It can be a challenge for startup businesses to define the problem they want to solve for their customers. You need to know what your customers value and offer a product or service that can fulfill their needs.
But a good product is only one aspect of a successful online store.
What do I mean?
You need to determine how your e-commerce website will make money — also known as your business model. Study other business model examples that work well, and you’ll have a potential roadmap for achieving your own success.
Want to know more?
Here’s what you’ll learn in this guide:
- How a business model works
- Which business model examples have proved successful
- What makes up a good business model
- Why business models fail
Business Models: How They Work
A business model defines how you deliver value to your clients at a reasonable cost while ensuring your online store makes a profit. Whether you choose an ad-supported business model or create an e-commerce website, you have to generate revenue and invite a steady stream of new and returning customers.
Identify what makes your company or product unique and useful, and which types of people need what you sell.
In summary, a good business model should define:
- Who the target customer is
- What the customer wants
- How the company makes money while delivering value
Components Of A Business Model
- Value proposition
- Key resources
- Key activities
- Key partners
- Customer relationship
- Revenue streams
- Cost structure
- Customer segment
Alex Osterwalder invented the Business Model Canvas (BMC). With it, he defined these nine essential components of a business model.
Read on to explore each of the business model canvas’s building blocks.
1. Value Proposition
A company’s value proposition defines the unique benefit your product or service offers your clients.
How do you fulfill customers’ needs differently from your competition? Evaluate your product or service from the customer’s perspective. What makes it worth buying?
2. Key Resources
Key resources are the most important financial and human assets you need to run your business.
For an online store, this might include:
- Office space
- Internet access
3. Key Activities
Key activities help your company run efficiently enough to fulfill your business’s value proposition. It includes all the critical resources involved in creating and selling the product or service.
A good business model also includes descriptions of activities in the value chain. The value chain is everything the company does to make their product valuable — from buying raw materials to producing a market-ready product.
Key activities in the value chain can include:
- Website development and design
- Aftersales services
Channels are any means by which customers come into contact with your business. They might find your online store in a Google search or learn about you from a Facebook ad. Every company needs to understand how to reach their potential customers — whether it’s an e-commerce website or a brick-and-mortar store.
Some common customer channels include:
- Social media
- Trade shows
- Email marketing
- Search engines
5. Key Partners
Key partners are all the other businesses you needed to run your online store and deliver value to your customers. For instance, Starbucks has a worldwide partnership with different growers to source eco-friendly coffee beans. They also have key partnerships with the businesses that build their coffee machines.
Your key partners might include:
- Wholesalers you purchase products or raw materials from
- Service providers that keep your company operational
- Retailers or other distributors who sell your products
6. Customer Relationships
Your customer relationships are defined by how you communicate with your clients. Do you interact with your customers in person, over the phone, or online? Or are you using a combination of several means?
Identify how you connect to customers to determine how your business should operate and whether there is potential for automated customer services.
7. Revenue Stream
Your revenue streams are all the ways your business brings in money.
Your company can have many ways of generating revenue, including:
- E-commerce website sales
- In-store sales
- Service fees
You might even host advertisements for other companies on your e-commerce website to generate additional revenue.
8. Cost Structure
The cost structure of an online store is the amount of money you use for business operations. The most important expenses will be related to your key activities, but you also need to consider additional costs, including insurance, office supplies, and travel expenses.
9. Customer Segment
Your customer segment describes the portion of the market your business targets. Do your products or services focus on people with a certain gender, age, or interest? Be clear about who your most important customers are.
Business Model Examples To Implement at Your Company
Occasionally, a new company shows up and changes the game with a completely original business model. But more often, companies follow established business model frameworks.
There’s no shame in doing what works.
The right framework can help you turn your ideas into a thriving business. Let’s explore some of the most common types of business model examples and the companies making them work successfully.
E-Commerce Website Business Model
With an e-commerce business model, you don’t need to create or own any of the products you sell. You can sell your own products or represent a brand and promote its merchandise to your target audience.
An e-commerce website is easy and inexpensive to create — no need for a conventional brick and mortar location. Simply set up a website where you can promote and sell products at a profit.
Large e-commerce websites like Amazon and Alibaba use this model with great success. In 2020, Amazon recorded $386 billion in sales and Alibaba showed $72 billion in revenue. With those numbers, an e-commerce business model is attractive to those just getting started.
Ad-Supported Business Model
To be successful with the ad-supported business model, you need a large audience. The core concept centers on a free product that draws in a large number of users. Then your business earns revenue from companies that run ads your user base will see.
Spotify is a marketplace for artists and their fans. They have a premium plan users pay for, but their free ad-supported version is a self-sustaining product. It ensures music is accessible to everyone — and offers advertisers a platform to reach them.
Crowdsourcing Business Model
The crowdsourcing business model’s success depends on users who are willing to contribute content ideas on your platform. Companies like Pinterest, YouTube, and Wikipedia use this business model.
Once a crowdsourcing content company has established a wide user base, they often transition to an ad-supported business model to earn revenue. Or, in the case of Wikipedia, they crowdsource funding from their large user base to keep the website they love running.
Affiliate Business Model
The affiliate business model uses links in your blog or e-commerce website to generate leads for other companies. You join affiliate programs and encourage customers to view services and products from online stores such as eBay or Amazon.
For example, if you blog about electronics, you can reference a product with affiliate links that direct customers to a website where they can buy the items you review. You get a commission for every completed sale you refer to them.
Freemium Business Model
The freemium business model works by giving away part of a service or product for free and providing a paid plan for extra features.
The free plan generates leads and triggers upsells. It also gives users the chance to try out a new product before making a full commitment. With relevant calls-to-action (CTAs) and links in strategic places, you can nudge users into upgrading.
Examples of companies using the freemium model include Slack, LinkedIn, Evernote, and Mailchimp. Gillette offers a free razor handle to encourage their customer base to buy replacement blades.
Subscription-Based Business Model
The subscription-based business model is defined by its pricing structure. Instead of selling a product and service as a one-off, the company charges a recurrent subscription fee.
This model empowers companies to interact with their subscribers and understand them better in the process. The subscription model is popular with content streaming and software as a service (SaaS) companies.
Birchbox and Dollar Shave Club are some online stores that offer subscription services to their members. Streaming services like Netflix, Apple Music, and YouTube Music also use the subscription-based business model.
Social Enterprise Business Model
The social enterprise model focuses on earning revenue while making a social impact. Customers can feel good about buying from your company because it has charitable benefits.
Toms Shoes’s “buy one, give one” strategy is an example of this model. Other companies appeal to different social issues. Seventh Generation focuses on environmental impacts, and Everlane focuses on ethically sourced clothing.
Why Business Models Fail
Any business model can be successful, but it can also fail. It all depends on how you manage your company and customers.
Make sure your products solve real problems. The more valuable your product is, the less money you have to spend on marketing it as more useful than it actually is. More customers will come back to buy again and encourage their friends to patronize your business.
Don’t spend more on operations than you receive in revenue. Even with the lower startup cost of online stores, if you underestimate the expenses you incur from key resources, activities, and partnerships, your company can quickly go under.
Find the best channels to reach potential customers and figure out what makes your company unique. Establish your market position and build good customer relationships. You can’t grow your client base unless you retain customers who have already bought from you.
Tips to Creating A Successful Startup Business Model
- Determine your target market in advance. Do market research to learn who belongs to your customer base.
- Stick to a budget. Running out of cash is a common reason startup businesses fail. From the beginning, calculate how much money you need to keep your ecommerce website running.
- Don’t be afraid to change your business model. You can refine or make adjustments to any of the components. For instance, you can change your product’s design or raw materials or change your advertising strategies.
- Create a polished, unique business model. Don’t just copy another company’s business model example. Craft a model with original features that give you a competitive advantage.
Final Word: Business Model Examples From Online Store to Crowdsourcing
Now that you have discovered some common business model examples, it’s time to create a meaningful business strategy. Business modeling empowers you to pick a business idea, experiment with various options, and choose the best business model for your company.
The right business model offers sustainable value for your clients, frames your company in a unique way, and ensures your costs never outpace your revenue.
However your business idea starts, don’t be afraid to develop your business model and continually evaluate if it’s working.
Whether you choose an e-commerce website or a subscription-based company, you’ll need an internet-based storefront. Get your business up and running today with a WooCommerce Online Store from Bluehost.