Top 10 Business Models that Every Major Company Uses

Choosing the right business model can exponentially improve returns. Know which one is great for your company based on your industry.

You may have the most original product or service idea for your target market. But, you won’t be able to sell it without answering how you will sustain a positive cash flow. 

Finding a product-market fit is one aspect. Selling is another piece of the larger puzzle. That’s where business model innovation takes centre stage. In a competitive environment, it creates value for customers and improves how a company operates and earns revenue. 

Have a look at the top 10 business models that new and established organisations popularly use to their advantage. 

• Subscription Service 
• Freemium 
• Affiliate Marketing 
• Franchise 
• Direct Sales
• Peer-to-Peer
• Razor and Blade
• Consulting
• Hidden Revenue 
• Open Source

Subscription Service

The subscription business model allows the customer to pay small amounts weekly, monthly or yearly in exchange for a service. Think about Netflix, Amazon Prime and The New York Times as examples. 

Benefits

• According to Global Banking and Finance Review, 70% of business leaders believe this model will improve commercial growth. 
• Subscription businesses grow 5 to 8 times faster than traditional ones, according to SEI. 
• For businesses, the subscription model becomes a steady revenue generator. 
• Almost every industry uses it today and customers love it as the subscription fees are affordable and hassle-free.

Who Should Use It?

Service businesses and news/content-based websites can go for this model. 

Freemium 

The freemium model refers to free and paid services in a product. Customers can use a product for free which has some locked features. By paying the full price, they unlock all the features.  

Do note that freemium products do not mean they are demo versions with free trials that end after a certain time limit. They only have limited capabilities compared to the paid version.

The freemium business model is prevalent in many industries that operate online. MailChimp, LinkedIn and Spotify are some popular examples. 

Benefits

• It reduces the costs of acquiring customers. Customers do not feel forced to try out the freemium product and use it with limited features how much ever they want. 
• For many businesses, it helps in understanding consumer behaviour.
• It helps businesses generate revenue for the long term. 

Who Can Use It?

It can work for both B2B and B2C businesses that are looking for growing their customer segments quickly. 

Affiliate Marketing 

Firms use this commission-based business model by advertising products or services of other companies on their websites. When a visitor buys from the affiliate business’s site, the advertised company pays a commission 

Companies use the affiliate marketing business model by leveraging different niches. On their websites, they have product reviews of a particular category. The objective is to help readers make the correct buying decisions. 

Check out the differences between digital marketing and affiliate marketing. 

Websites such as Wirecutter follow the affiliate marketing business model. It is acquired by The New York Times Company.

Benefits

• It requires a low-cost investment to get started. 
• Websites that follow this business model do not have to provide customer service. 

Who Can Use It?

Any business with subject-matter experts can use this business model.

Franchise 

In the franchise business model, a company allows other individuals to operate the business under a licence. Here, the company is the franchisor, and the individual is the franchisee.  Domino’s Pizza and McDonald’s are among the most popular brands that use this model. 

Do refer to Domino’s digital marketing strategy. 

Benefits

• Businesses can quickly expand their operations in a growing market. 
• This business model is affordable and less-risky for the franchisee. 

Who Should Use It?

Established brands from many sectors including hospitality, automotive repair, clothing and many others use it. 

Direct Sales 

This business model involves selling a product directly to the consumer. That means there are no retail centres for companies that adopt this model. They rely on sales representatives who reach out to customers and convince them to buy the products or services. 

Some of the best examples are Amway, Starbucks, etc. 

Benefits

• It helps in building customer relationships better as the products are directly sold to the consumer. 
• Businesses can save on retail margins. 

Who Should Use It?

According to Business Model Navigator, 57% of fashion brands use it. While 33% is contributed by retail companies. 

Peer-to-Peer (P2P)

This type of model is used by firms that play an intermediary role between two parties. One side is the seller, and the other is the buyer. 

For instance, Uber is a platform that connects the traveller to a rider. Similarly, Airbnb connects holidaymakers and hosts through its app. You may refer to Airbnb digital marketing strategy as well. 

It is one type of eCommerce business model, and other examples include eBay and Upwork. 

Benefits 

• P2P businesses do not have to spend on production, labour and shipping. 
• For the buyers also, the prices are cheaper.

Who Should Use It?

According to Business Model Navigator, 50% of companies in the hospitality sector use the P2P model to generate revenue. 

Razor and Blade

It is also known as the razorblade business model, where a product is sold at a much lower price to make the consumer buy higher-priced items later. It is primarily a pricing business strategy and is also known as a bait-and-hook model. 

The Kindle reader is one example. The books are dirt cheap, but the reader is expensive. 

Benefits

• It is one of the proven methods to acquire customers for expensive products. 
• As more and more customers become loyal, companies earn high revenue on a steady basis. 

Who Should Use It?

Consumer goods and software industries use this model. 

Consulting

Companies use the consulting business model by hiring subject-matter experts who can offer advice to clients on specific organisation areas. Deloitte and McKinsey are some of its examples. 

Benefits

• Businesses become authoritative and trustworthy sources. 

Who Should Use It?

Software companies and business research firms can benefit from this business model. 

Hidden Revenue 

This business model type is used by companies that do not ask users to pay for its services. But it has other revenue streams, such as advertisements. 

For instance, Google is free to use for everyone. But it makes the most money from Google Ads. That is, it charges businesses to reach the target audience. Businesses have to pay for the ads they put up on the platform. 

Similarly, Meta (formerly Facebook) uses it. You can check more on how Facebook makes money. 

Benefits

• Companies do not have to ask users to pay for their products or services. 

Who Should Use It?

Tech companies benefit the most out of the hidden revenue model. 

Open Source 

The open-source business model is similar in some aspects to the hidden revenue model. The product or service is free, but the support and other services are not. 

Some famous companies using it are MongoDB, Inc and GitLab. Read more on What is MongoDB?

Some other examples include Wikipedia and Mozilla. 

Benefits

• The product or service is free for anyone to use 
• There are little-to-no customer acquisition costs involved
• It becomes easier to create a community of users who can improve on the technology 

Who Should Use It?

Tech and software companies use this model. 

Parting Thoughts 

Consider this, if your revenue model is generating more costs and the income from customers are still less, it is time you choose a suitable one. 

For business planning, successful companies in today’s changing market start with a business model canvas. It is like a strategic template comprising elements such as operating model, revenue model, value proposition and customers. 

Also, companies do not just rely on a single business model. They may have multiple revenue streams. 

So which business model from the above are you picking for your company?