Different types of business models suit different types of businesses. A business model is the way that a company sells products to its customers. It describes how a business creates, delivers, and captures value.
What type of business model should you adopt?
A business model defines how the enterprise delivers value to customers, gets them to pay for that value, and converts those payments to profit.
There are four basic types of business model that any for-profit business will fall into:
A manufacturer takes raw materials and creates a product, or assembles pre-made components into a product (E.g car manufacturers). A manufacturer may sell its products directly to its customers, or it can outsource sales to another company.
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A distributor is any business that purchases products directly from a manufacturer for resale either to retail outlets, or directly to the public. For example, a car dealership would purchase vehicles directly from the manufacturer and sell them to the general public.
A retailer purchases product from a distributor or wholesaler, and then sells those products to the public. A retailer usually has a physical location, but may also be an online retailer such as Amazon or Kalahari.
A franchise can be a manufacturer, distributor or retailer, depending on what type of franchise you purchase. Here the franchisee adopts the business model of that franchise.
Under these four types of business, there are various other ways of structuring your business model.
- A company that integrates a physical and an online presence. An example would be a retailer who allows customers to order products online, but lets them pick up their order at their nearest store.
- A company that deals with customers directly via the internet without engaging an intermediary.
- Direct selling to consumers making use of product demonstrations in the person’s home, for example. There are several cosmetic and jewellery companies that use this model in SA.
- The Freemium business model works by offering a basic Web service or product, for free, while charging a premium for advanced or special features.
- Online auctions, which are held over the internet.