Business Model

A business model is a description of how your business is going to operate and how you are going to make money. At the most basic level, it involves:

  • a producer
  • making something and
  • selling it directly to customers
  • at a profit.

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Some examples of less obvious business models:

The Add-On model

You sell your main product cheaply, but then you offer many 'add-ons', for a high price - to recover your losses on the main product. For instance: printers are sold quite cheaply; to operate the printer, you need toner. Companies may lose money on selling the printers, but they will make money by selling expensive toner. Of course, your printer should only be able to use your kind of expensive toner, or you will not generate sufficient income. 

The Advertising model

You can sell your product cheaply or give it away for free, but generate money by selling space to advertisers. This is the business model used by many people on YouTube: we can watch their videos for free; advertisers pay for every viewer. 

The Affiliate model

An affiliate is someone who helps sell a product in return for a commission (some payment, or percentage per sale). The affiliate may never actually take ownership of the product (or even handle it). The affiliate simply gets rewarded for referring customers to a retailer when they make a sale. The website www.booking.com uses the affiliate model. You can search the website to find a hotel for free, the hotel owner pays www.booking.com for every room that is booked through the site. www.amazon.com uses this model too: you can offer your products or services on www.amazon.com, and pay Amazon for every sale that you make.

The Auction model

This is the model used by Auction sites like eBay.

The Pay as You Go model

Customers pay only for the services or products that they actually use. An example is Pay per View: you only pay for the films that you actually watch. Another example: online sign language classes, where learners pay per lesson. 

These are only some examples of Business Models. Google "Business Model" and you will find more; also: templates, and apps that will help you generate your Business Model.

The main thing to remember: most models try to 'bait' a customer by offering something for free, or very cheaply. As soon as the customer has taken the bait and is 'hooked', he or she has to pay, and pay, and pay. Because that is how the business owner generates his/her profit. 

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