The primary target of any business setup is producing sales and profit. A business constitutes three fundamental essentials:
- The services and products to sell.
- Its target market(s).
- The expenses it must bear.
The union of these three elements make a business model.
Example of a Business Model
Every company must set up a model to reach acceptance and success among its target consumers. For instance, consider a new UK-based online casino, Dr.Bet, which provides a gambling platform for players worldwide. Online gambling enthusiasts are their target consumers.
The available games on this platform are their products. To run this business, they must bear certain expenses like spending on top iGaming software for providing games, opting for a UK online gambling license, and legalizations from the UK gambling commission. Additionally, they must pay the employees for setting up and running the online website, etc.
The Four Fundamental Types of Business Models
In this section, you find the four fundamental types of business models in recent times. The four significant and contemporary types are B2B (Business-to-Business), B2C (Business-to-Consumer), subscription-based business, and on-demand. Next, read about these types for a better understanding.
B2B or Business-to-Business
When business trades and transactions occur between two or a group of companies, the model is known as a B2B or business-to-business model.
In these business models, the market stability and the predictability are more reliable than in the other models. Since B2B models exhibit higher demands and bulk production of products, the cut on expenses is easier to do.
Here is an example of a B2B business. An iGaming software has a business setup that makes and develops online games. It provides its games to an online casino which is another business setup. Here, the transaction is between two businesses. Setting up deposit methods and payment methods from popular Fintech payment companies and banks by the casino are also a B2B deals.
B2C or Business-to-Consumer
This model is probably the simplest one to understand and exhibit. It means to produce products and services and sell directly to the consumers. The interrelationship in this business model is directly from the business to the users or customers. In this type of business model, getting a clear picture of the demand for a product in the market is easier to comprehend.
Again, take the example of an online casino. The games it has are their products, and the players are the consumers. The relationship here is business to direct customers.
Subscription-Based
In this type, subscriptions from the consumers are the source of profit. They earn a fixed monthly or yearly revenue from a customer in the form of subscription payments.
For example, one must subscribe with a certain amount to go ad-free on Spotify.
On-Demand
These are business setups made for answering specific demands of consumers within seconds. It is based on the principle of responding immediately.
For example, consider Trivago. It gets the flights and hotels booked before the consumer reaches a destination. The customer did not have to take on the burden of booking air tickets and finding a suitable hotel on his/her own. The company does it for the individual in exchange for a value.
Why Are Business Models Important?
The backbone of any business is its business model. A business model aims to give a clear idea of the strategy to make it work in the market and target group(s) as well as earn revenues against the expenses.
Every investor goes through the business model before investing to an organization. If said investor finds the idea convincing to earn healthy profits, they invest in that setup. A business model provides a clear picture of the financial data to the entrepreneurs and the investors.
Without a proper business model, essential components of a business such as the products they sell, the success strategy in their market, advertising policies, and future facets are unable to be determined. The conclusion is that without a proper business model, a start-up eventually fails to show its impact.
Ending Note
Most businesses fall under these four fundamental types of business models. These are the preliminary methods of a company to gain consumers and steady profits. The present and future of a company or firm depend upon its business model.
