7 Startup Business Models You Should Know

Building a startup business model can be seen as a scientific way of searching for a solution, one that opens up long-term benefits for the organization and the business. A sound business model also gives consumers useful products and services. Below, Mona Media will share the startup business models that anyone planning to start a company needs to know, so they can set a better direction.

What is a business model?

Business model also known as Business Model has many different definitions. According to Wikipedia, a business model is an overview document that lays out an organization's or company's future development plans. In simpler terms, a business model is a plan for generating revenue and profit.

Put in the most general way, the idea of a business model is this: a plan to make money and grow, and to grow in order to make money. It covers all the directions and paths a business owner lays out to follow a given type of business. From there, everyone in the company shares the same purpose, the same thinking and, above all, the same actions.

Choosing a business model is an important step that helps startups find a sustainable direction and gain a competitive edge in the market. However, while starting up, procrastination and a lack of motivation are often big obstacles that keep many projects from succeeding. The video below gives you a practical view of how to overcome procrastination and improve performance on startup projects.

Business models every startup should know

For every startup, the business model matters a great deal, and it matters most if the startup wants to succeed, for these reasons:

• First: When a startup is first set up, it has to answer one question: where does the revenue come from, and how does it arrive? This is essential, because it largely confirms how feasible the original startup idea is.
• Second: The business model gives the startup a basis to be more convincing to investors when raising capital.

Below are the business models a startup needs to know, so you can choose the one that fits your business.

Model 1: Revenue comes from advertising (the service or product is free)

Advertising revenue is a model many tech startups use. A typical example is Facebook. The services the company provides are completely free, and its revenue comes from ads, charged by users' clicks. Businesses pay Facebook for those ads and get potential customers in return.

If you are planning a startup, note that to run Facebook ads that are effective and attract customers best, a business should have a skilled, creative Facebook marketing team.

See also: Social marketing services (Facebook, YouTube, etc.) for businesses

With an advertising business model, customers get many benefits. But when you sell advertising space, the early period of the startup is fairly difficult. Using this model, a startup business faces a few challenges:

• You must build a fairly large user base.
• At first, you must accept low profit in the short term.
• You need enough capital or other resources to keep growing over a long period.

Model 2: The product is free but the service is paid

In this model the startup offers free products and earns profit from other services that come with them, for example training on how to use the product or custom installation. Experts may do the same: a free trial, then a paid plan. digital product business.

An illustrative example that you probably know best is game companies. Users can download a game for free, but then need to buy items and other advanced features. And these items have to be paid for.

At its core, this business model is really a service business model. In it, the product is counted as part of the marketing cost.

Model 3: The Freemium model

The Freemium model is seen as a variant of the first model. Here, basic products and services are usually free. But if customers want to use higher-end products and services, they pay a corresponding fee. The Freemium model is used by a lot of startups today, for example Canva and LinkedIn.

How the model is carried out also varies a lot from business to business. The Freemium model requires:

• A large investment to build a big user base.
• Upgrade services that are more attractive than the basic tier, so users are willing to pay a certain fee.

Model 4: Cost-based

The cost-based business model is a traditional model that has been around for a very long time. When it is applied, the product is priced at 2 to 5 times its cost. The profit margin can reach 10%.

The main goal of this model is to cut production costs to a minimum. The startup then competes on price to earn the highest profit. A business should use this model only if it owns good technology that cuts production costs as far as possible. If the market has many competitors with large resources, the business should not choose this strategy.

See also: Detailed steps to analyze competitors effectively

Model 5: The value-added model

The value-added model puts a high priority on creating useful products and providing services that satisfy the needs of a broad range of customers.

Because it has to focus heavily on developing products, a startup needs to calculate revenue, costs and a sensible profit level. Avoid a situation where the startup loses control of its product investment costs and profit drops sharply.

Model 6: The category-based pricing model

The category-based pricing model suits a business that has many products and services at different price points. With a more varied range of products, the business's revenue comes from more sources. That also means the level of risk drops too.

When a business applies this model, its biggest goal is to have revenue from different product lines. How the portfolio is allocated depends on competitors, loyal customers, transferable value and so on.

Model 7: The “razor” model

In the “razor” model the business first sells a product (call it product A) at a low price. Then it sells add-on products that are needed to use product A, so the add-on products bring in very good revenue.

The model is called “razor” because of a classic example: sell the razor cheaply to drive revenue from selling the blades. Another common example is selling printers cheaply, with the aim of earning most of the revenue from selling large volumes of ink.

So how does a business model work in the service industry? For the first time, the “startup journey” of The MONA is shared in detail by Mr. Hùng, CEO & Founder of The MONA, in the video below. These are hands-on startup lessons distilled from more than 8 years of building MONA to where it is today.

Click the video to watch now!

We hope the above has given you a clear picture of the business models that you need to know when you have a startup idea. From there, Mona we hope you will apply that knowledge well to your own startup business model.

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• The most detailed guide to making a business plan for your company
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