Kody Wirth is a content writer and SEO specialist for Palo Alto Software—the creator's of Bplans and LivePlan. He has 3+ years experience covering small business topics and runs a part-time content writing service in his spare time.
3 min. read
Updated January 5, 2024
How will your business make money?
You aim to answer that by selecting and outlining your business model.
Let’s go over the basics, common types, and how to choose the right option for your business.
A business model describes how your company plans to make money. It outlines what you sell, who you sell to, and your expenses.
If you’re a new business, use a business model to determine if your business idea is viable, attract investors, and guide your overall management strategy.
If you’re an existing company, use it as the foundation for forecasting and reviewing your business plan.
A business model can be broken down into three parts:
Don’t reinvent the wheel. Start with a common or industry-specific business model and adjust to your needs.
Advertising, affiliate, brokerage, concierge, crowdsourcing, franchising, leasing, pay-as-you-go, and freemium are just a few examples. Learn about these and eight other common business models.
Learn what it takes to set up a subscription-based revenue stream for your business.
Is your business fully online? Here are the best business model options to consider.
If you’re starting a social media-focused business, these are the most common business models to explore.
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Build a strategy
Follow this process to create a business model that aligns with your business goals and the needs of your target customers.
Focus your research efforts on how your business can provide value in the market. What features will help you stand out and sell more?
This will require you to take a thorough look at your competitors. What opportunities exist for you to do something new, different, or better?
Lastly, review how they are selling their products. Is it successful? Are there business models in other markets that could work here instead?
Want to learn more? Click here for more on market research.
How you sell needs to align with customer needs and expectations.
Dive deep into your customer’s purchasing behavior.
Understanding their preferences allows you to tailor your business model to align with established buying habits.
Every successful business solves a problem.
Clearly define the problem and how your product or service provides a unique solution.
With customer preferences in mind, consider “what is the best way to deliver your solution?” This should bring you closer to a business model that aligns customer needs with your business goals.
Don’t be afraid to try different models. Start with a hypothesis, test it in the market, gather feedback, and refine it.
Through trial and error, businesses often find the model that fits best. Ideally, you’ll end up with multiple revenue streams that can strengthen your business performance.
A successful business model must collect more money from customers than it costs to make the product. This is your profit—simple as that.
Remember, you don’t need to invent a new business model. Instead, take an existing business model and tune it to fit the needs of your customers.
Once you do, you can dig deeper into the next step for starting your business—selecting a pricing strategy.
One-page business plan template
Use this free template to think through everything about your business in as little as 30 minutes.