What Exactly Is A Business Model? Definition & Types

What is a business model

A business model is a plan that describes how a company intends to generate revenue. An outline that describes the company’s revenue and cost structure, as well as how the company expects to make a profit—or at the very least remain in business—is known as a business model.

“Simply put, a business model is the money making strategy of a business.”

Depending on the specific needs and types of businesses, as well as the vision of the firm’s founders and/or executive leadership, a variety of different business models may be implemented to achieve success.

If you at one point have taken a business plan for a business model, check out this article that explains what a business plan really is.

During this session, we’ll discuss what a business model is and how to develop one, as well as the different model types and why it’s important to understand how to develop one.

Meaning of A Business Model And Examples.

A business model is a diagram that depicts the various ways in which a company generates profit and how it does so. It identifies the target market, the need of the market, and the manner in which the business will serve its customers.

The plan also accounts for the costs incurred as a result of expenses such as product manufacturing and marketing. There are many different types of money making strategies for your business, each of which is tailored to meet the specific requirements of a specific business.

what is a business model - illustration

Related: What is seed capital?

As an illustration of a business model, consider the following: the concepts are divided into two categories: business ideas and business resources.

Business ideas are divided into five categories: products and services; target audience; competition; differentiation; advertising and sales; and marketing and promotion.

While this is happening, business resources are required to make the idea a reality. These resources can be classified into ownership, staffing and facilities, financial model and funding, and the balance sheet.

Unsuccessful businesses are those that fail to compete in their respective markets on all facets of the business model provided in the preceding illustration.

You need to ask the following questions:

  • Who is your intended customer?
  • What are you selling?
  • Why are you better?
  • How are you going to reach your customers?

2 Types of Business Models

You’re probably familiar with a few of the most commonly used business models, so let’s take a look at them.

Manufacturer Business Model

In this type of business model, a company creates a product from raw materials or assembles prefabricated items to create new merchandise from the materials it receives.

Alternatively, the company can sell its products directly to consumers, which is known as a business-to-consumer (B2C) model, or it can sell its products to other businesses, which is known as a business-to-business (B2B) model.

A shoe company, for example, would be an example of a B2C manufacturer because it sells its products directly to customers.

If a business sews dresses and only sells its products wholesale to other businesses, it would be considered a B2B manufacturer. These businesses would then sell the dresses to the general public.

Distributor Business Model

Distributors operate under the business model in which a company purchases inventory from a manufacturer and then sells it to either a retail outlet or directly to the general public.

Distribution companies frequently encounter the challenge of determining the optimal price point that allows them to make a profit on the sale while still offering competitive pricing.

A distributor would be a company that purchases soft drinks from a manufacturer and resells those beverages to restaurants at a higher price than the manufacturer charges.

NOTICE: There are many different types of business models, and multiple models can be combined to form a new approach to problem solving.

Retailer Model

Business models used by retailers are those in which a company purchases inventory from a manufacturer or distributor and then sells that inventory to the general public.

Individual retailers to large chain stores can range in size from a single mom-and-pop shop to a multi-location operation with a physical location, an online store, and sometimes both.

A shoe store that purchases its products from a distributor would be an example of a retailer model in this context. A limited selection of the shoe store’s products is available at its brick-and-mortar location, but the company’s entire inventory is available for purchase on the company’s website.

Franchise Model

In addition to the business models we just discussed, the franchise business model can be applied to a variety of other models.

The franchisee adopts the model of the franchisor, as well as the latter’s pre-established processes and protocols, when he or she purchases a franchise. McDonald’s, KFC, Burger King, and 7-Eleven are just a few examples of well-known franchise businesses.

In order to develop your business model, you must first identify your target customer and how you intend to reach them. You’ll also want to become familiar with what you’re selling (costs, margins, features, benefits, and so on) as well as what your competitive advantage is. 2

Business Model Important Takeaways

A business model is a blueprint for how your company will generate profits in the future. The plan includes critical information such as the target market, the need in the market, and specifics on business expenses.

There are many different types of business models, and models can be combined in a variety of different ways. The terms manufacturer, distributor, retailer, and franchise are probably familiar to you because they are some of the most common in the industry.

It’s important to be clear about who your target customer is and how you intend to reach them when developing a model for your business.

You’ll also want to know the specifics of what you’re selling, as well as what distinguishes you from your competitors in the market.


  1. Do you have a Successful Business Model?
  2. Develop Your Business Model by Answering These 4 Questions.

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