When it comes to starting a business or trying to improve an existing one, one of the most important things to figure out is your business model. In simple terms, a business model is how a company makes money. It's the game plan for delivering value to customers and getting paid for it. Over time, different types of business models have evolved across industries, and while new ones keep emerging with technology, the core idea remains the same—create value, offer it to customers, and earn revenue in return.
In this article, I’ll walk you through several types of business models that are proven to generate money. Some are traditional, some are digital, and some are hybrid. No matter what industry you’re in or thinking of entering, understanding these can help you structure your business in a way that works.
- Product-Based Business Model
This is probably the most straightforward model. You sell physical or digital products to customers and make money from the sales. Think of businesses like Apple, Nike, or even a small business selling handmade crafts. The key here is to develop or source a product that people want and are willing to pay for.
You can choose to go the traditional route and sell in a physical store, or go digital with an e-commerce store. Some people even combine both. The profit comes from the difference between how much it costs you to make or buy the product, and how much you sell it for.
- Service-Based Business Model
Instead of selling products, you offer services. This could be consulting, coaching, graphic design, writing, cleaning, photography—you name it. In this model, your time, skill, and expertise are the product.
Many freelancers and agencies operate on this model. The challenge here is scalability since you’re often trading time for money. But with the right team or by creating digital products like courses or templates, you can scale your service business too.
- Subscription Model
The subscription model is one of the most popular in today’s digital economy. It’s where customers pay on a recurring basis—weekly, monthly, or annually—for access to a product or service. Netflix, Spotify, and even subscription boxes like beauty kits or snacks work this way.
The great thing about this model is predictable income. Once you get customers, you can focus on retaining them rather than constantly looking for new buyers. However, you must consistently deliver value to keep them subscribed.
- Freemium Model
This is common among tech startups. With the freemium model, you offer a basic version of your product or service for free, and charge for premium features. Think of apps like Canva, Zoom, or Dropbox. They give a lot away for free, but if you want more advanced features or storage, you have to pay.
The trick here is offering enough value in the free version to attract users, but keeping the best or most convenient parts behind a paywall. When done right, this model can bring in massive revenue.
- Marketplace Model
If you’ve ever used platforms like Uber, Airbnb, or Jumia, then you’ve used a marketplace business model. The company doesn’t necessarily own the products or provide the service. Instead, they connect buyers and sellers and earn money through commissions, listing fees, or ads.
It can be very lucrative because you're making money from the volume of transactions, not necessarily the cost of providing the service. But you do need a reliable system and trust between both sides.
- Affiliate Model
This is one of the simplest models to get into, especially if you don’t have a product or service of your own. You promote other people’s products and earn a commission for every sale or lead you generate. It’s common in blogging, YouTube, and influencer marketing.
Affiliate marketing works well if you have a good audience and can recommend products that solve real problems for them. It’s low risk, but your income depends on your ability to drive traffic and conversions.
- Franchise Model
In the franchise model, you use someone else’s proven brand and system to run your own business. You pay a franchise fee and possibly ongoing royalties, but you get the benefit of an established name, training, and support.
Popular franchises include McDonald's, KFC, and local equivalents. It’s a great way to enter business with lower risk, though the upfront investment can be high.
- Ad-Based Model
This one is common among content creators, bloggers, YouTubers, and app developers. You provide free content or services and make money through advertising. The more traffic or users you have, the more ad revenue you can generate.
Google AdSense is a classic example. The model requires large numbers of users or pageviews to be sustainable, but it’s a solid option if you’re creating valuable or entertaining content.
- Licensing Model
This model involves creating intellectual property—like software, music, photos, or even business processes—and licensing others to use it. You earn money through licensing fees or royalties. It’s passive income if you can create something once and sell access to it multiple times.
Software companies often use this model, and so do authors, musicians, and inventors.
- Razor and Blade Model
This is a unique one where a company sells a main product at a low cost (or even a loss) and makes money on repeat purchases of the consumables or add-ons. Think of how razors are cheap but the blades are expensive—or how printers are affordable but ink costs a lot.
This model works well if you can lock customers into a system that keeps them coming back for more.
Final Thoughts
There’s no one-size-fits-all when it comes to business models. The best model for you depends on your product, target audience, resources, and long-term goals. Some businesses even combine two or more models—for example, a product business that also has a subscription component.
The key is to understand how your business creates and delivers value, and then choose a model that allows you to monetize that value effectively. Whether you’re starting from scratch or tweaking an existing business, getting your business model right is one of the smartest moves you can make.