Business model selection: how to choose the right one

All businesses waste money somewhere. It’s so common that it is essentially a fact of life. It doesn’t matter how efficient you try and make your company from day one. It is all but certain that somewhere in your business model there will be a problem costing you a fortune. Why is this? Well, it’s mainly because during the initial stages of setting up your business, you probably don’t have the money to set up your company the right way or have not chosen the right business model.

Finding the right business model can determine your product’s or service’s journey to achieve success. It can be much harder to thrive in a world full of competitors and new innovative ideas without knowing exactly what you want to offer, how your users can get your product or service and how it will make money for you. But picking one model is a rather challenging task. We’re here to help.

Every startup begins with an idea. To transform it into a prosperous enterprise, you have to pick a business model that will suit your goals and needs. In this article, we will describe the most popular ones. You will learn which model is suitable for your company and how you can monetize your product or service for the best results.

How to choose a business model

Before we present concrete business models, we should think of factors that can influence your choice. Simply put, a business model is a way your startup will make money. What should it include? Definitely your product or service itself and also your target customers, needed resources and other vital details.

A startup owner that needs to pick the right business model has to answer a couple of questions. First, think of the value your company delivers and then decide how it will be delivered. At this point, you can consider all the possible ways of receiving money for the goods you provide to your customers. Remember that no business model will be perfect for every startup. So what should you analyze before you pick one?

Factors you should consider before choosing the business model

Begin with the most crucial factor that is crucial for every company – your potential customers. Ask yourself a question – is there a demand for your product or service? And if yes, who might be interested? How big is that group, are they willing to spend money and how much? Find out what the problem is and give your clients a solution that will satisfy them. If there are many similar products or services on the market – set up your unique selling point and underline the feature that distinguishes your startup from the competition.

Speaking of competition, you have to check your biggest rivals and see why their customers love their products and services so much. Focus on three leading startups that thrive in a similar community as you want to conquer. Even if your idea resembles other available ones on the market, you can always offer better quality or additional benefits that will give you an advantage.

Check out what kind of revenue streams are suitable for your type of business as well. Advertisements, selling your own products, commissions for other sellers that want to use your platform, subscriptions – there are many options to choose from. Remember that the best idea is to have several revenue streams – this way, if one fails, others will support your business.

How to find out which business model is right

There are several steps you can take to establish the best business model for your particular startup. All the activities we mentioned above – like finding your potential audience and analyzing your main competitors – are the most important things you should start with. Then, there are other essential things that will help you create an even more precise strategy.

Remember that many things influence the price of your product or service, but at the same time, it can be extremely meaningful for your customers. Determine the cost of production and pick the margin that won’t be too high or too low. Customers do not always prefer cheap goods. Some people will pay more if the quality is promising. Remember about that.

When you have all the details, you should test your idea. Or maybe you already have a prototype – like a proof of concept or minimum viable product. Find a focus group and show them the initial version of the product or service. Don’t forget to collect feedback – it’s priceless when you plan the next steps of development.

Besides your product or service, you can also test marketing strategies, different pricing versions, distribution channels and more. Reach out to investors or industry specialists if you want an opinion from experienced entities that might later support your startup. You can also think about limited early release for your potential clients – to test the business model you picked and add more time to tweak it if something doesn’t work as it should.

Now you know more or less what you should keep in mind when looking for the perfect business model for your startup. These tips will also help you to plan the whole release process – so you can hit the market and immediately start to make money by delivering value to your audience. Now, let’s analyze the most popular business models for startups.

Business models: the overview

You probably know most of the models – or maybe even all of them. If you use the most popular apps like Uber, Facebook, or eBay, there’s a chance you tried different payment methods for goods and services you use online. As a business owner, you need to realize that you can give your customers a choice. In the modern world, possibilities are countless and times when we had to buy all the goods we wanted are over. Check out what you can choose from:

Advertising

The core business model for social media platforms and many mobile apps. Your product or service is free, but the customers see commercials when they use it. As the owner, you can sell ad space to companies that want to announce their own products or services. The key to success in this model is to reach as many people as possible. The more users see the ad and use it to buy goods – the more profit your company will make.

Subscription

Each month or year, your clients pay for access to your product or service – we know that system well from Netflix, Amazon Prime, or HBO GO. Monthly payments are usually more affordable, so it can be a great business model if your target group doesn’t want to spend a lot of money. Subscriptions can also help predict the startup owner how much revenue will come each month – by seeing the number of subscribed users. You can prepare plans with different access levels – the more expensive it is, the more your user will get. Your audience will also appreciate the fact that subscriptions can be canceled or suspended at any moment – for the times when they have low budgets.

Freemium

The product or service is mostly for free, but some parts are paid – that’s the most straightforward description of this model. You have no guarantee that a single user will ever pay for the features not included in the free version. At the same time, more customers will use your product or service because of open access. If you offer them something unique and high-quality – there’s a chance they will purchase additional functionalities. Spotify uses this model – you can listen to music for free, but it will be interrupted by commercials. You want them gone? Pay! In this case, the payment comes in the form of a subscription, but it might be just one payment in other scenarios.

Reseller fee

You don’t even have to manufacture the goods you will sell and you definitely don’t need your own e-commerce store to offer them to your customers. Amazon and eBay charge a concrete fee for selling products on their platforms. If you create a similar service, you can allow other parties to sell their stuff on it and make revenue from these fees.

Sharing economy

The primary examples are Uber or Airbnb. This model is also based on fees, but the difference here is that the platform doesn’t own any products or services – it just connects people that offer specific services with other people that need them. A company like that charges the car owners or hosts for every transaction they make with customers. It is merely a middleman for both sides.

Summary

Choosing the right business model for a startup can influence its future success. But there are many options to choose from and not all of them are suitable for any enterprise. We hope this article guided you through the most critical factors that should influence your final choice. Of course, you can look for other ways to grow your revenue, but here we presented the most popular and dependable ones. Remember to analyze your business goals and pick a business model that will help you achieve them. Good luck!