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    This document defines and provides examples of different types of business models. It explains that a business model outlines how a company will generate profit, including details like target customers, products/services, and costs. Common business models mentioned include manufacturers (who produce goods), distributors (who purchase and resell goods), retailers (who sell goods to consumers), and franchises (who license a business model from a franchisor). When developing a business model, companies should identify their target market and competitive advantage.

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    What Is A Business Model?: Skip To Content

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    This document defines and provides examples of different types of business models. It explains that a business model outlines how a company will generate profit, including details like target customers, products/services, and costs. Common business models mentioned include manufacturers (who produce goods), distributors (who purchase and resell goods), retailers (who sell goods to consumers), and franchises (who license a business model from a franchisor). When developing a business model, companies should identify their target market and competitive advantage.

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    This document defines and provides examples of different types of business models. It explains that a business model outlines how a company will generate profit, including details like target customers, products/services, and costs. Common business models mentioned include manufacturers (who produce goods), distributors (who purchase and resell goods), retailers (who sell goods to consumers), and franchises (who license a business model from a franchisor). When developing a business model, companies should identify their target market and competitive advantage.

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    16 views10 pages

    What Is A Business Model?: Skip To Content

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    Anush Sargsyan
    This document defines and provides examples of different types of business models. It explains that a business model outlines how a company will generate profit, including details like target customers, products/services, and costs. Common business models mentioned include manufacturers (who produce goods), distributors (who purchase and resell goods), retailers (who sell goods to consumers), and franchises (who license a business model from a franchisor). When developing a business model, companies should identify their target market and competitive advantage.

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    The Balance


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    What Is a Business Model?


    By Ella Ames 
     
    Updated on May 25, 2022
     Reviewed by David Kindness
     Fact checked by Kiran Aditham
    PHOTO: 

    PEOPLEIMAGES / GETTY IMAGES

    DEFINITION
    A business model is a plan describing how a business will make money. It is an outline
    that explains the company’s revenue and cost structure, and how it expects to turn a
    profit—or at least sustain itself as a going concern.

    Key Takeaways

     A business model is an outline of how your business will generate a profit. The
    plan includes important information like target market, market need, and details
    on business expenses.
     There are lots of types of business models, and models can be combined as
    well. You’re probably familiar with some of the more common ones like
    manufacturer, distributor, retailer, and franchise. 
     When creating a business model, you should be clear about who your target
    customer is and how you’ll reach them. You’ll also want to know specifics about
    what you’re selling, and what sets you apart from your competition.

    Definition and Examples of a Business Model


    A business model is an outline that breaks down the ways that a company makes its
    profit. It identifies the target market, the market’s need, and how the business will serve
    its customers. The plan also includes the costs incurred from expenses like producing
    and marketing the product. There are multiple types of business models, each tailored
    to fit the unique needs of various businesses.

    An example of a business model is one in which the concepts are split into two
    categories—business ideas and business resources. Under the business idea category
    lies products and services, target audience, competition, differentiation, advertising, and
    sales. Business resources, meanwhile, are what’s needed to make the idea work and
    can be divided into ownership, staffing, facilities, financial model, funding, and balance
    sheet.1

    Note

    A business is unlikely to be successful unless all facets of the business model provided
    in the example above allow it to be competitive in its marketplace. 

    Types of Business Models


    Here are a few commonly used business models that you’re probably familiar with. 
    Manufacturer

    This type of business model is when a company makes a product from raw materials or
    assembles prefabricated items to create new merchandise. The business can sell the
    items directly to consumers itself, which is a business-to-consumer (B2C) model, or it
    can use a business-to-business (B2B) model in which it sells to other businesses. 

    An example of a B2C manufacturer would be a shoe company that sells its products
    directly to customers. A B2B manufacturer would be a business that sews dresses and
    only sells its products wholesale to other businesses, which then sell the dresses to the
    general public. 

    Distributor

    The distributor business model is when a company purchases inventory from a


    manufacturer and sells it to either a retailer or directly to the public. A common
    challenge that distributors face is picking the right price point that allows them to make a
    profit on the sale, but still offers competitive pricing. An example of a distributor would
    be a company that buys soft drinks from a manufacturer and sells those beverages to
    restaurants at a higher price.

    Note

    There are many different types of business models and multiple models can be
    combined to create a new approach.

    Retailer

    Retail business models are those used by companies that buy inventory from a
    manufacturer or distributor and sell those products to the public. Retailers can range
    from a single mom-and-pop shop to huge chain stores—they often have brick-and-
    mortar locations, an online store, or both. 

    An example of a retailer would be a hat store that buys the products from a distributor. A
    limited selection of the hat store’s products is available at its brick-and-mortar storefront,
    but its full inventory can be purchased online. 

    Franchise

    The franchise business model can be applied to other business models, like the ones
    we just discussed. The franchisee takes on the business model of the franchise and
    with it, the latter’s pre-established processes and protocols. Examples of popular
    franchises include McDonald’s, KFC, Burger King, and 7-Eleven.
    When developing your business model, identify your target customer and how you’ll
    reach them. You’ll also want to familiarize yourself with what you’re selling (costs,
    margins, features, benefits, etc.) and what your competitive advantage is.2

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