Business model, also known as a Business Model, is understood in various ways. According to Wikipedia, a business model is an overview document to organize the development plans of organizations, companies in the future. Or in simpler terms, a business model is a plan aimed at generating revenue and profit.

In its broadest and most general sense, the concept of a business model is a plan to make money and grow, develop to make money... It encompasses all the directions, steps that a business owner outlines to follow a certain type of business. From there, members of the company or enterprise will share a common purpose, thinking, and especially common action.

Business models that startups need to know

For each startup business, the startup business model is very important, and above all, it will be very important if startups want to succeed because:

Firstly: When newly established, startups need to answer a question: Where does this revenue come from and how does this revenue source come about? This is a very important task because it partly affirms the feasibility of the initial startup idea.

Secondly: The business model will be the basis for startups to increase persuasion with investors when raising capital.

Here are the business models that startups need to know in order to choose the business model that is suitable for their business.

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

Revenue from advertising is a model that many technology startups apply. A prime example of this is Facebook in using the business model. The services that the company provides are completely free, their revenue comes from advertisements. Calculated by users' mouse clicks. From those ads, businesses will have to pay fees to Facebook and receive potential customers.

In addition, if you are intending to start up, please note that to get effective Facebook ads, attract optimal customers, each business should have a skilled and creative Facebook marketing team.

For the advertising business model, customers receive many benefits. However, when renting ads, in the initial period, it will encounter quite a few difficulties in startup. When using this business model, some problems posed to start-up businesses are:

Need to build a relatively large user base.

Initially, it is necessary to accept low profits in the short term.

Have enough capital or other resources to develop in the long term.

Model 2: Product is free but service is charged

For this model, startups provide products for free but will profit from other accompanying services. For example: training on usage, customization upon request...

The most accurate illustration example you can know is companies providing game services. Users can download the game for free but then need to purchase items and other advanced features. And these items need to be paid for.

The essence of this business model is essentially a service business model. In which, the product is considered as part of the marketing cost.

Model 3: Freemium model

Freemium model is considered a variant of the first model. For this model, basic products and services are usually free. However, if customers want to use additional premium products, services, they will have to pay a corresponding fee. The Freemium model is currently being used by many startups. For example: Canva, LinkedIn;...

In terms of implementation for each business, the Freemium model will require:

Need to have a large investment to get a strong user base.

Upgraded services need to be more attractive than the basic level for users to accept a certain fee.

Model 4: Cost-based model

The cost-based business model is a traditional model and has been around for a long time. For applying this model, the price of the product brought to the market is 2 to 5 times higher than the cost price. Profit margins can be up to 10%.

The main goal of this model is to minimize production costs. Then, startups will compete by price strategy to achieve the highest profit. Businesses should only use this model when they have good technology, thereby helping to minimize production costs and push these costs to the lowest level. For cases where there are many competitive competitors in the market and they have large resources, many potentials, businesses should not choose to implement this strategy.

Model 5: Value-added model

The value-added model highly values ​​the creation of useful products, aiming to provide services to satisfy the needs of many customers.

Because it is necessary to focus more on product development, startups need to calculate revenue, costs as well as appropriate profits. Avoid cases where startups cannot control the investment costs for products, leading to a serious decline in profits.

Model 6: Category-based pricing model

If a business has many products and services with different cost levels, along with diversifying products, the revenue of the business will come from more sources. This also means that the risk ratio will decrease.

When a business applies this model, their biggest goal will be to have revenue from different product lines. Allocating investment categories will depend on competitors, loyal customers, transfer value...

Model 7: Razor-razorblade model

For the razor-razorblade model, initially, the business will sell a product (let's assume the name of that product is A) at a low cost. Then, they will calculate to sell additional complementary products, requiring the use of product A, thereby bringing good revenue to the business from additional products.

Therefore, this model is called the razor-razorblade model because a very clear and understandable example is: selling cheap razors to push revenue from selling blades. Or another very common example is selling printers at low prices, the purpose of this is to generate revenue mainly from selling large quantities of ink.

So, through the above sharing, it is hoped that you have understood the various business models that you need to know when you have a startup idea.