Grow Your Service Business To 6 Figures With The Right Business Model
You already know the revenue opportunity that exists when you grow a service business. Output in the US service sector is projected to increase 5.4 percent per year, to nearly $2.3 trillion in 2018 , up from about $1.2 trillion in 2008. There is no faster way to start making money today than providing services.
A service business model describes exactly how you create and deliver value to your clients by offering a service for your target audience . A service business can offer any type of B2C or B2B service from wedding photography to large software development projects.
In this article, our focus will be on what types of revenue models or income models you can use in your service business to help grow your revenue to six figures and beyond.
5 service business models
There are five service business models :
- The hourly model – get paid by the hour
- The retainer model – offer packages of hours
- The monthly model – receive a monthly fee
- The performance model – your rate depends on results
- The project model – work per project or deliverable
Sometimes a service business may operate under just one revenue model. Sometimes it may offer a mixture of different options. Choosing the right service business model can make or break your way to success.
But before talking about how to choose the right service business model , let’s briefly describe what each of these models is all about. A major difference among all of them is how revenue is generated. So, let’s break it down.
1. The hourly business model
The hourly model is pretty much self-explanatory. Your income is generated when you charge clients an hourly rate for the service you provide. A lot of service businesses charge their clients by the hour when there’s a low work volume monthly.
The hourly business model is not easy to scale without increasing your fixed costs as well. On top of that, it’s possible that you reach capacity soon. For instance, if you a health coach there’s a limit to the number of clients you can serve each week. If you have a consulting business, you’d need to hire an additional consultant as your business grows.
Another problem with the hourly rate is that you need to track the exact amount of hours worked before you bill your client. But sometimes the client might expect to pay less or be unable to see how time-consuming a task is.
Also, the speed of completing tasks depends, among other factors, on the service provider experience levels. So, a junior designer might need three hours to design one log concept while an expert designer can do it in less than an hour. In most cases though, the hourly rate will reflect your experience levels.
- Applicable to most service businesses
- Best way for a new client to get to know you
- Difficult to scale
- You need to track time
- Sometimes, you need to demonstrate the value
- You work first, get paid after
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2. The retainer model
The retainer model is when you sign a contract for a certain package of hours. Then, when the hours run out you bill your client for another package of hours. When a client hires you on retainer it’s like they top-up their account with credits.
The retainer model, similar to the hourly model, can work for nearly any service provider who charges an hourly rate and provides an ongoing service.
A major difference between the two models is that with the hourly model you invoice the client after you’ve done the work, while with the retainer model you get paid in advance for a package of hours.
The retainer model is time-bound instead of value based. You get paid for the time you devote to your client. It’s also limited because there are only so many hours in a day.
As with the hourly model, you need to track billable hours and display the result of your work. But it’s better than the hourly model in the sense that you have already sold part of your total work capacity so you can now focus on acquiring clients to fill up your schedule.
- Predictable income (to a certain degree)
- Good option for ongoing services
- Better value than the hourly pricing
- Limited scalability
- Like with the hourly model, you need to track time, and
- Need to demonstrate the value, sometimes
3. The monthly model
Service businesses, like career coaches or consultants, or practically any kind of service provider can help clients for a monthly fee when a relatively big volume of work is done again and again.
The monthly model is a good model for most services businesses. The benefits are that both parties, the freelancer and the client, know exactly what to expect in terms of invoice value and deliverables. It also helps the client to get into a habit mode and get used to paying you every month.
Now, for your business as well the monthly model can be one of the best options because it allows you to estimate your monthly income as accurately as possible. It’s like having paying subscribers. With that in mind, it’s easier to manage your cash flow and strategize on what you need to do to grow your service business even faster. In other words, the monthly model creates a safety net for you. You know that no matter what, you’ll be paid at least an X amount of money.
The monthly model is also perfect for companies that sell software in addition to services. For example, a design and development company might work with a client for website updates but also offer them a monthly subscription to a server or an email marketing platform.
- Suitable for any kind of service provider, basically
- Best for ongoing work
- Best for steady streams of income
- Builds up trust and sense of security
- Can work together with other service business models
- There are not any top-of-mind arguments against it
4. The performance-based revenue model
Let’s assume you’re a PPC advertiser running Facebook ads for a client. With the performance model, your compensation will vary depending on the revenue you generate for your client through those ads.
The performance model can work for lead generation experts, SEO professionals, debt collectors and direct sales businesses.
The performance model can be tricky, and you must be really careful if you want to work on a commission instead of charging a flat or an hourly rate for your service. With this model, the freelancer takes some risk because of a couple of reasons.
First, you need to wait for results – and results take time. So, you write sales copy for a landing page and your fees are calculated as a percentage of sales. But they sales cycle for that particular company might be three months.
Second, you’re not in control of other factors that affect the results. Using the same example, the revenue generated from a sales page depends on several different factors. One major factor is the level of incoming traffic. So, if your client runs short on budget, they could pause paid advertising channels. This will result in you receiving a much lower compensation. Unless of course you’re an insurance or real estate agent or an affiliate marketer , in which case you’re actually doing direct sales.
Third, your client business might not be optimized for results in other areas unrelated to your service. For example, the landing page designer might not have done good work or the loading speed of the page might be very low.
What you can do to combat the risk in the performance model is to also charge an upfront flat fee on top of any royalties you bring out. Now, you are able to cover your costs and eliminate the risk of not being paid at all. If the results are good you will make a significant profit, probably larger than with the other business models.
You might want to go down that road if you’re just getting started and you want to make your service accessible to people who cannot afford a high flat fee. You’ll also want to go with this model if you’re sure you can hit the goals you set most of the time. However, keep in mind that the performance model is probably the riskiest of the five service business models.
- Can yield much, much more than the other models
- You can mitigate the risk if you receive an upfront fee
- Best for expert service providers who know can hit the results
- Takes time to bear fruit
- You’re not in control of other forces that might affect the results
- You might not be aware of the client’s business situation
- Risk not to get paid at all
Are you a service provider?
We, at DFY , have solved the puzzle of exponential business growth for dozens of coaches, authors, consultants, web designers, agencies, speakers, affiliate marketers and other service businesses.
We can help you create digital goods out of your existing services, promote those products , automate your lead generation and set up a proven system for growing your revenue 24/7 on autopilot.
5. The project-based model
With the project model, you do estimate the hours needed beforehand, but you bill the client for the whole project. Usually, businesses that work on a project basis they get a portion of the total fee in advance and then bill the client per milestone or with the end deliverable when the project is complete.
The project model works great when you can define the scope of a job before it starts and can estimate how many billable hours it would take to complete.
If you can package your services together, like an architect, construction company or a website developer would do, then the project model can work for your business.
The project model can also refer to per-piece work. For example, a copywriter might be paid per article delivered.
With the project model, you’re able to create a higher revenue because you’re able to package services together into a premium package. Also, working on a project allows you to offer an upsell to your client more easily than when charging by the hour.
This revenue model for service businesses also allows you to better schedule your time and organize your resources. If you’re working by the hour instead, a client might need something on a short notice and expect you to adjust your schedule accordingly to deliver their urgent task.
On the other hand, there’s always the risk of you underestimating the amount of work involved. If this happens, you’ll end up working more hours and be paid less than your service is actually worth. If you don’t want to risk being in that spot, the monthly model may be a much safer alternative.
- Suitable for premium services that you can package together
- Can create a higher revenue compared to the hourly model
- You can get part of the payment in advance
- Better allocation of resources
- Easy to underestimate the workload
- Big projects can stall
How to choose the perfect business model
Choosing the right service business model can pave your path for a six-figure business.
There’s not a one-size-fits-all business model. So, how do you actually choose which one is the best fit for you, your team and customers? Which service business model will increase your bottom line faster?
Well, it depends; it depends on how you want to work with your clients and what type of work you do . It also depends on how risk aversive you are and how much you trust that your client has good processes and systems in place .
And, finally, it depends on the stage of your business. Are you just starting out or are you an established business?
For example, if you’re a new freelancer you might want to try the hourly model to gain experience and get your foot in the door of potential clients more easily.
On the other hand, if you’re an experienced service provider who works on a project basis , you might want to consider creating monthly packages for ongoing support, updates or coaching. Not all of your clients will need those monthly services but some will, and this way you can increase your monthly income easier than if you went out there seeking new clients.
It’s important to know your clients’ needs very well to create complete packages of services that work best for their and your business at the same time.
There are certain benefits and risks associated with each model . It’s advised that you take these into consideration when you structure your pricing plans.
All these service business models can work standalone or combined for pretty much all industries and anyone who provides service to clients who want to outsource part of their ongoing work.
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Business Models: Types, Examples and How to Design One
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What is a business model?
- What product or service a company will sell.
- How it intends to market that product or service.
- What kind of expenses the company will face.
- How the company expects to turn a profit.
Types of business models and examples
1. retailer model, 2. manufacturer model, 3. fee-for-service model, 4. subscription model, how much do you need.
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We’ll start with a brief questionnaire to better understand the unique needs of your business.
Once we uncover your personalized matches, our team will consult you on the process moving forward.
5. Bundling model
6. product-as-a-service model, 7. leasing model, 8. franchise model, 9. distribution model, 10. freemium model, 11. advertising or affiliate marketing model, 12. razor blades model.
ZenBusiness: Start Your Dream Business
How to design a business model
- How will you make money? Outline one or several revenue streams, which are the different ways your company plans to generate earnings.
- What are your key metrics? Having a profitable business is great, but it usually doesn’t happen right away. You’ll want to identify other ways your company will measure its success, like how much it costs to acquire a customer or how many repeat customers you'll have.
- Who’s your target customer? Your product or service should solve a specific problem for a specific group of consumers. Your business model should consider how big your potential customer base is.
- How will your product or service benefit those customers? Your business model should have a clear value proposition, which is what makes it uniquely attractive to customers. Ideally, your value proposition should be specialized enough that competitors can’t easily copy it.
- What expenses will you have? Make a list of the fixed and variable expenses your business requires to function, and then figure out what prices you need to charge so your revenue will exceed those costs. Keep in mind the costs associated with the physical, financial, and intellectual assets of your company.
- The best business checking accounts .
- The best business credit cards .
- The best accounting software .
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- Getting Started
What is A Service Business and How to Start One of Your Own
Looking for a profitable business idea? Starting a service business may be your key to success!
Starting your own company can be both exciting and scary, but the good news is that service businesses, also known as field service businesses, are some of the most successful startups. Currently, there is a lot of potential for entrepreneurs to make a name for themselves with new service business ideas. According to research , the global field service business market is currently worth $3.2 billion in terms of revenue and is expected to grow to approximately $5.6 billion by 2026, at a CAGR rate of 11.9%.
Grow your service business to earn maximum profit. Sign up for Field Promax .
To make your entrepreneurial dream a reality, however, you need to know the ins and outs of the trade. And this is what this blog is going to help you with. Here you will find everything that you need to know about the field of service businesses , including what are service businesses, what types of service businesses there are, what service businesses are the most profitable, and how to start your own field service business. So, without further ado, let’s jump right in.
Table of Contents
What is A Service Business?
By definition, A service business is a company that offers an intangible item that is typically provided by a person or employees of the company.
To explain service in business definition, a service business is an organization that provides professional support to its customers. Unlike product businesses, what a service business offers to their customers is not a tangible item. Instead, it is a service or activity that helps people in different ways. A service business’s goal is to meet a need or want that isn’t satisfied by a physical product. Also, they do things that make people’s lives easier or take care of things that people can’t do for themselves.
From a business point of view, service businesses are those that offer an activity or perform a job for money. This job is meant to help a business or a person with things like consulting, transportation, repair, accounting, cleaning, customer service, traveling, or maintenance, among other things.
These businesses now offer their services not just physically, but also online, through online platforms or mobile applications. Customers usually see value in things they can’t touch, and customer service is an important part of this. On the other hand, these industries employ more people than manufacturing companies. They make up a substantial portion of the fastest-growing economies, and thanks to new technologies, their spread has grown from the domestic to the global range within just the last decade.
What is An Example of A Service Business?
Essentially, field service business is an umbrella term. It can refer to a variety of business ideas. But at its core, the business focuses on providing skilled or professional service to help clients with their specific needs at home or in offices. The business goal is to provide exceptional customer service so that customers will want to continue using the service. Here are some examples of field service businesses:
- 1. HVAC Maintenance Service
Maintenance services for HVAC help their clients with repairs that require specialized skills. Their main goal is to make sure their customers are safe and happy, so they work quickly and carefully to finish the repairs. Customers don’t have to wait for help because several maintenance services are available around the clock. Maintenance technicians can repair and maintain air conditioners, heaters, and refrigerators, among other things.
- 2. Housekeeping
Housekeepers do a job for their customers by making sure that a home or business is clean and safe. They talk to their customers to find out what cleaning tasks they should do. This could include taking care of trash pickup, vacuuming rugs, mopping floors, dusting, and restocking toiletries.
- 3. Landscaping
Landscapers help their clients by taking care of their gardens. They might meet with the customer to find out how they want their yard to look, and then they plant flowers, pluck weeds, prune hedges, spread mulch, mow the grass, and pick up leaves.
- 4. Painting
House painters talk to their customers to find out how they want the inside or outside of their house painted. They talk about things like color and texture, which are important design details. Then, they get ready to paint by putting primer on the walls and covering nearby furniture with protective sheets. After that, they mix paint and paint the walls and other surfaces. Usually, they start by painting a small part of the surface to find out if the customer likes the color and texture.
- 5. Waste Management
A business, educational or healthcare institute, or public organization might use waste management services to get rid of waste in a safe and environment-friendly way and keep harmful production fumes from escaping into the environment. The waste management company comes up with a plan to keep the premises clean and recycle waste.
Types of Service Businesses
Now that you have a brief idea of service in business meaning as explained in the examples, let’s move on to learn about the various types of service businesses.
Service businesses can differ based on the type of service they provide and their target market. The two main types include:
- B2B Service Business
Business-to-business (B2B) service businesses offer their skills to other businesses. These could include services like counseling, accounting, marketing, IT, and more. Business-to-business (B2B) service businesses are important for helping other businesses improve their processes and make more money overall.
- B2C or Consumer Service Business
Consumers are the target market for companies that offer services to them. Some examples of customer service or business to customer (B2C) businesses are those in healthcare, beauty, hospitality, entertainment, and other industries. Consumer service businesses try to make life easier, more comfortable, and more enjoyable for people.
Field Promax Offers the Best Automation Solution for All Kinds of Service Businesses. Sign Up Now .
Scope of Profitability in Service Businesses
Service businesses can be highly profitable, and their success often depends on factors such as demand, specialization, and effective management. Here’s a closer look at the scope of profitability within service industries:
- Low Overhead Costs
Unlike product-based businesses that may involve manufacturing, storage, and distribution, service businesses often have lower overhead costs. This can contribute to higher profit margins.
Many service businesses can be scaled easily, especially those in consulting, coaching, or digital services. As demand grows, additional clients can be accommodated without significant increases in operational costs.
- Repeat Business and Retention
Providing excellent service fosters repeat business and customer loyalty. Satisfied clients are more likely to return for additional services and refer others, contributing to a steady stream of income.
- Specialization and Niche Markets
Specializing in a particular service or targeting niche markets can lead to higher profitability. Clients often value expertise, and businesses that cater to specific needs can command premium pricing.
- Flexibility in Pricing Models
Service businesses have the flexibility to choose pricing models that suit their business model. Whether it’s hourly rates, project-based fees, or retainer agreements, finding the right pricing strategy can enhance profitability.
Benefits of Running a Service Business
Running a service business comes with various benefits that appeal to aspiring entrepreneurs. Here are some advantages:
- Low Startup Costs
Service businesses often require minimal startup investment compared to businesses dealing with physical products. This makes it easier for individuals with limited capital to enter the entrepreneurial arena.
Service businesses offer flexibility in terms of working hours and locations. Many services can be delivered remotely, allowing entrepreneurs to work from home or set flexible schedules.
- Personal Connection
Service businesses thrive on personal relationships and direct interactions with clients. Building a strong rapport can lead to long-lasting partnerships, client loyalty, and positive referrals.
- Fast Revenue Generation
Service businesses can start generating revenue relatively quickly. Once you secure your first clients, income begins flowing in, especially if your services are in high demand.
- Adaptability to Market Trends
Service businesses can quickly adapt to changing market trends and customer needs. Being agile and responsive allows entrepreneurs to stay ahead in a dynamic business environment.
- Opportunities for Specialization
Entrepreneurs can capitalize on their unique skills and interests by offering specialized services. This not only sets businesses apart but also opens doors to premium pricing in niche markets.
How to Decide on A Service Business Idea
Starting a service business is a great idea. Not only is it profitable, but it also brings a host of benefits. You can be your own boss, work on your own time, and get creative in any way you want. There is no shortage of business ideas to dabble with. But before you zero in on any one of them, make sure you are ready to start a service business, meaning that you are taking the right decision. To figure it out, ask yourself the following questions:
- What skills do I have?
Knowledge of the service business definition will not suffice if you want to make profits. You need to ensure that you understand the job at hand. It must be something that you are capable of doing. Therefore, you need to figure out what your skills are and whether they align with your business idea.
- What experience do I have?
Some jobs, like HVAC or plumbing, require that you have a license. Others, like cleaning and lawn care, are easy to learn and don’t require certification.
- What niche is available in my area?
You can be the one to fill a service gap in your area if there is one. For example, if all the local cleaning services are booked months in advance or if none of the pool cleaning services in your town offer upkeep, that could be your niche.
- What is my startup budget?
Make sure the business idea you are pursuing is within your budget. To this end, you need to figure out your financial strength or ensure funding from external sources. Once you are clear on these aspects, go ahead and choose any service business idea that appeals to you.
Profitable Service Business Ideas to Start Your Own Company
- Home Cleaning
- Pool Service
- Fire and Security
- Alarm Installation
- Tree Service
- Window Cleaning
- Carpet Washing
- Appliance Repair and Maintenance
- Property Management
- Pest Control
- Beauty and Wellness
- Massage Service
- IT and Computer Service
- Financial Advisor
- Legal Advisor
- Graphic design
- Website development
- Digital Marketing
How to Start A Service Business
Follow these simple steps to start your own service business:
- Choose a business idea
- Perform market research
- Write a comprehensive business plan
- Choose a name and a business structure for your business
- Register your service business with the state
- Obtain necessary licenses and permits
- Open a business bank account
- Secure funding for your business
- Protect your business with necessary insurance
- Hire employees
- Get necessary resources and equipment
- Promote your brand
Wrapping Up: Grow Your Service Business with Field Promax
Service businesses are an important part of how companies work in the modern world. Businesses of all kinds can do well in this competitive industry, from B2B service businesses to consumer-based service businesses.
Service-based businesses must focus on giving their customers the best possible service. Meeting the wants of their clients gives them an edge over their competitors. And the easiest and most effective way to achieve this goal is to leverage modern technology.
To help small service business owners, Field Promax offers the most efficient paperless business automation solution. With this cutting-edge digital technology, you can seamlessly standardize and streamline your business processes. From scheduling and dispatch to work order management, from creating estimates to generating final invoices, Field Promax can give you the best automation solutions that ensure top-of-the-line service quality. It also provides advanced features and capabilities, such as GPS tracking, real-time reporting and analysis, dashboards, calendar views, equipment and inventory management, automated alerts and notifications, security levels, access control, digital signature support, and QuickBooks integration, to give you 360-degree support. It also comes with a cloud-powered mobile app that enables you to access and take control of your business processes no matter where you are.
For more information, contact Field Promax .
While product-based businesses sell tangible goods, service businesses deliver intangible solutions, focusing on expertise, time, or labor.
Identify a service aligned with your passion and skills, and conduct market research to understand demand and competition.
Service businesses often have lower startup costs, offer flexibility in working hours, and can quickly adapt to changing market trends.
Build a professional website, utilize social media platforms, and engage in online marketing to establish a strong online presence.
Specialization allows you to target specific needs, build expertise, and command premium pricing in niche markets.
Service businesses can start generating revenue relatively quickly, especially if there’s a demand for the services you offer and you effectively market your business.
Author Name :
My world is made up of codes. It is the central element that drives my universe. I am a self-taught, process-driven programmer with a creative bent of mind. Since I was an engineering student, I dreamt of creating something unique. To satiate my creative appetite, I took to coding. Blessed with abundant support and generous scholarships from my employers, I simultaneously worked full-time and pursued my dream. My passion and high productivity helped me in my journey as well. Finally, I created Field Promax to follow my drive of coding and streamlining processes; and do more of what I know best—coding.
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Made for you
A beginner’s guide to service delivery models.
When businesses strive to improve efficiency and deliver high-quality products and services while maximizing profit, one of the first lines-of-business they look at to drive such improvements is their service delivery model.
Transforming service delivery processes can be tricky, but it can also result in significant innovation that can substantially improve profit margins. Think about the technological advancements that have streamlined product manufacturing, enabling manufacturers to produce vastly more products while maintaining a level of quality that delights customers.
The same can be done for service-based businesses, but it’s often more complex than simply applying new technologies. It often requires a new way of thinking, too.
In this article, we’ll first take a look at the basics and benefits of the modern service delivery model. We’ll also run through some examples of efficient and optimized service delivery models to help you understand how you can apply proven concepts to your own business.
What Is a Service Delivery Model?
A services delivery model is a business framework of interrelated processes involved in providing a service and the interactions between the service provider and the customer throughout the business relationship. It utilizes technological advancements and improved operational systems and policies to cater to diverse sectors: education, healthcare, financial, you name it.
Effective service delivery models allow businesses to provide the services their customers want or need at a profitable price and an acceptable level of quality. A service delivery model also makes it possible to add value for the customer through consistent processes, policies, procedures, and limitations that guide the delivery of services and interactions between the provider and customer for the duration of the business relationship.
What Are the Types of Service Delivery Models?
Service delivery models can vary depending on the industry and services. For instance, information technology infrastructure library (ITIL) services meet their clients’ technological needs through configuration systems, databases, and service catalogs. One of the most widely used service delivery models, ITIL’s general backbone consists of service level management, financial management, capacity management, continuity management, and availability management.
Another example: general business consulting services guide clients in providing necessary training and information to fuel growth. They can also assist in content creation, human resources, and financial processes. A real estate service model can help customers look for residential or commercial properties while coordinating inspections and contracts.
In essence, service models are all about execution. In the same way every industry–major verticals to niche markets–requires a unique set of products, they also require a unique set of services.
Why Should You Invest in a Service Delivery Model?
The short answer: for the exact same reasons you invest in new technology. Developing and maintaining an effective services delivery model helps companies keep up with advancements in execution that can improve business processes. It’s akin to a template that helps ensure your services consistently meet (or beat) customer expectations. An effective model can also help reduce operational costs and contribute to a more seamless business operation.
With a proven service delivery model, you’ll have a set of standards, policies, and principles in place for your company to follow. You’ll also be able to see potential bottlenecks and limitations in service delivery that could hinder you from achieving your goals. Additionally, such models can help your company outperform its competitors by allowing you to allocate your staff and resources more effectively.
What Are the Elements of a Services Delivery Model?
An effective service delivery model has a clear boundary between the roles and responsibilities of the provider and its clients. It also looks at the expectations of its customers and the timeline and availability of its delivery.
There are four primary elements in building an efficient and effective service delivery model — service culture, employee engagement, service quality, and customer experience. While these elements are interrelated, service culture is absolutely foundational.
Establish and Maintain a Service Culture
The most fundamental component in developing a services delivery model is establishing your service culture. To do this, you’ll need to “bake in” your company’s principles, values, vision, and mission to your model(s). A primary advantage of starting with building a service culture is that it influences everything that comes next in how you deliver services.
Encourage Employee Engagement
The second essential element in a services delivery model relies heavily on your employees and human resources department. You’ll need to focus on employee attitudes, activities, and leadership skills–and ensure it’s all aligned to the culture you’ve created. And it’s a win-win, as engaged employees are more productive, too.
Think of this step at putting the culture created in step one “into action.” Although establishing a service culture is the “value” of your model, encouraging employee engagement is the mission and fuels its execution. Foster their skills and attitudes. Encourage contribution and feedback. Because no matter how refined your service processes and culture may be, they won’t deliver any returns if engagement is low.
Ensure Service Quality
Once you’ve established your service culture and improved employee engagement, the next component is to ensure service quality. This element includes strategies, processes, and systems to improve and maintain consistent performance within a company. Specifics could be surveying customers before and after service delivery.
A key element in ensuring service quality is ensuring customers receive adequate support in achieving their own targets and goals via your service delivery model. Remember the keyword in service is “serve,” as in to serve others, as in your customers.
Focus on Customer Experience
Finally, your service delivery model should apply a principle of co-creation with your customers: your clients’ outcomes should highly influence your model’s design. Each model deployed should match client practices, needs, wants, and ideas. Additionally, it should include account management and intelligence sharing that speak each client’s language (literally and metaphorically).
It follows that every company should constantly evaluate its service delivery models from a client’s point of view. Evaluations from this viewpoint are critical in adjusting and improving current systems and maintaining customer satisfaction.
It’s always about the client. Every service delivery model you build has to be client-centric. It’s not about wowing clients with the latest technologies (though that can help), but meeting their needs in a way that makes them feel understood and supported.
Far too often, a business in a slump looks at its products and its people as the culprits. When in most every case, business success comes faster, more easily, and more completely with a thorough evaluation of services, ensuring you have in place a proven, scalable, and customer-focused service delivery model.
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The Four Things a Service Business Must Get Right
- Frances X. Frei
Many of the management tools and techniques used in service businesses were designed to tackle the challenges of product companies. Although they are valuable to service managers, they aren’t sufficient for success. In this article, Harvard Business School’s Frei explains why and urges companies to add some new ones to the mix. After years of extensive research and analysis, she offers an approach for crafting a profitable service business based on four critical elements: the design of the offering, the funding mechanism, employee management, and customer management.
Just like a product that’s going to market, a service needs to be compellingly designed, and management must field a workforce capable of producing it at an attractive price. In addition, however, service firms must manage their customers, who do not simply use the service but who can also be integral to its production: Because customers’ involvement as producers can wreak havoc on costs, companies must also develop creative ways to fund their distinctive offerings, by providing a self-service alternative, for example, or by offsetting expenses with operational savings.
A close look at successful service businesses—Walmart, Commerce Bank, the Cleveland Clinic, and others—reveals that effective integration of the four elements is key. There is no “right” way to combine them; the appropriate design of one depends upon the other three. If managers don’t get all four pulling together, they risk pulling the enterprise apart.
Incumbents can fend off attacks from highly focused upstarts by becoming multifocused—that is, by pursuing multiple niches through optimized service models rather than trying to cover the entire waterfront with one model. Shared services within a firm (functions such as HR and finance) can help, since they will enable it to generate economies of scale and experience across models.
Extensive study of the world’s best service companies reveals the principles on which they’re built.
The Idea in Brief
All successful firms must design a compelling offering and manage the workforce to deliver it at an attractive price. But service firms must do even more: deal with the frustrating fact that their customers can wreak havoc on service quality and costs.
For example, a customer dithering at a fast-food counter slows things down for everyone else waiting in line. An architect’s client struggling to clarify how a new facility will be used drags out the design process.
To tackle this challenge, Frei advises aligning four key elements of your business:
- What your service offering consists of
- How you fund the excellence you want to provide
- How you manage employees to deliver quality service
- What you do to help customers enhance—not erode—service
Get these elements pulling together, and none of them can pull your business apart—as service stars like Wal-Mart, Commerce Bank, and Cleveland Clinic have discovered firsthand.
The Idea in Practice
To consistently deliver service excellence, ensure that each of these four elements reinforces the others:
Determine how customers define “excellence” when it comes to your offering: Convenience? Friendliness? Flexible choices? Price? Identify what you’ll do to deliver that excellence—and what you won’t do. Example:
Commerce Bank decided to serve customers who prized pleasant, face-to-face service and convenience. It offers evening and weekend hours, buildings with high ceilings and natural light, and a fun contraption for redeeming loose change. Despite its relatively unattractive interest rates and narrow product range, its retail customer base has expanded dramatically.
Think about how you’ll pay for the increased cost of the excellence you’re seeking to provide through your service offering. Possibilities include:
- Charging the customer. For example, Starbucks customers value lingering in the company’s coffee-house setting. To fund this inviting atmosphere, Starbucks charges a premium for its coffee.
- Spending now to save later. For instance, Intuit offers customer support service free of charge. It uses callers’ input to improve future versions of its software, so customers will ultimately need less support.
- Having customers do the work. For example, airlines’ self-check-in kiosks not only reduce costs; they also enhance the service offering by liberating travelers from long lines at staffed counters and by providing convenient tools such as seat maps.
Ensure that your workforce management activities (recruiting, selection, training, job design) empower employees to deliver the excellence embodied in your service offerings. Example:
Commerce Bank competes on extended hours and friendly service, not on low price or product variety. It knows it doesn’t need straight-A students to master its limited product set, so it hires for attitude and trains for service. For instance, it uses simple recruiting criteria, such as “Does this person smile in a resting state?” And it encourages employees to recruit people they see providing great customer service in other industries.
Articulate which behaviors customers must demonstrate to get the most value from your service. Then design your service specifically to foster those behaviors. Example:
To get customers using the new self-check-in kiosks, airlines ensured that travelers could complete the transactions with far fewer keystrokes than check-in personnel used to need. By contrast, retail stores that offer self-service checkout machines haven’t made using those machines easy for shoppers. Moreover, the stores expect shoppers to shoulder responsibility for fraud prevention by weighing bags during checkout. Result? Anxious customers avoid the machines.
As the world’s major economies have matured, they have become dominated by service-focused businesses. But many of the management tools and techniques that service managers use were designed to tackle the challenges of product companies. Are these sufficient, or do we need new ones?
- Frances X. Frei is the UPS Foundation Professor of Service Management at Harvard Business School and is a coauthor of the books Move Fast and Fix Things and Unleashed .
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The shift to flexible consumption How to make an “as a service” business model work
The move toward flexible consumption models
The difference between traditional business models and fcms, enabling a services operating model, a call to action.
Many incumbent tech companies are adopting flexible consumption models (FCMs) to provide offerings “as a service.” But doing FCM “right” often requires transforming the operating model as well as the business model.
Over the last several years, the technology industry has seen a significant shift toward the adoption of flexible consumption business models. Flexible consumption models (FCMs), also known as “as-a-Service” or XaaS models, offer customers product delivery and payment options that allow them to purchase access to products as a service. FCMs provide compelling benefits to companies that effectively deliver them to the market: They enable predictable, renewable revenue streams, deliver greater value to the end customer by allowing them to pay for only what they consume, enable deeper insights into customer consumption patterns to help inform add-on sales, and lower operational costs by enabling a company to serve customers at scale through a common platform. According to the International Data Corporation (IDC), the market for FCM offerings will reach US$160 billion in 2018. 1
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In a move to capture these benefits, a number of traditional technology companies have attempted to implement FCMs for part or all of their business. Many, however, have met with limited success, with consequences including failed product launches, slower growth, higher costs, and greater operating complexity. Meanwhile, new entrants using FCMs have been gaining market share and are now challenging these traditional companies’ marketplace dominance.
Many attempts to transition to FCMs falter because of the scope and complexity of the necessary changes. First of all, FCMs are customer-centric models, whereas traditional business models are more product-centric; this difference places different demands on a company’s operating model. To effectively implement an FCM at a company that has always operated on a traditional, product-centric model, the company must radically transform its operating capabilities to support FCMs’ unique characteristics (such as recurring billing, revenue recognition, and so on). Equally important, depending on how a company sells and delivers its products, it may wish to support multiple FCM-based business models to preserve each offering’s value proposition. This becomes more complex if a company needs to support traditional business models in parallel with its FCM model(s).
Transforming operations to support FCMs, in fact, requires a systemic operational recalibration. Force-fitting legacy processes and practices to support an FCM model will only yield suboptimal outcomes. Thus, the key question facing traditional product companies is how to enable an operating model that can address these challenges.
One way to make the transformation to support FCMs’ unique characteristics is to adopt a “services operating model”—an approach that entails treating not only the company’s marketplace offerings, but also its enabling internal operations, as “services” (a self-contained, sub-organizational unit) that are delivered to internal or external stakeholders.
Changing customer expectations are forcing many traditional technology companies to reevaluate their business models
Technology customers today are increasingly favoring FCMs over traditional product purchases, as FCM offerings usually require less upfront cost, transfer risk of ownership away from the customer, and align payment to consumption, providing demonstrable and measurable business value. Responding to this market shift, many technology product companies have undertaken to adopt an FCM (figure 1). Broadly speaking, we have seen companies taking one of three different approaches, depending upon their market context, business objectives, and risk profile:
- Protect and grow . These companies aim to include complementary FCM products in their portfolio to protect and propel their legacy offerings forward. Companies can choose to either develop these products organically or obtain them through acquisitions to drive incremental revenue. SAP is one example.
- Straddle . These companies see value in giving customers a choice between FCM and non-FCM offerings, and want to transition to FCM with caution. They seek to maintain both FCM and legacy versions of the same product without attempting to influence customers’ migration to FCM offerings.
- Burn the boats. These companies have decided to focus exclusively on FCM offerings and have undertaken an enterprisewide transformation to enable the FCM business. They have converted their portfolio’s key strategic offerings to FCMs, and plan to develop all new products only using FCMs. Adobe is one example.
FCMs differ fundamentally from most traditional technology business models in that FCMs organize their activities around customer needs and opportunities rather than around the product life cycle. Most traditional, product-centric companies tend to operate in a sequential fashion, moving the customer between phases in the value chain with handoffs between independently operating teams (figure 2). In contrast, FCMs’ value chains are not sequential, but interconnected: The company may engage with customers at any stage at any time, which requires an operating model that can support multiple concurrent customer interactions. For example, for a FCM business to deliver an evaluation program to a potential customer, the sales organization needs to identify the initial opportunity, the supply chain needs to extend the offer, the customer support arm must monitor service levels, and the customer success team needs to review the entire effort to determine the likelihood of conversion and what actions to take once the trial period expires. All of these activities must occur in tandem, and they require careful coordination among the different teams involved. Hence, the operating model must provide a mechanism for teams to work together to deliver an end-to-end outcome to the customer.
Given the interconnected nature of executing an FCM, it becomes clear that an effective shift to FCMs requires fundamental changes to not only a traditional product company’s business model but also its operating model. Our experience suggests that more than 65 percent of a typical company’s operational capabilities are affected by shifting to an FCM. This is a key but, in our experience, often overlooked consideration: Many major tech players seeking to implement FCMs over-rely on legacy processes, systems, and personnel to build, run, operate, and scale their FCM businesses. Indeed, some companies have invested millions of dollars to extend their existing operating models to develop and introduce new FCM offerings. In doing so, they are force-fitting legacy operations to the new business model in a vain attempt to handle FCMs’ unique operating characteristics with their current people and processes.
Redesigning the legacy operating model as a services operating model can allow a traditional product company to create and manage a structure that enables it to effectively manage a FCM business either independently or in conjunction with its legacy business.
The basic idea behind a services operating model is that it is composed of a number of self-organizing, collaborative components—“services”—that together execute the sum total of a company’s business activities. Services are self-contained sub-organizational units, each of which can be managed independently or, in certain cases, outsourced from the parent organization. They differ from functions or capabilities in several important ways. Each service has one or more clearly defined customers, who may be internal (other services or teams within the organization) or external (for instance, suppliers or end customers). A service’s output is clearly identifiable by the customer, and must create business value for those who consume it. The service acts as an interface to the underlying capability that supports it, but its operation is completely transparent to the consumer. Finally, each service is headed by a “service owner” who is responsible for service delivery, measuring service consumption and enhancing performance over time.
A company with multiple business units (BUs) or offerings may choose to have a separate service for a particular BU for better agility or to preserve an offering’s value proposition, or it may have one service that caters to all BUs for greater cost efficiency.
We have identified five important steps in transitioning from a traditional operating model to a services operating model:
- Establish a transformation office with executive sponsorship
- Disaggregate the operating model into a set of services
- Determine the level of standardization within each service
- Operationalize each service
- Establish service life cycle management
Step 1: Establish a transformation office with executive sponsorship
It’s no surprise that some companies have struggled with transitioning to an FCM, given the many factors that can make it difficult. The complexity of establishing an FCM operating model, the frequent competition between the legacy and FCM businesses over investment priorities, and hesitation and delay in making the needed investments and mindset shift can all present obstacles. Thus, establishing a governance model that signals strong organizational commitment is imperative to success. Consider following these guiding principles:
- Drive the change from the top down. Identify a senior leader with direct access to the C-suite to head the transformation. This leader is responsible for ensuring that the company invests appropriately (both money and resources) in developing the services operating model, and that each service is designed and operationalized to meet its performance metrics. He or she should also be tasked with capitalizing on opportunities for organizational learning and recruiting from other teams the right talent needed to execute the transformation.
- Deploy dedicated resources. Create a dedicated group to carry out the transformation effort, supported by a cross-functional panel of subject-matter experts who understand the dependencies between, and the services operating model’s impact on, different areas of the company (such as engineering, sales, and supply chain).
- Define metrics to drive accountability. Establish metrics against predefined milestones to hold the leader and the group accountable for the transformation’s success.
Step 2: Disaggregate the operating model into a set of services
The next step is to decompose the company’s operating model into a set of services in a way that allows each service to be managed and tracked independently. By doing this, a company can give the operating model the flexibility it needs to support a variety of FCMs. The complete set of enabling services should be identified for each of the company’s traditional and FCM marketplace offerings.
Figure 3 shows an illustrative breakdown of an FCM operating model into services that can be used as a baseline reference for identifying what services may be needed to support an FCM offering. (Of course, the actual list of services for any given offering will depend on the company’s target business models and current organizational model.) Figure 3 also shows the typical areas where a traditional company may experience capability gaps in various services. For services such as identity or access management, many traditional companies may already have most of the capabilities in place to enable the service. On the other hand, for services such as billing and invoices, traditional companies may need to acquire or develop capabilities such as recurring billing and payment capabilities to be able to deliver the service effectively.
Step 3: Determine the level of standardization for each service
Once the full set of services is clearly defined for each offering, the next step is to determine how the organization can effectively support both the company’s traditional and FCM offerings in a way that enables operational efficiency while allowing for agility. Essentially, the company needs to determine which set of services can be leveraged across all offerings, which services need to be developed separately to support certain groups of offerings, and which services are unique to an offering and must be maintained independently.
Here, the temptation to take a blanket approach to standardization must be resisted. In an effort to simplify the decision, many companies aim to centralize and standardize the company’s so-called “back-end” capabilities while giving the individual business units more leeway in “customer-facing” capabilities to leverage their experience and relationships. However, FCM business models do not typically lend themselves to this superficially neat operational categorization, especially if the company also wants to continue to sell certain offerings under a traditional model. For one thing, FCM business models often require certain services to engage with their customers in a way that is significantly different from what would be required under a traditional business model. (For instance, a traditional business model would usually not require end customers to be billed on a frequently recurring basis.) Secondly, different FCM business models themselves may differ from each other, meaning that the capabilities required for a particular service can vary significantly among different FCM offerings. For example, configure-price-quote (CPQ) services for a digital subscription model (such as a monthly subscription to a streaming video service) are usually very low-touch, whereas a club-membership subscription model, where customers expect highly personalized and customized billing and invoicing, might require high-touch CPQ services.
Because of these factors, it is imperative to consider each service separately in the context of the offerings it supports when deciding on its level of standardization. As an example, one major media conglomerate had a number of business segments supporting several FCM offerings, such as annual passes, merchant subscriptions, and digital subscriptions. Each business segment had evolved its operating model independently to meet immediate individual needs, which resulted in fragmented capabilities and an inconsistent customer experience. Realizing this, the company set out to establish the correct level of standardization across key services such as billing and payments to enable a frictionless customer experience across different offerings. Doing this would also allow the company to more easily scale the FCM offerings in the future.
A business model assessment of the FCM offerings revealed that the company had some 15 different FCM offerings, but only five distinct business models among them. “Billing” had unique requirements for only one of these models, but “payments” could be handled consistently across all five models. Consequently, the company decided to consolidate billing services for the offerings belonging to the four “non-unique” business models, but not to integrate the billing platform for the offerings belonging to the remaining business model. Payment services, on the other hand, were consolidated at the enterprise for all five business models.
Step 4: Operationalize each service
After establishing what services are required to operate the FCM business model(s), the next step is to operationalize each service. This is done by establishing ownership of the service within the organization, by defining the service components—the constituent activities—that are needed to run, manage, and track the service; by understanding the service’s inputs, outputs, and resources needed to execute; and by establishing metrics.
We recommend that companies begin by appointing a service owner for each service to be operationalized. The service owner, who is responsible and accountable for overall performance and acts as the service’s general manager, has several key responsibilities including deciding and adhering to service-level agreements, obtaining the resources needed to maintain service performance, managing dependencies with other services, and continually evolving the service to meet business needs. Given the importance and criticality of the service owner role, the individual who holds it should be senior enough to effect meaningful organizational change. Incentives should be devised to motivate service owners to effectively manage the service’s performance without being tied to a specific business area.
Once a service owner is appointed, they will be required to work with the central transformation team to further operationalize the service that they lead:
- Identify the service components. The service components are the activities the service performs to produce the outcome for its service consumers.
- Identify the service consumer(s). Service consumers are the stakeholders—which may be other internal services or external parties, including end customers—that make use of the outcome(s) produced by a service. Understanding who the service consumers are will help the service owner determine critical success drivers and track service performance.
- Establish expected service outcome(s). A service outcome is the total business value delivered to each consumer of the service.
- Determine service performance metrics. Service performance metrics should be defined for each expected service outcome. These metrics should measure performance on two key dimensions: efficiency (how the service uses its resources) and effectiveness (the extent to which the service delivers its intended outcome).
- Define the inputs. Inputs to a service come from other services or external stakeholders; the service uses these to create and deliver the expected service outcome.
- Identify service requirements. Service requirements are the resource and technology capability requirements that a service needs to process its inputs and make appropriate investment decisions.
Step 5: Establish service life cycle management
The journey does not end here. While the transformation establishes the foundation, equally important is the ongoing services life cycle management. Once a service is established, the service owner should periodically review its metrics to evaluate its performance and drive continuous improvement. Furthermore, he or she should work with the service’s consumers to understand their new requirements, and identify and prioritize the development of any new needed capabilities. Similarly, capabilities that a service’s consumers no longer need can be eventually retired.
Generally, the service owner should determine where services should “sit” within the organization. Key decisions include whether the service should be placed within the legacy organization or housed within a separate structure specifically created to contain services supporting the FCM business(es). For this, at least three distinct organizational placement options exist: segregated, parallel, and integrated (figure 4).
Where a service should reside depends on the company’s organizational characteristics and business goals. A key consideration is that the service should be placed within the organization where it has, at a minimum, an equal standing with the legacy operations to ensure that it is not underinvested in due to the organization’s natural propensity for maintaining the status quo. As one example, an equipment manufacturer that was losing market share decided to empower its business entities to create and launch new FCM-based software solutions derived from its traditional offerings to meet market demand. The company had aggressive targets and wanted to capture marketplace leadership in the industrial Internet of Things (IoT). In adopting a services operating model to enable these software solutions, the company decided to offer services to its business entities through a separate organizational unit to enhance speed through increased visibility and accountability. Placing the services in a single segregated unit, as opposed to having them delivered by different teams sitting within different functions, helped to ensure their alignment with the business entities’ requirements and development needs.
In contrast, a leading ERP software company that faced growing competition from cloud-based ERP service providers took an integrated approach to its services operating model. The company wanted to keep a focus on its core business, but to switch its business model to FCM to meet evolving customer demands. The company acquired a cloud-based ERP provider to integrate cloud functionality with its legacy offering for quick product enhancement. To sustain focus on its core business and maintain organizational culture, the company fully integrated the acquired business within the relevant functions to develop the centralized services. The teams consolidated the capabilities at the corporate level to support both legacy and new offerings. In this case, the integrated approach to services helped the company drive scalability and efficiency and allowed it to target larger customers with its new offerings.
The transition from traditional hardware and software sales models to an FCM can be very challenging, but it offers great potential benefits. To capitalize on this opportunity, leaders should understand that organizing operations to support the delivery of FCM offerings is very different from the operational needs of a traditional business model. If the strategic decision is to go forward with an FCM, applying a services operating model can enable a company to execute the FCM(s) effectively in the marketplace.
The authors would like to thank Faruk Muratovic , Aishwarya Sharan , Jon Smyrl , and Varun Pulyani , all of Deloitte Consulting LLP for their contributions to this article.
Cover image by: Andrew Bannecker
Eileen Smith, Worldwide semiannual public cloud services spending guide , International Data Corporation, 2018, p. 3. View in article
Topics in this article
Flexible consumption services.
Flexible consumption business model transformation allows customers the flexibility to consume and pay-per-use, but transitioning is complicated and challenging. Companies exploring consumption-based business models should think through the implications of the complex and interrelated business decisions they will need to make as they transition.
- Deloitte Consulting LLP
- [email protected]
- +1 415 932 5352
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Senior Manager | Monitor Deloitte
Abhi Arora is a strategy senior manager with Monitor Deloitte and focuses on helping technology clients with growth and go-to-market strategy, and business model transformation. His recent experience includes helping clients with their end-to-end FCM transformation journey, from identifying and addressing key strategy questions, to defining new operating model constructs and enabling capabilities. He is based in New York, NY.
- [email protected]
- +1 212 829 6157
Principal | Deloitte Consulting LLP
Gopal is a Partner in Deloitte Consulting’s Monitor Deloitte practice, focused on the High-tech, Media and Telecommunications industries. He specializes in corporate strategy, organic and inorganic growth, product innovation, customer strategy, go-to-market and new business models in the high-tech sector. Gopal has over 15 years of experience serving senior executives in CEO, Strategy, BU, Product, Sales and Services roles on solving their most critical priorities. In recent years, Gopal has focused on high-tech business model evolution and assisted multiple clients in the hardware and software sectors build and scale new digital business models related to digital platforms, Cloud, SaaS / XaaS / flexible consumption, subscriptions, tech-driven services, cognitive, IoT, through business model definition, organic and inorganic investments, customer strategy, product and portfolio strategy, pricing and packaging, enterprise and commercial go-to-market models (direct, indirect, digital), adaptive operating models and building critical capabilities required for execution. Gopal is a co-founder and co-lead of Deloitte’s XaaS practice and is currently scaling Deloitte’s Customer Outcomes practice that is focused on serving the agenda of the Chief Customer Officer in sustaining and growing recurring revenue models.
Alumnus | Deloitte Consulting
Isaac Khan is an alumnus of Deloitte Consulting, with 15+ years of experience in driving large-scale transformational change. He specializes in digital business operations, and post his stint at Deloitte, he has advised on, led, and executed enterprisewide digitization initiatives for large technology companies. Khan currently leverages his consulting experience on operational strategy development, business model evolution, and digital sales enablement for a multi-national technology conglomerate. He is based in San Jose, CA.
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Everything as a service: a closer look at the business model of the future
Everything as a service is increasingly becoming the preferred business model. Thanks to major platforms like Uber for ridesharing, Netflix for streaming video and Google for cloud services, businesses are now seeing the benefits of embracing on-demand, ‘as a service’ business models.
Everything as a service uses X as a placeholder for any kind of product, meaning that you don’t sell the product itself but charge for the usage or the output of the product, such as pay-per-use or a monthly flat fee, like Uber or Netflix, respectively. In financial terms, the customer exchanges capital expenses for operational expenses. Although XaaS sounds like it’s a standard leasing or renting model, that is not the case.
The concept isn’t new, either. Sixty years ago, the Xerox Corporation (at the time named Haloid) introduced a new business model to encourage affordable widescale use of their copy machines to offices by leasing their machines. Xerox would supply the machine, services and support allowing companies a specific number of copies included in this service and charging for usage above and beyond that amount.
Today, anything as a service business models are based on the supplier taking on the responsibility for the data analysis and maintenance of the service and using information via the Internet of Things (IoT) to provide real-time upgrades and improvements.
Rolls Royce is an early adopter of the XaaS model with its turbine engines, which charges aerospace customers a fixed price for the number of hours they fly. Maintenance is covered, engine downtime is reduced, and companies have a fixed, predictable cost. These engines also come loaded with IoT sensors. For example, the Pratt & Whitney’s Geared Turbo Fan (GTF) engine is fitted with 5,000 sensors that generate up to 10 GB of data per second . As the cloud and IoT become more widely available to a much broader audience, XaaS becomes a central pillar in transforming their business.
One of the key factors driving the adoption of the everything as a service business model is what’s known as the overshot customer. The customer, from independent consumer to industrial manufacturing companies, are purchasing products that are too expensive or too complex for its purposes. 80 percent of the customers use just 20 percent of the functionality of a product. Most customers have expressed that they would accept less functionality if the machine or the product was significantly cheaper.
This is causing more pressure on the markets to meet customer demands as companies try to balance against the value and the price. Decreasing complexity, a reduction in spare parts cost and a reduction in service costs are all factors used in minimizing the cost of the service while still providing the functionality that the customer needs.
A contradiction exists, though. More and more customers demand shorter innovation cycles. This not only increases the complexity of the product but raises the cost as well. Digitalization and digital twin capabilities can provide the edge for adaptable production, allowing the producer to exchange things faster that produce different products. The whole process from end-to-end must be synchronized. For example, that can mean reducing the time between ordering and integration; from the time a company receives information over a website through the delivery of the machine, getting it ready for production and integrating it into the whole process.
The machine itself must be adaptable either through modularization or offering open standards, such as using a digital twin to engineer the product before integration begins.
A successful everything as a service business model must do the following:
The future of XaaS We live in a technologically evolving world where the pace of innovation is making it hard to keep up. Product purchases means the threat of owning soon-to-be obsolete technology with unpredictable maintenance and service costs and the inability to shift based on customer demand.
For XaaS to work, the right platform will have to provide all the tools to connect the necessary sensors, store and aggregate the information, make predictions and connect to enterprise resource planning systems . A reliable platform ensures the consistent flow of information, so productivity can be quickly and easily improved, and analysis of assets can increase quality and efficiency. The goal is reliable performance and meeting customers performance expectations – XaaS can exceed those expectations.
The cloud will play a critical factor in the adoption of XaaS. Click here to learn more about the cloud’s technological capabilities.
Watch the presentation Hannover Fair 2019
About the author: Marcus Fehling has been working in product management at MindSphere, Siemens’ IoT Platform, since 2017. First as Product Manager and since October 2018 as Head of Trend Evangelists. In this role, he analyzes which socio-economic and technical trends will influence the MindSphere business model over the next three to five years. Previously, he spent 10 years at Corporate Technology, the research division of Siemens AG. Here he recently led an international study on digital transformation on behalf of the Federal Ministry of Economics and Technology in Germany and strategically supervised the topics of electromobility and software architecture for autonomous vehicles. Twitter: @FehlingMarcus LinkedIn: Marcus-Fehling
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This guide will help you understand how each business model works, the products or services they offer, and what makes it unique. These key insights will help you in the selection process of a business model that works best for you.
Have you ever wondered how some companies are profitable?
In this deck, we deep dive into business models used by companies in multiple industries. Using our Business Model Kit , we offer a visual overview of how each business profits from the model that drives it. .
Free (or nearly free) for the user:
- Early exit strategy
- Pay-what-you-want (PWYW)
- Tip jar/donation
- Freemium model
- Barter or swapping for services
- Barter or swapping for products
Third party options:
- Advertisement (ad-based) model
- Affiliate/referral fee
- Get-one-give-one model (G1G1)
- Franchise model
Mixed business model:
- Razor and blade model
- Open source model
- No frills model (discount or budget model)
- Commission-based model:
- Auction model
Paid (direct sales business model):
- Subscription model
- Premium model
- Pay-per-use model
- Add-ons/In-app purchases
- License fees
- Single purchase model
- Pay-as-you-go model (PAYG)
Grab is an on-demand ride service that has since expanded to everyday services like deliveries, financial services and more – making it a superapp. It charges a service fee of 20% ~ 30% for every transaction that goes through its platform.
Hubs charges clients for each industrial manufacturing job they begin through the platform. Prices are determined by a machine learning algorithm.
Patients Like Me offers a free health community service to its users. They make money by selling the data, generated by the community, to pharmaceutical companies.
WHOOP offers a wearable fitness gadget that gives personalized recommendations and feedback. WHOOP charges a monthly subscription fee to access the data on the platform, while the first device is free.
Digit is a financial service application that monitors financial behavior and automates its users’ savings. Digit receives a fixed monthly fee of $5 from its users. On top of that, it can leverage the funds it has under management for greater returns
Kiva is the first online non-profit lending platform for underserved populations.As a non-profit, Kiva doesn’t profit from loans received — lenders donate to Kiva to cover operating costs. The remainder of costs are covered through grants, supporters, and field partners.
Appear Here is the Airbnb of retail spaces — an online marketplace to list, find, and book short-term retail spaces. After the landlord sets a daily, weekly and monthly price, Appear Here takes commission between 12% - 15% on a completed transaction, while the space owners pay no listing fee.
Kaggle makes money in two ways: With Kaggle competition, they receive a “listening fee” for each competition posted on the platform. Also, they provide a service for matching companies to the top 0.5% of their community, which they call Kaggle Connect.
23andMe makes money with personal genetic tests, providing reports on lineage discovery & +240 health conditions. It’s believed that their DNA research studies & surveys will soon be an additional way of making money, with a mainly B2B focus instead of B2C.
Friendsurance works as a broker between Policy Holders and existing Insurance Partners. They’re letting customers share risks with friends, allowing them to lower prices due to reduced fraud & process costs, better risk pools, etc.
AliveCor makes money by selling ECG devices ($199) that fit on existing smartphones and via their AliveInsights Service – a professional analysis service that makes it easy to get expert insight on your ECG readings.
Glow sells “data insights” regarding conceiving to Research Institutions & gives exposure to trustworthy Infertility Treatment Clinics. The data is generated by users who use the Glow free fertility-tracking app.
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What is a business model? (Plus, how to define yours)
Business models distill the potential of a business down to its essence. Companies across every industry and at all stages of maturity need business models. Some rely on lengthy processes to build complicated models, while others move quickly to articulate the basics and take action. Either way, having the discipline to work through this planning tool forces internal alignment.
You must build something that real people with real needs will find value in and pay for — otherwise you do not have a lasting business. Brian de Haaff Aha! co-founder and CEO
For established enterprises, a business model is often a living document that is reviewed and adapted over the years. For companies launching products and services or entering new markets, a business model helps ensure that decisions are tied back to the overall business strategy . And for early-stage startups, a simple one-page business model enables founders to explore the mechanics of a business and how you anticipate it will be successful.
Defining and documenting a business model is an essential exercise. Whether you are starting a new venture, expanding into a new market, or shifting your go-to-market strategy , you can use a business model to capture fundamental assumptions about the opportunity ahead and tactics to addressing challenges.
Unfortunately, many companies fail to integrate their business model into all aspects of the organization — from recruiting talent to motivating employees. Part of the issue is accessibility. That is why forward-thinking companies choose tools that make it possible to quickly build and share your business model. The Aha! business model canvas, for example, gives you a collaborative space to explore concepts and connect your model to everyday work.
Build a business model in Aha! Notebooks. Sign up for a free trial .
Start using this template now
You can access the business model template shown above using Aha! Notebooks . You can also try a similar template that is built into the product strategy section of Aha! Roadmaps . Or you can download these free Excel and PowerPoint business model templates .
This guide covers the basics of business models, from core concepts to best practices. Jump ahead to any section:
Definition of a business model
Business model components
Business model vs. business plan.
Different types of business models
Pros and cons of different models
Analyzing competitor business models
Business model templates
How to build a business model
What is the definition of a business model?
A business model defines how a company will create, deliver, and capture value.
A business model answers questions that are crucial for strategic decision-making and business operations. Creating a business model for your startup or product means identifying the problem you are going to solve, the market that you will serve, the level of investment required, what products you will offer, and how you will generate revenue. Pricing and costs are the two levers that affect profitability within a given business model.
A business model is part of your overall business strategy. Some business models extend beyond economic context and include value exchange in social or cultural terms — such as the intangible impact the company will have on a community or industry. The process of constructing and changing a business model is often referred to as “business model innovation.”
15 elements of a brilliant business strategy
This is why innovation programs fail
There are three main areas of focus in a business model: value proposition, value delivery, and value capture. The proposition outlines who your customers are and what you will offer. The delivery details how you will organize the business to deliver on the proposition. And the capture is a hypothesis for how the proposition and delivery will align to return value back to the business.
Below are some components to include when you create a business model:
Vision and mission : Overview of what you want to achieve and how you will do it.
Objectives: High-level goals that will support your vision and mission, along with how you will measure success.
Customer targets and challenges: Description of target customers (written as archetypes or personas ) and their pain points.
Solution: How your offering will solve customer pain points.
Differentiators: Characteristics that differentiate your product or service.
Pricing: What your solution will cost and how it will be sold.
Positioning and messaging: How you will communicate the value of your offering to customers.
Go-to-market: Proposed approach for launching new offerings and services.
Investment: Resources required to introduce your offering.
Growth opportunity: Ways that you will grow the business over time.
Positioning vs. messaging
- What is value-based product development?
- What is a go-to-market roadmap?
Business models and business plans are both elements of your overall business strategy. But there are key differences between a business model and a business plan.
A business model is seen as foundational and will not usually be reworked in reaction to shorter-term shifts — whereas a business plan is more likely to be updated based on changes in the economy or market.
Related: Business plan templates
What is the benefit of building a business model?
Innovation is about more than the products or technologies that you build. The way that you operate your business is a critical factor in how you stand apart in a crowded marketplace. The benefit of building a business model is that you can use the exercise to expose and exploit what makes your company unique — why choosing your offering is better for customers than any alternatives and how you will grow the business over time.
Many people associate business models with lengthy documents that describe a company’s problem, opportunity, and solution in the context of a two-to-five-year forecast. But business models do not need to be a long treatise.
A one-pager is just as effective for distilling and communicating the most important elements of your business strategy. The concise format is useful for sharing with broader teams so that everyone understands the high-level approach. Done right, a business model can become a touchstone for the team by outlining core differentiators to promote and defend in the market.
Related: A more comprehensive business model builder
What are the different types of business models?
There are many different types of business models. Below are some of the most common business models with example companies for reference (take note of the companies that appear in several categories):
Did you keep track of the companies that appeared in several of the business model examples? Good. You now have a grasp of how complex enterprises with vast portfolios of products and services often employ many business models within the same organization.
Consider a company like Apple, which manufactures and sells hardware products as well as offering cloud-storage, streaming subscriptions, and a marketplace for other applications. Amazon, whose offerings range from retail (with the acquisition of Whole Foods) to marketplace (Amazon.com) to subscription services (Amazon Prime and Amazon Music) to affiliate, also features in different categories. Each division or vertical will have a distinct business model that reflects the nuances of how it operates while also supporting the corporate business model.
Related: The product manager vs. the portfolio product manager
Pros and cons of different business models
Some types of business models work better for certain industries than others. For example, software-as-a-service (SaaS) companies often rely on freemium business models. This makes it easy for potential users to experience the value of the product and incentivizes paid conversions via access to additional features.
Many social media platforms make money through advertising. By providing full access to the platform for free, these companies attract more users. In turn, this creates a more valuable audience for advertisers and increases revenue for the business.
How do you analyze a competitor’s business model?
Business analysts and investors will often evaluate a company’s business model as part of due diligence for funding or market research . You can apply the same tactics to analyze a competitor’s business model — with a few caveats.
Public companies are subject to reporting requirements. This means that the business must regularly disclose financial and performance data to the public — these disclosures occur quarterly and annually. The data includes everything from gross revenue, operating costs and losses, cash flow and reserves, and leadership discussions of business results. Designed to protect and inform investors, these reports can provide you with the information you need to understand the basics of the company’s business model and how well it is performing against the model.
Private companies are not required to reveal business data publicly. Investors or partners may be privy to certain aspects of the company’s performance, but it can be difficult to understand exactly what is happening from the outside. Some analysts or business websites will attempt to “size” a business or market by looking at a variety of factors — including the number of employees, volume of search terms related to the core offering, estimated customer base, pricing structure, partnerships, advertising spend, and media coverage.
Once you have identified relevant alternatives to your offering and gathered all of the information that you can find, a good way to analyze a competitor’s business model is to conduct a competitive analysis.
Related: Competitor analysis templates
You do not want to spend too much time thinking about other companies when you could be focused on your own. A simple SWOT analysis is a helpful way to map out strengths, weaknesses, opportunities, and threats that were revealed during your research.
Below are three types of business model example layouts you can use to succinctly and objectively assess what is possible and what challenges could arise for your business.
Aha! Notebooks business model template
Articulate the foundation of your product or service in a flexible whiteboard-style format with the Aha! Notebooks business model template.
The focus is on capturing key elements like why the solution is worth buying (messaging), pain points of the buyers (customer challenges), and ways you will grow the business (growth opportunities).
Aha! Roadmaps business model canvas
The Aha! Roadmaps business model is the most complete template in this guide — based on our team's decades of experience building breakthrough products and software companies.
You can drag and drop each component within a custom layout. And once you have completed your business model, it is easy to share with your team via a live webpage or exported PDF. This business model builder is included with the free 30-day trial of Aha! Roadmaps.
Aha! Roadmaps lean canvas
Similar to the business model canvas, this model in Aha! Roadmaps takes a problem-focused approach to create an actionable business plan. It is most commonly used by startups and entrepreneurs to document business assumptions. The focus is on quickly creating a concise and effective single-page business model. It documents nine elements, including customer segments, channels used to reach customers, and the ways you plan to make money.
How to build a business model in 10 steps
Crafting a business model is part of establishing a meaningful business strategy. But a business model is essentially a hypothesis — you need to test yours to prove that it will actually provide value. Many startup founders especially underestimate the costs and timeline for reaching profitability.
1. Identify your target market Who will benefit from your offering? What characteristics do prospective customers share?
2. Define the problem you will solve What is the problem that you are solving? What are the pain points of your potential customers?
3. Detail your unique selling proposition (USP) What will you build and how will you support it?
4. Create a pricing strategy How much will you charge for your offering? What factors will go into choosing your price point?
5. Develop a marketing approach How will you market your product and reach target customers? What channels will you choose for go-to-market?
6. Establish operational practices How will you streamline processes and procedures to reduce overhead and fixed costs?
7. Capture path to profitability How will your business generate revenue? What level of investment will be required and what fixed costs exist?
8. Anticipate challenges Who are your competitors? What opportunities and threats exist for your business?
9. Validate your business model Was your hypothesis correct? Does your business model solve a problem the way you thought it would?
10. Update to reflect learnings What can you do differently in the future to ensure greater success?
Your business model will ultimately guide your organization and influence your product roadmap. Give it the deep thought it deserves — questioning your core assumptions about how you will generate value and how your team will work towards achieving shared goals.
Deliver more with Aha! — try it free for 30 days .
Additional strategy resources
Using Aha! software
Aha! Roadmaps — Strategy overview
Aha! Roadmaps — Strategic models
Strategic blogs and guides
- How to price your product
- How to position your product
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- 4 steps for product ideation
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- How often should roadmap planning happen?
- How to build a roadmap for a new product
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- Product roadmap examples
- How to report on progress against your roadmap
- How to communicate your product roadmap to customers
- What is a content marketing roadmap?
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50 Types of Business Models (2022) – The Best Examples of Companies Using It
Last updated: Jan 30, 2021
Are you looking for ideas to unlock your long-term business value? If you shook your head in yes, remember that business model is one of the ways to streamline your business process.
Precisely, a business model is a holistic framework to define, understand, and design your entire business in the industry. Often novice entrepreneurs do not understand the significance of the business models.
Check out 50 different types of business models , along with examples of companies for better insight. Try to adopt these business models in your startup.
Table of Contents
1. Franchise model
Best for the company’s expansion, franchising allows the franchisor to license its resources, brand name. Intellectual property and rights for a franchise to sell its products and services in exchange for a royalty.
McDonalds’s is the best example, which has 93% of its franchised restaurants worldwide.
McDonald’s is the leader in the global foodservice. It operates 36,059 franchised restaurants out of a total of 38,695 restaurants worldwide. Its franchise restaurants have increased year-on-year for the last 13 years.
Example: Subway , McDonald’s , Gold’s Gym
2. Multi-sided platform model
Any company that offers services to both sides of business carries out a multi-sided business model. The perfect example is LinkedIn , which provides subscription services to people to find job opportunities as well as to HR managers to find candidates for their vacancies.
Example: LinkedIn , Freelancer.com
3. Cash machine business model
Also known as the cash conversion cycle (CCC). It basically means how quickly a company converts cash to good and services and then again into cash. This model is used by the companies who make low-profit margin but survive in the market with a disruptive position. Like, Amazon generates a massive amount of cash from its online store before it pays to its suppliers. Another way to look is that Amazon runs its supply chain on vendor credit.
Cash Conversion Cycle : Cash ==> Product & Services ==> Cash
Example: Amazon , Alibaba , Apple
Pro tip: This type of business model is most suitable for inventory type of businesses.
4. Freemium business model
A mix of free and paid services, the freemium model is mostly used by tech companies in the Software as a Service (SaaS) or apps business model. To grow business and acquire customers, companies offer free (lite) versions to customers but for a limited time or with limited features. To unlock the upgraded features, the customer has to opt for paid services.
Examples : Zoom , Dropbox , MailChimp , Evernote etc.
Pro tip: It’s an excellent way to encourage customers to try the software or application.
5. Subscription business model
This model allows the customer to get services by paying a fixed amount every month or year. In this case, the company has to provide enough value to its customer, so they visit the website over and over again.
It allows companies to segment the market and offer a specific number of items in its content under different plans and prices known as tiered offerings.
For example, Netflix offers monthly subscriptions under the Basic plan for $8.99/month, Standard plan for $12.99/month, and Premium plan for $15.99/month.
Examples: Netflix , LinkedIn , Amazon Prime , Dollar Shave Club , are few of its examples.
Pro Tip: This model is useful for content or service-based websites.
6. Peer-to-peer business model
As per this model, a company acts as a middleman between two individual parties and create value for both demand and supply side. It’s different than a typical relationship of a business selling its services to consumers (B2B or B2C). It makes money through commissions. Airbnb is the right example that allows transactions between hosts and hostees.
Example: Airbnb , Uber , eBay , Offerup , Freelancer.com,
7. One-for-one business model
The one-for-one business model can be referred to as a social entrepreneurship business model. It’s a hybrid solution, a combination of both profit and not-for-profit services. Although there are some debates about its long-term sustainability, many companies are pivoting their business models to cater to socially conscious millennials. The best example is TOMS Shoes that provides shoes to underprivileged children globally for every pair of shoes sold.
Examples: TOMS Shoes , Warby Parker (donated eyeglasses), Two-degree Food , Soapbox Soaps .
8. Hidden revenue business model
This model refers to a revenue generation system in which users don’t have to pay for the services offered, but the company still earns revenue streams from other sources. Like, Google earns from advertising money spent by businesses to bid on keywords while users don’t pay for the search engine.
Examples: Google , Facebook , Instagram , Twitter
9. Razor and blade business model
In this model, one item (Razor) is sold at a low price while another associated item (blade) is sold at a premium price. It is also known as a printer and cartridge business model. For example, the price of inkjet printer itself was just a one-time expense, however, getting a new ink cartridge replaced is an ongoing expense for consumers. The model is great if you have a loyal customer base and if you can create some sort of lock-in situation with customers.
Example: Xbox or PlayStation Video Games , HP Printers , Nespresso coffee machines , AT&T Mobile phones with 2-year contract .
Pro tip: Use this model, if there is a need for recurring sale of an associated item, which can generate a continuous flow of revenue.
10. Reverse Razor and Blade business model
The business model is contrary to the razor blade model. It implies offering low priced products to encourage customers to buy high priced items as well.
This business model uses the strategy with a one-time offer for the premium product and acquires more revenue from secondary items in the long term.
Example: Apple employs this business model perfectly. Apple’s App Store and iTunes sell apps, movies, songs, etc. at reasonable rates but charges premium prices on its devices like iPhone, iPad, and Mac.
11. Direct sales business model
In this model, products are directly sold to the end customers either in a one-on-one conversation or small gathering, remember Tupperware house parties ? The salesperson gets a share of every sale. Although technology has superseded the direct sales method in many ways, still many companies prefer to give a personal touch to its customers.
Examples: Tupperware , personal care & nutrition brands ( Avon , Arbonne , and Herbalife )
12. Affiliate marketing business model
In this model, companies make money by featuring, reviewing, and recommending other company’s products or services. Think about product review websites. These websites are paid based on sales opportunities that they bring to their vendor companies.
Examples : NerdWallet , Capterra , MoneySavingExpert.com , and thewirecutter .
13. Consulting business model
Companies that provide consulting services by hiring experienced and qualified people and having them assigned on client’s projects follow the consulting business model. These companies tend to charge on the hourly basis and/or they take a percentage share based on the successful completion of the project (cost reduction project). Mckinsey and Boston Consulting Group are multi-billion-dollar businesses that are based on this model.
Examples: Deloitte , Mckinsey , BCG, software or website development firms
Pro tip: if you are a subject matter expert (SME) in a field, and when the duration of the project is uncertain (based on the change in client’s requirements) then consulting business model is an excellent way to charge your clients.
14. Agency-based business model
This is a project-based business model, where an outside firm is hired to complete a specific task. Traditionally, businesses that lack internal expertise hire agencies to get a customizable solution for their needs. Remember Mad Men ? Acclaimed Netflix series that focuses on advertising agency and their clients. Some niche agencies are digital marketing, design & architecture, survey, promotion, media, public relationship, branding, website development, social media, etc.
Example: TBWA\Media Arts lab (Apple’s go-to ad agency), Leo Burnett Company (United Airlines, McDonald’s , Kellogg’s are some of their notable clients)
15. User-generated content business model
Allowing users to generate quality content on websites for free to answer other users’ questions and provide reviews, this business model is new yet fast-growing.
This model is driven by a wide range of digital commodities, from videos to reviews, pictures, blog posts, testimonials, and any other type of content created by users of a brand. And made accessible via social media.
User-generated content is compiled and sold to companies seeking to exploit consumers’ ideas and content to promote their brands.
Examples: The top examples are YouTube , Quora , Yelp , Yahoo Answers , Reddit .
16. Online educational business model
Targeting the educational industry, including students and teachers, this business model allows them to get access to educational resources via flat course fees or subscription. It can be said as a combination of freemium, course fees, and a subscription-based model.
Examples: Khan Academy , LinkedIn learning , Coursera , Udemy , edX , etc.
17. Instant news business model
This model focuses on sharing and updating news instantly without any intermediary.
Companies that use this model provide open and reliable channels allowing trusted primary or secondary sources to communicate breaking news or urgent announcements directly to their audience.
In the past few years, some social media platforms have emerged as the go-to option for instant news from primary sources like presidents, CEOs of companies, and so on.
Example: Twitter is the best example. Users can access the news in real-time by checking the trending hashtags.
18. Multi-brand business model
This model is based on marketing more than two products, almost similar yet competing with each other and come under a single organization but having different brand names. It is done to create economies of scale and to build an empire.
Examples: Procter & Gamble , Unilever , and Nestle are a few examples.
19. E-Commerce business model
A simple yet most promising business model, e-commerce allows buyers and sellers to connect and transact using an online platform (online shop).
There are several types of e-commerce business models, including Business to Business (B2B), Business to Customer(B2C), Customer to Customer (C2C), and Customer to Business (C2B).
Example: Amazon , Alibaba , eBay , OLX , Walmart , etc.
20. Distribution based business model
A company that works by having one or a few key distribution channels to integrate with its final customers follows this model.
Companies that use this model provide channels for businesses to sell to customers via dealers, brokers, supermarkets, retailers, and so on.
Example : Unilever spends its major part of revenue in maintaining a proper distribution.
21. Drop-shipping business model
A cost-effective as well as an exciting business model. In drop-shipping, a business owner contacts many different suppliers/ wholesalers to sell their product on the website. Once an order is placed on a business owner’s website, wholesaler drop-ships the products directly from the manufacturer to the customer. In this case, the business owner does not have to hold any an inventory and uses the third party to manage all the shipping and logistics needs.
Pro tip: It’s an excellent way to start a niche e-commerce business website with a limited upfront cost.
Examples: Doba , Oberlo , Dropship Direct , and Wholesale 2B are few examples.
22. Enterprise business model
Targeting and focusing only the large clients, enterprise business model is all based on getting big deals. It is built on complex sales with a good few potential clients. Like the clients of Fortune 500 usually have multi-billion dollars budget.
Example: Boeing , Raytheon, SpaceX , Goldman Sachs is an example of Enterprise business model because their sales motion is targeted towards very large business enterprise customers or governments .
23. Social enterprise business model
This model is based on the fundamental that companies should make profits without causing any harm to anyone, and a part of it should be spent in humanitarian works to improve human living conditions.
Example: Brunello Cucinelli is an Italian luxury brand that donates about 20% of its profits towards a social cause.
24. Direct-to-consumers business model
This model allows companies or brands to sell their products to final customers directly. Highly effective marketing campaigns and advertising activities are required to retain customers.
Example: Unilever is the best example while being one of the world’s largest advertisers.
25. Family-owned business model
Any business that is run by a family, and its decision-making processes are controlled by two or more family members is a family-owned business.
The leadership of the company is passed to the heir, who will hand over the reins to their children.
Examples: Ford , Walmart , Estee Lauder , Prada , Comcast are few examples.
26. Blockchain-based business models
The most advanced, futuristic, and modern technology of Blockchain has changed the entire landscape of transactions, involving decentralized network system on a global scale.
Using a decentralized network enhances trust and allows consumers to transact peer-to-peer. Blockchain-based businesses make a profit using tokens and offer Blockchain as a service .
Many crypto-currencies like Bitcoin , Ethereum , and Litecoin use Blockchain technology-based business model.
27. Vertically integrated supply chain business model
This model is about owning and managing the supply chain activities (manufacture, distribution, and retail) for its products by the company itself. When a company has better control over how a product is produced and delivered to end users, it can provide products at lower prices (with better margin) to consumers.
On the contrary, for example, if a company only manufactures a product, and uses a distribution and retail partner. Then at every step of the supply chain, the additional cost is added (markup) by the time the product reaches the end customer.
Examples : Think about companies having both factories and retail/online stores. Amazon , Tesla , Luxottica , Apple , Walmart , and other grocery stores.
28. Combination of chains and franchise business model
This model is simply a mix of operated chains and licensed stores (franchising). Starbucks is the most famous example that owns both company-operated stores and licensed stores.
In Starbucks’ model, all 15,041 stores in the U.S. are company-owned, and all international stores are franchised.
29. Data licensing business model
A business model of ‘data’ has gained a new meaning in this modern world, especially in the technology sector. Data is a critical component in web technology where companies require critical information to carry out operations and earn revenue.
Example: Twitter sells real-time data to its partners, which is then used for advertising and customer insight.
30. Attention merchant business model
Attention merchants or influencer operate through advertising model and make money by grabbing the attention of their target audience .
Apple CEO Tim Cook once wrote , “ When an online service is free, you are not the customer. You are the product. ”
Examples : Snapchat & Instagram allows brands to market themselves through advertising on their platform.
From YouTube to Tik Tok and other social media platforms, you can watch videos for free, but you will be targeted by endless adverts .
31. Discount with high-quality business model
This kind of business model is usually practiced by supermarkets and departmental stores that get products in bulk and sell on the wholesale rate.
Examples: discounted products with high quality like ALDI , Tesco , Lidl , Ross Stores , and ASDA Stores.
32. Pyramid Scheme Business model
A pyramid scheme is a business model often considered illegal or controversial. The model functions on the sole principal of recruiting members by promising them a reward in the shape of payments or services if they agree to enroll others into the scheme, rather than supplying investments or sale of products.
As the recruiting circle grows with infinite speed, the actual recruitment becomes quickly impossible, which leaves member without any profit.
Example: Amway is a billion-dollar company which has used these pyramid schemes.
33. Nickel and Dime business Model
This business model consists of the lowest price strategy for the basic product or service. By keeping the basic price as low as possible, an additional amount is charged for the other perks and services that are offered with the main basic service.
Example: Spirit and Frontier Airlines are a budget airline that charges the lowest possible price for the flight tickets and charges fee over additional services like printed boarding pass fees, carry-on/ check-in luggage, seat preference, priority boarding, Wi-Fi, beverage, meal/snack, phone booking fees, etc.
34. Aggregator Business Model
Aggregator Business Model is a network model which provides collective information about a particular service and sell them under their brand name. Under this business model, most companies provide information and sources on a single industry.
Example: Companies like Zillow and Oyo for Hotels, Uber for taxi service, Yodlee for financial service, all use Aggregator business model.
35. API licensing Business Model
API stands for application programming interface (API). It is basically a set of subroutine definitions, communication setups, and tools for developing software. API licensing business model provides licensing protocols which allow developers’ community to create third-party plugin/add-on apps for well-known platforms. And developers pay a fee to get API access.
Example: Microsoft , Apple , LinkedIn , and Twitter , they all provide API license services.
36. Crowd Source Business Model
Crowdsource business Model facilitates companies with access to operational solutions like ideas and technologies, upgraded consumer interaction, opportunities for co-collaboration, operation optimization, and reduced costs.
Example: Companies like Wikipedia , YouTube , Kickstarter , LEGO ideas , Unilever , Coca Cola (new flavor of beverage) are involved in crowdsourcing.
37. High Touch Business Model
In the high-touch business model, customers’ interaction and involvement are on the highest level to make the experience personalized. It is a phenomenon in which a customer gets involved in a kind of partnership with the business. High touch is needed for larger accounts because they pay more and are sticky.
Example: Buying a car at Auto dealership, house, enterprise SaaS requires multiple interactions with the salesperson.
38. Low Touch Business Model
Low touch business model is, of course, the opposite of high touch business model where the product or service is delivered by minimum customer interaction. Low touch is good for low price software tools where acquiring customers is easier.
Example: Companies like Amazon , Zendesk , SurveyMonkey uses low touch business model.
39. Flex Pricing Business Model
Flexible pricing model operates through a business strategy in the final price of an item is negotiable. In short, buyers and sellers can bargain the price to suit their purpose the best.
Example : Letgo
40. Auction-Based Business Models
The model is based on the biding option to buy a product or service. The model is although not very common now, it is still used for industries like antiques, real estate, collectibles, and the sales of businesses.
The modern version of the auction model can be witnessed on online platforms trade’s new and used items like eBay and Amazon
41. Reverse Auction Business Model
This business model follows a strict pattern of setting the highest prices and let the buyers bid accordingly until the prices start to drop.
A reverse auction is popularly used by businesses seeking suppliers. Eligible suppliers bid lower and lower at each subsequent round to entice the business and win the contract.
Example: Bidding for government contracts
42. Brokerage Business Model
Brokerage business model provides a single platform to buyers and sellers for communicating the deals. It charges a fee for any transaction between the parties either from the buyer or the seller depending on the featured category.
Example: Expedia , Century 21
43. Bundling Business Model
Bundling is a business strategy that combines products or services to offer a package gathered as a single combined unit to sell at a comparatively low price. It is the form of convenient purchasing for several products and services from a single business unit.
Example: Microsoft Office 365 (PowerPoint, Excel, Word, OneNote, Outlook) Value meal at Burger King or McDonald’s , Printer and ink
44. Disintermediation Model
Disintermediation Model removes the capacity of outsourcing or a third-party intermediary. In fact, the organizations following this model deal with the clients and customers directly via different channel like the internet.
Example: Dell , Tesla are good examples of companies which follows disintermediation model.
45. Fractionalization business model
Fractionalization model is selling a product or service for partial usage or separate parts. It’s a strategy which divides products and services into further subcategories to introduce variety in the products, charging for each category separately.
Example: You can sell a pizza by the box or individual slices of different varieties( cheese/ pepperoni)
46. Pay as Go (Utility) Business Model
The business model charges as per the usage of the product or service.
In recent years, the Pay-As-You-Go model has been adopted by governments and organizations to distribute common goods like solar panels to rural communities , which they pay for gradually over a long period.
Example: This model includes electricity, water, and cell phone companies and Amazon Web Services
47. Product as a service
Product as a service means to sell the service of a product rather than selling the actual product.
Example: Zipcar , Fedex Printing service follows the product as a service business model.
48. Standardization business model
Standardization means to make a service universal, which was once a customized one. This attracts customers due to convenience and low prices.
Example: MinuteClinics (a subsidiary of CVS health) is a good example of Standardization.
49. User Base Communities
User base communities earn by developing an interactive platform where users communicate on their own with each other and can advertise at the same time. The model generates revenue with both subscription and advertising fee.
Example: Craigslist , Angie’s list
50. Leasing business model
Leasing refers to renting large or high-profile items like machines and electronic equipment instead of them selling it.
Example: Home Depot (Tool rental) MachineryLink , Hertz , Enterprise , etc. have adopted a similar business model.
In addition to the business models mentioned above, there are many others. While these are most commonly used by companies today, you need to wisely and smartly choose one or combination for your business.
Tell us what you think? Did you find this article interesting? Share your thoughts and experiences in the comments section below.
Business Model of Ola (2022) | How does Ola make money?
Top 51 strategy frameworks, 16 comments.
Great.. Thank you so much!
Well presented in uniform format to make comparison easy. Clearly and succintly written
Very useful and informative, many thanks!
very informative and useful as it made it easier for me to decide what can be done next thank you very much
What are some good examples of number 22 – Enterprise business model?
Companies such as Boeing, Lockheed Martin (aircraft manufacturers), Goldman Sachs, BlackRock (investment firms) are good examples of the enterprise business model because their primary customers are large enterprises or governments.
Good example for the enterprise business model…
Life long learning
Thank you !
Thank you for this summary of business models.
Glad you liked it Alex. Happy Reading !
I must admit that this is quite a wonderful compilation.
I found it very useful and well summarized.
Thank you for sharing the comprehensive list of 50 business models along with examples of companies implementing them. It’s a valuable resource for anyone seeking to better understand the diverse ways businesses can operate and succeed. In addition to the information you provided, I’d recommend checking out this article at https://www.cleveroad.com/blog/startup-business-model/ . It provides practical insights into selecting the most suitable business model for startups, which complements the list you shared and could guide entrepreneurs toward more informed decisions.
I am from South Sudan, if I want to implement one of online business which one will suit our situation here in the country, and that will generate income for me?
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Subscription Business Model Defined, How It Works, Examples
What Is a Subscription Business Model?
Subscription business models are based on the idea of selling a product or service to receive monthly or yearly recurring subscription revenue . They focus on customer retention over customer acquisition. In essence, subscription business models focus on the way revenue is made so that a single customer pays multiple payments for prolonged access to a good or service instead of a large upfront one-time price. Now, the economy is trending toward more subscriptions instead of ownership for cars, software, entertainment, and shopping. This increases the lifetime value (LTV) of the customer.
- Subscription businesses involve selling a product or service and collecting recurring revenue for continuing to provide that service or product.
- Most subscription businesses charge either monthly or yearly.
- One of the first and easiest to understand subscription business models is magazine subscriptions.
- Thanks to the rise of technology, many businesses are moving from one-time purchases to subscription models.
How Subscription Business Models Work
Subscription business models were first introduced in the 1600s by newspaper and book publishers. With the rise of technology and software as a service (SaaS) products, many companies are moving from a business revenue model where revenue is made from a customer's one-time purchase to a subscription model where revenue is made on a recurring basis in return for consistent access to the delivery of a good or service.
The subscriptions are generally renewed and activated automatically with a pre-authorized credit card or checking account. The benefit of subscription business models is the recurring revenue, which also helps create strong customer relationships.
Types of Subscription Business Models
Subscription business models can include a variety of companies and industries. Those industries include cable television, satellite radio, websites, gyms, lawn care, storage units, and many more.
In addition, there are newer-aged businesses that operate subscription models, such as subscription boxes. Subscription box businesses include meal delivery services and meal delivery kits. As well, there are subscription business models for accessing online storage for documents and photos, such as the Apple iCloud.
Beyond that, there are products that are shipped directly to your home, such as personal care products. Companies in this area include Dollar Shave Club and Birchbox.
Car subscription services provide you with access to a vehicle in exchange for a monthly fee. Vehicle subscriptions may include registration, maintenance, roadside assistance, and liability insurance . Unlike a lease, which requires a two- to four-year term, you can subscribe to a car service for a shorter time frame, and you can swap out your car for a new one every month.
Example of a Subscription Business Model
The easiest subscription business model to understand is that of a magazine company. Instead of selling a magazine as a standalone product where a customer makes a one-time purchase, magazine companies offer a subscription service for the delivery of a weekly or monthly magazine. In this model, instead of having customers make single purchases, magazine companies offer monthly payments for a yearly subscription to access their monthly magazines.
If a magazine company offers a monthly magazine service, instead of as a single magazine purchase, it offers its service as a 12-month service comprising 12 purchases. This makes the revenue model of the company stronger because it guarantees itself sales over a 12-month period rather than a single purchase. This makes revenue forecasting and business planning easier since a company can project its sales farther out with more accuracy.
Magazine companies are not the only model that uses a subscription business model. With technology, almost any product or service can now be a subscription model.
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21 Different Types of Business Models With Examples
Having a solid, well-thought-out business model is essential for both new and established companies. These models work to attract new customers and anticipate any upcoming trends or unseen challenges. It also can allow the company to differentiate itself from competitors. Potential investors use business models to quickly and effectively analyze a company’s plans and flesh out information such as how they plan to generate income. Even if you are a small business with no plans of taking on investment, knowing and understanding your business model is crucial to your success.
There are many different types of business models to choose from. It can become overwhelming to decide which model would work best for a company’s individual needs and preferences. This article will analyze and define 21 of the top business models currently used to better understand what each type offers your company.
What is a Business Model?
Through the years, the term business model has had several different definitions. But essentially, a business model is simply an outline of how a company plans to make money with its product or service . Peter Drucker defined the term as “assumptions about what a company gets paid for”. A t their core, they all work to identify revenue sources, the customer base for their products and services, and the expenses the company anticipates to allocate to marketing these products and services.
Understanding your business model is important for many reasons. One of those reasons is that when you understand your business model, you are also closer to answering many other important questions about your business. When your business model is clear you get a better idea of who your customers are. And once you understand that, you also can answer the question “how does our business model add value to our customer”.
Not knowing, understanding, and choosing the right business model can be detrimental to your business. Later in the article, we explain how choosing the wrong business model is costing one company hundreds of millions of dollars. But for now, all you need to know that if your business model does not match up well with your product and what the market demands, you may soon see your profits dwindle as competition increases.
If you are not sure if you have the right business model for your business, or if your current business model is running out of gas, read our list of 21 business models to see if there is another, better, solution for you.
21 Types of Business Models
1. freemium business model.
Freemium is a combination of the words free and premium. Companies following the freemium business model offer the most basic version of their product or service for free to entice consumers to purchase the more advanced features, capabilities, or add-ons of the product or service in the future. The freemium business model works for new companies by cultivating strong relationships with customers. It also works best for internet-based service companies.
Freemium business model examples:
2. subscription-based model.
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The subscription-based model allows companies to charge consumers monthly or yearly subscription fees to access their product or service. This model depends on these consumers continuing to love and utilize the service. To keep consumers satisfied and paying monthly subscription fees, companies need to continually improve their products or services to keep up with changing trends or competitors. The subscription-based model is popular with streaming services like Hulu, Netflix, and Spotify. It is also popular among monthly subscription boxes for beauty and fashion such as Ipsy or FabFitFun. The ideal profit margin varies depending on the type of subscription.
Physical subscription based businesses should aim for 30%-40% profit margins. Streaming services do not directly report profit margins but the figures can somewhat be figured out by the average revenue per user. Although it may be hard to find those numbers for all services, most services only make between $4-$10 revenue per user.
Subscription-based model examples
- Streaming services
- Dollar Shave Club
- XBox Game Pass
3. Peer-to-Peer Business Model
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In a peer-to-peer business model, a company acts as the go-between businesses and the customers interested in purchasing their products or services. The companies using this model provide the platforms, navigate the regulations, and set pricing for the products or services. A well-known example of this business model would be ride-sharing services such as Lyft and Uber. These platforms allow people to receive rides to and from requested destinations by those who apply to be drivers for the service.
Peer-to-peer business model examples
4. franchise model.
Sometimes the franchise model is referred to as a hybrid model. It provides a sense of working for oneself with the added security of having a company’s backing with familiar trademarks and products. There is a legal and commercial relationship between the franchisor, the parent company owner (usually a corporation), and the franchisee. The franchisee (or business owner) is allowed to sell the franchisor’s products or services in exchange for paying a royalty fee. Both parties sign contracts to clarify the specifics, spelling out each side’s role in the business relationship.
Franchise model examples
- Merry Maids Residential Cleaning
5. Direct Sales Business Model
In the direct sales model, a company’s employees will be the ones who demonstrate and sell the products or services being offered directly to the intended consumers. This effectively eliminates steps within the distribution process, such as wholesalers and the regional distribution centers. Direct sales is a great way to build strong, lasting customer relationships. One common direct selling types is single-level marketing (SLM). This is when a salesperson is compensated for their sales. Another second type is called multilevel marketing (MLM). This model is when a person is compensated for sales made by salespersons recruited by them and under their authority.
Direct sales business model examples:
- Stella & Dot
6. Affiliate Marketing Business Model
People using the affiliate marketing business model promote and sell products from other companies online to get paid a percentage of the sales they make. This business model is common with “influencers” on Instagram or other leading social media apps. They will post about a company’s product to entice their followers to buy it through them. Many of their followers will buy the product through the supplied link. It is a win-win situation for both the influencer marketing the product and the company selling it. Affiliate business models are also popular among bloggers and online publishers.
There are 4 primary ways an affiliate can earn money from an affiliate program.
- Pay Per Sale (PPS) – Affiliate earns a commission when a sale is made.
- Pay Per Click (PPC) – Affiliate earns a commission whenever an affiliate link is clicked.
- Pay Per Impression (PPI) – Affiliate earns a commission when a visitor lands on the merchant’s site.
- Pay Per Lead (PPL) – Affiliate earns a commission when someone clicks on affiliate link and then takes an action such signing up for a free trial or completing a form.
Affiliate marketing business model examples:
- Amazon Affiliates
- Commission Junction (CJ Affiliate)
7. E-Commerce Business Model
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Electronic commerce, or “e-commerce,” is a business model in which companies and individuals buy and sell products and services online. Because the business is entirely online, the products and services offered are nearly limitless. An e-commerce business offers companies the extra convenience of not needing a physical store. This increases the selection of products available to consumers. A business might combine the e-commerce model with the drop-shipping model.
Types of E-commerce business models
- B2B: Business to Business Ecommerce- The B2B model focuses on providing products from one business to another.
- B2c: Business to Consumer Ecommerce- B2C model focuses on businesses providing products to the consumer base
- C2C: Consumer to Consumer Ecommerce- C2C model focuses on consumers selling directly to other consumers. Sites like eBay and Craigslist are examples of C2C companies.
- C2B: Consumer to Business Ecommerce- This model is when a consumer sells products or services to businesses. Those in this line of work will often times be freelancers and sole proprietors.
8. Drop-Shipping Business Model
Companies using the drop-shipping business model sell various products on their websites, but supplying and shipping these products is done by a third-party wholesaler. The significant upside to this business model is that you do not need to pay for or maintain inventory for any of the products you sell. It can be costly to store, package, and mail out orders. In the drop-shipping model, a third party (which is typically the wholesaler) will handle the logistics of shipping and making sure the customers receive the products they ordered. The individual who marketed the products gets a percentage of the sales.
9. Vertically Integrated Business Model
The vertically integrated supply chain business model is when the company controls both supply and distribution. The company controls all costs of production, inventory stocked, marketing, and pricing. Because the company has complete control of the product from start to finish, it can decrease transportation costs and improve sales and profitability.
Vertically integrated business model examples
10. consulting business model.
There are two parts to the consulting business model. First, hiring experts or developing a list of freelancing consultants, and second, charging a fee to provide access to these experts by your clients. Typically, your experts will provide a service that speaks to the consumer’s needs. Hopefully, the customer will return to you as further needs arise. Common examples of this could be online tutoring, mentoring, and freelance work in several different fields.
11. Ad-Supported Business Model
Advertising is a significant component in why some companies are incredibly profitable and why some will financially fail. Failure to advertise a product or service can lead to people not even knowing a company exists. The ad-supported business model emphasizes the importance of advertising and the sales generated from it. Popular platforms to advertise products or services include print media, online media, and television.
Ad-supported business model examples
12. enterprise business model.
In the enterprise business model, specific aspects of a business are modeled, such as infrastructures and asset groups. The company leaders will see what needs to be altered within the business to maximize profits. The enterprise model is more about evaluating how the business is functioning than it is about the overall structure of the business.
13. Lock-In Business Model or Lock-In Strategy
The lock-in business model takes customer loyalty and kicks it up a notch. This is done by essentially locking customers into a company’s product or service by making it difficult to abandon the company without dealing with negative consequences. Some of these consequences include increased costs or making it difficult to switch. For example, Apple compels customers to stick with them by making it extremely simple to sync every Apple product. But, also make it challenging to use their products alongside competitors. For example, the Apple watch is nearly impossible to use with an Android phone. A lock-in business model ideally leads to customers sticking with one company for the long haul.
- Apple utilizes this strategy
- Some major banks utilize this strategy as well
- Microsoft Office Suite
14. Multi-Brand Business Mod el
Old Spice has done a brilliant job marketing their multi-brand business with clever and hilarious advertisements.
With the multi-brand business model, a parent company will offer similar products with different brand names to increase their market share. By doing this, the company effectively reduces any potential competition. A company with many similar products at different price points will appeal to a significant number of customers.
Multi-brand companies examples:
- Procter & Gamble
15. Razor and Blade Model
The razor and blade model works by selling products or services to consumers at a lower price. Then later selling a related product or service to the consumer for increased profits. The name razor and blade comes from King Gillette. Gillette effectively worked to overtake the men’s razor market by offering a sturdy and reliable razor that required the use of blades only sold by Gillette. As a result, the company cornered the market on razors for a time and is still dominate today.
Examples of razor and blade business model:
- Computer printer manufactures
16. Distribution Based Business Model
The distribution-based business model facilitates the distribution of products or services offered from the manufacturers to the consumers. With this model, the business ensures that the mode of distribution chosen to get the product or service to the consumer is the most direct, and more importantly, the most cost-efficient manner possible. No one distribution method is universal for all companies. The chosen methods depend on such factors as your product’s perishability, target market, and geographic area covered by your company.
17. Direct-to-Consumers Business Model
With the direct-to-consumer business model, consumers buy products or services directly from a company’s website, eliminating the middle-man. The model not only saves the company money but can be convenient for the customer as well. Consumers would have to physically visit a store to purchase the product they desire but know they can order the product directly from the company or manufacturer. There is no longer a need for a brick-and-mortar store, saving the company money. The company tends to have greater control over their branding and stronger relationships with their customers with this model, leading them to buy from the company again.
In recent years, however, the DTC model has struggled to scale on its own for many larger companies. One of the pioneer companies in this type of business model was the DTC mattress company Casper. This company was once seen as a unicorn startup a decade ago but has seen its market share and valuation plummet. The company’s IPO attempt in 2020 was nothing short of a disaster. At one point, Casper was valued at more than $1 billion. But, at the time of its regulatory filing, it had cut its IPO target share price to $12 to $13 from $17 to $19. That valued the company at around $500 million. A lawsuit was even filed accusing Casper of misleading investors into pouring $100 million into its IPO, knowing its financial prospects were far dimmer than it promised.
Examples of direct-to-customers business model:
- Apple Store
- Warby Parker
- Casper Mattresses
18. Low-Touch Business Model
Some customers want the least amount of interaction with the company possible. Businesses that want to meet that need should adopt a low-touch business model. Products sold using this model can be consumed or used with little interference from salespersons or customer service. Due to the pandemic of 2020, many businesses learned to adapt to the threat. These businesses adopted low-touch strategies to help keep their doors open. For example, more take out restaurants began using kiosks for ordering instead of placing an order with a human team member.
Other sectors such as hotels began using virtual check-ins through apps. This limited contact with other guests in the hotel lobby as well as employees of the hotel. As we return to normal, it is believed that many of these businesses will retain their low-touch option and many other businesses will begin using this practice also.
Low-touch business model examples:
- Wal-mart Online
- e-commerce sites
19. Fractionalization Business Model
In this model, companies will sell partial usage of their product or service to consumers, such as offering a timeshare deal for a condominium in a desirable location. Consumers will receive full benefits of the timeshare when they are there, but they can only be there for a pre-determined time each year.
20. Pay-As-You-Go Model
Photo credit: Mike Motzart
As the name suggests, consumers will pay for the service or product as they use it. Meaning there is no recurring bill or subscription necessary. This model should entice those who do not like to be tied down. If the product or service is of high quality and worth the price paid, they will continue using it.
Pay-as-you-go model examples:
- Cell phone carriers
- Power companies
- Internet service providers
21.User-Generated Content Business Model
User-generated content business is a type of content distribution platform where the users create the content. Social media platforms and sites like Youtube and Quora are successful due to the content that is nearly 100% user-generated. This model eliminates the need to create content as a primary way to engage visitors. This is another type of business model that is often combined with the advertising model. But unlike traditional content distribution platforms like CNN and Fox News, UGC sites typically adopt the personality of their users.
User-generated content business model:
- Online forums
In conclusion, the different types of business models mentioned will appeal to a wide range of companies’ needs and preferences, including highly niched marketed ones. When picking a company’s business model, it is vital to consider what would be appropriate for the company as a whole and the intended consumer. Which model will entice the target market to buy (and continue to buy) from the company? Using the right business model will maximize profits and provide clear, practical ideas to sustain profitability for years to come.
Additional photo credits: Under CC
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Tom is a member of the Editorial Team at StartUp Mindset. He has over 6 years of experience with writing on business, entrepreneurship, and other topics. He mainly focuses on online businesses, digital publishing, marketing and eCommerce startups.
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Business Model Generation: Value network
A collection of business models that will help you understand the key drivers of business model success. The card deck will be ready for purchase in the end of 2023 and is now undergoing rigorous testing.
Let your customers do the work
The Self-Service model is a unique approach to value creation in which a portion of the work is transferred to the customer in exchange for a reduced cost. This model is particularly effective for processes that generate high costs but offer relatively low perceived value for the customer.
In addition to the cost savings, customers typically find that Self-Service saves them time as well. They may even experience an increase in efficiency, as they are able to execute certain value-adding steps more rapidly and in a more targeted fashion. Classic examples of Self-Service include picking items off shelves, planning personal projects, and conducting payment transactions for products and services.
A Self-Service business has a significant savings potential and customer labor can often replace a significant number of staff positions. This is why the Self-Service model is an attractive option for companies looking to reduce costs and increase efficiency.
Where did the Self-Service business model pattern originate from?
The Self-Service business model had its origins in the United States, where it led to the establishment of Self-Service stores at the beginning of the twentieth century.
Traditionally, customers were always served at counters in small, family-owned stores. However, with the advent of Self-Service, customers were now required to fetch their own groceries from shelves.
The concept of Self-Service developed as a result of the general desire for increased productivity and efficiency that came with industrialization. Anecdotal evidence even suggests that Self-Service grew out of a situation where stressed customers became impatient and started helping themselves to items on shop shelves.
Over time, Self-Service stores became a familiar sight outside of North America as well. Sweden and Germany were among the first European nations to open Self-Service stores, in the 1930s and after the Second World War respectively.
Applying the Self-Service business model
The Self-Service pattern is well-suited for customers who are willing to take on additional work in exchange for lower prices. Additionally, this pattern can be beneficial when a DIY element in the manufacturing process creates perceived customer value, such as T-shirts that customers design themselves.
Analyzing the Potential from the Customer’s Perspective
In order to successfully implement the Self-Service model, it is essential to analyze the potential of the pattern from the customers’ point of view. This can help ensure that the model is well-received and that customers are willing to take on the additional work in exchange for lower prices.
Potential benefits of applying the Self-Service business modell
The Self-Service model offers a range of benefits for businesses, including cost savings, improved data collection, and increased revenue.
- Cost Savings . One of the primary advantages of the Self-Service model is that it allows businesses to reduce costs. With a self-serve approach, sales and customer support teams will no longer have to put customers on hold, which means less need to hire additional representatives each month.
- Improved Data Collection . Another benefit of the Self-Service model is that it allows for improved data collection. Human interactions can be unpredictable and not everything will be under a business’s control. However, when businesses adopt a self-serve approach, all of their funnels will be the same, which makes it easier to identify and fix flaws.
- Increased Revenue . At the end of the day, the primary goal of any business is to increase revenue. The Self-Service model can help achieve this by improving the user experience, making the business process more efficient, and opening the product to a wider audience. Additionally, when businesses approach new markets, such as offering their product in different languages or targeting adjacent users, they will not need to do a company-wide transformation to handle the new traffic; they will only need to adjust their funnels.
- Improved Customer Education . A strong focus on Self-Service can help improve customer education, as a natural part of the Self-Service transformation will be providing customers with educational resources that they can access at any time. This more practical and affordable way to educate customers can help increase engagement and reduce customer churn.
- Increase Engagement . Only educate customers during initial onboarding will not be sufficient for a Self-Service product or service. To maximize engagement, you need to support customers with educational resources across the entire customer journey. If your customers are remotely growth-orientated, they’ll thank you by sticking around as loyal customers.
Empower your customers
Consider to what degree you will allow customers to onboard themselves. The majority of the self-serve experience will consist of this period in the user journey, and it is crucial to make it as smooth as possible.
When does it make sense to make your product offering Self-Service?
Self-Service can be a strategic move for most SaaS businesses due to the benefits it offers, but there are cases where a Self-Service approach may not be the best fit.
When friction is good
While Self-Service software can help reduce friction and improve customer engagement, there are products that are so complex or features that are so crucial, that heavy engagement with customer support, customer success teams, or a meticulously crafted onboarding wizard is necessary for proper use. Without this degree of support engagement, users may not be able to activate the product.
An example of a product where Self-Service may not be the best approach is Coinbase, a digital wallet for storing and trading cryptocurrency. After previous wallet sites were hacked and users lost a significant amount of money, the crypto community has become very concerned about security and fraud. Registering on Coinbase therefore involves a very involved process, including sending ID to Coinbase that must be manually reviewed by an employee.
However, for products that are easy to use and do not have serious personal consequences for customers if used improperly, Self-Service software can be a smart choice. In practice, this is the case for most products. Even the above examples have automated as much of their user interaction as possible. An example of a product with a simple, Self-Service sign-up flow is Airtable, which is so frictionless that a new user can reach the UI in less than a minute and even reach the “Aha moment” on their own. The UI itself is also intuitive to use and requires almost no external integrations. In cases like this, heavy engagement with support would be a burden for both users and the company.
- How can we differentiate ourselves from traditional, full-service competitors in the market?
- What pricing strategy should we adopt to effectively market our Self-Service offering?
- Are we providing a level of value that aligns with customer expectations?
- Will customers view the added responsibilities they assume in the Self-Service model as a positive or negative experience?
- How can we ensure that the systems and procedures surrounding customer input are reliable and free from errors?
- How do you price Self-Service?
- Is the Self-Service work involved perceived as a positive experience?
- How would IKEA manage our business?
- Is your product or service simple enough for customers to understand and use on their own, without the need for human assistance?
- Have you considered the potential impact on your workforce and are you prepared to handle potential job losses or changes?
- How do you plan to handle customer complaints and issues that may arise as a result of Self-Service?
- How will you ensure the customer can still access customer service if they need help?
- How can you make sure that customer experience is not negatively impacted by the Self-Service model?
Customers are integrated into value creation as they pick items from the warehouse and assemble furniture themselves.
Travellers can collect room keys via lobby Self-Service kiosks and transform their bed into a couch, among other things.
Source: Automation: Coming To A Hotel Near You?
Airbnb’s Self-Service business model allows hosts to list their properties and manage bookings on their own, without the need for assistance from a property management company. This not only improves the customer experience but also allows Airbnb to keep costs low and pass the savings on to customers in the form of lower prices.
Uber’s Self-Service business model allows riders to book and pay for rides on their own, without the need for assistance from a dispatcher. This not only improves the customer experience but also allows Uber to keep costs low and pass the savings on to customers in the form of lower prices.
Self-checkout at grocery stores
Self-checkout systems at grocery stores allows customers to scan and pay for their purchases on their own, without the need for assistance from a cashier. This not only improves the customer experience but also allows grocery stores to keep costs low and pass the savings on to customers in the form of lower prices.
The fast food giant McDonald’s bases its business model on the Self-Service concept, offering standardised menus in its restaurants in the form of franchises or run by the corporation itself. This reduces costs on waiting staff and other overheads, increasing customer throughput and profit.
The German bakery chain, BackWerk, allows customers to browse and select from a wide variety of products in glass-fronted display cases without the aid of store personnel. By allowing customers to take over some of the value creation process, the company greatly reduces its personnel costs and offers products at 30-45% less than traditional competitors.
Accor Hotels & Ibis
The French hotel group, Accor Hotels, uses Self-Service for its Ibis budget hotels. Guests obtain their rooms at a station similar to a vending machine without the assistance of professional receptionists and take their luggage to the room themselves. This reduces the number of staff in attendance throughout the hotel while still providing efficient Self-Service facilities.
- Product Self-Service
- Business Model Navigator by Karolin Frankenberger and Oliver Gassmann
- Self-service software model by User Pilot
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Validate the problem.
Is your problem worth solving?
- Closed-Ended Surveys
- Cold Calling
- Comprehension Test
- Contextual Inquiry
- Customer Service Logs
- Fake door testing
- Family Tree
- Find the Watering Hole
- Five People Who Are In
- Five Second Test
- Focus Group
- Industry Forums
- Move in With the Customer
- Read App Reviews
- Remote User Testing
- Sell the Future
- Write Down Your Concept
Validate the market
Don't build something that nobody wants
- Classified Posting
- Collect Pre-orders
- Conjoint Analysis
- Data Mining
- Feature Stub
- High Hurdle
- Offer a Sample
- One Night Stand
- Physical Before Digital
- Product-Market Fit Survey
- Run Test Ads
- Sales Pitch
- Single-Feature Product
- Spoof Landing Pages
- Trends and Keyword Analysis
- Wizard of Oz
Validate the product
Does your product solve the problem?
- A/B Testing
- Beta Launch
- Clickable Prototype
- First Click Testing
- Guerilla User Testing
- LEGO prototype
- Micro Surveys
- Min. Marketable Product
- Multivariate Testing
- Net Promoter Score (NPS)
- Paper Prototype
- Pretend to Own
- Takeaway Test
- Try it Yourself
- Working Prototype
Validate willingness to pay
Are people willing to reach into their wallets?
Business Model Patterns
Meeting the unique needs of each and every customer
- Bottom of the Pyramid
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- Ultimate Luxury
Innovative pricing strategies for sustainable growth
- Access over Ownership
- Bait and Hook
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- Dynamic Pricing
- Pay What You Want
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Explore different revenue streams to maximize potential
- Fractional Ownership
- Hidden Revenue
- Pay Per Use
- Performance-Based Contracting
- Virtual Economy
- Rent Instead of Buy
Sharing resources and risks for mutual benefit in the network
- Brands Consortium
- Joint Venture
- Layer Player
- Multi-Sided Market
- No Middle Man
- Platform as a Service
- Revenue Sharing
- Shop in Shop
Value proposition strategies for long-term success
- Blended Value
- Cross Selling
- Experience Selling
- Guaranteed Availability
- Ingredient Branding
- Make More of It
- Mass Customization
- Product as Point of Sale
- Reverse Innovation
- Sensor as a Service
- Solution Provider
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Value Proposition Development
Unlocking growth through value proposition design
- From Push to Pull
- Leverage Customer Data
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Convert empathy to clarity by refining insights into problem definitions
Uncover insights and drive problem-solving through deep analysis
- Assumptions Collection
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Clarify the problem or experiment to facilitate discussion and collaboration
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Prioritize ideas or challenges to determine where to direct your attention and efforts
- Assumptions Mapping
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Build a shared understanding to reach your goals together
- Fishbowl Discussion
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Core techniques used to plan and lead effective workshops
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Relieve initial group awkwardness and establish a safe space
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Small Business Trends
19 businesses to start with no money in 2023.
You do not always need a lot of money to start a new business, and there are many business ideas you can pursue that do not require a large upfront investment.
So, if you are considering starting a new business venture but do not have a lot of capital, there are still plenty of options available for you.
Whether you’re interested in e-commerce, freelancing, or passive income ideas , there are opportunities that can be explored with minimal upfront investment. Read on to discover what kinds of businesses you can start without requiring a large investment in 2023.
How Can You Start Your Own Business With No Money?
If you would like to start a new business without incurring large startup costs, there are many types of businesses you can pursue. Here’s how:
- Identify a business idea: There are plenty of home-based businesses you can start that are low-cost initially. Doing some research on business ideas that can be operated from home will help you figure out what your options are.
- Conduct market research: After identifying potential businesses, you should consider doing market research to understand their demand and what customers are currently doing. Understanding the industry and customer behavior will enable you to put together a business plan that takes the existing customer base into account and potential marketing materials.
- Create a business plan: Once you have a great business idea, the next step is to create a business plan. What kind of skills or investments are needed? What kind of business structure would be best? What will you name the business, and how do you plan to attract the target market? You may also need to have a financial plan in place to avoid any personal liability issues. Having a plan ensures that you can start your business right from the get-go and can attract angel investors and other types of capital.
- Research any investments needed: There are some types of businesses you can start pretty quickly with little to no investment required. However, other types of businesses may require a business license or business insurance to get started. You can also investigate any small business loans that could help you quickly start your business for purchasing equipment or other needs.
- Promote your business: Once you are ready to go with your idea and have made all the investments needed, promoting your business is key! Reach out to local business communities or residents (depending on the business you offer) to let them know what service or product you are providing and market yourself to build your customer base.
Launching Your Dream Business with Zero Capital: Our Metodology
Starting a business with no money might sound like a daunting task, but with the right approach and a clear set of criteria, it’s entirely possible. In 2023, entrepreneurs and small business owners have more opportunities than ever to turn their passion into a profitable venture without a hefty initial investment.We’ve ranked these criteria on a scale of importance, using a 1-9 rating scale, with 10 being the highest importance and 1 being the lowest:
Small Business Deals
- Passion and Interest (9/10): Choose a business idea that aligns with your interests and passions. When you’re passionate about what you do, you’re more likely to stay motivated and committed.
- Market Research (9/10): Research the demand for your chosen product or service. Is there a target audience? What are the competition and potential customer base like?
- Skillset and Expertise (7/10): Assess your existing skills and expertise. Opt for a business that leverages your strengths, reducing the need for additional training or investment.
- Scalability (6/10): Consider whether the business idea can be scaled over time. It’s important to think about growth potential, even when starting with limited resources.
- Low Overheads (9/10): Focus on businesses that require minimal overhead costs. Look for opportunities where you can operate from home or use existing resources.
- Online Presence (7/10): In the digital age, having an online presence is essential. Determine if your business idea can be marketed effectively through online channels, such as social media or a website.
- Networking (6/10): Building connections can be vital for a business’s success. Assess your ability to network within your industry or community to gain support and customers.
- Bootstrapping Skills (9/10): Being resourceful and frugal is crucial when starting a business with no money. Can you find creative ways to fund your operations, such as using free tools or bartering services?
- Legal and Regulatory Compliance (9/10): Ensure that your business complies with all local, state, and federal regulations. Failure to do so can result in fines or even closure.
- Market Trends (7/10): Stay updated on industry trends and changes in consumer behavior. A business that aligns with current trends may have a better chance of success.
Business Ideas You Can Start With No Money
If you are ready to start your own business but not sure what you can operate with low startup costs, there are plenty of online business ideas and other types of ideas you can pursue on a shoestring budget.
1. Landscaping Business
A landscaping business can be a great idea if you are looking for a business where you can interact with many people and set your own hours. You’ll need a little bit of upfront capital to get the right equipment and reliable transportation to get to and from job sites. However, landscaping is great if you’re looking for ideas that are not home-based and where there are minimal costs to get started.
2. Consulting Business
Depending on your industry and your skills, having your own consulting business could be your next business idea. You could work with other businesses to offer your expertise and advice on different issues. Consulting businesses require very little money upfront, especially if done online. You only need a solid internet connection and marketing materials to get started.
3. Social Media Marketing
There are many aspects of social media marketing that you can undertake as a small business. For example, you could offer services such as social media management and building a social media presence on social media accounts for small business owners. It’s an easy business with no money required upfront, just social media experience, so it is relatively low cost to start.
4. House-Sitting Business
Another business model to consider is starting a service business such as house sitting. You can take care of homes while people are away, including keeping an eye on utilities, collecting mail, and watering plants. There are minimal startup costs required to start a housesitting business, but it can be lucrative depending on the area you are in.
5. Freelance Writing
Service-based businesses tend to be the best option if you are looking for a low-cost way to start a business. However, a freelance business idea you can consider to make extra cash could be to become a freelance writer. This could include copywriting, website writing, informational writing such as brochures, and other marketing communication, depending on what businesses require.
6. Dog Walking
If you are a fan of dogs, why not offer dog walking services in your local neighborhood? You can start dog walking services without needing a lot of capital, and it can be an immensely useful service for your community. You may need some kind of liability insurance for this kind of business, so it’s best to research local and state regulations before starting.
7. Start your own online store
Starting your own online store is easy, but it may require some startup capital or angel investors depending on the type of products you are trying to sell. For example, you could set up your own website and sell products such as clothing, home decor, artwork, and more.
8. Freelance web design
There are many other types of freelance services you can pursue besides writing, such as website design if you are able to take relevant training. In addition, you can offer your services to other business owners needing a web presence, including basic sites on platforms such as Squarespace, Wix, and others. You do not need a business license to operate a website development business, so it is easy to get started.
9. Language tutoring business
If you are a native English speaker or speak more than one language, you could start a business to tutor others as a way to make extra money online. You will need to work with students of different ages and teach them language skills, including practicing speaking with them and taking them through the fundamentals of a language. You could become a tutoring business owner or partner with tutoring platforms to provide your services.
10. Sell online courses
Another opportunity for making money online is selling digital products such as online courses. If you have specific skills and experiences, you can start a business centered around developing and selling courses on your own website or on platforms such as Udemy. You may need to invest a small amount of capital into filming equipment, such as a high-quality camera and mic, but once the courses are filmed, you will be able to make passive income as they sell.
11. Pet sitting or babysitting
Another way to make extra cash is to start a pet-sitting or babysitting business. Again, this type of business may require some kind of liability insurance, business insurance, or business license, but it can be a valuable service that many customers may need depending on your area.
12. Virtual assistant services
If you thrive on being organized and efficient, you can offer your services as a personal assistant or virtual assistant. For example, you could work with real estate agents, business owners, and other professionals who need assistance getting organized and keeping their schedules on track. You can balance multiple clients and build your business as a virtual assistant.
More Business Idea Examples to Start With No Money
If you are still thinking about what kinds of businesses you can start with no money, there are many local business ideas that you could pursue. Here are some of the best business idea examples for you to consider.
13. Delivery services
Many business owners and residents are always looking for reliable delivery options in their area. You can use your own car to make deliveries and be your own boss. You may need to get a business license and liability insurance for this kind of business, but it should be relatively easy to start.
14. Life coach
Life coaching is a service that many are seeking now, and there is a demand for online life coaches. There are certifications available for life coaching that you could take, and you would be able to connect with clients via Zoom or Skype for your sessions, so it would not require much money to start.
15. Accounting and bookkeeping services
If you are skilled at balancing the books and keeping track of financials, consider offering your services to local business owners. You can start without needing money or office space and provide a helpful skill for businesses seeking additional financial help.
If you are interested in an online business that you can start right away, you could become a podcaster. All you need to get started is a high-quality mic and audio editing software. You can create podcasts about subjects you are passionate about or create podcasts about your own experiences to guide and inspire others.
Another option to consider for an easy business to start with no money is becoming a vlogger. Many people operate successful businesses on platforms such as Youtube and Twitch by live streaming and creating vlogs. You may need to invest in equipment such as a camera or a mic, but you can get started immediately with vlogging.
18. Data entry provider
Many businesses are looking for reliable, independent contractors for simple and complex data entry tasks for various needs. These can be completed remotely, so there is no need for offices or any other equipment besides an internet connection and a computer.
Another option for those that speak multiple languages is to offer translation services. Translation services can be offered online or in person and can include services such as live translation, simultaneous translation, and document translation. There are many ways to start a translation business, depending on your level of skill and how much time you have with clients around the world.
What Is the Easiest Business to Start With No Money?
There are many businesses that you can start with very little money required. The easiest business to start with no money is a service-based venture such as virtual assistant services, freelance writing, or consulting, as no small business loans are required, and these can be offered online.
Can You Start an Online Business With No Money?
Yes, you can start a successful business with no money online. Many businesses that are service-based can be created online and do not require a significant investment upfront or a business license.
What Is the Most Profitable Business Model to Start Without Capital?
The most profitable business venture to start with no capital is a freelance service such as writing or being a virtual assistant.
How Much Does It Cost to Start a Business?
The amount of money needed to start a business will depend on the service or product being offered. Some service businesses such as landscaping, cleaning, or becoming a podcaster or Youtuber will require a small investment to get the necessary equipment. Some businesses may also require other certifications such as business licenses or liability insurance. Other types of businesses, such as writing or consulting, do not require much money to get started.
Frequently Asked Questions
To start a business without a large capital, identify a low-cost home-based business idea, conduct market research to understand demand and customer behavior, create a business plan, and explore any necessary investments. Promote your business to build a customer base.
What Business Ideas Can You Start With No Money?
You can start various businesses with minimal investment, such as landscaping, consulting, social media marketing, house-sitting, freelance writing, dog walking, online store, freelance web design, language tutoring, online courses, pet sitting, virtual assistant, and more.
Are Service-Based Businesses Easier to Start With No Money?
Yes, service-based ventures like writing, consulting, and virtual assistance require minimal investment and can be operated online, making them easier to start without significant capital.
Can You Start a Profitable Business Model Without Capital?
Absolutely, freelance services, such as writing or virtual assistance, offer profitable business models with no need for substantial capital. These ventures can be lucrative and efficient.
Certainly, many service-based businesses can be created online without requiring substantial upfront costs or a business license, making them accessible to entrepreneurs with limited funds.
Service-based ventures, like virtual assistant services, freelance writing, or consulting, are among the easiest businesses to start without requiring small business loans or significant capital.
Freelance services, such as writing or virtual assistance, offer profitable business models with minimal investment required, presenting a great opportunity for those with limited funds.
The initial cost to start a business varies based on the type of service or product offered. Some service businesses may require a small investment in equipment or certifications, while others require minimal capital to get started.
Conclusion: Thriving Beyond Financial Boundaries
In the grand tapestry of entrepreneurship, the thread of limited financial resources weaves a unique and challenging pattern. Yet, it is essential to recognize that embarking on the entrepreneurial journey with minimal capital is not a hindrance but rather a golden opportunity to showcase your resourcefulness, creativity, and unwavering resilience. While financial constraints may shape the road you travel, they should never define the destination you seek.
Entrepreneurship, at its heart, is a testament to human ingenuity and the relentless pursuit of one’s vision. When you navigate the intricate terrain of entrepreneurship with a shoestring budget, remember that your most valuable assets extend far beyond mere monetary value. Resilience, adaptability, creativity, networking prowess, the gift of time, and a customer-centric approach are the formidable pillars upon which your success is erected.
Embrace the challenges that come your way as opportunities for growth. View every constraint as a powerful catalyst for innovation, a chance to forge a path that is uniquely your own. In the landscape of 2023, entrepreneurship is rife with possibilities for those who dare to dream, persist in the face of adversity, and unwaveringly chase their vision. Your entrepreneurial odyssey awaits, and it’s a journey where your determination, not your budget, will ultimately determine the heights you can reach. So, step forward with unwavering confidence, knowing that your entrepreneurial spirit is the most potent currency in this ever-evolving landscape.
In the world of entrepreneurship, countless success stories bear witness to individuals who started with little more than a dream and the determination to see it through. From Steve Jobs launching Apple in his garage to Mark Zuckerberg coding Facebook in a dorm room, these iconic entrepreneurs prove that financial limitations can be the driving force behind groundbreaking innovations.
The entrepreneurial path is, by its very nature, fraught with obstacles. However, these challenges are not insurmountable. Instead, they are opportunities to hone your skills and test your mettle. When faced with limited financial resources, you are forced to think creatively, finding ingenious solutions to problems that might seem daunting at first glance. You learn to do more with less, a skill that will serve you well throughout your entrepreneurial journey.
Moreover, being on a tight budget forces you to build a strong network of like-minded individuals who can provide support, mentorship, and collaboration opportunities. Networking becomes not just a luxury but a necessity. This network, comprising fellow entrepreneurs, mentors, and potential customers, can become your most valuable asset, opening doors and creating opportunities that money alone cannot buy.
Time is another invaluable resource that entrepreneurs on a shoestring budget learn to harness. With limited funds, you must be efficient and prioritize tasks that yield the most significant returns. This disciplined approach to time management can lead to faster growth and profitability.
A customer-centric approach, driven by the need to make every penny count, becomes a cornerstone of your business. You are compelled to truly understand your customers’ needs and tailor your offerings to meet them. This deep understanding of your target audience can set you apart from competitors and lead to loyal, long-lasting customer relationships.
In conclusion, your journey as an entrepreneur with limited financial resources is not a trial by fire but a refining process. It’s an opportunity to forge yourself into a more resourceful, resilient, and innovative business leader. As you set forth on this path, remember that you are not alone. History is replete with entrepreneurs who started with meager means and went on to change the world. Your journey is a testament to the power of human determination and ingenuity, and in 2023, the possibilities for those who dare to dream are limitless. So, embrace the challenge, navigate the constraints, and let your entrepreneurial spirit soar. Your success knows no boundaries.
YOU MIGHT ALSO LIKE:
- What is Bootstrapping in Business?
- 50 Low Cost Business Ideas with High Profit Potential
- 20 Types of Grants Available
- Where to Get a Loan for Your Small Business
- 45 Amazing Home Based Business Ideas to Consider in 2023
Image: Envato Elements
Affiliate marketing is the best option for 2023. If you have no investment for business, then this is the best option to go. The only investment in this type of business is the investment of time and dedication. Choosing a profitable niche is the main point of this business.
I think affiliate marketing is the best way to make passive income. You can start a blog or a youtube channel and begin your affiliate journey. Last year I made more than $15000 by selling affiliate products. Isn’t that amazing?
Affiliate Marketing, Social Media Marketing along with SEO (Search Engine Optimization) are the best businesses in 2023 anyone can start. If mastered and implemented the right way, one can make thousands every month.
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Building for the future: The enterprise generative AI application lifecycle with Azure AI
By Gregory Buehrer Corporate Vice President, Chief Technology Officer of Azure Machine Learning
Posted on November 6, 2023 7 min read
In our previous blog , we explored the emerging practice of large language model operations (LLMOps) and the nuances that set it apart from traditional machine learning operations (MLOps) . We discussed the challenges of scaling large language model-powered applications and how Microsoft Azure AI uniquely helps organizations manage this complexity. We touched on the importance of considering the development journey as an iterative process to achieve a quality application.
Microsoft Azure AI
Drive business results and improve customer experiences
In this blog, we’ll explore these concepts in more detail. The enterprise development process requires collaboration, diligent evaluation, risk management, and scaled deployment. By providing a robust suite of capabilities supporting these challenges, Azure AI affords a clear and efficient path to generating value in your products for your customers.
Enterprise LLM Lifecycle
Ideating and exploring loop
The first loop typically involves a single developer searching for a model catalog for large language models (LLMs) that align with their specific business requirements. Working with a subset of data and prompts, the developer will try to understand the capabilities and limitations of each model with prototyping and evaluation. Developers usually explore altering prompts to the models, different chunking sizes and vectoring indexing methods, and basic interactions while trying to validate or refute business hypotheses. For instance, in a customer support scenario, they might input sample customer queries to see if the model generates appropriate and helpful responses. They can validate this first by typing in examples, but quickly move to bulk testing with files and automated metrics.
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Beyond Azure OpenAI Service, Azure AI offers a comprehensive model catalog , which empowers users to discover, customize, evaluate, and deploy foundation models from leading providers such as Hugging Face, Meta, and OpenAI. This helps developers find and select optimal foundation models for their specific use case. Developers can quickly test and evaluate models using their own data to see how the pre-trained model would perform for their desired scenarios.
Building and augmenting loop
Once a developer discovers and evaluates the core capabilities of their preferred LLM, they advance to the next loop which focuses on guiding and enhancing the LLM to better meet their specific needs. Traditionally, a base model is trained with point-in-time data. However, often the scenario requires either enterprise-local data, real-time data, or more fundamental alterations.
For reasoning on enterprise data, Retrieval Augmented Generation (RAG) is preferred, which injects information from internal data sources into the prompt based on the specific user request. Common sources are document search systems, structured databases, and non-SQL stores. With RAG, a developer can “ ground ” their solution using the capabilities of their LLMs to process and generate responses based on this injected data. This helps developers achieve customized solutions while maintaining relevance and optimizing costs. RAG also facilitates continuous data updates without the need for fine-tuning as the data comes from other sources.
During this loop, the developer may find cases where the output accuracy doesn’t meet desired thresholds. Another method to alter the outcome of an LLM is fine-tuning . Fine-tuning helps most when the nature of the system needs to be altered. Generally, the LLM will answer any prompt in a similar tone and format. But for example, if the use case requires code output, JSON, or any such modification, there may be a consistent change or restriction in the output, where fine-tuning can be employed to better align the system’s responses with the specific requirements of the task at hand. By adjusting the parameters of the LLM during fine-tuning, the developer can significantly improve the output accuracy and relevance, making the system more useful and efficient for the intended use case.
It is also feasible to combine prompt engineering, RAG augmentation, and a fine-tuned LLM. Since fine-tuning necessitates additional data, most users initiate with prompt engineering and modifications to data retrieval before proceeding to fine-tune the model.
Most importantly, continuous evaluation is an essential element of this loop. During this phase, developers assess the quality and overall groundedness of their LLMs. The end goal is to facilitate safe, responsible, and data-driven insights to inform decision-making while ensuring the AI solutions are primed for production.
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Azure AI prompt flow is a pivotal component in this loop. Prompt flow helps teams streamline the development and evaluation of LLM applications by providing tools for systematic experimentation and a rich array of built-in templates and metrics. This ensures a structured and informed approach to LLM refinement. Developers can also effortlessly integrate with frameworks like LangChain or Semantic Kernel , tailoring their LLM flows based on their business requirements. The addition of reusable Python tools enhances data processing capabilities, while simplified and secure connections to APIs and external data sources afford flexible augmentation of the solution. Developers can also use multiple LLMs as part of their workflow, applied dynamically or conditionally to work on specific tasks and manage costs.
With Azure AI, evaluating the effectiveness of different development approaches becomes straightforward. Developers can easily craft and compare the performance of prompt variants against sample data, using insightful metrics such as groundedness, fluency, and coherence. In essence, throughout this loop, prompt flow is the linchpin, bridging the gap between innovative ideas and tangible AI solutions.
The third loop captures the transition of LLMs from development to production. This loop primarily involves deployment, monitoring, incorporating content safety systems, and integrating with CI/CD (continuous integration and continuous deployment) processes. This stage of the process is often managed by production engineers who have existing processes for application deployment. Central to this stage is collaboration, facilitating a smooth handoff of assets between application developers and data scientists building on the LLMs, and production engineers tasked with deploying them.
Deployment allows for a seamless transfer of LLMs and prompt flows to endpoints for inference without the need for a complex infrastructure setup. Monitoring helps teams track and optimize their LLM application’s safety and quality in production. Content safety systems help detect and mitigate misuse and unwanted content, both on the ingress and egress of the application. Combined, these systems fortify the application against potential risks, improving alignment with risk, governance, and compliance standards.
Unlike traditional machine learning models that might classify content, LLMs fundamentally generate content. This content often powers end-user-facing experiences like chatbots, with the integration often falling on developers who may not have experience managing probabilistic models. LLM-based applications often incorporate agents and plugins to enhance the capabilities of models to trigger some actions, which could also amplify the risk. These factors, combined with the inherent variability of LLM outputs, show the importance of risk management in LLMOps is critical.
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Azure AI prompt flow ensures a smooth deployment process to managed online endpoints in Azure Machine Learning. Because prompt flows are well-defined files that adhere to published schemas, they are easily incorporated into existing productization pipelines. Upon deployment, Azure Machine Learning invokes the model data collector , which autonomously gathers production data. That way, monitoring capabilities in Azure AI can provide a granular understanding of resource utilization, ensuring optimal performance and cost-effectiveness through token usage and cost monitoring. More importantly, customers can monitor their generative AI applications for quality and safety in production, using scheduled drift detection using either built-in or customer-defined metrics. Developers can also use Azure AI Content Safety to detect and mitigate harmful content or use the built-in content safety filters provided with Azure OpenAI Service models. Together, these systems provide greater control, quality, and transparency, delivering AI solutions that are safer, more efficient, and more easily meet the organization’s compliance standards.
Azure AI also helps to foster closer collaboration among diverse roles by facilitating the seamless sharing of assets like models, prompts, data, and experiment results using registries . Assets crafted in one workspace can be effortlessly discovered in another, ensuring a fluid handoff of LLMs and prompts. This not only enables a smoother development process but also preserves the lineage across both development and production environments. This integrated approach ensures that LLM applications are not only effective and insightful but also deeply ingrained within the business fabric, delivering unmatched value.
The final loop in the Enterprise Lifecycle LLM process lays down a structured framework for ongoing governance, management, and security. AI governance can help organizations accelerate their AI adoption and innovation by providing clear and consistent guidelines, processes, and standards for their AI projects.
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Azure AI provides built-in AI governance capabilities for privacy, security, compliance, and responsible AI , as well as extensive connectors and integrations to simplify AI governance across your data estate. For example, administrators can set policies to allow or enforce specific security configurations , such as whether your Azure Machine Learning workspace uses a private endpoint. Or, organizations can integrate Azure Machine Learning workspaces with Microsoft Purview to publish metadata on AI assets automatically to the Purview Data Map for easier lineage tracking. This helps risk and compliance professionals understand what data is used to train AI models, how base models are fine-tuned or extended, and where models are used across different production applications. This information is crucial for supporting responsible AI practices and providing evidence for compliance reports and audits.
Whether building generative AI applications with open-source models, Azure’s managed OpenAI models, or your own pre-trained custom models, Azure AI facilitates safe, secure, and reliable AI solutions with greater ease with purpose-built, scalable infrastructure.
Explore the harmonized journey of LLMOps at Microsoft Ignite
As organizations delve deeper into LLMOps to streamline processes, one truth becomes abundantly clear: the journey is multifaceted and requires a diverse range of skills. While tools and technologies like Azure AI prompt flow play a crucial role, the human element—and diverse expertise—is indispensable. It’s the harmonious collaboration of cross-functional teams that creates real magic. Together, they ensure the transformation of a promising idea into a proof of concept and then a game-changing LLM application.
As we approach our annual Microsoft Ignite conference this month, we will continue to post updates to our product line. Join us for more groundbreaking announcements and demonstrations and stay tuned for our next blog in this series.
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10 Social Media Customer Service Examples to Learn From
Nov 20, 2023
11 min. read
For B2C brands, delivering social media customer service has become a necessity, as consumers have grown to expect businesses to respond to their queries and complaints through popular social channels. This expectation has also spilled over into the B2B world, so it’s often a good idea for brands that sell to other businesses to offer some level of customer care through social media.
While it’s something brands should do as good practice, companies using social media for customer service will find that it provides a lot of additional benefits beyond simply making customers happier . The most immediate benefit is that it enhances your brand reputation by demonstrating your commitment to customer care in a transparent, public channel.
The rewards of a good brand reputation cannot be overstated, it’s something that all marketers work very hard to achieve. This in itself will lead to increased customer retention and stronger word-of-mouth referrals.
Social media customer service can also cut costs by either solving customer issues with fast responses or directing them to self-serve online resources, it reduces the pressure on your customer support team. What’s more, all of the data generated by tracking and responding to customer queries and complaints on social media channels can provide valuable insights into your customer preferences, needs, pain points, and trends, which can help you improve your product and service offerings.
But getting customer service right on social media can be challenging. For a start, it’s often the case that customer service and social media are two completely separate functions within a business, so they need to be aligned and working together seamlessly. Meltwater's social listening solution, Explore , and social media management tool, Engage, are ideal for customer service as they are designed to help you identify and respond to customer comments on social media, no matter how big your organization. With the Salesforce Social Studio sunset , Meltwater integrates easily with Salesforce, so that customer queries raised on social channels can be effortlessly synced with the platform that your customer service department is likely to be using.
Below we’ve collected some real-world social media customer service examples from a wide range of different brands, to highlight the challenges they face and how they respond:
Hyundai usa, western union.
Domino’s Pizza is one of the world’s best-known fast-food brands, with millions of hungry customers ordering pizzas to be delivered every single day of the year. So it’s no surprise that the company’s social media channels are bombarded with questions and complaints because with an operation of that scale, it’s inevitable that a small percentage of deliveries won’t meet customer expectations.
The company clearly treats social media as an important customer service channel, with every query receiving a response that attempts to resolve the problem. Each message is responded to with a clear answer advising the customer of the best next step , whether that might be moving to a more detailed conversation in DMs, or escalating to the company’s online complaint handling system.
The customer is given the name of the rep dealing with their query, so that they can see a level of accountability, and a reference number enabling the case to be tracked accurately throughout the handling process.
Tip: Read our Domino’s Customer Story and learn how they use Meltwater to improve their social media operations.
South Korean auto brand, Hyundai, is the next customer service example on our list. The company is the third largest car manufacturer globally in terms of production volume and sells its vehicles in almost every country in the world. Cars are a big ticket item for most consumers, and will often represent the most expensive purchase people make other than their home, so it’s a topic that consumers not only research in great detail but also have very strongly held opinions about.
Customers sharing negative comments and experiences about the brand on its social media channels can have a big impact on sales because nobody wants to risk spending tens of thousands of dollars on a vehicle that has a poor reputation. So it’s easy to understand why Hyundai USA makes a point of quickly responding to queries, complaints, and even negative comments posted on social media.
In this example, the poster seems to be making a general comment about the quality of Hyundai cars, rather than raising a specific issue that he needs help with, but the brand still makes the effort to assist him and resolve the problem.
Tip: Read our Hyundai Customer Story and learn how they are using Meltwater's social listening suite to better understand what consumers are looking for when it comes to electric cars.
As one of the world’s most widely used money transfer service providers, Western Union is relied upon by millions of people to send money to friends and family wherever they are in the world. That’s an important service, and the company’s customers depend on it to work perfectly every time.
When customers encounter difficulties with the service, they need to know they can get quick and reliable support from Western Union. The company delivers comprehensive social media customer service, responding to all queries and complaints, whether they’re concerning specific issues a customer needs help with, or more general comments about how the service works.
Tip: Read our Western Union Customer Story to learn how Meltwater helps the company truly understand not just the outputs and outcomes but also the impact of messages on social media.
Every morning, millions of people around the world start their day with Kellogg’s breakfast cereals, but sometimes customers are left a little disappointed. Maybe their cereal isn’t up to the usual high standards they expect from Kellogg’s, or maybe they’re just struggling to find their favorite product. Whatever the issue, the brand is always on top of social media customer service , making sure that customers get answers to their questions and any problems are resolved professionally.
With a brand like Kellogg’s, it’s unlikely that many of the issues raised on social channels are urgent or even particularly important in the grand scheme of things, but nevertheless, the company understands the importance of keeping its customers happy. By demonstrating a commitment to social media customer service, Kellogg’s is safeguarding its brand reputation .
Tip: Read our Kellogg’s Customer Story and learn how the company uses Meltwater for access to deeper data insights that help drive the success of their corporate affairs team and move beyond standard KPI.
Not all social media customer service examples are about responding to complaints and negativity, sometimes your brand just has a lot of fans with a lot of feedback. Vans is a sneaker company with a pretty big cult following , and those fans are always keen to let the company know how they feel about the latest designs on its social media channels.
Vans does a great job of letting its fans know that it’s listening to their ideas and feedback , and if you take a look at the brand’s social channels, you’ll see it responds promptly to any questions.
Read our Vans Customer Story and learn how Meltwater helps the sneaker company support successful event execution, connect with influencers, generate reports, and measure ROI.
Brands don’t come any bigger than Coca-Cola, and the company’s social media channels boast some of the largest audiences in the world. While that’s a great place to be for any B2C brand, it does come with its own challenges, namely the huge volume of queries and complaints posted on the company’s owned social channels every single day.
Coca-Cola rises to this challenge admirably, effectively responding to all queries across its broad range of international social media channels, showing customers that it cares about their problems and concerns. In this case, we see an example of the company effectively directing a customer to an online resource that provides further information about the problem they have encountered.
It would have been easy to simply ignore this complaint since it is not requesting immediate support, but instead, Coca-Cola shows that it’s listening to its customers and takes their concerns seriously. This is one of the reasons it’s such a powerful brand.
Tip: Read our Coca-Cola Customer Story and learn how they use Meltwater for brand tracking , structuring internal and external communications to stakeholders, and reputation management .
For luxury hotel brands like W London, it’s essential to maintain a reputation for impeccable service quality , since that’s at the very heart of their offer to customers. So when somebody publicly complains about the level of service they received, the brand needs to be seen to be doing everything possible to ensure the customer receives a satisfactory outcome.
As we can see in this example, W London monitors its social channels for any complaints and swiftly escalates the complaint to a private discussion in DMs. This is especially important in this situation, where the customer has a complaint relating to a personal health-related issue, which should not be discussed on a public channel.
Tip: Read our W Hotels Customer Story and learn how Meltwater helps them connect with customers on a personal level, get an insight into the guest experience, and measure ROI.
Mailchimp is a popular email marketing /email marketing automation platform, used by millions of small and medium businesses around the world. As with many technology brands, the company has to handle a lot of tech-support queries through its social channels, as well as the regular complaints and queries that most B2C brands will be familiar with.
This requires an additional layer of training for the social media customer service team since they need to be able to provide customers with the most appropriate technical answers as well as being able to handle complaints and queries. The benefit to the business is that in many cases, such as in this example, the query can be answered quickly and easily, which reduces pressure on the tech support team and saves the customer time.
Tip: Read our Mailchimp Customer Story and learn how Meltwater’s social media management suite automates much of the company’s social media activities.
Safely flying your customers and their luggage around the world is not without its challenges, as any airline employee knows. Passengers can run into all kinds of difficulties which require support from the company. Booking problems, delayed flights, and, as in this example, lost luggage, are just a few of the problems that airline customer service teams have to deal with.
Air travel can be a stressful thing for a lot of people, and it’s understandable that they might want to take to social media to voice their complaints . The social media customer service team needs to provide timely help in a calm and professional manner to reassure the customer that their problem will be dealt with. In this social media customer service example, the Air France team has responded to the customer, requested further information in order to progress the case, and provided a couple of options for the customer to contact customer services directly with their details.
Tip: Read our Air France Customer Story and learn how the company uses Meltwater to monitor traditional and social channels to ensure accurate, up-to-date information, measure and report on major crises, work to mitigate any negative impacts, and identify and target influential sources writing about aviation and air travel.
Puma is a popular sportswear fashion brand, and it’s important that the company maintains a reputation for high-quality products. When a customer publicly complains about a pair of running shoes falling apart while still relatively new, there’s a risk of its reputation being tarnished, so it’s vital to respond to that customer and resolve the issue.
In this social media customer service example, we can see that Puma has not only replied to the customer privately via DM, but also publicly noted this so that other customers can see the company is responding and fixing the problem.
Tip: Read our Puma Customer Story about how they are using Meltwater to engage users in over 80 countries, track unique uses of campaign hashtags, and obtain a 24x higher than average engagement rate.
Learning from Social Media Customer Service Examples
When customers have complaints or questions about your brand on social media, it’s just good business sense to respond quickly and positively. You won’t be able to resolve every single issue all of the time, and often you’ll need to direct the customer to your conventional customer service channels, but nevertheless, showing that you are responsive and helpful to customers on social media can earn your brand a lot of goodwill.
If you’re ready to start delivering social media customer service that will make customers love your brand, Meltwater Engage is the best solution to get it right. Contact us today for a demonstration of how it can work for you.