A business model is a conceptual structure that supports the business’s viability and explains how it creates, delivers, and captures value for itself and the customer.
According to management guru Peter Drucker:
“A business model is supposed to answer who your customer is, what value you can create/add for the customer and how you can do that at reasonable costs.”
All the business processes and policies that a company adopts and follows are part of the business model.
Business models describe how you make money: the process, target market, purpose, structures, and business culture that keeps the business moving.
- 12 Steps to Starting an Online Business from Home
- 6 steps for choosing the right online business model
The importance of the business model
The business model acts as the business’s blueprint and a roadmap for its success (or failure). It describes:
- The business concept – the market opportunity the business capitalises on.
- The target market the business caters to.
- The problems the business intends to solve.
- The solution the business offers and how it creates customer value.
- How the business gets its customers.
- The operating model the business follows.
- How the business makes money, and what are the costs incurred to get the same.
There are dozens of different business models out there. But let’s have a look at the most common business models available to you today:
- Affiliate marketing
E-commerce is a business model where the owner sells either their own product or service, much like a physical retail store. This can be a product or service you’ve created yourself or a reselling opportunity. You are responsible for the whole process from the product or service sourcing, the marketing till the order fulfilment and the after-sale service. The prices of your product are totally in your hands. You collect the payments and pay the charges.
Advantages of E-Commerce:
- E-Commerce facilitates the sale and purchase of goods and services irrespective of the seller’s geographical location or the customer.
- It ensures faster delivery of goods and services with minimal effort from the customer. Customer grievances are also sorted out faster.
- The application is functional 24/7 and allows for an unperturbed shopping experience.
Disadvantages of E-Commerce:
- The cost involved in setting up and maintaining an E-Commerce business is high.
- Security of customer information is another major concern which needs to be addressed in the ECommerce application.
- Operational challenges like product sourcing, shipping, wrong deliveries, late deliveries etc. have to be taken care of to attain complete customer satisfaction.
Dropshipping is an online business model where a vendor lets you list their products on your online store.
- When someone places an order on your dropshipping store, you put that same order directly with your dropshipping supplier. There are many apps out there that help you with automating this part of the order fulfilment.
- Then your dropshipping supplier will handle the rest. Think about preparing the package and sending the order straight to your customer.
- Now your customer will receive the package straight from your dropshipping supplier.
Advantages of dropshipping:
- You practically won’t need to deal with inventory, producing, packaging, or fulfilment. The vendor charges you for the products as they are sold and typically ships orders on your behalf.
- Not much startup costs in comparison to retail stores. You don’t need to own the inventory! This also saves you on other things like warehouse fees.
- Highly scalable. You can literally sell to the whole world if you want to because your dropshipping supplier is in charge of shipping without you needing to worry at all.
Not only is it a useful option for starting a new online business or expanding the product catalogue of an existing store, but it also works in the vendor’s favour, too, as you are helping them develop the product catalogue of their current store.
The drawbacks to dropshipping include:
- You’ll face more competition, as many of the products offered by dropshippers are readily available all over the internet.
- Due to the high competition, dropshipping usually gives you a lower profit margin, so you’ll need to sell a lot before making a good profit.
- With a dropshipped online store, the customer is effectively purchasing from “your store” even though you are not the one fulfilling the product. As a result, you are responsible if the customer does not get their shipment on time. You are also liable if the product is the wrong one or defective.
- Therefore, you will have to devote a certain amount of time dealing with customer issues, especially if your dropship vendors are not reliable.
- Besides, you have to set up a complete storefront with a dropshipped store that accepts credit cards and other payment forms.
The steps to find a dropshipping supplier are nearly the same as those you’d follow for finding a manufacturer or wholesaler partner in case of an e-commerce shop.
- Research dropshipping companies online. There are numerous possibilities out there.
- Check their references and reviews.
- Ask for samples. With samples of their products, you can assess quality, size, features, and design in-person before committing to the business relationship.
- List the pros and cons of each dropshipping company. Which one has the best references and reviews, as well as the best prices and product offering for your business? Please start with the one that seems to be the best and get started selling their products through your own online business.
3. Affiliate Marketing
Affiliate marketing is a business model when you promote other companies’ products or services. When someone buys through your affiliate website, you get a commission. You don’t deal with inventory, packaging, or fulfilment. Your sole responsibility is marketing. The vendor is responsible for the entirety of the commercial transaction.
Affiliate marketing business owners use various online marketing methods, such as search engine optimization, e-mail marketing, pay-per-click, and content marketing. They may also attract consumers by publishing products and services reviews. Whenever a visitor clicks on the links, they are redirected to the e-commerce site. If a purchase is made, the affiliate earns a commission.
The advantages of Affiliate Marketing include
- Minimal investment is required to start the business, as no products and inventory are purchased beforehand.
- A wide variety of products can be offered to potential customers as the products need not be physically available with the business’s hands.
The scalability of the dropshipping business is easy, and the suppliers share the load.
- The entire sales process is completely hands-off. Once you refer a customer to a business and the customer makes a purchase, your job is done.
- Since you are selling other peoples products and services, you don’t have to worry about product or service fulfilment (customer service, payment processing, sales taxes, warehousing, storing or shipping product, or other time-consuming aspects of selling your own products).
Following are the disadvantages to Affiliate Marketing:
- The profit margins in the dropshipping business are minimal due to heavy competition in the market.
- As the business does not maintain its own inventory, it becomes difficult to manage and keep track of the supplier’s stock.
- If the quality of the products provided by a supplier is low or the supplier does not respect delivery terms, the business needs to take responsibility for the same in the case of a customer complaint.
- One of the most significant disadvantages of affiliate marketing is that you lose a lot of freedom. Any affiliate partner can drop you at any time, change commission rates, go out of business, or begin deteriorating and there is nothing you can do about it.
- It’s also likely that you will have an adamant time acquiring repeat customers and multiple commissions from the same customer unless you specifically promote products and services that give you repeat commissions on customers you refer. When you refer someone to purchase something on another site, that site will also get the customer information such as email addresses, phone numbers, addresses, and other information they can use to retarget and make more sales in the future.
The blogging concept is to publish good content, get traffic, build an audience, sell info product and/or promote products or services as an affiliate. In some cases, monetize with display ads.
The content for a blog by a blogger can be informative, entertaining, funny, personal… sometimes all of the above.
Traffic usually takes a while to materialize, but if persistent and the content is good, a following will develop. Bloggers have an easier time creating a following, which is great for return traffic via email, RSS and/or social media.
As long as the content is excellent, traffic will grow and be consistent. This is the lifeblood of any website.
The advantages of blogging include:
- Develop and strengthen relationships with existing and new customers
- Establish your business as an industry leader
- Connect people to your brand
- Create opportunities for sharing
- Learn how to make money online
- Build your professional network
- Exceptional boost to search engine optimisation
Main drawbacks of blogging
- Blogging is time-consuming
- The techie stuff: build your website on a platform that allows blogging, like WordPress
- The curse of inconsistency: A dead/inconsistent blog is worse than no blog at all.
- Customers undervalue your expertise and look for freebies.
A freelancer works independently, selling work or services usually with no intent to pursue a permanent or long-term arrangement with a single employer. A freelancer is someone who usually works at home, and the work comes to them. They use and own their own tools and are responsible for maintaining them.
The benefits of freelancing:
- Choose the clients you want to work with
- Creative freedom
- Earn more per project
- Set your own hours
The downside of freelancing:
- Always chasing payments from clients.
- You wear all the hats (project manager, bookkeeper, etc.)
- You often work longer hours (60 to 80 hour work weeks)
- Difficult to locate and land new clients
Coaching is when one helps people come to the answer themselves. They are not the subject matter expert in the area, but he/she is an expert in coaching people to work together and ask thought-provoking questions.
Consulting is when a person is paid to provide professional or expert advice in a particular field or speciality, such as advising a company on social media use or increasing efficiency. Unlike a freelancer, a consultant may be an internal consultant or an external consultant.
The advantages include:
- Freedom to choose your work and your clients
- More flexibility
- Variety of work
- Build a Wide Network
- Career growth
Among drawbacks, we can mention the following:
- Often too much travel.
- Work/life balance
- Turnover linked to fast client change.
The advertising business model has been around for a long time. Although print used to be the leading advertising medium, this has drastically switched to online and mixed-media formats.
The approach is simple: You create content that people want to consume and use display ads to monetize your business. You’re not charging your readers or visitors, but instead, are monetizing their attention by selling advertising space.
If you’re running a website, there are all kinds of advertising networks you can partner with to run ads. In this scenario, you usually get paid by clicks or views.
Ad networks like Google Adsense offer a simple deal: You place their ads on your website, and they’ll pay you a small amount each time a visitor clicks on an ad.
The challenge in advertising is volume. Making real money with ads typically requires tons of traffic on your site.
This article walks you through the process of choosing the online business model that is right for you: 6 steps for choosing the right online business model.