context.

Step 3: Draw the canvas Divide the workspace into nine equal sections to represent the nine building blocks of the business model canvas.

Step 4: Identify the key building blocks Label each section as customer segment, value proposition, channels, customer relationships, revenue streams, key resources, key activities, and cost structure.

Step 5: Fill in the canvas Work with your team to fill in each section of the canvas with relevant information. You can use data, keywords, diagrams, and more to represent ideas and concepts.

Step 6: Analyze and iterate Once your team has filled in the business model canvas, analyze the relationships to identify strengths, weaknesses, opportunities, and challenges. Discuss improvements and make adjustments as necessary.

Step 7: Finalize Finalize and use the model as a visual reference to communicate and align your business model with stakeholders. You can also use the model to make informed and strategic decisions and guide your business.

What are the Key Building Blocks of the Business Model Canvas?

There are nine building blocks in the business model canvas and they are:

Customer Segments

Customer relationships, revenue streams, key activities, key resources, key partners, cost structure.

• Value Proposition

When filling out a Business Model Canvas, you will brainstorm and conduct research on each of these elements. The data you collect can be placed in each relevant section of the canvas. So have a business model canvas ready when you start the exercise.  

Let’s look into what the 9 components of the BMC are in more detail.

These are the groups of people or companies that you are trying to target and sell your product or service to.

Segmenting your customers based on similarities such as geographical area, gender, age, behaviors, interests, etc. gives you the opportunity to better serve their needs, specifically by customizing the solution you are providing them.

After a thorough analysis of your customer segments, you can determine who you should serve and ignore. Then create customer personas for each of the selected customer segments.

There are different customer segments a business model can target and they are;

• Mass market: A business model that focuses on mass markets doesn’t group its customers into segments. Instead, it focuses on the general population or a large group of people with similar needs. For example, a product like a phone.  
• Niche market: Here the focus is centered on a specific group of people with unique needs and traits. Here the value propositions, distribution channels, and customer relationships should be customized to meet their specific requirements. An example would be buyers of sports shoes.
• Segmented: Based on slightly different needs, there could be different groups within the main customer segment. Accordingly, you can create different value propositions, distribution channels, etc. to meet the different needs of these segments.
• Diversified: A diversified market segment includes customers with very different needs.
• Multi-sided markets: this includes interdependent customer segments. For example, a credit card company caters to both their credit card holders as well as merchants who accept those cards.

Use STP Model templates for segmenting your market and developing ideal marketing campaigns

Visualize, assess, and update your business model. Collaborate on brainstorming with your team on your next business model innovation.

In this section, you need to establish the type of relationship you will have with each of your customer segments or how you will interact with them throughout their journey with your company.

There are several types of customer relationships

• Personal assistance: you interact with the customer in person or by email, through phone call or other means.
• Dedicated personal assistance: you assign a dedicated customer representative to an individual customer.  
• Self-service: here you maintain no relationship with the customer, but provides what the customer needs to help themselves.
• Automated services: this includes automated processes or machinery that helps customers perform services themselves.
• Communities: these include online communities where customers can help each other solve their own problems with regard to the product or service.
• Co-creation: here the company allows the customer to get involved in the designing or development of the product. For example, YouTube has given its users the opportunity to create content for its audience.

You can understand the kind of relationship your customer has with your company through a customer journey map . It will help you identify the different stages your customers go through when interacting with your company. And it will help you make sense of how to acquire, retain and grow your customers.

This block is to describe how your company will communicate with and reach out to your customers. Channels are the touchpoints that let your customers connect with your company.

Channels play a role in raising awareness of your product or service among customers and delivering your value propositions to them. Channels can also be used to allow customers the avenue to buy products or services and offer post-purchase support.

There are two types of channels

• Owned channels: company website, social media sites, in-house sales, etc.
• Partner channels: partner-owned websites, wholesale distribution, retail, etc.

Revenues streams are the sources from which a company generates money by selling their product or service to the customers. And in this block, you should describe how you will earn revenue from your value propositions.  

A revenue stream can belong to one of the following revenue models,

• Transaction-based revenue: made from customers who make a one-time payment
• Recurring revenue: made from ongoing payments for continuing services or post-sale services

There are several ways you can generate revenue from

• Asset sales: by selling the rights of ownership for a product to a buyer
• Usage fee: by charging the customer for the use of its product or service
• Subscription fee: by charging the customer for using its product regularly and consistently
• Lending/ leasing/ renting: the customer pays to get exclusive rights to use an asset for a fixed period of time
• Licensing: customer pays to get permission to use the company’s intellectual property
• Brokerage fees: revenue generated by acting as an intermediary between two or more parties
• Advertising: by charging the customer to advertise a product, service or brand using company platforms

What are the activities/ tasks that need to be completed to fulfill your business purpose? In this section, you should list down all the key activities you need to do to make your business model work.

These key activities should focus on fulfilling its value proposition, reaching customer segments and maintaining customer relationships, and generating revenue.

There are 3 categories of key activities;

• Production: designing, manufacturing and delivering a product in significant quantities and/ or of superior quality.
• Problem-solving: finding new solutions to individual problems faced by customers.
• Platform/ network: Creating and maintaining platforms. For example, Microsoft provides a reliable operating system to support third-party software products.

This is where you list down which key resources or the main inputs you need to carry out your key activities in order to create your value proposition.

There are several types of key resources and they are

• Human (employees)
• Financial (cash, lines of credit, etc.)
• Intellectual (brand, patents, IP, copyright)
• Physical (equipment, inventory, buildings)

Key partners are the external companies or suppliers that will help you carry out your key activities. These partnerships are forged in oder to reduce risks and acquire resources.

Types of partnerships are

• Strategic alliance: partnership between non-competitors
• Coopetition: strategic partnership between partners
• Joint ventures: partners developing a new business
• Buyer-supplier relationships: ensure reliable supplies

In this block, you identify all the costs associated with operating your business model.

You’ll need to focus on evaluating the cost of creating and delivering your value propositions, creating revenue streams, and maintaining customer relationships. And this will be easier to do so once you have defined your key resources, activities, and partners.  

Businesses can either be cost-driven (focuses on minimizing costs whenever possible) and value-driven (focuses on providing maximum value to the customer).

Value Propositions

This is the building block that is at the heart of the business model canvas. And it represents your unique solution (product or service) for a problem faced by a customer segment, or that creates value for the customer segment.

A value proposition should be unique or should be different from that of your competitors. If you are offering a new product, it should be innovative and disruptive. And if you are offering a product that already exists in the market, it should stand out with new features and attributes.

Value propositions can be either quantitative (price and speed of service) or qualitative (customer experience or design).

What to Avoid When Creating a Business Model Canvas

One thing to remember when creating a business model canvas is that it is a concise and focused document. It is designed to capture key elements of a business model and, as such, should not include detailed information. Some of the items to avoid include,

• Detailed financial projections such as revenue forecasts, cost breakdowns, and financial ratios. Revenue streams and cost structure should be represented at a high level, providing an overview rather than detailed projections.
• Detailed operational processes such as standard operating procedures of a business. The BMC focuses on the strategic and conceptual aspects.
• Comprehensive marketing or sales strategies. The business model canvas does not provide space for comprehensive marketing or sales strategies. These should be included in marketing or sales plans, which allow you to expand into more details.
• Legal or regulatory details such as intellectual property, licensing agreements, or compliance requirements. As these require more detailed and specialized attention, they are better suited to be addressed in separate legal or regulatory documents.
• Long-term strategic goals or vision statements. While the canvas helps to align the business model with the overall strategy, it should focus on the immediate and tangible aspects.
• Irrelevant or unnecessary information that does not directly relate to the business model. Including extra or unnecessary information can clutter the BMC and make it less effective in communicating the core elements.

What Are Your Thoughts on the Business Model Canvas?

Once you have completed your business model canvas, you can share it with your organization and stakeholders and get their feedback as well. The business model canvas is a living document, therefore after completing it you need to revisit and ensure that it is relevant, updated and accurate.

What best practices do you follow when creating a business model canvas? Do share your tips with us in the comments section below.

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

FAQs About the Business Model Canvas

• Use clear and concise language
• Use visual-aids
• Customize for your audience
• Highlight key insights
• Be open to feedback and discussion

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Amanda Athuraliya is the communication specialist/content writer at Creately, online diagramming and collaboration tool. She is an avid reader, a budding writer and a passionate researcher who loves to write about all kinds of topics.

Revenue Streams – Business Model Revenues Definition and Examples

The Revenue Streams part of the business model focuses on how the overall business will generate sales.

In simple terms, there are two main types of revenue streams. The first is based on transaction-based revenue and the second generating recurring revenue.

In this section, you will learn about the different types of revenue streams, pricing mechanisms and methods used by leading businesses to generate money.

Table of Contents

What Is a Revenue Stream?

A revenue stream is a distinct source of income that can come from either be recurring revenue, transaction-based or service revenue.

A revenue stream is a critical part of the business model that influences strategy, business planning and investment. A revenue stream represents the economic value customers are willing to pay for the products and services offered. However, a revenue stream is not a business model , but it does influence how a  business model  works.

In short, revenue streams are the total sales of all products and services. However, in accounting terms, it is often called net sales.

You can see from the image below that Amazon reports its total revenue as net sales.

What Is The Difference Between A Revenue Model, Revenue Stream And A Business Model

A revenue stream is easily confused with a revenue model which, in turn, is often confused with a business model .

Definition of a Revenue Stream

A revenue stream is a distinct source of income that can come from either be recurring revenue, transaction-based or service revenue. A business can have a single source of revenue or multiple sources depending on its business model (s).

Definition of a Revenue Model

A revenue model is a framework for generating revenues. Essentially it is the strategy and plan for how a business generates income from either a single or multiple revenue streams. As a strategy, it involves consideration of what value to offer, how to price the value, and who pays for the value.

Definition Of A Business Model

A business model is a framework for optimizing long-term value by systematically analysing how to deliver value to customers profitably.

The business model takes all aspects of your business into account, including your revenue model and all your revenue streams, and examines how well the different parts of the business work together.

Business Model Revenue Streams

There are lots of different ways to generate revenue from products and services. Many markets have been disrupted by changes to revenue models.

As an example, by going digital the music industry was transformed and new revenue models appeared in the form of subscriptions ( recurring revenue ) rather than buying a song or album ( transactions ).

What are the different types of revenue streams?

The two main types of revenue streams are:

• Transaction-based revenues – revenue is earned from customers making a one-time payment of your product or service.
• Recurring revenues – continuous payments for the delivery of products or services.

Why understanding revenue streams matters?

1. revenue is a key performance indicator (kpi) for all businesses.

A Key Performance Indicator (KPI) is a measure that aligns to the overall business strategy. Generally, you find that financial KPI’s link to revenue and profits but can also involve further measures such as cash flow and liquidity.

Whether you’re a startup or large corporation revenue is a key measure for all stakeholders.

2. Performance prediction differs between different revenue streams

What everyone wants to see or be able to predict is how much sales will be generated in the future. An investor will want to understand this because they have a vested interest in the future of the company. Shareholders will want to know or understand what a business is forecasting to understand its overall health.

Recurring revenue is the most predictable income because the cash inflow remains consistent with a stable customer base.  In contrast, transaction-based and service revenues tend to fluctuate with customer demand and often is also affected by seasonality.

#3 Different forecasting models are needed for different revenue models

Depending on the type of revenue models a company employs, a financial analyst develops different forecasting models and carries out different procedures to obtain necessary information when performing financial forecasting.  For companies with a recurring revenue stream, a forecast model should have a uniform structure and a similar pattern in revenue predictions.

Why Testing For Revenue Streams Is Important

Digital technologies have enabled new ways to test products and services in a market to understand if customers are actually willing to buy – in other words if they understand see the value in the new product or service.

Many growth hackers and successful entrepreneurs have had their fair share of failure as well as success. Often, entrepreneurs have had to change either their product, service, customer segment or value proposition to succeed.

The reason is often that they couldn’t get customers to take even the simplest of actions like signing up for an email, let alone paying for the new product.

Is generating the most important part of a business? Of course, it is but there have been some notable delays where a business doesn’t generate users and instead captures part of the market.

Often digital business models, platforms, require populating a platform prior to revenue generation. Facebook for years didn’t generate revenue, but then introduced ads.

Another example is when the revenue is not obvious. To some, it might seem that Google is free, and it is indeed for people that search, but Google then sells the search data and the ability to advertise as a method of generating revenue.

Often revenue models can seem complex as a result of digital business models, digital ecosystems and other digital technologies.

What are examples of revenue streams?

Advertising

Advertising involves being paid to communicate to an audience about a product or service.

Agents and Brokers

Agents and brokers act as intermediaries and take a percentage fee for their services.

An asset sales is usually a one-off transaction involving an asset owned by either a person or a company.

Business Services

Business services can have a variety of revenue types depending on the type of service. As an example, a website built for a business can involve a transaction initially but then may move to a subscription for maintenance.

Cinemas and theme parks are examples of Club goods and involve a fee for entrance.

Consulting companies such as McKinsey, PWC, Deloitte and Bain work on both a project and retainer basis. The retainer can be thought of as a subscription for a set number of hours and level of service. Projects are normally defined in terms of a start date and end date with a set outcome.

Content Subscriptions

Digital technologies disrupted and transformed the media industry. Newspapers used to rely on a regular set of customers buying a physical copy of their entire output. Now they are often online and customers pay a subscription to access the full content. Several bloggers have also moved to this type of arrangement.

Consumer Services

Consumer services range from restaurants to hairdressers and other forms of services aimed at consumers.

Education consists of both services and products that educate either companies or individuals. Training can be either online, eLearning, face to face learning (e.g. as a workshop or in a classroom) or a blend of the two (blended learning).

Experiences

The experience economy has grown massively over the last 10 years. This includes real-world experiences such as travel, war games, parachuting, paragliding and many more.

Intellectual Property can be licensed to create a recurring revenue stream.

Sales of media is a common revenue stream for businesses such as production companies that make movies, documentaries, TV shows.

Metered Services

Many services are now being metered such as electricity, gas and water. A business will then gain revenue by charging for use or consumption.

Products have been around for aeons and represent one of the oldest and more traditional revenue streams. They are mostly transactional involving a buyer and seller.

Product Subscriptions

A WordPress plugin is a good example of a product (digital) that is purchased downloaded and installed. Most premium WordPress plugins then work on an annual subscription model. Other products offer different timeframes for the payment terms.

Products As A Service

Some products such as wearable devices often also come linked with services. These product-service systems are present in consumer goods and B2B product-service systems e.g. aircraft engines.

Service Subscriptions

Web hosting services are an example of how some companies create revenue streams. Different pricing points take into account a range of customer segments and how the different requirements for each e.g. web developer vs. agency vs. a small business.

Revenue Formula

How do you calculate revenue streams?

Calculating revenue can be simple or complicated depending on the business.

As an example, if many companies periodically offer promotional codes, often with a different value. A product that has an original price of $100 could be discounted down by 10% – $90, 20% – $80 and so on. As a result, the total revenue will be a mix of all the sales at each price point.

Product A Revenue

For product sales, it is calculated by taking the average price at which goods are sold and multiplying it by the total number of products sold. For service companies, it is calculated as the value of all service contracts, or by the number of customers multiplied by the average price of services.

What is the formula for revenue? An example of how you can calculate sales revenue.

Revenue = No. of Units Sold x Average Price

Revenue = No. of Customers x Average Price of Services

Revenue Forecast

Below is an example of a company’s forecast based on many drivers, including:

• Website traffic.
• Conversion rates.
• Product prices.
• Volume of different products.
• Return and refunds.

NEXT SECTION

In the next section, you will learn how to design a value proposition. Value = Benefits – Cost. Find out how to craft a compelling value proposition next.

550+ Business Plan Examples to Launch Your Business

Need help writing your business plan? Explore over 550 industry-specific business plan examples for inspiration.

Find your business plan example

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Example business plan format

Before you start exploring our library of business plan examples, it's worth taking the time to understand the traditional business plan format . You'll find that the plans in this library and most investor-approved business plans will include the following sections:

Executive summary

The executive summary is an overview of your business and your plans. It comes first in your plan and is ideally only one to two pages. You should also plan to write this section last after you've written your full business plan.

Your executive summary should include a summary of the problem you are solving, a description of your product or service, an overview of your target market, a brief description of your team, a summary of your financials, and your funding requirements (if you are raising money).

Products & services

The products & services chapter of your business plan is where the real meat of your plan lives. It includes information about the problem that you're solving, your solution, and any traction that proves that it truly meets the need you identified.

This is your chance to explain why you're in business and that people care about what you offer. It needs to go beyond a simple product or service description and get to the heart of why your business works and benefits your customers.

Market analysis

Conducting a market analysis ensures that you fully understand the market that you're entering and who you'll be selling to. This section is where you will showcase all of the information about your potential customers. You'll cover your target market as well as information about the growth of your market and your industry. Focus on outlining why the market you're entering is viable and creating a realistic persona for your ideal customer base.

Competition

Part of defining your opportunity is determining what your competitive advantage may be. To do this effectively you need to get to know your competitors just as well as your target customers. Every business will have competition, if you don't then you're either in a very young industry or there's a good reason no one is pursuing this specific venture.

To succeed, you want to be sure you know who your competitors are, how they operate, necessary financial benchmarks, and how you're business will be positioned. Start by identifying who your competitors are or will be during your market research. Then leverage competitive analysis tools like the competitive matrix and positioning map to solidify where your business stands in relation to the competition.

Marketing & sales

The marketing and sales plan section of your business plan details how you plan to reach your target market segments. You'll address how you plan on selling to those target markets, what your pricing plan is, and what types of activities and partnerships you need to make your business a success.

The operations section covers the day-to-day workflows for your business to deliver your product or service. What's included here fully depends on the type of business. Typically you can expect to add details on your business location, sourcing and fulfillment, use of technology, and any partnerships or agreements that are in place.

Milestones & metrics

The milestones section is where you lay out strategic milestones to reach your business goals.

A good milestone clearly lays out the parameters of the task at hand and sets expectations for its execution. You'll want to include a description of the task, a proposed due date, who is responsible, and eventually a budget that's attached. You don't need extensive project planning in this section, just key milestones that you want to hit and when you plan to hit them.

You should also discuss key metrics, which are the numbers you will track to determine your success. Some common data points worth tracking include conversion rates, customer acquisition costs, profit, etc.

Company & team

Use this section to describe your current team and who you need to hire. If you intend to pursue funding, you'll need to highlight the relevant experience of your team members. Basically, this is where you prove that this is the right team to successfully start and grow the business. You will also need to provide a quick overview of your legal structure and history if you're already up and running.

Financial projections

Your financial plan should include a sales and revenue forecast, profit and loss statement, cash flow statement, and a balance sheet. You may not have established financials of any kind at this stage. Not to worry, rather than getting all of the details ironed out, focus on making projections and strategic forecasts for your business. You can always update your financial statements as you begin operations and start bringing in actual accounting data.

Now, if you intend to pitch to investors or submit a loan application, you'll also need a "use of funds" report in this section. This outlines how you intend to leverage any funding for your business and how much you're looking to acquire. Like the rest of your financials, this can always be updated later on.

The appendix isn't a required element of your business plan. However, it is a useful place to add any charts, tables, definitions, legal notes, or other critical information that supports your plan. These are often lengthier or out-of-place information that simply didn't work naturally into the structure of your plan. You'll notice that in these business plan examples, the appendix mainly includes extended financial statements.

Types of business plans explained

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. To get the most out of your plan, it's best to find a format that suits your needs. Here are a few common business plan types worth considering.

Traditional business plan

The tried-and-true traditional business plan is a formal document meant to be used for external purposes. Typically this is the type of plan you'll need when applying for funding or pitching to investors. It can also be used when training or hiring employees, working with vendors, or in any other situation where the full details of your business must be understood by another individual.

Business model canvas

The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea.

The structure ditches a linear format in favor of a cell-based template. It encourages you to build connections between every element of your business. It's faster to write out and update, and much easier for you, your team, and anyone else to visualize your business operations.

One-page business plan

The true middle ground between the business model canvas and a traditional business plan is the one-page business plan . This format is a simplified version of the traditional plan that focuses on the core aspects of your business.

By starting with a one-page plan , you give yourself a minimal document to build from. You'll typically stick with bullet points and single sentences making it much easier to elaborate or expand sections into a longer-form business plan.

Growth planning

Growth planning is more than a specific type of business plan. It's a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, forecast, review, and refine based on your performance.

It holds all of the benefits of the single-page plan, including the potential to complete it in as little as 27 minutes . However, it's even easier to convert into a more detailed plan thanks to how heavily it's tied to your financials. The overall goal of growth planning isn't to just produce documents that you use once and shelve. Instead, the growth planning process helps you build a healthier company that thrives in times of growth and remain stable through times of crisis.

It's faster, keeps your plan concise, and ensures that your plan is always up-to-date.

Download a free sample business plan template

Ready to start writing your own plan but aren't sure where to start? Download our free business plan template that's been updated for 2024.

This simple, modern, investor-approved business plan template is designed to make planning easy. It's a proven format that has helped over 1 million businesses write business plans for bank loans, funding pitches, business expansion, and even business sales. It includes additional instructions for how to write each section and is formatted to be SBA-lender approved. All you need to do is fill in the blanks.

How to use an example business plan to help you write your own

How do you know what elements need to be included in your business plan, especially if you've never written one before? Looking at examples can help you visualize what a full, traditional plan looks like, so you know what you're aiming for before you get started. Here's how to get the most out of a sample business plan.

Choose a business plan example from a similar type of company

You don't need to find an example business plan that's an exact fit for your business. Your business location, target market, and even your particular product or service may not match up exactly with the plans in our gallery. But, you don't need an exact match for it to be helpful. Instead, look for a plan that's related to the type of business you're starting.

For example, if you want to start a vegetarian restaurant, a plan for a steakhouse can be a great match. While the specifics of your actual startup will differ, the elements you'd want to include in your restaurant's business plan are likely to be very similar.

Use a business plan example as a guide

Every startup and small business is unique, so you'll want to avoid copying an example business plan word for word. It just won't be as helpful, since each business is unique. You want your plan to be a useful tool for starting a business —and getting funding if you need it.

One of the key benefits of writing a business plan is simply going through the process. When you sit down to write, you'll naturally think through important pieces, like your startup costs, your target market , and any market analysis or research you'll need to do to be successful.

You'll also look at where you stand among your competition (and everyone has competition), and lay out your goals and the milestones you'll need to meet. Looking at an example business plan's financials section can be helpful because you can see what should be included, but take them with a grain of salt. Don't assume that financial projections for a sample company will fit your own small business.

If you're looking for more resources to help you get started, our business planning guide is a good place to start. You can also download our free business plan template .

Think of business planning as a process, instead of a document

Think about business planning as something you do often , rather than a document you create once and never look at again. If you take the time to write a plan that really fits your own company, it will be a better, more useful tool to grow your business. It should also make it easier to share your vision and strategy so everyone on your team is on the same page.

Adjust your plan regularly to use it as a business management tool

Keep in mind that businesses that use their plan as a management tool to help run their business grow 30 percent faster than those businesses that don't. For that to be true for your company, you'll think of a part of your business planning process as tracking your actual results against your financial forecast on a regular basis.

If things are going well, your plan will help you think about how you can re-invest in your business. If you find that you're not meeting goals, you might need to adjust your budgets or your sales forecast. Either way, tracking your progress compared to your plan can help you adjust quickly when you identify challenges and opportunities—it's one of the most powerful things you can do to grow your business.

Prepare to pitch your business

If you're planning to pitch your business to investors or seek out any funding, you'll need a pitch deck to accompany your business plan. A pitch deck is designed to inform people about your business. You want your pitch deck to be short and easy to follow, so it's best to keep your presentation under 20 slides.

Your pitch deck and pitch presentation are likely some of the first things that an investor will see to learn more about your company. So, you need to be informative and pique their interest. Luckily we have a round-up of real-world pitch deck examples used by successful startups that you can review and reference as you build your pitch.

For more resources, check out our full Business Pitch Guide .

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Now that you know how to use an example business plan to help you write a plan for your business, it's time to find the right one.

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The Ultimate Guide to Understanding Business Models 2023

The term “business model” has only been around since the 1990s, so there’s still some confusion about exactly what it means. In short, a business model defines your business’s plan to make money. You can also use business models to your business’s advantage if you know how they work. 

In this article, learn what business models are, why they matter for your business, the most common types of business models, and how to choose the right business model for your business. 

What Are Business Models?

Business models detail your business’s plan to make an income. The most basic components of a business model answer the following questions:

• What products or services will your business sell?
• Who do you plan to sell to?
• Which marketing channels will you use for your business?
• How much will it cost to run your business?
• How will your business make a profit?

There are a variety of business models you can use, like a subscription business model, freemium business models, retailer business model, bundling model, leasing model, and more. 

Understanding business models is useful for both new businesses and established businesses. If your business has multiple revenue streams, you may utilize several business models.

The Importance of Understanding Business Models for Small Businesses

A business model defines how you will create a profitable business. A successful business model allows a business to fulfill the needs of its customer base with an affordable cost structure and competitive pricing. It’s a good idea for established businesses to evaluate their business model to make sure it still holds up to changes in the business environment and the target market needs.

If you want to bring on investors to your business idea, you’ll need a business model outline that shows exactly how you plan to (or continue to) bring in revenue. A detailed business model reassures investors that you have a solid business plan in place. 

Additionally, you can use business models to strengthen the foundation of your business and create “virtuous cycles,” which we define below, that allow your business to streamline its revenue-making process.

What Is the Difference Between Business Strategies and Business Models?

A business model and a business strategy sound very similar, but there is a big difference: A business model outlines how your business will make money, while a business strategy explains how you’ll make more money than the competition.

As an example, let’s say you run a boutique clothing business that offers your customers hand-picked items. That’s your business model. When another business that runs on a similar model opens nearby, your business strategy comes in. You’ll need to decide how you’re going to stand out from the competition — maybe it will be through offering discounts, a loyalty program, or adding new products to your line.

While the decisions you make about your business goals make up your business model, the decisions you use to beat the competition make up your business strategy. Your model is more stable than your strategy. It’s likely not going to change at a moment’s notice, but your business strategy might.

Types of Business Models

There are 19 types of business models that companies use as a baseline or template for creating their business’s revenue plan. Any business model innovation outside of these standard models is considered “disruptive.” This phrase often applies to the tech industry but can be applicable elsewhere. 

We highlighted some of the most common business model examples below. 

1. Product-based business model

A product-based business sells physical items to solve its customers’ problems. This is a business at the end of the supply chain that provides customers with products directly, like your local retailer or bakery. A product-based business model serves as the middleman between manufacturers and customers. 

Entrepreneurs looking to finance a product-based business model plan often turn to business credit cards or small business loans . These financing options can provide capital support to build up inventory, sell a new product, or open a brick and mortar location.  

2. Service-based business model

Also called a fee-for-service model, it’s as simple as it sounds: You offer a service that your customers pay for. Your business may charge a per-service fee, an hourly fee, a retainer per month, or commission. A freelancer, barber, or accountant could all fit into this business model, as well as a software as a service (SaaS) business. 

Small business owners who need funding for the service-based business can also look into business credit cards or business loans. The amount of funding you’ll need depends on your business — a freelancer will likely need much less capital to operate than a barber, for example.

3. Subscription-based business model

A subscription-based business model allows customers to pay a recurring monthly fee to receive ongoing services or products. Netflix and other streaming services are good examples since they provide on-demand movies for customers who pay a subscription fee, as well as business services like Salesforce or QuickBooks. Subscription boxes that mail physical products are other examples. 

Small business funding like lines of credit or term loans can be perfect for providing support for startup costs, raw materials, or key resources for subscription-based businesses.

4. Advertising-based business model

To run an advertising-based business, you’ll form partnerships with advertisers and key partners who pay for the attention your audience gives you. This can come in the form of advertising on social media, in a magazine, or the side of a truck. Affiliate marketing is a kind of advertising-based business model, where a business owner receives commission when one of their audience members purchases it.

Working with small business credit card providers can help businesses working in this revenue model to pay for subscriptions that enhance customer relationships, like LinkedIn or Instagram services that make customer connections easier and faster.

5. Distribution business model

A business running under a distribution model will put manufactured products on the market. They’ll use their distribution channels to dispense products from manufacturers directly to the customer. Amazon is an example of a distributor at its core, although they also have many other revenue streams that they have added over the years that makes them a combination of multiple business models.

Small business loans can provide enough capital to get a distribution business up and running — and flourishing. Financing can give your business a competitive advantage because they may allow you to afford to add to your inventory and grow as needed, as well as offer lower prices to edge out the competition.

6. Marketplace business model

A business using the marketplace business model provides an ecommerce platform for its customers to conduct business on, like eBay or Shopify. Other businesses pay to use this online ecosystem to sell their own goods and get easier access to new customers and a smoother checkout process. 

Business credit cards and small business loans can also work well for a marketplace business to pay for startup costs or customer acquisition costs.

7. Franchise-based business model

A franchise-based business recreate their existing business model in additional locations. A franchisee will pay to get access to a proven business model and setup support, and the franchisor will get part of the earnings from the new location. Restaurants and fitness companies often operate under a franchise business model. 

Small business loans can provide necessary capital for a franchise business to ramp up operations as needed.

Additional business models include:

• Pay-as-you-go model, like utility companies
• Brokerage model, like real estate companies
• Razor blade model, like razor blade companies that require ongoing purchases of replacement parts)
• Reverse razor blade, like Apple selling a high-price iPhone upfront and then low-cost apps
• Bundling model, like telecommunications companies that sell internet and phone services

How to Choose the Right Business Model for Your Small Business

The best business model for your business depends on your individual needs and goals. First think through who you’re planning to sell to. The model you choose depends largely on your target customer segments. If your target market is moms who are too busy to shop for clothes, opening a retail store might not make sense. Your target customers may prefer a curated subscription box, so you’ll want to re-evaluate your business model.

Next, define the problem you’re trying to solve. What you’re selling is the solution to the problem. This could be a physical product (or products), a service, or a subscription. With the clothing business, the problem you’re trying to solve is that moms don’t have time for self-care. To solve this problem, you could make online shopping an option (under a product-based business model), offer styling services (under a service-based business model), or send out subscription boxes (under a subscription-based business model). While you can combine several business models in one business, each of these options would operate under separate business models.

A business model works if it makes sense for your business’s offering and the customer you’re trying to reach — and it’s profitable. You’ll want to test out the business model you choose and evaluate whether it’s the right fit for you. 

Getting financing is often necessary, no matter which business model you choose. One of the best ways to increase your financing options is to establish and build business credit. Learn how to establish business credit in this Nav guide.

Avoid These Common Mistakes When Choosing a Business Model

There are a few big mistakes to avoid when you’re picking a business model. According to the Harvard Business Review , you’ll want to make sure that you aren’t looking at your business and the chosen model in isolation — a lot of your success depends on how it interacts with other companies in the marketplace. Not paying attention to how your business model works against other players in your industry only works if you’re the only one (which is highly unlikely, at least for a long time). 

Also, you’ll need to make sure your business model lines up with your company’s goals and reinforces itself. Say you have an affordable motel chain that operates using a franchise business model. Deciding to offer high-end breakfast options or luxury bath products, for example, would eat into your profits. 

Instead, you’ll want to offer cost-effective products that fit your business model and create what is called a “virtuous cycle.” A virtuous cycle starts with a business decision (giving clients affordable bath products) that supports your business’s goals (to offer low-cost motel rooms to customers) — and allows you to keep your business’s expenses down. Lower expenses come full circle to allow you to offer lower-priced stays. 

Businesses can use these cycles to compete with others in their industry by making their own virtuous cycles stronger, making competitors’ cycles weaker by limiting their growth, or using rivals with different business models to form a symbiotic relationship. 

Importance of Understanding and Optimizing Your Business Model

Having a deep understanding of your business model and how it informs your business goals will help you make appropriate decisions moving forward. If a business decision doesn’t flow with your business model, it will become apparent quickly. For example, say you run a barber shop on a fee-for-service business model. If your customers are asking for virtual appointments where you teach them to cut their own hair, you can turn to your business model to help you decide. In this case, an additional does fit under your current business model and may be an easy addition to your offerings.

On the other hand, if you’re considering creating and selling your own hair care products to your customers, you’ll quickly see that that is a different business model altogether. While it can work to have two business models inside of one business (and many companies manage this well), you’ll need to understand that the two are separate types of businesses. Having this knowledge will give you the tools to examine how the two will work together and whether you’re ready to add a second business model or not. 

Your business model is just your template — it’s up to you to personalize it. And although you won’t want to change it once a week, your business model isn’t set in stone. If your business fails to become profitable, it might be time to choose a new business model. Maybe you move from selling retail products in store to delivering subscription boxes because your target market prefers that. Or maybe you decide to switch from selling physical goods to selling services because the services provide more revenue.

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This article was originally written on March 9, 2023.

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Tiffany Verbeck

Tiffany Verbeck is a Digital Marketing Copywriter for Nav. She uses the skills she learned from her master’s degree in writing to provide guidance to small businesses trying to navigate the ins-and-outs of financing. Previously, she ran a writing business for three years, and her work has appeared on sites like Business Insider, VaroWorth, and Mission Lane.

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Free Business Plan Template for Small Businesses (2024)

Use this free business plan template to write your business plan quickly and efficiently.

A good business plan is essential to successfully starting your business —  and the easiest way to simplify the work of writing a business plan is to start with a business plan template.

You’re already investing time and energy in refining your business model and planning your launch—there’s no need to reinvent the wheel when it comes to writing a business plan. Instead, to help build a complete and effective plan, lean on time-tested structures created by other  entrepreneurs and startups. 

Ahead, learn what it takes to create a solid business plan and download Shopify's free business plan template to get started on your dream today. 

What this free business plan template includes

• Executive summary
• Company overview
• Products or services offered
• Market analysis
• Marketing plan
• Logistics and operations plan
• Financial plan

This business plan outline is designed to ensure you’re thinking through all of the important facets of starting a new business. It’s intended to help new business owners and entrepreneurs consider the full scope of running a business and identify functional areas they may not have considered or where they may need to level up their skills as they grow.

That said, it may not include the specific details or structure preferred by a potential investor or lender. If your goal with a business plan is to secure funding , check with your target organizations—typically banks or investors—to see if they have business plan templates you can follow to maximize your chances of success.

Our free business plan template includes seven key elements typically found in the traditional business plan format:

1. Executive summary

This is a one-page summary of your whole plan, typically written after the rest of the plan is completed. The description section of your executive summary will also cover your management team, business objectives and strategy, and other background information about the brand. 

2. Company overview

This section of your business plan will answer two fundamental questions: “Who are you?” and “What do you plan to do?” Answering these questions clarifies why your company exists, what sets it apart from others, and why it’s a good investment opportunity. This section will detail the reasons for your business’s existence, its goals, and its guiding principles.

3. Products or services offered

What you sell and the most important features of your products or services. It also includes any plans for intellectual property, like patent filings or copyright. If you do market research for new product lines, it will show up in this section of your business plan.

4. Market analysis

This section includes everything from estimated market size to your target markets and competitive advantage. It’ll include a competitive analysis of your industry to address competitors’ strengths and weaknesses. Market research is an important part of ensuring you have a viable idea.

5. Marketing plan

How you intend to get the word out about your business, and what strategic decisions you’ve made about things like your pricing strategy. It also covers potential customers’ demographics, your sales plan, and your metrics and milestones for success.

6. Logistics and operations plan

Everything that needs to happen to turn your raw materials into products and get them into the hands of your customers.

7. Financial plan

It’s important to include a look at your financial projections, including both revenue and expense projections. This section includes templates for three key financial statements: an income statement, a balance sheet, and a cash-flow statement . You can also include whether or not you need a business loan and how much you’ll need.

Business plan examples

What do financial projections look like on paper? How do you write an executive summary? What should your company description include?  Business plan examples  can help answer some of these questions and transform your business idea into an actionable plan.

Professional business plan example

Inside our template, we’ve filled out a sample business plan featuring a fictional ecommerce business . 

The sample is set up to help you get a sense of each section and understand how they apply to the planning and evaluation stages of a business plan. If you’re looking for funding, this example won’t be a complete or formal look at business plans, but it will give you a great place to start and notes about where to expand.

Lean business plan example

A lean business plan format is a shortened version of your more detailed business plan. It’s helpful when modifying your plan for a specific audience, like investors or new hires. 

Also known as a one-page business plan, it includes only the most important, need-to-know information, such as:

• Company description
• Key members of your team
• Customer segments

💡 Tip: For a step-by-step guide to creating a lean business plan (including a sample business plan), read our guide on how to create a lean business plan .

Benefits of writing a solid business plan

It’s tempting to dive right into execution when you’re excited about a new business or side project, but taking the time to write a thorough business plan and get your thoughts on paper allows you to do a number of beneficial things:

• Test the viability of your business idea. Whether you’ve got one business idea or many, business plans can make an idea more tangible, helping you see if it’s truly viable and ensure you’ve found a target market. 
• Plan for your next phase. Whether your goal is to start a new business or scale an existing business to the next level, a business plan can help you understand what needs to happen and identify gaps to address.
• Clarify marketing strategy, goals, and tactics. Writing a business plan can show you the actionable next steps to take on a big, abstract idea. It can also help you narrow your strategy and identify clear-cut tactics that will support it.
• Scope the necessary work. Without a concrete plan, cost overruns and delays are all but certain. A business plan can help you see the full scope of work to be done and adjust your investment of time and money accordingly.
• Hire and build partnerships. When you need buy-in from potential employees and business partners, especially in the early stages of your business, a clearly written business plan is one of the best tools at your disposal. A business plan provides a refined look at your goals for the business, letting partners judge for themselves whether or not they agree with your vision.
• Secure funds. Seeking financing for your business—whether from venture capital, financial institutions, or Shopify Capital —is one of the most common reasons to create a business plan.

Why you should you use a template for a business plan

A business plan can be as informal or formal as your situation calls for, but even if you’re a fan of the back-of-the-napkin approach to planning, there are some key benefits to starting your plan from an existing outline or simple business plan template.

No blank-page paralysis

A blank page can be intimidating to even the most seasoned writers. Using an established business planning process and template can help you get past the inertia of starting your business plan, and it allows you to skip the work of building an outline from scratch. You can always adjust a template to suit your needs.

Guidance on what to include in each section

If you’ve never sat through a business class, you might never have created a SWOT analysis or financial projections. Templates that offer guidance—in plain language—about how to fill in each section can help you navigate sometimes-daunting business jargon and create a complete and effective plan.

Knowing you’ve considered every section

In some cases, you may not need to complete every section of a startup business plan template, but its initial structure shows you you’re choosing to omit a section as opposed to forgetting to include it in the first place.

Tips for creating a successful business plan

There are some high-level strategic guidelines beyond the advice included in this free business plan template that can help you write an effective, complete plan while minimizing busywork.

Understand the audience for your plan

If you’re writing a business plan for yourself in order to get clarity on your ideas and your industry as a whole, you may not need to include the same level of detail or polish you would with a business plan you want to send to potential investors. Knowing who will read your plan will help you decide how much time to spend on it.

Know your goals

Understanding the goals of your plan can help you set the right scope. If your goal is to use the plan as a roadmap for growth, you may invest more time in it than if your goal is to understand the competitive landscape of a new industry.

Take it step by step

Writing a 10- to 15-page document can feel daunting, so try to tackle one section at a time. Select a couple of sections you feel most confident writing and start there—you can start on the next few sections once those are complete. Jot down bullet-point notes in each section before you start writing to organize your thoughts and streamline the writing process.

Maximize your business planning efforts

Planning is key to the financial success of any type of business , whether you’re a startup, non-profit, or corporation.

To make sure your efforts are focused on the highest-value parts of your own business planning, like clarifying your goals, setting a strategy, and understanding the target market and competitive landscape, lean on a business plan outline to handle the structure and format for you. Even if you eventually omit sections, you’ll save yourself time and energy by starting with a framework already in place.

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Business plan template FAQ

What is the purpose of a business plan.

The purpose of your business plan is to describe a new business opportunity or an existing one. It clarifies the business strategy, marketing plan, financial forecasts, potential providers, and more information about the company.

How do I write a simple business plan?

• Choose a business plan format, such as a traditional or a one-page business plan. 
• Find a business plan template.
• Read through a business plan sample.
• Fill in the sections of your business plan.

What is the best business plan template?

If you need help writing a business plan, Shopify’s template is one of the most beginner-friendly options you’ll find. It’s comprehensive, well-written, and helps you fill out every section.

What are the 5 essential parts of a business plan?

The five essential parts of a traditional business plan include:

• Executive summary: This is a brief overview of the business plan, summarizing the key points and highlighting the main points of the plan.
• Business description: This section outlines the business concept and how it will be executed.
• Market analysis: This section provides an in-depth look at the target market and how the business will compete in the marketplace.
• Financial plan: This section details the financial projections for the business, including sales forecasts, capital requirements, and a break-even analysis.
• Management and organization: This section describes the management team and the organizational structure of the business.

Are there any free business plan templates?

There are several free templates for business plans for small business owners available online, including Shopify’s own version. Download a copy for your business.

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Financial Assumptions and Your Business Plan

Written by Dave Lavinsky

Financial assumptions are an integral part of a well-written business plan. You can’t accurately forecast the future without them. Invest the time to write solid assumptions so you have a good foundation for your financial forecast.

Download our Ultimate Business Plan Template here

What are Financial Assumptions?

Financial assumptions are the guidelines you give your business plan to follow. They can range from financial forecasts about costs, revenue, return on investment, and operating and startup expenses. Basically, financial assumptions serve as a forecast of what your business will do in the future. You need to include them so that anyone reading your plan will have some idea of how accurate its projections may be.

Of course, your financial assumptions should accurately reflect the information you’ve given in your business plan and they should be reasonably accurate. You need to keep this in mind when you make them because if you make outlandish claims, it will make people less likely to believe any part of your business plan including other financial projections that may be accurate.

That’s why you always want to err on the side of caution when it comes to financial assumptions for your business plan. The more conservative your assumptions are the more likely you’ll be able to hit them, and the less likely you’ll be off by so much that people will ignore everything in your plan.

Why are Financial Assumptions Important?

Many investors skip straight to the financial section of your business plan. It is critical that your assumptions and projections in this section be realistic. Plans that show penetration, operating margin, and revenues per employee figures that are poorly reasoned; internally inconsistent, or simply unrealistic greatly damage the credibility of the entire business plan. In contrast, sober, well-reasoned financial assumptions and projections communicate operational maturity and credibility.

For instance, if the company is categorized as a networking infrastructure firm, and the business plan projects 80% operating margins, investors will raise a red flag. This is because investors can readily access the operating margins of publicly-traded networking infrastructure firms and find that none have operating margins this high.

As much as possible, the financial assumptions should be based on actual results from your or other firms. As the example above indicates, it is fairly easy to look at a public company’s operating margins and use these margins to approximate your own. Likewise, the business plan should base revenue growth on other firms. 

Many firms find this impossible, since they believe they have a breakthrough product in their market, and no other company compares. In such a case, base revenue growth on companies in other industries that have had breakthrough products. If you expect to grow even faster than they did (maybe because of new technologies that those firms weren’t able to employ), you can include more aggressive assumptions in your business plan as long as you explain them in the text.

The financial assumptions can either enhance or significantly harm your business plan’s chances of assisting you in the capital-raising process. By doing the research to develop realistic assumptions, based on actual results of your or other companies, the financials can bolster your firm’s chances of winning investors. As importantly, the more realistic financials will also provide a better roadmap for your company’s success.

    Finish Your Business Plan Today!

Financial assumptions vs projections.

Financial Assumptions – Estimates of future financial results that are based on historical data, an understanding of the business, and a company’s operational strategy.

Financial Projections – Estimates of future financial results that are calculated from the assumptions factored into the financial model.

The assumptions are your best guesses of what the future holds; the financial projections are numerical versions of those assumptions. 

Key Assumptions By Financial Statement

Below you will find a list of the key business assumptions by the financial statement:

Income Statement

The income statement assumptions should include revenue, cost of goods sold, operating expenses, and depreciation/amortization, as well as any other line items that will impact the income statement.

When you are projecting future operating expenses, you should project these figures based on historical information and then adjust them as necessary with the intent to optimize and/or minimize them.

Balance Sheet

The balance sheet assumptions should include assets, liabilities, and owner’s equity, as well as any other line items that will impact the balance sheet. One of the most common mistakes is not including all cash inflows and outflows.

Cash Flow Statement

Cash flow assumptions should be made, but they do not impact the balance sheet or income statement until actually received or paid. You can include the cumulative cash flow assumption on the financial model to be sure it is included with each year’s projections. 

The cumulative cash flow assumption is useful for showing your investors and potential investors how you will spend the money raised. This line item indicates how much of the initial investment will be spent each year, which allows you to control your spending over time.

Notes to Financial Statements

The notes to financial statements should explain assumptions made by management regarding accounting policies, carrying value of long-lived assets, goodwill impairment testing, contingencies, and income taxes. It is important not only to list these items within the notes but also to provide a brief explanation.

What are the Assumptions Needed in Preparing a Financial Model?

In our article on “ How to Create Financial Projections for Your Business Plan ,” we list the 25+ most common assumptions to include in your financial model. Below are a few of them:

For EACH key product or service you offer:

• What is the number of units you expect to sell each month?
• What is your expected monthly sales growth rate?

For EACH subscription/membership you offer:

• What is the monthly/quarterly/annual price of your membership?
• How many members do you have now or how many members do you expect to gain in the first month/quarter/year?

Cost Assumptions

• What is your monthly salary? What is the annual growth rate in your salary?
• What is your monthly salary for the rest of your team? What is the expected annual growth rate in your team’s salaries?
• What is your initial monthly marketing expense? What is the expected annual growth rate in your marketing expense?

Assumptions related to Capital Expenditures, Funding, Tax and Balance Sheet Items

• How much money do you need for capital expenditures in your first year  (to buy computers, desks, equipment, space build-out, etc.)
• How much other funding do you need right now?
• What is the number of years in which your debt (loan) must be paid back

Properly Preparing Your Financial Assumptions

So how do you prepare your financial assumptions? It’s recommended that you use a spreadsheet program like Microsoft Excel. You’ll need to create separate columns for each line item and then fill in the cells with the example information described below.

Part 1 – Current Financials

Year to date (YTD) units sold and units forecast for next year. This is the same as YTD revenue, but you divide by the number of days in the period to get an average daily amount. If your plan includes a pro forma financial section, your financial assumptions will be projections that are consistent with the pro forma numbers.

Part 2 – Financial Assumptions

Estimated sales forecasts for next year by product or service line, along with the associated margin. List all major items in this section, not just products. For instance, you might include “Professional Services” as a separate item, with revenue and margin information.

List the number of employees needed to support this level of business, including yourself or key managers, along with your cost assumptions for compensation, equipment leasing (if applicable), professional services (accounting/legal/consultants), and other line items.

Part 3 – Projected Cash Flow Statement and Balance Sheet

List all key assumptions like: sources and uses of cash, capital expenditures, Planned and Unplanned D&A (depreciation & amortization), changes in operating assets and liabilities, along with those for investing activities. For example, you might list the assumptions as follows:

• Increases in accounts receivable from customers based on assumed sales levels
• Decreases in inventory due to increased sales
• Increases in accounts payable due to higher expenses for the year
• Decrease in unearned revenue as evidenced by billings received compared with those projected (if there is no change, enter 0)
• Increase/decrease in other current assets due to changes in business conditions
• Increase/decrease in other current liabilities due to changes in business conditions
• Increases in long term debt (if necessary)
• Cash acquired from financing activities (interest expense, dividends paid, etc.)

You make many of these assumptions based on your own experience. It is also helpful to look at the numbers for public companies and use those as a benchmark.

Part 4 – Future Financials

This section is for more aggressive financial projections that can be part of your plan, but which you cannot necessarily prove at the present time. This could include:

• A projection of earnings per share (EPS) using the assumptions above and additional information such as new products, new customer acquisition, expansion into new markets
• New product lines or services to be added in the second year. List the projected amount of revenue and margin associated with these items
• A change in your gross margins due to a specific initiative you are planning, such as moving from a high volume/low margin business to a low volume/high margin business

Part 5 – Calculations

Calculate all critical financial numbers like:

• Cash flow from operating activities (CFO)
• Operating income or loss (EBITDA)  (earnings before interest, taxes, depreciation, and amortization)
• EBITDA margin (gross profits divided by revenue less cost of goods sold)
• Adjusted EBITDA (CFO plus other cash changes like capital expenditure, deferred taxes, non-cash stock compensation, and other items)
• Net income or loss before tax  (EBT)
• Cash from financing activities (increase/decrease in debt and equity)

Part 6 – Sensitivity Analysis

If your assumptions are reasonably accurate, you will have a column for “base case” and a column for “worst case.”  If you have a lot of variables with different possible outcomes, just list the potential range in one cell.

Calculate both EBITDA margins and EPS ranges at each level.

Part 7 – Section Highlights

Just list the two or three key points you want to make. If it is hard to distill them down, you need to go back and work on Part 3 until it makes sense.

Part 8 – Financial Summary

Include all the key numbers from your assumptions, section highlights, and calculations. In one place, you can add up CFO, EPS at different levels, and EBITDA margins under both base case and worst-case scenarios to give a complete range for each assumption.

The key to a successful business plan is being able to clearly communicate your financial assumptions. Be sure to include your assumptions in the narrative of your plan so you can clearly explain why you are making them. If you are using the business plan for financing or other purposes, it may also be helpful to include a separate “financials” section so people unfamiliar with your industry can quickly find and understand key information. A business plan generator can help you in creating your financial projections.

How to Finish Your Business Plan in 1 Day!

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With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!

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OR, Let Us Develop Your Plan For You

Since 1999, Growthink has developed business plans for thousands of companies who have gone on to achieve tremendous success.

Click here to see how our professional business plan writers can create your business plan for you.

If you just need a financial model for your business plan, learn more about our financial modeling services .  

Other Resources for Writing Your Business Plan

• How to Write an Executive Summary
• How to Expertly Write the Company Description in Your Business Plan
• How to Write the Market Analysis Section of a Business Plan
• The Customer Analysis Section of Your Business Plan
• Completing the Competitive Analysis Section of Your Business Plan
• How to Write the Management Team Section of a Business Plan + Examples
• How to Create Financial Projections for Your Business Plan
• Everything You Need to Know about the Business Plan Appendix
• Business Plan Conclusion: Summary & Recap

Other Helpful Business Plan Articles & Templates

Simple Business Plan Template (2024)

Updated: May 4, 2024, 4:37pm

Table of Contents

Why business plans are vital, get your free simple business plan template, how to write an effective business plan in 6 steps, frequently asked questions.

While taking many forms and serving many purposes, they all have one thing in common: business plans help you establish your goals and define the means for achieving them. Our simple business plan template covers everything you need to consider when launching a side gig, solo operation or small business. By following this step-by-step process, you might even uncover a few alternate routes to success.

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Whether you’re a first-time solopreneur or a seasoned business owner, the planning process challenges you to examine the costs and tasks involved in bringing a product or service to market. The process can also help you spot new income opportunities and hone in on the most profitable business models.

Though vital, business planning doesn’t have to be a chore. Business plans for lean startups and solopreneurs can simply outline the business concept, sales proposition, target customers and sketch out a plan of action to bring the product or service to market. However, if you’re seeking startup funding or partnership opportunities, you’ll need a write a business plan that details market research, operating costs and revenue forecasting. Whichever startup category you fall into, if you’re at square one, our simple business plan template will point you down the right path.

Copy our free simple business plan template so you can fill in the blanks as we explore each element of your business plan. Need help getting your ideas flowing? You’ll also find several startup scenario examples below.

Download free template as .docx

Whether you need a quick-launch overview or an in-depth plan for investors, any business plan should cover the six key elements outlined in our free template and explained below. The main difference in starting a small business versus an investor-funded business is the market research and operational and financial details needed to support the concept.

1. Your Mission or Vision

Start by declaring a “dream statement” for your business. You can call this your executive summary, vision statement or mission. Whatever the name, the first part of your business plan summarizes your idea by answering five questions. Keep it brief, such as an elevator pitch. You’ll expand these answers in the following sections of the simple business plan template.

• What does your business do? Are you selling products, services, information or a combination?
• Where does this happen? Will you conduct business online, in-store, via mobile means or in a specific location or environment?
• Who does your business benefit? Who is your target market and ideal customer for your concept?
• Why would potential customers care? What would make your ideal customers take notice of your business?
• How do your products and/or services outshine the competition? What would make your ideal customers choose you over a competitor?

These answers come easily if you have a solid concept for your business, but don’t worry if you get stuck. Use the rest of your plan template to brainstorm ideas and tactics. You’ll quickly find these answers and possibly new directions as you explore your ideas and options.

2. Offer and Value Proposition

This is where you detail your offer, such as selling products, providing services or both, and why anyone would care. That’s the value proposition. Specifically, you’ll expand on your answers to the first and fourth bullets from your mission/vision.

As you complete this section, you might find that exploring value propositions uncovers marketable business opportunities that you hadn’t yet considered. So spend some time brainstorming the possibilities in this section.

For example, a cottage baker startup specializing in gluten-free or keto-friendly products might be a value proposition that certain audiences care deeply about. Plus, you could expand on that value proposition by offering wedding and other special-occasion cakes that incorporate gluten-free, keto-friendly and traditional cake elements that all guests can enjoy.

3. Audience and Ideal Customer

Here is where you explore bullet point number three, who your business will benefit. Identifying your ideal customer and exploring a broader audience for your goods or services is essential in defining your sales and marketing strategies, plus it helps fine-tune what you offer.

There are many ways to research potential audiences, but a shortcut is to simply identify a problem that people have that your product or service can solve. If you start from the position of being a problem solver, it’s easy to define your audience and describe the wants and needs of your ideal customer for marketing efforts.

Using the cottage baker startup example, a problem people might have is finding fresh-baked gluten-free or keto-friendly sweets. Examining the wants and needs of these people might reveal a target audience that is health-conscious or possibly dealing with health issues and willing to spend more for hard-to-find items.

However, it’s essential to have a customer base that can support your business. You can be too specialized. For example, our baker startup can attract a broader audience and boost revenue by offering a wider selection of traditional baked goods alongside its gluten-free and keto-focused specialties.

4. Revenue Streams, Sales Channels and Marketing

Thanks to our internet-driven economy, startups have many revenue opportunities and can connect with target audiences through various channels. Revenue streams and sales channels also serve as marketing vehicles, so you can cover all three in this section.

Revenue Streams

Revenue streams are the many ways you can make money in your business. In your plan template, list how you’ll make money upon launch, plus include ideas for future expansion. The income possibilities just might surprise you.

For example, our cottage baker startup might consider these revenue streams:

• Product sales : Online, pop-up shops , wholesale and (future) in-store sales
• Affiliate income : Monetize blog and social media posts with affiliate links
• Advertising income : Reserve website space for advertising
• E-book sales : (future) Publish recipe e-books targeting gluten-free and keto-friendly dessert niches
• Video income : (future) Monetize a YouTube channel featuring how-to videos for the gluten-free and keto-friendly dessert niches
• Webinars and online classes : (future) Monetize coaching-style webinars and online classes covering specialty baking tips and techniques
• Members-only content : (future) Monetize a members-only section of the website for specialty content to complement webinars and online classes
• Franchise : (future) Monetize a specialty cottage bakery concept and sell to franchise entrepreneurs

Sales Channels

Sales channels put your revenue streams into action. This section also answers the “where will this happen” question in the second bullet of your vision.

The product sales channels for our cottage bakery example can include:

• Mobile point-of-sale (POS) : A mobile platform such as Shopify or Square POS for managing in-person sales at local farmers’ markets, fairs and festivals
• E-commerce platform : An online store such as Shopify, Square or WooCommerce for online retail sales and wholesale sales orders
• Social media channels : Facebook, Instagram and Pinterest shoppable posts and pins for online sales via social media channels
• Brick-and-mortar location : For in-store sales , once the business has grown to a point that it can support a physical location

Channels that support other income streams might include:

• Affiliate income : Blog section on the e-commerce website and affiliate partner accounts
• Advertising income : Reserved advertising spaces on the e-commerce website
• E-book sales : Amazon e-book sales via Amazon Kindle Direct Publishing
• Video income : YouTube channel with ad monetization
• Webinars and online classes : Online class and webinar platforms that support member accounts, recordings and playback
• Members-only content : Password-protected website content using membership apps such as MemberPress

Nowadays, the line between marketing and sales channels is blurred. Social media outlets, e-books, websites, blogs and videos serve as both marketing tools and income opportunities. Since most are free and those with advertising options are extremely economical, these are ideal marketing outlets for lean startups.

However, many businesses still find value in traditional advertising such as local radio, television, direct mail, newspapers and magazines. You can include these advertising costs in your simple business plan template to help build a marketing plan and budget.

5. Structure, Suppliers and Operations

This section of your simple business plan template explores how to structure and operate your business. Details include the type of business organization your startup will take, roles and responsibilities, supplier logistics and day-to-day operations. Also, include any certifications or permits needed to launch your enterprise in this section.

Our cottage baker example might use a structure and startup plan such as this:

• Business structure : Sole proprietorship with a “doing business as” (DBA) .
• Permits and certifications : County-issued food handling permit and state cottage food certification for home-based food production. Option, check into certified commercial kitchen rentals.
• Roles and responsibilities : Solopreneur, all roles and responsibilities with the owner.
• Supply chain : Bulk ingredients and food packaging via Sam’s Club, Costco, Amazon Prime with annual membership costs. Uline for shipping supplies; no membership needed.
• Day-to-day operations : Source ingredients and bake three days per week to fulfill local and online orders. Reserve time for specialty sales, wholesale partner orders and market events as needed. Ship online orders on alternating days. Update website and create marketing and affiliate blog posts on non-shipping days.

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6. Financial Forecasts

Your final task is to list forecasted business startup and ongoing costs and profit projections in your simple business plan template. Thanks to free business tools such as Square and free marketing on social media, lean startups can launch with few upfront costs. In many cases, cost of goods, shipping and packaging, business permits and printing for business cards are your only out-of-pocket expenses.

Cost Forecast

Our cottage baker’s forecasted lean startup costs might include:

Gross Profit Projections

This helps you determine the retail prices and sales volume required to keep your business running and, hopefully, earn income for yourself. Use product research to spot target retail prices for your goods, then subtract your cost of goods, such as hourly rate, raw goods and supplier costs. The total amount is your gross profit per item or service.

Here are some examples of projected gross profits for our cottage baker:

Bottom Line

Putting careful thought and detail in a business plan is always beneficial, but don’t get so bogged down in planning that you never hit the start button to launch your business . Also, remember that business plans aren’t set in stone. Markets, audiences and technologies change, and so will your goals and means of achieving them. Think of your business plan as a living document and regularly revisit, expand and restructure it as market opportunities and business growth demand.

Is there a template for a business plan?

You can copy our free business plan template and fill in the blanks or customize it in Google Docs, Microsoft Word or another word processing app. This free business plan template includes the six key elements that any entrepreneur needs to consider when launching a new business.

What does a simple business plan include?

A simple business plan is a one- to two-page overview covering six key elements that any budding entrepreneur needs to consider when launching a startup. These include your vision or mission, product or service offering, target audience, revenue streams and sales channels, structure and operations, and financial forecasts.

How can I create a free business plan template?

Start with our free business plan template that covers the six essential elements of a startup. Once downloaded, you can edit this document in Google Docs or another word processing app and add new sections or subsections to your plan template to meet your specific business plan needs.

What basic items should be included in a business plan?

When writing out a business plan, you want to make sure that you cover everything related to your concept for the business,  an analysis of the industry―including potential customers and an overview of the market for your goods or services―how you plan to execute your vision for the business, how you plan to grow the business if it becomes successful and all financial data around the business, including current cash on hand, potential investors and budget plans for the next few years.

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Krista Fabregas is a seasoned eCommerce and online content pro sharing more than 20 years of hands-on know-how with those looking to launch and grow tech-forward businesses. Her expertise includes eCommerce startups and growth, SMB operations and logistics, website platforms, payment systems, side-gig and affiliate income, and multichannel marketing. Krista holds a bachelor's degree in English from The University of Texas at Austin and held senior positions at NASA, a Fortune 100 company, and several online startups.

The Leading Source of Insights On Business Model Strategy & Tech Business Models

Business Model: 70+ Business Models Patterns In 2024

A business model is a framework for finding a systematic way to unlock long-term value for an organization while delivering value to customers and capturing value through monetization strategies. A business model is a holistic framework to understand, design, and test your business assumptions in the marketplace.

Table of Contents

List of business models

In this guide, we’ll also see 70+ business model types identified by the FourWeekMBA research.

Ever since this list started to be published back in 2018, many copycats around the web have started to duplicate it without understanding the meaning of each model referenced here. 

Thus, if you need our feedback, feel free to reach out. We update this list frequently based on the continued research and changing business landscape. 

I’ve also built a custom database of visual business models which you can navigate from here, through our business model explorers!

Business Model Explorers

You can jump directly to some of the main ones below or read the guide in order, where you’ll find also updated patterns:

A mix of chain and franchise business model

Ad-supported (subsidized) business model, affiliate business model, aggregator business model, agency-based business model, asymmetric business models, attention merchant business model, barbell business model, bidding multi-brand platform model, blitzscaler-mode business model, blockchain-based business models, bundler model, cash conversion cycle or cash machine model.

• Discount business model focusing on high quality

Distribution based business model

Direct-to-consumers business model, direct sales business model, e-commerce marketplace business model, educational niche business model, family-owned integrated business model, feeding model, freemium model (freemium as a growth tool), free-to-play model, freeterprise model, gatekeeper model, heavy-franchised business model, humanist enterprise business model, enterprise business model built on complex sales, lock-in business model, instant news business model, management consulting business model, market-maker model, multi-brand business model, multi-business model, multi-sided platform business model, multimodal business model, multi-product (octopus) business model, on-demand subscription-based business model, one-for-one business model, open-source business model, peer-to-peer business model, platform-agnostic model, platform business model, privacy as an innovative business model.

• Razor and blade revenue model

Real-time insurance business model

Self-serving model, space-as-a-service model, subscription-based business model, surfer model: reverse-engineering the gatekeeper, three-sided marketplace model, user-generated content business model, user-generated ai-amplified model, unbundler model, vertically integrated business model.

Otherwise, feel free to read the whole book!

Inside Porterland

There used to be a time (the late 1970s) when the strategy was way more about understanding competition, framed in terms of bargaining power and barriers to entry.

However, as digitalization took over, around the 1980s, and 1990s it became clear that the whole nature of the competition was changing. 

While frameworks, like Porter’s Five Forces , might be still useful to map some business contexts.

The legendary Andy Grove, together with many other practitioners identified six forces shaping from the bottom entire industries.

Indeed the sixth force is about   complementary products.

This force is subtle, hard to spot, and very very blurred.

In fact, complementary products, when it comes to the digital and tech world, are not easy to spot.

Competition might arise from unexpected places, as there is no direct overlap between these complementary products.

In short, there is a linear way to map the business context of complementary products, where you look at existing alternatives in the same market/industry.

Yet this might be effective in the short-term (3-5 years) but fail miserably in the long-term survival of the business.

Think of how, when AT&T created its Bell Labs , it prompted unpredictable innovation loops that led the way to compute.

From the phone business, there was the computing industry, which slowly, then suddenly took over the phone business of AT&T. 

In fact, from Bell Labs, the first semiconductors came to life. Spurring the whole computer industry first, then the Internet.

When perhaps the same IBM decided to move from B2B computing to the consumer industry, it suddenly adopted an opposite strategy compared to what it had done so far. 

IBM approached the development of a PC for consumers with an open approach, where it outsourced most components to other players (this in part also to antitrust concerns).

This strategy in the long-term generated a whole new set of markets, industries, and tech players ( Microsoft , Intel , and Compaq to name a few). 

From there, when the PC dominating players tried to enter the Internet (see Microsoft vs. Netscape) they also faced unpredictable market forces.

Coming from the bottom (consumer adoption) that completely reshaped entire industries, thus giving birth to the next wave of Internet players (see Google , Amazon , etc.).

Indeed, Andrew Grove, back in the late 1980s former Intel’s CEO and the father of the   OKR Goal-Setting System , in his book “Only The Paranoid Survive” highlighted how the sixth force – complementary products – was one of the key forces that determined a complete reshaping of the way of doing   business . 

And therefore, one of the forces that most (especially in the tech   industry   traveling at a faster speed compared to other sectors) had the ability to change   business models, leading to what Andrew Grove called a strategic inflection point .

A point from which the way of doing  business  would never be the same. 

This could become both a big   threat   for existing players, and an   opportunity   for new entrants, but also a way for existing dominant players to redefine completely their   business   models.

That is why, it makes sense, especially for companies operating in the tech   business   world, to map and   analyze   the context by adding this sixth force. 

Breaking the boundaries of the business world

With a much more fluid business world, the whole business playbook changed.

And while this had become already evident with players in the computer industry, things more rapidly changed with the adoption of the Internet. 

As the Internet morphed into the Web, a bunch of companies that by the late 1990s were promising to revolutionize entire industries were still running with the old business playbook.

Most of these companies went bankrupt during the dot-com bubble of the early 2000s. 

For the very few, great, and also lucky (you can see also how companies like Amazon managed to survive the dot-com bubble thanks to lucky timing) players who survived, the whole paradigm shifted.

They mostly turned into what today we call platform business models , leveraging network effects . 

The lean startup is born 

During the early 2000s, companies like PayPal and the few other survivors of the dot-com era had managed to build, on the fly, the Internet business playbook that made them thick during these decades. 

Hundreds first, thousand of companies then, followed suit. Giving rise to the lean startup. 

While practitioners building companies didn’t have a name for it.

Other practitioners turned academics/scholars built a terminology around that playbook.

From there Steve Blank  and Eric Ries explained this whole phenomenon as lean startup .

Customer obsession as the North Star

In this increasingly complex business world, where the boundaries are much more blurred, rather than following a more complex business strategy , digital players tended to simplify it.

And companies like Amazon led the way, with their obsession with customers. 

Customer obsession, therefore, is a simplification, which helps companies gain focus as they execute a business strategy . 

Customer obsession also gave rise to business modeling as a key discipline! 

Business modeling is intended as a bottom-up approach to business, where a company is way more focused on customer feedback, quick feedback loops, product-market fit , and demand generation  than anything else!

What is a business model and why is it important?

A business model is a critical element for any startup’s success as it is what unlocks value in the long term. In a way, developing a business model isn’t only about monetization strategies.

Indeed, that is way more holistic. To develop a business model companies need to create value for several stakeholders.

Thus, a business model is about what makes users go back to your app, service, or product.

It is about how businesses can get value from your solution. It is about how suppliers grow their business through it.

A business model is all those things together. In short, when those pieces come together, that is when you can say to have a business model.

A quick history of business models

“business model” and “business models” in millions of books according to Google Ngram

While the Internet worked as a catalyzer for business model innovation , the term itself was born way before that.

Indeed, business modeling started to become a key component to explain long-term strategic advantages, by the early 1990s. 

For instance, an article from 1993, from HBR , entitled “Strategy And The Art of Reinventing Value” explained IKEA’s success as a business model advantage: 

IKEA has performed well with a not-terribly-original business model that, in less skillful hands, may well have failed.

Yet, as we get close to the mid, end of the 1990s business modeling starts to take a connotation tied to the Internet ecosystem. 

In a research done in the Strategic Management Journal , in 2001, the authors explain: 

Our findings suggest that no single entrepreneurship or strategic management theory can fully explain the value creation potential of e-business. Rather, an integration of the received theoretical perspectives on value creation is needed. To enable such an integration, we offer the business model construct as a unit of analysis for future research on value creation in e-business. A business model depicts the design of transaction content, structure, and governance so as to create value through the exploitation of business opportunities. We propose that a firm’s business model is an important locus of innovation and a crucial source of value creation for the firm and its suppliers, partners, and customers.

Therefore, at that time, in the early 2000s, business modeling becomes also a way to analyze and explain the competitive advantage that companies had built in the marketplace. 

The peak of this movement – I argue – came, when in 2019, Fred Wilson, from AVC, in a piece entitled “ Business Model Innovation ” explained: 

I believe business model innovation is more disruptive than technical innovation.

In short, Fred Wilson, went on to articulate the reason why business model innovation matters more than technical innovation. 

A good example of this was moving from web apps to mobile apps, which was largely a technical innovation. While the move to mobile certainly created some new companies, it largely strengthened the market position of the big Internet companies because there was little to no business model innovation.

And referring to the rise of blockchain-based business models he explained: 

I am excited about the move to crypto based business models supporting decentralized apps for this very reason. I think it opens up the possibility that some very large new companies will be created that innovate largely on entirely new business models.

To take a step back, when the Internet proved commercially viable, indeed, business model innovation took off. 

Indeed, the dot-com burst proved to the best enhanced for the next wave of digital companies, which would leverage business model innovation as a key ingredient to their success:

Source : internethistorypodcast.com

Indeed, many companies were born during the dot-com era.

Those companies used the Internet as a new distribution channel but they still played with an old business playbook.

When the dot-com bubble burst.

That left the room for a few companies which not only would prove commercially viable. They would also become among the tech giants that dominated the web.

Companies like Amazon , Google , and eBay built, tweaked, and consolidated their business playbook during that era.

A business model is not a business plan

Among the top results,   Google   suggests “How to   write   a   business model ” when typing “how to …   business model . When you click on the result that   Google   suggested, see what happens.

When you click on the   Google   suggested result for “How to   write   a   business model ,” you get “how to   write   a business plan.”

A common misunderstanding is to think of business modeling as a one-page business plan.

However, a business plan is a document with a specific aim. It contains a bunch of assumptions about your business.

It also contains financial projections about the business for the next 3-5 years.

However, those assumptions can be hardly tested. The business plan thus remains a document that lives in the imaginary world.

Drafted beautifully to impress banks and potential investors; hardly of any use for business model innovation. Instead, as we will see business modeling is primarily about experimentation.

As reported by Google Ngram, by 2008, the business model was picked up as a key concept, compared to a business plan. This shows how in the last decade business modeling has become a key concept in the business world. 

A business model is not a revenue generation strategy

An example of how   Airbnb   “confused” its   business model   for its monetization   strategy   ( Slideshare )

How WeWork described its   business model   in the report before the IPO. You might notice that what they’re talking about is their revenue generation   strategy .

Another misconception about business models is to confuse them with the monetization strategy or the revenue model of a company.

While this is an essential piece of the puzzle, it is just one of the components of a successful business model .

In this blog, we’ve discussed at great length how companies make money as a way to start the discussion of a business model .

However, a business model implies the understanding of operations, customer acquisition, retention, supply chain management, besides monetization.

According to the business model you designed over the years for your organization there will be a piece that plays a more critical role compared to others.

For instance, a vital component of the Coca-Cola business model is its distribution strategy .

For other companies like McDonald’s, the key to its business model success is the heavily franchised restaurants that helped the company scale up all over the world.

Each company will develop a unique  model among the many types of business models which is what makes your company robust in the long run!

The importance of business model design

The primary aim of a business model is to create a sustainable chain, able to unlock value for several players in a market, industry or niche .

Therefore, this value chain will start from a value proposition , a promise you make to the key players and partners in that market, industry or niche depending on where you start.

For instance, when PayPal started it didn’t look to dominate the whole market. It started from a niche .

As Pether Thiel put it in his book, Zero to One:

The most successful companies make the core progression—to first dominate a specific niche and then scale to adjacent markets—a part of their founding narrative.

Indeed, PayPal began identifying its most valuable partner, what at the time they called “power user.”

That was a choice driven by its business model design .

Therefore, instead of focusing on generically offering a service for everyone, PayPal focused on acquiring and attracting as many power users as possible.

Those power users were mostly on another platform that had already scaled up: eBay.

Thus, PayPal focused all its effort on acquiring those power users from eBay , fast!

Only after PayPal had drafted, tested, and validated a clear value proposition for a small , yet critical group of power users, it could move on to take larger and larger segments of that market.

Business modeling is about experimentation

Where scientists have labs where they can manufacture and run experiments.

Entrepreneurs have the real world as a way to measure their assumptions.

Designing and executing business models for an entrepreneur is like designing and running experiments for scientists.

However, where a scientist might be looking for lasting truth, an entrepreneur searches for a business model that will work in the marketplace at that particular point in time.

Indeed, one of the common beliefs is that business models can be sketched on a piece of paper and they will work in the real world.

That (almost) never happens.

Before a business model does work in the real world that will require a lot of strategic and deliberate thinking, experimentation, and tinkering.

Thus, a successful business model is usually the fruit of this process.

In fact, while the vision of a business model might remain intact, the way it gets impelmented in the marketplace might need to be readjusted several times, to succeed. 

Take the case of the Tesla business model . The whole story is very compelling because when Elon Musk first started to invest in Tesla, back in 2004, he was involved primarily as an active investor. 

Yet, as the company started to execute its business plan, it became clear that it wasn’t going to work.

In fact, Tesla’s original founders, Martin Eberhard and Marc Tarpenning were trying to build an electric vehicle, by outsourcing most of the parts. 

The idea to outsource most parts, which seemed viable, from a business planning standpoint, proved non-viable, as it became harder and harder for Tesla to find the proper components to assemble its first prototype. 

The situation got so bad, that the initial estimates for making a prototype skyrocketed, as time went by. 

This created a power struggle into the company, the oust of the initial founders, and Musk taking over as CEO. 

By August 2006, Musk shared his masterplan for Tesla, summarized as: 

  So, in short, the master plan was:

• Build sports car
• Use that money to build an affordable car
• Use that money to build an even more affordable car
• While doing above, also provide zero emission electric power generation options

That was it! 

A business plan made of a few lines, and yet it would take fiteen years to execute!

As Tesla went through various struggles and near-death experiences.

Musk admitted that the Tesla’s ride has been so ridicously wild, that the compamny was a few days away from bankruptcy several times, in a decade, and Musk had his whole fortune at stake.

Thus, even though Musk’s vision for Tesla was clear since the onset, the company’s business model had to change multiple times over the years, to test, thousands of small to big assumptions. 

That is how Tesla evolved into the company we know today!

That implies that often an entrepreneur has to design multiple variations of the same business model and test those in the marketplace.

For instance, if you’ve built a company that offers software but you positioned yourself with a freemium model .

You might realize that the model won’t work in your case, so you will need to move the revenue generation back to a premium model, where your target customers are willing to pay more and you move the needle from B2C to B2B .

Thus, cutting yourself space within a specific niche. That will, of course, limit the number of customers you might be able to reach; at the same time, it will enable you to find product/market fit .

Technological innovation vs. business model innovation

The misconception starts from the fact that nowadays, technological advancement is pushing toward new ways of doing business.

The Internet is still enabling new, untested models to pick up.

For instance, the business models   of companies like   Netflix   would not be possible if the Internet didn’t allow new ways of content delivery, and so also of how those same companies make money.

However, technological innovation is wholly different from business innovation.

That’s because technological innovation often happens in labs or research centers (take the internet) rather than just companies, or in a business context.

In short, technological innovation requires a massive amount of resources upfront and researchers, which might not follow business objectives, but rather experiment freely with ideas that take time to work out.

In addition, even when a specific technology becomes commercially viable that might also be soon commoditized.

Thus, technology itself hardly becomes a   competitive advantage . Technology coupled with new ways of serving customers, a powerful distribution strategy , and creative monetization strategies might create lasting competitive advantages.

That is when the   business model innovation   kicks in.

Why business model innovation matters so much

As we saw, in 2019, Fred Wilson, in a post , highlighted something that many are still missing today: 

When new, revolutionary technology finally is widely adopted, that is when a massive phase of  business model innovation happens.

For instance, we’re still looking at how the Internet-enabled digital economy is still an ongoing explosion. 

We might be looking at a similar change and blossoming of new  business models  with the advent of the  Blockchain and crypto-based business models.

That connects to another key point.

Competitive moats are generated around business model innovation

What should you be doing in running your business? Just what you always do: Widen the moat, build enduring competitive advantage, delight your customers, and relentlessly fight costs. With the exception of insurance pricing and coverages, almost all operating decisions that made sense a month ago make sense today

In a memo dated September 26th, 2001 Warren Buffet highlighted the importance of building moat.

For financiers, a moat is a lasting competitive advantage. There was a time when you could build those moats by following Porter’s five forces .

However, the digital era, dominated by platform business models , taught us that competitive advantages sit outside the company’s boundaries.

And the ability of digital businesses to take advantage of those external resources, also wrecked those barriers, making competition way more fluid, unpredictable, and hard to build with the old business playbook.

Therefore, companies like Amazon have learned to take advantage of network effects , and rather than follow a linear logic, designed business models with built-in flywheels focused on customer obsession:

The point here though is not that you have to build a tech giant like Amazon.

Instead, you need to realize that the Internet and the digital era enabled new ways of doing business.

Thus, they are not just new distribution platforms , but they require a new business playbook altogether.

This business playbook revolves around business model innovation .

Business model innovation as a traction model

During the dot-com bubble, Amazon was a company that aggressively invested in growth.

While the company advocated for free cash flows; before the year the 2000s, Amazon was quickly burning cash.

Until it realized it needed to change its business playbook.

Companies that didn’t make it to the fall of the dot-com, had an aggressive playbook, focused on reckless growth and grandiose business plans.

Instead, Amazon started to focus its efforts on building a platform that would have helped third-party sellers to host their own products and services. And at the same time, it started to follow a leaner playbook .

With that in mind, Amazon found its business-model market fit.

When that happens, traction becomes wired to the company’s DNA for a while.

Business modeling as the foundation of Business Engineering

In the last decade, I’ve been looking at thousands of companies, I’ve been building from scratch a few tech business models, and in the process, I have developed my own way to look at the business world.

What I named Business Engineering : 

Business engineering is a way of thinking that combines various disciplines. Among these disciplines, there is business modeling, in the extent to which, it helps business people test the underlying assumptions of a business, quickly. 

The business engineering manifesto moves along a few key principles, which I outline below: 

• A business engineer borrows the customer-centered approach from design thinking but it brings it to another level with customer obsession. Indeed, customer obsession is a bottom-up, non-linear force, able to shape industries in unpredictable ways. The business engineer knows that to go beyond completion, you got to simplify your execution strategy , by obsessing over customers. 
• A business engineer borrows experimentation from business modeling, to execute a business strategy , and test the underlying assumptions of a business. Once defined the boundaries of your business (things that go against its mission and vision) everything else needs to be tested. 
• A business engineer starts by following the money, but it moves through the layers of a business to find its core asset. In short, understanding the financial side of a business is an avenue into the subtleties to find its core asset. 
• A business engineer understands the intricacies of a complex system, where figuring out the problem is the real problem! Indeed, I argue that the main scope of being in business is about figuring out problems for our customers. That is what businesses exist for. 
• A business engineer knows that competition in the short term is linear, while it becomes non-linear in the long run. Thus, the business engineer keeps an eye on the long-term landscape, while executing fast, in the short term. Today’s niches are tomorrow’s new industries. The business engineer is aware of that. 
• A business engineer knows when to use an incremental approach, and when a breakthrough approach is needed, instead. Indeed, a business engineer might rely on the same tools and frameworks for years, until she/he realizes the business landscape has changed. And in that context, the business engineer will look for, or build new frameworks, based on a new mindset. 

What are the primary components of a business model?

Although there is not a single way to define a business model, there is a standard called “ business model canvas ” which is a good way to start understanding what are the pieces and moving parts of a company’s value creation chain.

Then we’ll look at the FourWeekMBA method of classifying a business model.

The business model canvas perspective 

As highlighted in the business model canvas there are seven key ingredients for any business model to succeed:

• Key partners
• Key activities
• Value proposition
• Customer relationship
• Customer segment
• Key resource
• Distribution channel
• Cost structure
• Revenue stream

However, in a world where information technology has become predominant, being agile becomes critical.

In that context, an evolution of the business model canvas, the lean startup canvas  has become more accurate to design a business model for a startup.

The key difference is how a startup “behaves” compared to a corporation:

The lean startup canvas started from the lean startup movement launched by Steve Blank in 2013.

In short, large companies relied and still rely primarily on elaborate planning, with business plans hundreds of pages long, and full of assumptions. Startups primarily rely on experimentations.

Where large corporations invest large resources upfront to design or build up a product or service; Startups use the process of iterative design and agile development , where users help the startup get from MVP to product/market fit .

• Business Model Canvas.
• Lean Startup Canvas.

Whether you decide to use the business model canvas, the lean startup canvas, or develop your own methodology, it is critical to gain a holistic understanding of your business.

Thinking in terms of business modeling is the key to reaching that kind of understanding.

In other cases, a framework like the Blitzscaling  might be more suited to assess whether your business or the company’s business model you’ve designed has all the ingredients to scale up, quickly:

In that scenario, you might want to assess whether your business model has been engineered to encompass four key growth factors (market size, distribution, gross margins, and network effects) and avoid major growth limiters (lack of product/market fit and operational scalability).

The FourWeekMBA perspective on business model components for startups

The key components of any business model according to the FourWeekMBA analysis are: 

• A compelling value proposition:  How do you want your people to think about your brand?
• A unique brand positioning:  What do you offer to your people that make them want more?
• A 10x goal setting:  Can you offer a 10X better product or service? (compared to existing solutions)
• Customer segments:  Who is your customer? (to notice here we’re not talking anymore about people but customers, those willing to pay for your product or service)
• Distribution channels:  How do you get your product or service to your customers?
• Profit formula:  Is the business financially sustainable?

This business model framework by FourWeekMBA has four aims:

• Simplicity : heuristics-based rather than complex models.
• Noise reduction : choosing a few key data points, rather than looking at a massive amount of data that only adds noise and paralyze decision-making processes.
• Branding and distribution : looking at a business model as a systematic way to build a strong distribution network and a strong brand. The two things walk hand in hand.
• And profitability : the financial viability of a business model is a key element for its success.

In short, according to this framework, there are two dimensions of a business:

• The people dimension.
• The financial dimension.

These two dimensions walk hand in hand.

Yet the people side is also what makes the business thick from the economic standpoint.

The people side comprises the following elements:

• A 10x goal setting:  Can you offer a 10X better product or service? (compared to existing solutions).

This people dimension will help you build a solid brand. A solid brand builds up a tribe, a group of people that can follow you anywhere.

Once you have a solid brand, you can focus on the second dimension: the financial dimension.

The three elements of the financial dimensions are:

• Customer segments:  Who is your customer? (to notice here we’re not talking anymore about people but customers, those willing to pay for your product or service).

The FourWeekMBA VTDF Framework to dissect tech companies

The VTDF framework breaks down tech   business models into four main components:

• Value model (value propositions,   mission,   vision),
• Technological model (R&D management),
• D istribution   model (sales and   marketing   organizational structure ),
• And financial model (revenue modeling, cost structure, profitability, and cash generation/management).

Those elements coming together can serve as the basis to build a solid tech business model.

How many types of business models exist?

We can classify business models in several ways.

For instance, based on how companies and startups monetize their business, how they deal with their suppliers, customers, and the value proposition  those companies can offer to several stakeholders.

Some business models have always existed, some others are new, others yet innovate by bringing old business models to a new industry (take the Netflix business model case study as an example).

In this guide, we’ll see several business models based on successful companies, tech startups, and also more traditional organizations.

The aim is to give you an overview of all the different moving parts that comprise a business model.

In some cases – take Microsoft or Amazon – there isn’t a single way to describe a business model, as some companies have been able to diversify so much their operations to be able to generate value propositions across several stakeholders across many industries.

For instance, Microsoft isn’t just the company selling Microsoft Office products.

True, that is still an essential part of the business, as of 2022. Yet, Microsoft has many other segments, that are independent of others, and some others that are complementary.

From a quick look at Microsoft revenue breakdown from 2016-to 2018, you can appreciate the changes the company has gone through and the complexity of its business model.

Indeed, while Microsoft Office is still the core of the business, other products, such as Xbox, might seem at first sight completely separate segments.

However, when you understand that Microsoft’s involvement in the gaming industry has  proved as a perfect ground for AI systems; you can appreciate how the Xbox becomes the perfect “playground” for innovation in the other company’s segments! 

Take also LinkedIn, a social media network for professionals . If you look at it merely as a social network, you don’t realize the importance of LinkedIn on Microsoft’s overall business model .

In fact, LinkedIn, which is powered by a knowledge graph might be playing a critical role in Microsoft’s search engine, Bing.

Or take how Amazon  back in 2000 was trying to figure out a way to allow other stores to build their e-commerce on top of Amazon, yet it was impossible to do that with its infrastructure at the time.

That is why Amazon started to develop that infrastructure, which has now become Amazon AWS :

In 2017, Amazon AWS represented the fastest-growing segment of the company, and it generated over $17 billion in revenues!

Why am I telling you that? As highlighted so far, a business model can be designed.

Yet, most of it is about tinkering and experimentation. Thus, the business model design is a tool to accelerate the process of building up a sustainable machine that captures value in the long run. The key though is to leave that machine unleashed.

How do you understand the way the business model moving parts come together? What is the glue that keeps them together?

Vision vs. Mission: why understanding the difference between them is important

There is one key ingredient of any company’s business model that seldom changes, that is the company’s vision.

While the company’s mission statement might change over time, the vision sticks.

The main difference between mission and vision is about the present and future. The mission is the way the company wants to achieve its objectives now and its purpose in the present.

Take the Google mission statement :

In other words, the vision is the map, that influences the company directions and decisions for the future.

The mission is about how the company wants to achieve its objectives, thus getting closer to its future vision, in the moving present.

That is a tool aligning the key players of an organization (employees, suppliers, customers, and more), while it allows the forming of a culture within the organization.

The mission statement instead might have two functions, one is internal, and one is external. Internally, the vision aligns with people around the same map.

Externally, the vision allows outside observers to understand why an organization might be looking in a certain direction.

Therefore, the vision is “ organizational DNA .” Once the vision is clear, you might not even need a mission statement to succeed.

Even though the mission statement is a critical propeller that helps companies focus on short-term success.

Going back to Google’s mission statement “to organize the world’s information and make it universally accessible and useful,” that allows Google to focus its efforts to achieve its future vision.

For instance, when Google announced its transition from mobile to AI-first that hasn’t changed its mission.

That only represented the means to achieve its mission.

The New Era of AI Business Models

In the fall of 1999, one of the most respected venture capitalists of Silicon Valley, John Doerr, arrived at the two-story L-Shaped building on the 101 freeway, in Palo Alto, California.

There, he was about to meet the founders of a company that was growing so quickly, which just two months before had moved from a small office in downtown Palo Alto to this new building on the 101 freeway.

As John Doerr explained in his book, Measure What Matters, he had placed the biggest bet in his nineteen years career as a venture capitalist, $11.8 million (which Doerr called a wager) for 12% of that startup, which had outgrown its Stanford dormitory, just a year before.

The two founders of this startup, which was just a research paper and a prototype just a year before, convinced Doerr to place such a bet by presenting him with 17 slides in PowerPoint, which represented their whole pitch.

That small startup was tackling a market – that of search – which was already crowded (they entered as the 18th search engine on the market); it seemed irrelevant (most players at the time were walled gardens like AOL, which believed that search was a minor feature of the growing Internet); and a good chunk of search players mainly featured advertising as results to users’ queries, which made search even less interesting.

The two founders had created a new algorithm for search, which they promised, would turn search engines into more exciting tools able to keep up with the exponential growth of web pages.

To make a final call on his investment, venture capitalist John Doerr asked the two founders how big they thought their market could be.

This is a typical question for venture capitalists as they place bets since it enables them to guess the size of the new market they are investing in.

Doerr had already been thinking about that, and in his mind, a market cap of $1 billion would have been an incredible achievement for that startup and a great payoff for his investment.

Yet, one of the two founders, Larry, replied to Doerr with “Ten billion dollars.”

A bit confused, Doerr made sure he got it right, thus further asking Larry, “You mean market cap, right?”

And Larry replied swiftly, “No, I don’t mean market cap. I mean revenues.”

That implied a potential market cap of $100 billion, which at the time was the capitalization of Microsoft.

By 2006, as that startup had figured out a scalable business model for its search engine, it had passed $10 billion in revenues. And today, that company, Alphabet, which controls Google, is a trillion-dollar company.

That $11.8 million investment for 12% of Google, which John Doerr bought back in 1998, would be worth more than a hundred billion dollars today!

Google was a breakthrough product.

Indeed, in 1998, its founders, Page and Brin, created an algorithm called PageRank, explained in a paper entitled, The Anatomy of a Large-Scale Hypertextual Web Search Engine.

That was the birth of Google!

Yet the paradigm shift came when Google combined its search engine with an incredible advertising machine, which by 2021 generated over $148 billion.

This new architecture of crawling, indexing, and ranking gave Google the ability to scale. Thanks to the Page Rank algorithm, users’ searches and intents could be ranked and easily found on the web, which was growing exponentially.

Back then, both Brin and Page were quite skeptical about the advertising model for search.

As they explained at the time to, “we expect that advertising funded search engines will be inherently biased towards the advertisers and away from the needs of the consumers.”

And yet, the intersection of search with a scalable advertising machine (what today we call Google Ads), combined with built-in network effects (both from Google AdSense for publishers and users’ search intents), has created the tech giant we know today.

Thus, as usual, when a new technology comes out, even if a breakthrough, it’s not enough to become a paradigm shift.

We see a paradigm shift when a technology finds a scalable business model and a scalable (built-in) distribution model.

That generates a seismic shift of the business landscape, which doesn’t just change things; it flips them upside down, shaking entire industries and creating whole new ones able to swallow the existing ones.

This, I like to call the “Reverse Kronos Effect!”

Credit: Francisco de Goya, Saturno devorando a su hijo

Indeed, as I explained, in   Business Engineering  the Kronos Effect happens when the incumbent player in an industry tries to maintain its dominant position by swallowing early entrants in a market (a perfect example is the Facebook acquisition of Instagram).

Yet, the “Reverse Kronos Effect” happens when the insurgent startup, is able to move so fast, thanks to a radically new technology, and yet iterate even faster, in building a scalable business model and distribution, which shifts the business landscape quickly, thus leaving the dominant player off-balance, in a position of weakness.

And the momentum gets so strong for the insurgent, that the dominant player can hardly keep up, let alone, regain the lost ground.

That is a paradigm shift. When the old playbook won’t work anymore. And not only that, the old paradigm might actually be limiting, and play in favor of the disruptor.

When ChatGPT came out in November 2022, this was a breakthrough.

The interesting part of it? 

A good chunk, of what made ChatGPT incredibly effective is a kind of architecture, called “Transformer” which was developed by a bunch of Google scholars!

“Attention Is All You Need” the paper which introduced a new AI architecture (Transformer) which finally made AI generalizable was created by a group of Google’s Scholars!

Thus, this, potential “Reverse Kronos Effect” is even more powerful when you think about the fact, that Google, might have had the technology to launch something similar to ChatGPT, probably already by 2021.

And yet it didn’t (here there are various considerations to make, from risk assessment of deploying AI at scale, but also risk aversion of Google, and fear to cannibalize its own core product, Google’s search engine, which to these days is a cash printing machine for the company). 

Just like Google represented a breakthrough in the Internet paradigm back in 1998, ChatGPT represents a breakthrough in the current web paradigm.

A search engine experience is made of a user searching for an answer thanks to a crawling, indexing, and ranking system, which Google maintains at scale.

With a generative interface like ChatGPT, that paradigm is threatened as answers can be given on the fly without having to (necessarily) rely on a crawling, indexing, and ranking system.

Instead, OpenAI’s architecture relies on pre-training, fine-tuning and in-context learning.

Once this architecture finds its business model and built-in, scalable distribution, you get a paradigm shift!

Thus, this is what we’re looking at—a breakthrough product looking for its paradigm shift. 

How did we get there?

Below you find the architecture that brought us here.

70+ business model examples in a nutshell

In this guide, we’ll look at 60+ business models, spanning several industries, monetization strategies, and ways to unlock value in the long run!

When 1983, Howard Schultz was walking through the streets of Milan and Verona he became “enamored” by the coffee experience people had in the Italian  bars.  He decided to bring that experience back home. That’s how Starbucks was born.

While McDonald’s makes money  by primarily and heavily franchising its restaurants, Starbucks is a mix of operated vs. licensed stores. If we look at the revenue generation, company-operated stores make up 79% of the company’s revenues in 2017. 

Keeping a free product offering, especially when it comes to a consumer brand, like Spotify, can be quite expensive. It is true, that Spotify uses a sort of self-serving model where its free accounts are channeled to activate premium plans (the Family Plan has been the most popular in the last years).

On the other end, Spotify makes sure to support its free side of the business by running ads. Those ads, subsidize in part the free service for over 163 million accounts as of March 2020.

Therefore, instead of letting premium members support the free plans. The ad-supported side (representing 10% of its revenues as of 2019) becomes self-standing and viable.

In short, while the free/ad-supported side of the business is relevant to Spotify to convert those accounts in premium. At the same time, it works pretty well as a self-sustaining product tied into a digital business model .

However, as the ad-supported model scales, it also proses some threats to the scalability of the business model, as the licensing costs for the streamed content might grow quickly (Spotify will pay more royalties as more free users stream content on the platform).

That is also part of the transition of what I like to call from platform to brand.

Let’s say you have a website with a large amount of traffic each month. Yet you don’t sell any product or service, which is yours. How do you make money? Well, thanks to affiliate marketing you don’t need either a product or a service, you have many from other companies.

Thus, you’ll make money by merely featuring other products or services and getting a commission for that. Affiliate marketing done right can be a powerful source of income. Take, Pat Flynn from Smart Passive Income , which has been generating millions of dollars with affiliate marketing :

In this business model, the aggregator becomes the middleman by removing all the other middlemen from the market. To understand more about this model and how it differentiates from platform business models , read the guide on the aggregator business model .

neilpatel.com is one of the most successful sites in digital marketing . Neil Patel has also used his name as a brand, which has become recognized in the digital marketing space.

However, rather than selling tools or info products, Neil Patel is monetizing its traffic by generating leads for his digital agency. As he pointed out:

My model isn’t as scalable and it requires more headcount, but it can generate much more money. Just look at ad agencies like WPP and Dentsu. They generate billions in revenue!

In short, Neil Patel Digital is the SEO and digital marketing agency that allows Neil Patel to monetize its traffic primarily by offering free content and free marketing tools. This is a mixture of a freemium business model, combined with an agency-based business model.

Yet, the idea behind the agency-based business model is simple: you generate enough qualified leads, set up a lean team to manage those projects, and grow the agency based on on-coming projects! According to Neil Patel – at least in the digital marketing space – there is still space to grow a multi-billion turnover agency.

AIaaS business models

In the coming decade, every software company will be an AI company. And this trend is very very strong. Indeed the SaaS industry is already turning into an AI-based software industry. Thus, the AIaaS industry and its business models already turned into a multi-billion dollar industry:

Some examples of hidden revenue generation are Google and Facebook . The two most popular websites on planet earth have a similar monetization strategy . They offer free apps and platforms for a broad audience (billion people worldwide) while monetizing the data of the same users.

Each time you click through a link on Google that has the “ad” notation next to it. De facto you’re allowing Google to monetize on a keyword, while you’re making a business monetize on that keyword if you buy the service they provide.

A similar logic applies to Facebook. The news feed is the place where Facebook monetizes most of its ads. Both models both use a hidden revenue generation model as those services work so well that most users barely realize their data is getting sold for advertising.

An attention merchant might be defined as a company that primarily makes money by harvesting human attention. While this definition is tough in practice (most companies make money by grabbing their target attention) the attention merchant’s primary asset is human attention.

That is also why companies operating with an advertising business model are defined, as attention merchants. While in the tech industry companies like Facebook and Google have become hugely profitable by using an advertising model.

For the sake of this article, I’m mentioning Snapchat Business Model  as it probably represents the wildest evolution of where attention merchants can get. Just like Google allows businesses to bet on keywords . Businesses on Snapchat can create their Geofilters based on location and track the results of those Ggeofilters.

While Google and Facebook proved to have a solid business model, attention merchants usually also face many challenges. In fact, as those companies scale up, they also end up grabbing the attention of billions of people worldwide. When that happens, those tools become a threat to the political system which tries to kick back by regulating or fining them.

Another aspect of attention merchants is about keeping the users hooked . When those apps start losing users’ attention – if they don’t have a solid business model – a single Tweet from a Kardashian can make the company burn over a billion dollars in market cap!

sooo does anyone else not open Snapchat anymore? Or is it just me… ugh this is so sad. — Kylie Jenner (@KylieJenner) February 21, 2018

Author Nassim Nicholas Taleb explains this approach in his Incerto Series. It’s an approach where you invest most of your wealth in extremely conservative financial instruments to preserve the capital.

And on the other end, the remaining part of the capital is invested in extremely aggressive strategies with massive potential upsides, yet controlled downsides. In short, you make yourself prone to take advantage of positive Black Swans (rare events that can benefit you).

I want to take this further to apply that to business modeling. Here the company uses a barbell approach to product and distribution. You have a core product and business where most resources are spent and the whole organization is structured around. On the other end, you place bets on new products that might renew your business model and make the old irrelevant.

An example of that is how companies like Google, keep investing most resources in their core business model while also placing other bets , prone to create not only a whole new business model but whole new industries.

Grubhub is an extremely interesting case as the Company primarily charges restaurant partners a per-order commission (mostly percentage-based). The restaurants can choose (in most cases) their level of commission rate, at or above the base rate.

When a restaurant pays a higher rate, that positively affects its prominence and exposure to diners on the Platform. This approach combined with Grubhub’s brands enables restaurants to easily build up their delivery operations even if they lack that.

Thus, increasing the overall market value, as more restaurants can supply their food and people get more variety.

Amazon’s continuous, massive, investment in growth to dominate multiple markets is a perfect example of a business model with built-in growth. This is the combination of several elements (platform’s network effects + branding power + scalable financial model).

That applies to the consumer e-commerce side of Amazon (excluding Amazon AWS) where the company, while generating low-profit margins for years, also generated substantial cash flows that it invested back to massive growth. A sort of continuous blitzscaler-mode, that while risky for most companies, has become a normal mode for Amazon. Thus, Amazon has been able to ingrain blitzscaling within its business model.

When on January 10th, 2009, a guy named Satoshi Nakamoto (it probably was only a pseudonym) sent an email to a man from Santa Barbara, Hal Finney, he announced a new currency, called Bitcoin, based on a new technology called Blockchain.

Merely put the Blockchain is a distributed ledger that relies on cryptography to handle transactions, interactions, or anything that implies an exchange between people, which is decentralized and anonymous. 

That was a revolution. Since Bitcoin has become a global phenomenon, the technology that allows it to function, the Blockchain, has been evolving. To be sure, the Bitcoin Blockchain isn’t the only protocol.

Large numbers of Blockchain protocols have been created since the Bitcoin launch. This means that the combination of existing business and new Blockchain protocols will give rise to a countless number of innovative business models.

Those few that will pass the test of time might probably give rise to the next Blockchain Giants. A compelling case of innovation based on a Blockchain-based business model is Steemit :

That is a decentralized social network, which rewarding system is based on a Blockchain protocol, called Steem . Like Steemit many others are trying to innovate in several fields. Thus, we might expect an explosion of Blockchain-based business models.

In bundling, a strong distribution power combines several products in a single offer to extract more from the market. For decades Microsoft has been able to bundle several products under the same umbrella (Office has been coupled from time to time with several other products) so the company extracts more from the market, or if it were selling a single product.

Have ever wondered how some businesses survive, nonetheless the thin margin they have? One great example is Amazon .

A company that makes a low-profit margin yet it has been very disruptive. In reality, Amazon can get its partners to finance the business by playing on the short-term liquidity of the business.

Cloud-as-a-service (CaaS) business models

Cloud-based services have become the new standard. As the software paradigm has shifted from proprietary, to hosted, agile, and continuously improving, updating, and integrating within the company’s architecture, cloud-as-a-service business models ( IaaS , PaaS , and SaaS ), have become the new standard of the software industry.

The discount business model focuses on high quality

Leveraging on the price to gain a competitive advantage isn’t new. However, price wars are not the best way to create a sustainable business model . Instead, the supermarket chain – ALDI – has done just the opposite. One of the critical ingredients of the ALDI business model  is to keep its prices low while maintaining its quality as high as possible.

How? With several strategies. For instance, ALDI limits its stores to 1,300 items, which generates minimum waste. Also, ALDI also features its brands, which makes it inexpensive to sell them, as there will be lower sales and marketing costs associated. 90% of ALDI brands have an exclusive agreement with the market chain! 

A distribution-based business model is one in which a company’s survival depends on its ability to have one or a few key distribution channels to connect to its final user or customer.

It is important to notice that almost any business can be classified as a distribution-based business model, as there is no company that can survive without distribution.

However, in general, companies that tap into consumer markets need to be extremely good at creating distribution channels that are able to unlock long-term value. There are a few critical aspects:

• The distribution channel has to be sustainable: this means that if you spend more money to maintain it that is what it generates might not work. It is fine in the short term to lose money on building up a distribution strategy . Yet in the medium term, it needs to be sustainable.
• It needs to be diversified: relying on a single distribution channel might be too risky, especially if you don’t control it. Therefore, it is critical to focus on the main channel, yet the company needs to expand and tap into other channels.
• It needs to scale: a distribution strategy is as good as its ability to stick also when the business scales up. Thus, the critical question is “would this strategy work if I go from €1 million to €10 million in revenues?” Many won’t and it’s fine. Yet as an entrepreneur, your goal should be to find a distribution strategy that scales.

Also, tech giants like Google spent billions to guarantee proper distribution. For instance, Google spends a good chunk of its revenues on distribution via acquiring traffic from several sources:

When you see companies with a large turnover, you need to always ask, “what’s their distribution strategy ?” or “how did they get there?” You’ll find out that they spent massive resources to tap into channels that proved successful to scale up their business!

A direct-to-consumer business model is primarily based on direct access from a brand or company to its final customers. Indeed, the more a company is able to tap into its customers without the need of an intermediary, the more this model will work in favor of the brand, which is able to control the perception of its customers via massive marketing campaigns.

Indeed, this kind of model implies a massive activity of branding and marketing to make sure consumers have your product on top of their minds. A successful example of a direct-to-consumer business model is Unilever:

Unilever is the second-largest advertiser in the world in 2017, based on media spending. Alongside more conventional advertising, Unilever creates and delivers tailored content through several digital channels.

When building up a direct-to-consumer business model it is critical to emphasize marketing rather than sales processes:

Indeed, consumer products have a low pricing point. Thus, to make sure to generate enough revenues for the company, marketing activities will be the key ingredient.

Nowadays, with the advent of AI, machine learning, and a new form of advanced technologies, it might seem demode to talk about direct sales. In fact, for many, this is a thing of the past.

However, the opposite is true. In an era where everything is getting automated the personal touch is becoming critical. Of course, once technology produces machines to the point of seeming human (see the Google Duplex experiment) that might be a different story.

Yet as of now, companies like ConvertKit use direct sales as a powerful weapon to grow their business, fast! Below you can see a simple Trello board put up by Nathan Berry, founder of ConvertKit when he decided to create a mail marketing tool from scratch just to see it grow to over a million dollars in monthly recurring revenue in only six years:

Thus, direct sales can be a powerful way to develop a business if done correctly. One of the secrets to a successful direct sales strategy is the qualification of your target audience.

If you try to sell your service or product to anyone, this is more spamming. The more you qualify your audience, the more you create value.

With almost $23 billion in revenues and nearly $7 billion in profits. While in North America and the western world in general, Amazon is the synonym of “e-commerce.”

When it comes to the Chinese industry, Alibaba is the market leader! In 2016 the company recorded over 423 million active buyers. Alibaba, just like Amazon  has a diversified business model, with many moving parts. However, as of 2017 most of its revenues still came from core commerce.

As building up a website and e-commerce has become inexpensive, and it buries no particular cost for the traditional brick-and-mortar business, more and more small businesses join in and make the marketplace their primary source of revenue following Amazon’s leadership at the global scale. In fact, in many cases brick-and-mortar stores opt to become Amazon sellers:

In fact, by becoming a seller on Amazon, you allow your products to be directly picked, packed and shipped. Amazon takes a cut of the revenue, and the seller retains the rest. As Amazon puts it:

We offer programs that enable sellers to grow their businesses, sell their products on our websites and their own branded websites, and fulfill orders through us. We are not the seller of record in these transactions. We earn fixed fees, a percentage of sales, per-unit activity fees, interest, or some combination thereof, for our seller programs.

As of 2021 Amazon still made most of its revenues from retail products .

Built by one of the smartest persons on earth ( Stephen Wolfram ), Wolfram Alpha is a computational engine, able to provide complex mathematical questions and way more advanced (at least until a few years ago) compared to any other search engine.

Wolfram Alpha has built its business based on education. The primary targets remain students or teachers, which with a subscription can get unlimited access to Wolfram Alpha features.

Wolfram Alpha makes its computational engine free and open to anyone. Yet to get advanced features (such as full mathematical procedures) you will need to subscribe to the paid version. In short, that is a mixture of a freemium and subscription-based model that targets the educational industry.

The family-owned integrated model starts from the assumption that even if you’ve built a multi-billion dollar company you can control it in its entirety, while you also keep an agile decision-making process based on an ownership structure that keeps the control of the organization in the hands of the family.

An example of that is the Prada business model :

Prada generated over three billion euros in revenues in 2017, and it managed to integrate its overall chain, from the creative process to the distribution to consumers via its directly operated stores: 

Source : Prada annual report for 2017

They’ve also managed to keep the ownership of the firm in the hands of its two founders and partners in life, Miuccia Prada and Patrizio Bertelli :

With 100% of Prada Holding, the couple controls 80% of Prada! Their word is law within the organization. Although Prada as a multinational has complex management systems, Miuccia Prada and Patrizio Bertelli are the key decision-makers on strategic initiatives.

As platforms arise, they create ecosystems, becoming unexplored markets. Those markets can be surfed by feeding your business model on top of that. A good example is how HyreCar feeds its business model on top of Lyft and Uber networks of drivers.

People that want to make some extra bucks can rent temporarily a car and connect to Lyft and Uber to generate some extra income. In a sort of “tit for tat” relationship HyreCar “cooperates” and surfs the drivers’ network of Uber and Lyft, to create more liquidity, by making more cars available on the road for drivers, thus improving the supply, and therefore generating more demand.

Franchising business models

We’ve already mentioned here a couple of franchising business models, however, it’s worth having an overview of how these evolved over the years.

From the FourWeekMBA research, we identified three primary franchising models:

• Heavy-franchised : where franchisees own the business operations, but the franchisor controls the land development and the lease, as a tweak to control the standards followed by franchisees over the franchising operations (McDonald’s).
• Heavy-chained : where the franchising company takes care of the investment and costs to open a new unit, yet the company also takes higher royalties and profits get split up (Chick-fil-A).
• And franchained (or reverse franchained): in a franchained model, a company leverages the ownership model to establish new operations. Once established, the company reverts back to franchising. This model is extremely suited for those operations that require extreme expertise and leverage on the company’s scale to open up new markets (Coca-Cola). In a reverse franchained model instead, the company leverages the franchising model in the short, and it reverts back to an ownership model in the long run. This is extremely suited to quickly testing new markets, by increasing speed and reducing the cost of growth. For the model to work, there must be built-in incentives for the franchisee to sell back the operations at a premium, if they turn out successful.

Franchained and reverse franchained

Free can be a powerful weapon for growth. Many in the tech industry and more specifically in the SaaS business model use Freemium to grow their business. The freemium is a mix of free and paid services.

The company offers a basic version of the product that works just like the premium product but it either has limited usage, or it has limited features. Thus, the free version is used for lead generation (capture contacts of people) and invite them to upgrade to the paid version or have the users with a free account to advertise their product.

Take SumoMe, a tool that allows you t grow the audience of a blog through newsletter forms, pop-ups, A/B tests, and heat maps:

If you get the freemium version of the tool, you still have a lot of features for free. SumoMe will invite you to upgrade over time, and it will show a small link “powered by SumoMe.”

In short, the free product can be leveraged in several ways. First, for lead generation. Second, as a way to trigger upsells for non-paying customers.

Third, as a virality tool, with CTAs and links placed in strategic places to have free publicity from non-paying users.

If appropriately implemented the freemium model can be a great way to grow a brand and a business fast.

While freemium can be considered in certain circumstances a key element of a business model, it influences all its aspects. In many other cases, a freemium model is a growth tool that has an incredible potential in spreading the brand of the company offering it.

Companies like MailChimp and Slack , have strengthened their brands and marketing funnels by leveraging the freemium model.

The free-to-play model has become widely adopted in the gaming industry. Where companies like Microsoft and Sony sold their consoles at cost (Xbox and PlayStation) with a locked-in logic (gamers could not play in teams across those consoles) as they made money primarily by selling games.

Epic Games with Fortnite flipped this model. It made the game free, and up-sold products within the game.

Fortnite isn’t just a traditional freemium  model , which we usually find in the software world. It had three modes of consumption, which helped shape its overall business model:

• Save the World, premium model : built as a player vs environment game, is structured as a  mission -based game. Contrary to the Battle Royal mode, which is the one that enabled Fortnite success, Save the World is available at $14.99.
• Battle Royale, free-to-play model : built as a Player versus Player, or PvP, game mode this free-to-play game sparked virality and made Fortnite the success it is today. This game mode enabled up to 100 players, to play in several formats, alone, in duos, in squads, and more. The built-in group dynamics, and the fact it was freely available, helped sparkle the Epic Games’ ecosystem. And it is also lucrative for the company, as gamers can buy V-Bucks (Fortnite’s virtual currency) to customize their characters or else.
• Creative mode : in the Creative mode, players gain access to a private island, where they can design the whole thing as they want and invite others. This mode is pretty interesting as it enables not only gamers but also creators or aspiring so to build their own gaming environment.

As consumer brands showed the freemium model could be both a great go-to-market strategy and generate a continuous flow of qualified leads (however, only after the whole organization would be organized around identifying those opportunities), other B2B/Enterprise companies (those primarily selling to other companies or larger corporations) also mastered the freemium model but on a B2B scale.

That is why I like to call that “Freeterprise.” Companies like Slack and Zoom are great examples of how you can build a valuable business with a Freeterprise model.

This sort of looks like magic, as you can start from a single free professional account, and pull a whole organization into that, to transform it into an enterprise

As I explained in the Zoom business model though, the whole organization needs to be structured around the freeterprise model, where on the one end the company seamlessly uses the free product as an entry point within companies.

And on the other end, salespeople with the ability to build a strong relationship with the account can get the whole company on board, thus transforming a free professional account into a potential enterprise customer.

Of course, this leads the organization to skew its resources toward building an army of qualified salespeople to handle the volume of leads generated by the free offering (in 2019 Zoom spent 54% of its revenues primarily in salespeople headcounts).

In the gatekeeper model, the dominant company has become the main middleman between the market and millions if not billions of potential customers. In the previous era, many middlemen captured value and retained distribution power, by fragmenting the market.

In the gatekeepers’ era, the market has been unified, and as such, it has become much bigger, yet the single middleman (the gatekeeper) is also the one who locked the distribution pipelines, thus retaining control over the access to millions of consumers.

Thus, the whole gatekeeper business model is about becoming the unlocker to final customers for millions of small businesses.

McDonald’s follows what could be defined as a “ heavy franchised business model .” 92% of its restaurants are franchised. With a long-term objective to reach 95% of franchised restaurants.

The franchising business model is quite effective for the expansion of the organization. A franchisor licenses its know-how (which might comprise procedures, training materials, brand, and more) for a franchisee, which has the right to sell the franchisor products and services in exchange for a royalty. In some cases, the franchisor also gets a percentage of the revenues. 

The most prominent advocate for the humanist enterprise business model is Brunello Cucinelli. Indeed, Brunello Cucinelli business model  is based on three key pillars:

• Italian Craftsmanship,
• Sustainable Growth,
• and Exclusive Positioning and Distribution.

The company generated over €503 million in 2017:

EdTech: enhanced education through digitalization ad tech platforms

EdTech is the attempt to make education more effective by leveraging on digital and tech. Several players are tackling this problem in different ways. Below are some examples.

For instance, the Udemy business model is trying to make everyone an instructor.

On the opposite spectrum, the Masterclass business model is trying to transform world-class experts into instructors:

Duolingo’s business model instead leverages gamification to have millions of users learn any language:

Udacity’s business model instead leverages partnerships with universities, to offer different kinds and formats of education, based on “nano-degrees.”

In an enterprise business model, a company focuses on large clients, usually Fortune 500 clients that have a massive budget of millions or billions of dollars. This kind of business is primarily based on complex sales.

As Peter Thiel explains in his book Zero to One , when it comes to a company’s distribution it is critical to understand where you stand. Indeed, in an enterprise business model, it’s all based on closing large deals.

Therefore, it is crucial to have senior salespeople with competence in managing those large deals to guarantee the success of the company.

In this respect, drawing a clear line between Marketing and Sales is the key point when trying to build up an enterprise business. That’s because you need to identify the right target with a laser focus.

Most of the time a large enterprise business might have only a few dozens of potential clients. Once identified those potential clients you need to put the proper resources to close those deals.

Fintech: digitalizing the financial system

Fintech business models have been tackling one of the hardest of all problems. How to transform the financial system through digitalization and technology. This is among the hardest problems because the financial industry is highly regulated, and very hard to transform.

Players like PayPal have been trying since the beginning of the digital era. Later on, other players like Stripe also tackled the problem. The wave of fintech is very strong. And with blockchain tech developing on the way, this might also help fintech take a leap forward in the coming decade.

Twitter has based its fortune on short messages (until 2017 140 characters, then extended to 280) which allows anyone to share the news but also updates that become news.

One of the most powerful aspects of Twitter is its immediateness, which although it might have also caused troubles in the media industry, also allowed news to be disintermediated.

Twitter is an attention merchant, which primarily makes money via advertising , like Facebook and Google.

Last-mile delivery, on-demand business models

Last-mile delivery is one of the hardest problems to tackle, as it sits outside what we call network effects . In short, it doesn’t matter much the network effects a company has accumulated over the years. Last-mile is the last leg of the supply chain, and yet extremely important (it’s consumer-facing, thus the overall customer experience will depend on it).

Various companies are tackling “the last-mile problems.” And as the pandemic hit, their business models quickly evolved. Last-mile is also intertwined with on-demand. In fact, the more a product can be ordered and quickly delivered, the more the divide between retail/physical stores and digital stores will narrow down.

Beyond Amazon, a few other platforms are tackling the last-mile problem by starting with food, and transportation. Yet once those two use cases have been figured out. This can be extended to many other industries. This is why the last-mile problem is worth trillions.

Apple is famous in the business world (beyond launching beautifully crafted tech products) for its philosophy of keeping its ecosystem as enclosed as possible. Apple devices will talk to each other in a seamless way, to create a great experience.

While the smooth experience for users through Apple’s devices makes its products compelling for millions of people, the lack of integration with products outside its ecosystem can also be frustrating.

A locked-in experience can be great to have as much control over users’ experience and incentivize customers to purchase more products from the company. It can also be a disadvantage in the long run as those competitors leveraging on an open approach can grow more quickly.

As long as the company can keep investing back in developing great products, integrating them with each other to create a seamless experience, and maintaining a strong distribution pipeline, that model might work.

Long-tail business model

A long-tail business model can be a very powerful way to break into an existing market dominated by incumbents. The long-tail player will be able to offer a compelling value proposition to users and customers as it will focus its effort on finding the most niche products of any category. This is how once startups, then turned into tech giants, reorganized entire industries. Amazon did it first with books, then with everything else. Netflix did it with movies and series. Google did it with information. And Facebook did it with networking.

Loss leader business model

The loss leader usually leverages on a hook product or service or set of products and services which are sold at cost, or a loss, but they serve as a way to enhance the customer base and channel it toward other products and services.

As one of the most successful consulting companies in the world, Accenture makes money by selling consulting services in several industries (from financial services to communication and technology). A consulting business model is often based on hiring talented people with hiring people and having them work on multiple client projects. The client pays a fee that can be assessed per hour or per day, according to the requirements of the service. Accenture was able to build a multi-billion dollar based on consulting services across the globe.

Some platforms create liquidity by removing hundreds of intermediaries that are used to lock in the market. When that happens the market gets bigger and more liquid over time. That enables the platform to work as the market maker, or the maker of the price, by making it liquid.

One of the major values of a platform like Uber is the fact that it is able to create liquidity on the platform by batching by time to time divers and riders, also with dynamic pricing .

Marketplaces business models

Marketplaces and platforms have become the most dominant business models of the digital era. And they have morphed into various types of platforms. From those offering products, services (or both). To those dealing only B2B, B2C, or C2B. And these marketplaces and platforms who primarily developed on a peer-to-peer basis, vs three or multi-sided ones.

Back in the late 1990s, a war started in the fashion luxury industry to take over Gucci . That war saw an arm wrestling between Kering Group  – a company founded as a lumber trading organization back in the 1960s – and LVMH Group  – a company, started a few decades before primarily as a construction company just to become one of the most known luxury brands in the world.

The war was about who would become the largest luxury group – fought by the two wealthiest men in France – but also about who would be the most diversified luxury empire.  Eventually, Gucci ended up within Kering Group, sold by LVMH at a high price.

At the same time, LVMH took over Fendi. Today, both Kering Group and LVMH have a massive portfolio of brands.

Kering Group’s portfolio of brands made over €15 billion in 2017 

LVMH built a portfolio of brands and houses that made over €42 billion in sales in 2017

Both groups today follow a multi-brand strategy based on creating economies of scale at a central level; while keeping the Maison and Houses part of the portfolio operated and run independently.

This multi-brand approach leverages both centralization for certain aspects of the business (collaboration among the brands, economies of scale, better supply chain, shared branding initiatives) and decentralization for others (allow agile decision making, preserve the unicity of each brand to keep its creativity output high).

That approach to business modeling can be quite effective if you’re trying to build up an empire! It requires though massive resources to develop an acquisition campaign over the years. Indeed, both of those groups came from different industries and used the liquidity generated by their core activities to enter the luxury market.

When you look at Amazon it’s tempting to talk about its “business model.” Yet Amazon is a set of combined business models that span across:

• Consumer e-commerce platform.
• First-party seller platform (Amazon owns a set of brands like AmazonBasics).
• Third-party seller platform and services (Amazon hosts third-party sellers).
• Amazon Prime.
• Amazon Advertising.
• Amazon AWC B2B/Enterprise Cloud platform.

The core of Amazon has always been the e-commerce platform, however over the years, as a side effect of developing adjacent parts of the business, to sustain its core. Amazon built successful programs (Prime and AWS are examples) that turned into self-standing businesses.

This is the fruit of a continuous mode of aggressive growth and business innovation that made Amazon expand, and reinvent its business model (AWS has a whole new logic than the core e-commerce business and could potentially be a spin-off of Amazon).

If I saw, a professional social network, at least at the time of this writing, for sure you’ll think about LinkedIn. In fact, with over five hundred million users worldwide LinkedIn is a platform that offers value for several stakeholders.

LinkedIn is a source of value for a B2B that is trying to grow ; it is a powerhouse for any business developer  and a source of value for HR managers and candidates looking to grow their skills.

In short, in a peer-to-peer marketplace, a company acts as an “invisible” middleman that makes transactions and interactions among sellers and buyers as smooth as possible.

On a multi-sided platform , the company offers services to both sides.

For instance, LinkedIn sells subscription services to HR managers to find candidates to fill vacancies. At the same time, LinkedIn provides another subscription service to people looking for job opportunities.

As the value of the platform depends upon the ability of LinkedIn to offer skilled candidates to the HR manager, that is why LinkedIn also has an online teaching platform that offers together with a subscription, professional courses to people looking for a job.

Lyft is a transportation-as-a-service  on-demand marketplace  that allows riders to quickly find a driver and get from one place to another. However, Lyft has also expanded with a multimodal  platform that gives more options like bike-sharing or electric scooters. 

Lyft leverages three key problems related to the cost of ownership :

• Underutilization:  vehicles are not used most of the time.
• Inefficiency:  the large ownership of vehicles also made cities build large parking spaces that occupy a good chunk of cities’ urban landscapes.
• Inequality:  car ownership while distributed is still a large issue for many people that can’t afford to buy a car.

From there it offers different options to customers that can switch from car to bike-sharing, or electric scooters, depending on their short-term transportation needs.

In its expansion strategy , OYO started in India, yet it quickly moved to different verticals. From there it built up a portfolio of products, each launched in parallel to its expansion strategy , to cover larger geographical areas, but also different segments of the market.

From the low-end of the travel market to the higher-end with its Townhouse, a sort of modern boutique hotel. To further expand in co-working and corporate traveling.

This sort of business model is skewed toward a quick go-to-market strategy that moves in all the directions to expand and cover as much as possible of the end-to-end experience for travelers.

We now give for granted that we must watch our favorite shows and series on-demand. Yet, for decades the traditional media business model has relied on fixed schedules. You either watched the Late Show at the time it was going on air, or you were supposed to wait for the next replica of that episode.

At times a business model only becomes possible when technology evolves. In some cases, it also requires some creativity when technology doesn’t help. For instance, in 1997 Reed Hastings, CEO, and founder of Netflix started a business based on the rental of DVDs.

This business today contributes to a small pie of Netflix revenues, yet at the time it was the core of the business, and it has been so for years. “On-demand” at the time was possible with the pay-per-rental business model. 

Until Netflix transitioned to the on-demand subscription-based business model ; an old business model used by magazines for decades was successful and “innovative” in the TV industry, where the content was mainly distributed at fixed schedules.

Have you ever heard of TOMS Shoes ? As you can understand from the name, this is a company making shoes. What’s new about it? The founder of TOMS Shoes founder has come up with a model, in which, for a pair of shoes sold, another pair is given to kids around the world that cannot afford them.

This kind of model might be seen as a sort of hybrid that combines profit with non-for-profit models. In reality, TOMS Shoes has proved to be profitable and sustainable over time.

Indeed, the non-profit side of the business model works as an excellent propeller for the business. Anyone wants to take part in the growth of a company that not only sells shoes but takes care of kids around the world.

Thus, it isn’t anymore just a pair of shoes; it is a story you want to be part of.

In terms of customer acquisition strategy , the open-source model is not that different from the freemium/freeterprise. There is the base service/product offered for free, and a business/enterprise version that is paid.

There is a key difference, though.

Whereas in a freemium and freeterprise, the free product is built, developed, and maintained by the company centrally.

On an open-source model, the free product is built, developed, and in part, maintained by an open community of developers.

Those developers are not employees of the company, but rather part of an independent community. This implies the company selling the premium version of the open-source software will need to be careful in how it monetizes it to prevent disappointing the community of developers that made the project possible in the first place.

Open Core Business Model

As Nick Heudecker  explained :

The central  value proposition  of open source core vendors has been freedom from vendor lock-in. After all, the core elements of the  product  are open source, developed by a global community. The core  product  isn’t owned by a single company, but, in almost every meaningful instance, by the Apache Software Foundation (ASF). If the worst happens and we go out of  business , the code will live on in the ASF. You’re safe. If you don’t like us, it’s open-source. You’re protected. I don’t know what happens next but hey open source.

A key business model to understand open core is GitLab :

A peer-to-peer business model is built on the premise of creating value for both the demand and offer sides, while the company that acts as a middleman monetizes through commissions.

Companies like Airbnb have implemented the modern version of the peer-to-peer business model. As technology has quickly advanced, in Airbnb’s case, it won just because it allowed the transactions between hosts and the hostee smooth.

The platform works seamlessly, and Airbnb only intervenes to create trust and mitigate risk for the party involved.

Grammarly’s CEO explained to  TechCrunch  as one of the key advantages of Grammarly is its “platform-agnostic approach.” In short, Grammarly focuses on being anywhere the user needs to be.

This approach makes Grammarly’s value proposition compelling in a tech world, dominated by the tech giants that are trying to cover the end-to-end experience of users, thus locking them in their walled gardens.

Grammarly instead is trying to be anywhere, independently from the platform, thus making the user free to choose the platform.

While any business today with a minimum of a technological set-up wants to call itself a platform business model, the platform business model has specific features. It enjoys network effects ; it enables interactions among its key participants. And to kick things off, it has to solve the so-called chicken and egg strategy problem, where the platform has to figure on which side to kick off the platform.

Indeed, as the platform – usually – has two or more key players, its value proposition is also tuned for those several players. For instance, on a platform like Uber , drivers were the key to making the service value in the first place. On a platform, like Airbnb , hosts and the availability of a wide variety of homes were critical to kick the platform off.

Therefore, a platform business model has to figure out how to kick off the side of the platform that automatically will trigger network effects on the other side (for instance, the more drivers on Uber, the more the platform is valuable to riders).

Beware though, even when platform business models scale, they can get out of hand, very quickly, due to negative network effects .

Play-to-earn business model

The play-to-earn model is an evolution toward enabling community-based gaming, on top of the blockchain , through NFTs .

While humans have always looked for private moments in their lives, Privacy has gained a new and renewed meaning in modern times:

With the rise of the web and the rise of companies that make money by harvesting users’ data, privacy has become a concern. As many businesses start from people’s concerns, privacy has become an industry.

Part of it has been fueled by Google’s practice to gather users’ data. As more people become aware of the Google business model , they look for alternatives that respect privacy.

If you type “privacy” on the Google search box, among the most frequent related searches, you’ll find “privacy Google:”

If you click on “privacy google” you will get on the right-hand side a knowledge panel  that highlights “privacy concerns regarding Google:”

In short, Google itself is revealing the existence of an industry that revolves around privacy online.

In this scenario, a search engine like DuckDuckGo , which has built its success on throwing the users’ data on the fly to allow private navigation, is growing quite fast.  

That’s because DuckDuckGo makes money primarily via affiliations and by selling local keywords. Thus, privacy becomes a propeller for DuckDuckGo’s business growth .    

Proptech, or real estate on steroids (through digital and tech)

A key example of that is the Zillow business model . You can see the proptech business model type, as a way to innovate a very old industry, by automating the real estate value chain through technology.

Razor and blade model

Have you ever wondered why a blade costs more than a razor? This is the razor and blade revenue model in action. When a company makes its customers loyal to a product. Then that same company might leverage that product to sell related “accessories” for a premium price.

Companies like  Apple, for instance, use an inverse razor and blade, business model. Apple has created platforms like the App Store and iTunes, which sell apps and songs, movies, or tv series at a convenient price. While Apple charges premium prices on its devices (iPhone, iPad, and Mac).

The logic is the same, but inverted. As consumers are locked in the Apple ecosystem, they feel compelled to buy Apple products at a premium price and with very low price elasticity.

Retail business model

In contraposition, with wholesale business models , retail business models operate directly to consumers , thus selling a product at higher margins to customers.

As a classic example of a retail  business   model ,  think  of the local coffee shop or restaurant. The coffee shop owner buys a set of products in bulk from  wholesalers  (coffee beans, foods, drinks, etc.) thus paying these products at a low  price  and it sells them back in its store with a high markup.

There is an underrated part of Apple’s distribution strategy , which I’ve been emphasizing for years: the subsidies. 

When you produce an expensive device, how do you make it scale? Either you lower the price for consumers, or you have someone else pay for it!

When Steve Jobs was about to launch the iPhone, he knew that marketing without distribution would not work. 

He convinced mobile carriers to subsidize the iPhone through their plans.

Indeed, in 2021, the iPhone still made over 50% of Apple’s revenues , and guess what? Most iPhones (64%) got sold through indirect/third-party distribution.

Elon Musk is a huge fan of Steve Jobs  (so much so that he engaged Walter Isaacson to write his biography, just like Steve Jobs’ iconic book) and borrowed a good chunk of Apple’s playbook.

And now, he’s building two critical segments of Tesla’s business model , which will be vital in enabling a wide distribution of his cars: leasing and insurance.

In the last ten years, Tesla had to solve the supply side.

What Musk labeled “mass production hell” brought Tesla very near to bankruptcy on several occasions (in 2018, Tesla was a few days away from running out of cash!).

However, now that the company has figured that out, through the openings of the Shangai, Berlin, and Texas Gigafactories.

The coming decade will be all about enhancing the demand side.

In short, by enabling an expensive car, like a Tesla, to be potentially bought by hundreds of millions of drivers.

How is Tesla solving this?

Through the real-time insurance business model. In short, Tesla enables riders to have their safety score updated, on a monthly basis, through real-time driving behavior.

While traditional insurance has a fixed score, often based on factors that go way beyond the ability of the driver, Tesla is trying to hook again the insurance premiums based on the actual capability of the driver.

This is a key element of Tesla’s business model, because a better driving score, helps Tesla lower the insurance costs for drivers, and enables the company to also provide leases at a lower rate, thus making the Tesla affordable, for a much larger number of people!

This is the magic of a distribution strategy , built-into your business model!

A self-serving model is a freemium-based model able to convert quickly and with low-cost free users in paid accounts. Dropbox’s business model  is a great example of acquiring new users efficiently and at relatively low costs through three tactics: 

• Word-of-mouth referrals.
• Direct in-product referrals.
• And sharing of content.

By following the  freemium model  when users create a free account those same users often share and collaborate with other non-registered users. This mechanism for which free users invite other non-users creates an automatic referral mechanism.

Built-in prompts in the products instead make it possible to convert, with a low-touch and automated funnel to users in premium accounts.

Slow, fast, ultrafast fashion and real-time retail

The fashion industry has evolved very quickly since the 1980s leading to various fashion movements and enabling the development of companies that would define our times. Among these, we can break them down into slow, fast, and ultrafast fashion players.

The slow fashion business model developed also in contraposition with the fast fashion business model:

Zara epitomized that movement. From there, other forms of fast fashion developed. They moved both upward and downward the supply chain. Thus, by cutting manufacturing time on the one hand, and by also leveraging digital distribution, in place of physical stores.

This led to the development of ultra-fast fashion , led by players like Asos :

As an offspring of the ultra-fashion trend, players like SHEIN have developed a real-time retail business model :

While the main carrier of this model ( WeWork ) had massive backlashes due to its unsustainable business model. The question of whether this model will be possible in the future still holds.

True, that part of the problem is that of taking long-term leases to transform them into short-term opportunities by building services on top of them, to arbitrage on the difference.

Think about those two scenarios. You have a series of online courses that you sell as a one-off. You’ve sold 100 courses in one month at $100; you’d made $10,000. Next month to have the same level of revenue generation you’ll have to sell the other 100 courses.

This means you either find more students or you produce new courses. Imagine the second scenario. You have a few courses, and you make them available for a monthly subscription at $75. If you have 100 subscribers, this means that each month you’ll have $7,500 without having to find new students.

Given this example, you can understand why the subscription business model is so powerful. Today companies like Netflix, Amazon (with Prime), LinkedIn, and many others use subscription-based models to monetize part of their business. However, a subscription-based business model also needs a lot of resources.

Take Netflix. I’ll keep paying my subscription only if they will give me fresh content on a regular basis. That is why Netflix also produces series that are quite successful. Yet those series have massive production costs.

In other words, to sustain a subscription-based business model you also need a lot of the resources necessary to create new content, have awesome support or service that motivates subscribers to keep paying. The curse of the subscription business model is churn!

In the gatekeeper model, we saw how the market got consolidated under a single middleman that, with its algorithms, could change the logic of the whole distribution pipelines for an entire industry.

Small businesses then will need to master how the gatekeeper works and aligns with its business model to reach potential customers. This is at the core of the surfer model, where the small or medium business builds a strong brand by complementing the gatekeeper’s value proposition.

For instance, for years, companies like Booking , TripAdvisor , and other vertical travel search engines have been able to build valuable companies on top of Google. Where Google couldn’t cover vertical areas, those companies complement that, by building multi-billion businesses indeed.

The same applies when you launch e-commerce on Amazon, a blog by leveraging Google, or a channel on YouTube. In all these circumstances you’re aligning your distribution model with that of the gatekeeper to reach potential customers.

Uber Eats is a great example of a three-sided marketplace, where the company facilitates interactions between eaters, delivery partners, and restaurants to develop a solid marketplace.

While each of those interactions could happen independently. Uber Eats platform makes them smooth, as it provides a unique place for those players to connect and do business.

Among the 50 most popular sites in the US , Quora might be defined as a “social Q&A” site. Just like Reddit taps into users to generate content. Quora also draws on its writers to produce quality content that answers its users’ questions.

There are a few interesting aspects of Quora. First, it uses a mixture of AI combined with human intelligence. Quora allows users to write content while using advanced algorithms to make the platform scale up. Second, people writing on Quora do not get paid.

In fact, by introducing a social mechanism of ranking, Quora writers feel recognized for their work. Besides, earning the prize as Quora’s top writer might also mean the mention of popular publications.

Thus, if I had to describe the Quora business model in a couple of sentences, that would be “ the social that taps into users – that aspire to become writers – to produce content, and it scales up thanks to a smart platform built on AI systems. “

In terms of monetization, Quora has received several rounds of investment and started to test text-based advertising.

For many, TikTok is just the next generation of social media. However, there is more to it. TikTok is a continuous feed, that shows short video formats, where users engage in all sorts of dances, memes, and more (for now).

Yet, what makes TikTok powerful is the curation performed by its AI. Whereas in Web 1.0 social media was all about the network. In AI-driven social apps, it’s all about engagement.

Users can find a continuous stream of hooking content in their feeds independently from their network, the AI replaces it. Yet, the AI + the network becomes an atomic weapon for growth. If the previous advertising machine is built on top of information retrieval ( Google ) and network ( Facebook ).

Those are the largest digital advertising machines as they managed to make advertising mostly invisible or at least relevant to users. What if that could be brought to the next level?

Where scaled user-generated platforms built powerful business models (Facebook, Twitter, Instagram). The web 2.0 version is the user-generated, AI amplified content that will take over with new video formats.

Unbundling is the process of breaking the value chain to take over the most valuable part of it, without owning or bearing the total cost of ownership of maintaining it. In phenomena like showrooming the customer browses the physical shop, yet it buys from the online retailer, which has more competitive pricing.

Therefore, the online retailer takes all the upside, without having the downside of maintaining a physical store. A classic example is when people browse in a local store, to then buy on online e-commerce like Amazon, where they can find more competitive pricing.

The unbundler, initially, is a sort of freeloader that takes the upside of a value chain without bearing the downside. Yet the overall value chain improves as customers get the most by combining the experience from the incumbent and the unbundler (ex. the consumer browse several physical stores, then buys online as it saves money).

From its humble beginnings in 1961, when Leonardo Del Vecchio started as a small shop that produced components and semi-finished products for the optical industry; that shop has reached over $9 billion in net sales in 2017.

With all the major brands from the eyewear industry licensed by Luxottica (Armani, Bulgari, Chan, l, Prada, and many others) it is the largest and most vertically integrated business in the world . 

Leonardo Del Vecchio, one of the wealthiest people in Italy and among the wealthiest businessmen in the world, has built Luxottica piece by piece.

Started as a small shop producing semi-finished products for the optical industry it eventually acquired the whole supply chain, up to own retail stores across the globe. It took Leonardo Del Vecchio a few decades to build its vertically integrated business.

Yet now that is the most successful company in the optical industry. Instead of being acquired by a large American company, the Italian-based Luxottica was the one acquiring brands like Oakey (the California-based eyewear company).

Players like Warby Parker try to break down Luxottica’s vertical integrated supply chain, by initially owning only a part of the supply chain, thus having a more agile approach.

Wholesaler business model

Whereas in the direct-to-consumer business models, the manufacturer goes straight to consumers. In the wholesale model, the company passes through middlemen to reach the final consumers. Usually, this type of business model implies that the wholesale company only needs to deal with certain aspects of the business (sourcing and logistics), while it won’t have to spend massive resources on other processes like distribution, and marketing, as it will primarily sell in bulks to fewer large customers.

Read :  Business Strategy: Definition, Examples, And Case Studies

Reverse engineer any business model

You can use the FourWeekMBA Business Analysis Framework to reverse engineer any business.

Read : How To Analyze Any Business 

Key takeaways

• Many believe business modeling is about copying and pasting. Instead, that is about experimentation. 
• Business models can offer valid templates that we can test, yet only when those ingredients are combined, we get a unique model, hard to replicate, that is when a competitive advantage is created.
• Business models are not business plans. While many startups consult business modeling right when it’s the time to build their pitch for investors. In reality, the business model strategy serves entrepreneurs to test their hypotheses, quickly and cheaply. So that when you have enough built-in mechanisms for sustainability within your business model, you will have enough cash at the bank to keep growing. Or perhaps the market will have proved your model to be successful, so ready to be taken to the next level.
• In an era, where technology becomes commoditized over time, business model experimentation can prove more sustainable, as harder to reverse engineer (as it comprises many building blocks that sometimes are hard to understand also to the same company rolling out the successful business model). 
• Business modeling is a continuous journey of discovery. It never ends. As a company scales or it creates options to scale, the whole business model will transform and the question of whether it will be sustainable for the next stage of growth and scalability stays open.
• There isn’t a right or wrong business model, but rather a model that will work in a certain context, and that will suddenly stop working in others. Business modeling is also a matter of life’s philosophy. The vision of founders or those who took the business from one stage to the next affects the long-term vision of the business, thus its direction in the long-run. 

Business Models Types Database

Business Models Examples Infographic

Business models FAQs

Is a business model a business strategy.

A business model is a way to test part of a business strategy . For instance, within a business model, revenue streams are an essential building block. A good business strategy makes sure to test out the revenue streams that best suit that model, thus helping it become viable.

Why business models matter?

As a multi-faceted concept; business models can help entrepreneurs find the formula that works in the real world to build a sustainable company. Business models are also helpful for analysis to understand how businesses work. And to academics to study the available models of organizations present in the marketplace.

Why are business models important?

In the entrepreneurial world, business models help entrepreneurs test their ideas, monetization strategies, and value proposition to build a viable company by minimizing risks, assumptions, and time to market. Thus, offering entrepreneurs a framework for experimentation and a valid alternative to business plans, which can be hardly tested.

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Gennaro Cuofano

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