I’m going to let you in on a little secret that will allow you to do some amazing stuff in your business.
No fluff. No hype.
Just an iron-clad guarantee that if you diligently follow this through you’ll find out that your business has way more horsepower than you are aware of and you have been running way below its capacity.
It likes buying an expensive race car with the ability to run at 7000 rpm and you just only run it at below 200 rpm.
That is so ridiculous…right?
I mean why would anyone spend so much money and not want to max out the full potential of that commodity.
You might be wondering who does that.
I can tell you that most of the businesses you see around (probably yours too) are playing small knowingly or unknowingly for several reasons and I’ll tell you why I say so.
Recently, I started the Funded Series, where I analyze Nigerian startups that have received funding from investors and strip it apart so we can see what they’re really doing and how they are faring.
So, I took a deep dive into Cars 45 with its $ 5 million funding, Wakanow, and its $40 million funding, and before that a deep look at Opay with $170 funding.
While preparing to tackle the next startup, a thought hit me that made me digress a bit to talk about business models and why it’s important.
Let me put this straight, your business model determines a couple of basic things:
- The kind of customers you serve
- How much money do you make?
- How fast you can grow
And these are very critical factors to take a look at because not just any business model will work for your business. One business model might enable you to scale faster and another could act like a speed bump.
Now, in simple terms, your business model is the blueprint that clearly defines how your business intends to generate revenue (and most importantly profit), and to buttress the point earlier it can be the difference between making $1 million and $10 million.
To understand what business model is right for your business I want you to answer this simple question.
What business are you really in?
Now, the first question that comes to your mind might not necessarily be the right answer and I’ll explain why I say so…
Understanding what your business is about and what business you’re really into most times are miles apart is important.
Let’s take a look at Facebook.
Facebook, as we all know is called a social media platform with over 2 billion users, where people can connect with each other but Facebook doesn’t generate revenue each time you connect with your friends on their platform.
So what business are they really into?
As I’ll share with you further down in this article that Facebook generated $69 billion from the sale of ads in 2019 on its platform.
So, this clearly hints that Facebook is in the business of data mining.
Facebook users’ demographic, geographic, behavioural patterns and interests data are mined and advertisers pay huge sums of money to access these users based on the data already available and that’s how Facebook gets paid.
On the surface, you might say Facebook is a social media platform, but Facebook is a Data Mining company and the need for a unique business model that aligns with it.
Now let’s pause here for a moment, so I don’t jump ahead of myself and we can get to the crux of our conversation on what business model will work for you.
There are numerous business models out there but I’ll focus on the top 10 tested and proven business models with results from several companies in multiple industries that actually use it.
Of course, there are hybrid models (a combination of two or more) as well, and most successful companies use a hybrid, but that’s probably a topic for another day.
Let’s dive into the different business models we have…
Affinity Club Model
Description:
This model is mostly used by big brands but it can be adapted to your business, and it entails paying an organization for the exclusive rights to promote and sell your products to their customers.
Example:
It is used by many big brands in the sports industry, take for instance Fly Emirates which is proudly displayed on the Arsenal FC jersey. In 2018, Emirates signed a $280 million deal which is a 5-year extension with Arsenal allowing them to retain their marketing rights and initiatives around the world.
Arsenal FC has a stadium sitting capacity of 60,260 and there are 38 games in a season so Emirates gets their brand in front of raving fans and builds goodwill that will be capitalized on.
To justify this here’s, the Emirate Group financial statement for 2018/2019.
With an Annual Revenue of AED 109 billion ($29 billion) investing $280 million is a piece of cake.
Brokerage Model
Description:
This model is what some of the most successful tech startups such as Uber, Lyft, and Airbnb use, and it basically brings together buyers and sellers, charging a fee per transaction to one or another party.
Example:
Let’s take Uber as an example, Uber is an online ride-hailing company offering services that include peer-to-peer ridesharing, ride-service hailing, food delivery, and a micro-mobility system with electric bikes and scooters since its launch in 2009 it has received over $20 billion in funding and is valued at $75 billion with annual revenue of about $11.3 billion.
The company does not own any of the vehicles on its platform but acts as a broker, receiving 25% commissions from each booking.
Uber currently has about 75 million users, and 3.9 million drivers worldwide, and makes 14 million trips a day all from using the brokerage model.
Below is Uber’s showing how well the company is faring.
As you can see despite the good revenue Uber has been operating at a loss for 5 years now, but could that be a result of the model?
Bundling Model
Description:
This model is mostly used by fast-food companies and restaurants and it basically is about bundling related goods or services together.
Example:
A good example is Mcdonald’s, you walk into any of their outlets and you see a lot of bundled food items together at a good price. Since its inception in 1940, McDonald’s has effectively used the bundling model as well as franchised restaurants to rake in profit.
But, keep in mind that Mcdonald’s is really into real estate where they make a bulk of their money as a result of leasing the land to franchise owners.
And today the company is valued at $137 billion and is considered to be the most profitable restaurant in the world, here’s a peek into their financial statement.
Cell Phone Model
Description:
This model is popular with the telcos and it basically is about charging different rates for services.
Example:
In this case, I think of MTN, MTN is a South Africa-based multinational mobile telecommunications company, founded in 1994 and operates in many African, European, and Asian countries. Its head office is in Johannesburg. As of 30 June 2016, MTN recorded 232,6 million subscribers across its operations.
MTN Nigeria came into Nigeria markets in 2001 and has over $400 billion invested since 2001. One can say, MTN is Nigeria’s leading mobile telecommunications provider serving over 52 million subscribers, which reaches almost every state in the nation.
Here’s a quick look at the MTN Group financials…
Inspite of that they rank #34 on the global telco list with respect to revenue with AT&T topping the chart.
Crowdsourcing Model
Description:
This model is pretty simple as its name presupposes and it is about getting a large group of people to make financial and content contributions.
Example:
A good example would be Wikipedia, a free online encyclopedia created and edited by volunteers around the world and it generated most of its revenue through donations.
Now, Wikipedia is a non-profit entity and therefore not in the billion-dollar league but if they were they’ll probably be crushing it based on their success
Wikipedia has over 27 million users, and averages 18 billion page views per month with over 20,000 new articles every month and is considered to be one of the most visited sites in the world.
Here’s their financial statement for 2018
As you can see over 80% of revenue generated comes from contributions.
Freemium Model
Description:
This model is quite common and is used as a market penetration strategy and it entails offering a basic service for free and charging for premium services.
Example:
There are several examples especially the social media platform Facebook. As mentioned earlier, Facebook allows you to connect with other people and post content and they collate data based on customer preference that is then sold as a premium offer to businesses that want to reach more people.
With over 2 billion active users, and the acquisition of Instagram and Whatsapp this model has worked perfectly fine for them.
Take a look at how their revenue rises year after year.
Leasing Model
Description:
This model is basically about renting instead of selling, high-margin, high-priced products.
Example:
One of the big players in this space is Avis Budget Group, a car rental company with over $8 billion in revenue and a myriad of subsidiaries including Zipcar which they acquired in 2013 for almost $500 million.
The global car rental industry is valued at $92 billion and is estimated to reach $214 billion by 2027 with Avis among the big players in the industry.
Avis Budget Group has almost 400,000 vehicles in its fleet, with 5500 locations in 165 countries
Razor/ blades Model
Description:
This model basically works like this; you offer a high-margin item and then you offer a low-margin item to complement it.
Example:
Examples in this category are printer manufacturing companies, the likes of Canon and HP battling for market dominance. As you know both companies are into the manufacturing of other things but as related to this model let’s look at HP and how it works for them by looking at their revenue.
The average number of pages a printer ink will do before getting exhausted is between 800- 3000 and in most organizations, it gets finished in less than a month. Take a look at most businesses’ financials and you’ll be shocked at how much is spent on printing in a year.
Well, Hp is valued at well over $20 billion and here’s how they are doing.
However, over 40% of its revenue comes from Printer and complementary products.
Reverse Razor/blades Model
Description:
This model is similar to Razor/ blade but the reverse of it and it simply is offer the low margin product to encourage purchase of higher margin companion products.
Example:
The perfect example here would be the Amazon Kindle devices which they sold relatively cheaply to get as many people to use it but through the device, users can make multiple purchases of other products on Amazon.
If there s one thing to know about Amazon, it’s the fact that they are very good at surrounding their customers with value-added services that keep them in their ecosystem.
Since the launch of the Amazon Kindle in 2007, Amazon has sold between 20 – 90 million Kindle devices and as at 2013 giving readers access to over 48 million books and they made a whopping $565 million through the Kindle.
Subscription Model
Description:
This model is widely used and it allows users access to a service by charging them a subscription fee monthly or annually.
Example:
Netflix is one of the companies that stand out using this model, Netflix is a movie streaming platform that allows users access to a ton of movies at a monthly subscription fee.
Netflix is valued at over $180 billion and has over 180 million subscribers with over 1500 TV shows and 4000 movies and is looking to raise about $ 2 billion to fund its content creation ambition.
In conclusion, sometimes it’s not only about marketing that you boost revenue, but the gold mine might be in the business model and simply tweaking or stacking any of the top 10 business models you are well on your way to seeing a spike in your bottom line.
Go give it a shot…you can thank me later
You can also learn how to acquire your first 100 customers irrespective of the business model you decide to adopt for your business