Listed in: Starting up

Identifying your business model

A business model is the way your business runs and generates revenue. Find out which model might be best for your business and if there’s potential to have more than one.

3 minute read

Your business model is usually decided by the type of business you start. Consultants and professionals usually have a charge by the hour model (lawyers, accountants), software businesses often have a licensing model, and businesses reselling products have a retail model.

Common business models include:

• transforming raw materials by manufacturing
• adopting a system with a franchise
• an hourly rate
• charging per person or event
• licensing or royalties
• a subscription
• growing or harvesting with agriculture/fishing/farming
• adding a margin by retailing or wholesaling
• a mix of product and consumables
• fixed price contracting.

Most businesses have one main way of generating revenue that they stick to. It helps to identify which is yours as a starting point.

Developing dual business models

Once you’ve identified your core model, you could consider if there are additional ways to reach your customers to build additional revenue, or adapt to the way customers are buying. As a start-up it’s useful to understand not only your core method of doing business (e.g. a retailer) but also the complementary channels to market (online, direct to customer, marketplaces etc.).

A good example is a manufacturer, traditionally creating products and selling to wholesalers or retailers. They could start selling online direct to the end user, contract manufacture for other businesses, or on sell insurance and support with a monthly fee, all which are different business models from pure manufacturing.

Anything you can do that complements your existing business and uses another way of delivering and getting revenue is a valid dual business model, especially if your customers prefer different ways of buying.

Newer business models

The rise of cloud technology and digital transformation is behind some of the newer ways of being in business, especially subscription models where you develop a product or service and customers are willing to commit to monthly payments in exchange for continually updated products or services.

Other new business models include:

• online selling
• resource sharing
• paying for usage
• on-demand, where a product is only made once it’s paid for
• partnering and sub-contracting to other businesses
• creating online traffic and selling advertising.

Online marketplaces

You may consider selling online through a third-party marketplace, or a specialist industry site which lets you list goods or services for a fee or commission. The benefits of using these sites can include low set up costs, easy product listings, and integrated payment procedures all set up for you.

The power of free

You may be able to deliver parts of your business for free while creating alternate revenue streams, though your ‘give away’ doesn’t always need to be product, it could be valuable content as a lead generating opportunity.

How to decide

Make sure any new business model is profitable and can stand alone if needed, to limit your risk. Ask your customers, research what’s happening in similar industries offshore, and try to:

• create a unique value proposition
• select the best channel
• set up internal resources to be able to deliver
• test and amend before launch.

Once you’ve made the decision to run with a new business model, wrap a marketing campaign around the idea to see if it works. If it works, then continue. If it doesn’t, then you will need to rethink.

Clearly identifying your business model may not only help your business run more efficiently and generate revenue once you’ve started up, it can also make it easier to spot new ways people can buy what you’re selling.

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This material is for general information purposes only and does not constitute, and is not intended as, personalised financial advice or as a replacement for legal advice. BNZ strongly recommends you seek advice specific to your personal financial or legal situation from a qualified adviser. Neither BNZ nor any person involved in the material accepts any liability for any direct or indirect loss or damage arising out of the use of, or reliance on, all or any part of the content.