Reviewing some of the most common types of business models helps identify which one best suits the business situation.
The business model is an important decision that you need to spend time on. The decisions you make in this regard will have a significant impact on your profitability, measured by two key entrepreneurship variables: lifetime value of an acquired customer (LTV, for lifetime value of an acquired customer) and customer acquisition costs (CAC). You do not have to worry about your prices at this stage, the choice of your business model affects your profitability much more than your pricing decisions.
Once you have established a business model, it is possible, but usually difficult, to change it. So choose one that sets you apart from your competitors and gives you an advantage. on them because they can not easily give up their to adopt your. (…) The list below contains many possible options, but nothing forces you to limit yourself to them when designing your own business model.
# 1: One-time payment plus maintenance fees
This is the most common business model where the customer pays a large sum for the product, with the option to take advantage of subsequent updates or maintenance of the product for a recurring sum. The initial amount sometimes comes from the client’s investment budget, especially if it is a large amount, which involves a potentially lengthy approval process. On the other hand, maintenance costs are covered by its operating budget (…)
# 2. Cost plus x%
In this scenario, the customer pays a fixed percentage on top of the production costs. (…) The problem is that we have to agree on the numbers, which must be accurate and continue to be so. This model can also be interesting when your product, which is not yet final, will definitely be encouraged to develop further – but when its development is complete, you can migrate to another business model. (…)
# 3. Hourly rates
Common to service companies, this model is similar to the second scenario, except that the tariffs are based on market demand and not on costs.
# 4. The subscription or lease model
In this case, the customer pays a pre-agreed amount each month or at another frequency. It’s a great way to have a steady stream of income. There are many variations, including annual or multi-year commitment Where month to month commitment.
# 5. Licenses
If you license your intellectual property and earn royalties, you can earn a very high gross profit. Moreover, if you license your product, you do not need it no large investments to be made for production and distribution. You can only grant licenses if intellectual property is of extreme interest. (…) You will not spend time with the end user whose needs you will therefore know less well, so your the ability to continuously innovate will be limited. Add to that that the royalty rate generally corresponds to one twentieth or less of the turnover per. sales; your TAM will necessarily be affected as well, as the best you can hope for is a rate of 5%.
# 6. The expendables
For your business, this may very well be a way to reduce the difficulty level ofacquire new customers thereby reducing sales costs and increasing significantly revenue that the customer will bring you over time.
# 7. Complementary high-margin products
As in the consumer goods business model, the core product is sold with a very low margin, but sales of complementary products with a very high margin make it possible to increase the overall margin. This business model is often used in consumer electronics stores or on websites also, often, for the sale of new cars. (…)
# 8. The ads
As with newspapers and magazines in their heyday and now with websites, the ability to attract and maintain a coveted demographic can make money through third parties who want access to the customers you have attracted. When done right, on a sufficient scale, the model can be very lucrative, as Google and others have shown, but many start-ups have been guilty of trying to rely solely on advertising. (…)
# 9. Resale of collected data or opening of temporary access
Like the model above, reselling your users’ data first involves enticing them with a free product and then being paid for by third parties who want to access demographic and other information about your users. finally.(…)
# 10. Transaction fees
Online stores often pay or receive commissions for referrals that lead to sales. (…)
# 11. Invoice consumption
(…) This gives customers more control over their expenses because they only pay for the amount of bandwidth they use, not excess capacity they do not use.
# 12. The plan “mobile phone”.
It is a predictable, recurring fixed rate that the consumer pays in return for a certain consumption, with the addition, often at a much higher marginal rate, if it exceeds the ceiling set in the contract. The basic price is generally much lower than the invoice price if exceeded. (…)
# 13. Parking meters and delay fines.
What a business model! No wonder cities maintain such armies of parking meters! A few years ago, Blockbuster charged extra for customers who returned their movies late. The problem is that you can lose loyal customers by punishing them this way: When Netflix entered the market by emphasizing that it would not charge for delays, Blockbuster lost a lot of market share, which it never regained. (…)
# 14. Microtransactions
A new model has emerged with online video games – the one of microtransactions that newspapers are currently testing in the hopes that this formula can save them. In this model, customers are asked for their credit card number, and they make very small transactions (defined as less than $ 12, often $ 1 or less) to obtain digital goods (which have virtually zero marginal cost since they are electrons). Since there are many, they can add up.
# 15. Savings or shared revenue
Despite its conceptual elegance, this often-considered business model is rarely used due to the complexity of its implementation. In this scenario, the customer pays only if he has realized savings or income thanks to the product. (…)
# 16. Franchise
If an entrepreneur has a good idea and can implement it, but does not have the desire, skills or means to launch it, they can use the franchise model. He will then hit one percent of revenue and a large sum in the beginning in return for the knowledge and the developed brand. You can also make money by sells its branded goods to franchisees who distribute them.
# 17. operation and maintenance
A new business may not actually want to sell a product, but rather be paid to run a factory or other facility. If this formula in some respects resembles a consulting contract, the client has a greater interest in controlling or reducing costs as they directly affect his income. (…)
Bill Aulet heads the Martin Trust Center, the largest incubator at the Massachusetts Institute of Technology (MIT). This text is taken from his book “The entrepreneurial discipline: 24 steps to successfully develop a business”, published by Eyrolles, 2018, 310 pages, 29 euros.