What Is a Business Model?
Greg Swanson
If you’ve ever wondered, “what is a business model?” you’re not alone. It’s one of those phrases you hear all the time, but many business owners don’t stop to define it clearly. Understanding your business model is essential to building a company that actually makes money.
Short Answer: A business model explains how a company creates, delivers, and earns revenue from its products or services.
Why Your Business Model Matters
- Guides Strategy: It helps you make decisions about pricing, marketing, operations, and growth.
- Attracts Investment: A clear model shows potential investors how your business will generate profits.
- Improves Focus: It forces you to think about how everything fits together to create value.
Key Components of a Business Model
- Value Proposition: What problem do you solve, and why would someone choose you?
- Target Market: Who are you serving?
- Revenue Model: How do you make money—sales, subscriptions, ads, etc.?
- Channels: How do customers find and buy from you?
- Key Resources and Activities: What do you need to operate and deliver value?
Types of Business Models
- Product-Based: Selling physical or digital goods, like an online store.
- Service-Based: Charging for time, expertise, or labor—common in consulting and freelancing.
- Subscription: Monthly or yearly recurring fees, often used by SaaS or content services.
- Marketplace: Connecting buyers and sellers, taking a cut of each transaction (e.g., Etsy, Airbnb).
- Freemium: Offering a free version to attract users and upselling premium features later.
Examples of Business Models
- Netflix: Subscription-based model for on-demand streaming content.
- Amazon: A mix of product sales, marketplace commissions, and Prime memberships.
- Uber: Marketplace model connecting riders and drivers, taking a cut from each ride.
Your business model is the engine behind your business. It doesn’t have to be complicated, but it should be intentional. When you know how your company creates and captures value, you’ll make smarter decisions and build a stronger foundation for growth.
Updated: July 03, 2025
What is a business model?
A business model is a framework that explains how a company creates, delivers, and earns revenue from its products or services.
Why is a business model important?
A business model helps guide your strategy, attract investors, and make sure your operations are aligned with how you generate revenue.
What are examples of business models?
Examples include subscription models (like Netflix), marketplace models (like Uber), and product sales (like online stores).
What are the main parts of a business model?
The main parts include your value proposition, target market, revenue model, sales channels, and key resources or operations.
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Greg Swanson
Greg Swanson is a technology and business writer with 12+ years of experience in AI and digital innovation. He specializes in AI-driven business growth, SEO, and emerging tech trends, offering actionable insights to help businesses stay ahead in a competitive online world.