What’s the Cost-Value Rating of Your Business Model?

When it comes to making money online with an online business, you’ll need to decide what business model will best suit your start-up.

To help you determine what your options are with regards to online business models, we present seven of the most popular here.

Merchant

The Merchant model is the retail or wholesale selling of goods or services direct to consumers, whether they’re individuals or organizations.

With the Merchant model, money is made by selling products or services.

Examples of website that use the Merchant model are -

  • web stores that sell a selection of physical products which are delivered to the buyer via a shipper
  • digital directories that sell electronic files that are downloaded after payment
  • single-click payment pages that sell just one thing at a fixed price

Effort: 3 Return: 2

Affiliate

The Affiliate model is the retail or wholesale representation selling of goods or services direct to consumers, usually individuals. Using the Affiliate model, the website displays items available to purchase and sends interested buyers to the seller who will process the transaction payment.

With the Affiliate model, money is made each time one of the buyers you send to the seller purchases something.

Examples of websites that use the Affiliate model are -

  • websites selling pay-per-click products or services
  • directory portals that charge a fee for sending traffic to your website

Effort: 2 Return: 4

Community

The Community model creates an environment for like-minded people to congregate and uses traditional selling strategies to leverage the collective audience.

Money is made by selling products or services or by asking for voluntary contributions.

Examples websites that use the Community model are -

  • collaboration environments where people collective create something, usually a digital product such as an information library or software application
  • social networking websites which provide ways for people to connect, share and communicate with one another
  • user-generated content websites provide a place for digital information to be made widely available for sharing and distribution

Effort: 4 Return: 2

Subscription

The Subscription model provides access to products or services irrespective of usage, volume or value. This model is usually associate with a regular periodic pre-payment and is sometimes called a Continuity model, due to the on-going nature of the payment scheme.

The Subscription model makes money by charging a period fee to have unlimited access to some service, product or information library.

Example websites that use the Subscription model are -

  • online learning portals sell access to large catalogues of training courses that can be used for self-paced home study
  • web services websites sell access to software application accounts, that can do things like as build online surveys, send email marketing, work with share trading analysis tools and complete psych-analysis profiles etc

Effort: 3 Return: 4

Brokerage

The Brokerage model, brings buyers and sellers together to a single place and makes it easy for these two unknown parties to safely perform a transaction. The website is the trusted third party that processes the transaction and does it’s best to protect both parties from an unsatisfactory outcome.

Using the Brokerage model, money is made by charging a fee for services that support the transaction process.

Examples of websites that use the Brokerage model are -

  • online malls that bring diverse online retailers together within one website
  • auction websites that allow anyone to buy or sell things
  • transaction broker websites that handle transaction processing

Effort: 4 Return: 4

Advertising

The Advertising model uses high value content to attract viewers who are exposed to paid advertisements that are mixed in with the content. It is the online equivalent of free to air television broadcasting.

For this model, money is made based on the number of times an advertisement is viewed.

Examples of websites that use the Advertising model are -

  • classified ad websites where people can sell or list items as wanted
  • news and information portals that provide information for free
  • blogs that are self-funded and require an income to keep them running

Effort: 2 Return: 2

Aggregator

The Aggregator model is based on the collection of personal information that is then analysed, collated and sold. Changes to laws with regards to personal data privacy have made it increasingly difficult to implement this business model in recent times.

Money is made by selling information collected about people to other businesses.

Examples of websites that use the Aggregator business model are -

  • incentives websites where people voluntarily provide and allow the selling of their information in exchange for rewards, cash or coupons
  • industry analyst websites who collate public record information about individuals, organizations, industries or trends to create comprehensive profiles sold as reports

Effort: 4 Return: 3

Manufacturer

The Manufacturer model provides a tangible service in the production of something that is made to order. The website provides a self-service capability that results in a physical product being manufactured.

Money is made through the supply and manufacture of physical products.

Example websites that use the Manufacturer business model are -

  • self-publishing websites that allow people to submit a book manuscript that is then turned into a physical book
  • conversion websites translate or convert information from one form into another, such as an audio file being transcribed and supplied as a text document

Effort: 4 Return: 5

On-Demand

The On-Demand model is a pay as you go strategy based on measuring usage and charging based on volume of usage.

Examples of websites that use the On-Demand model are -

  • voIP account service providers meter phone calls and charge based on the time per call
  • download archives allow unlimited access to their indexes and charge a fee per item that is downloaded
  • Effort: 5 Return: 4

    Understanding the Business Model Scores

    For each business model you’ll find two scores out of 5.

    The first, Effort, rates the on-going effort in terms of time and money required to support the business model. The closer to 5 the value is, the greater the amount of effort needed to operate a business with this model.

    The second, Return, provides a rating on the business model’s ability to generate a high ROI. The closer to 5 the value is, the more likely it is that you'll get a high ROI using the model.

    Any of the business models described here can be combined to create your own unique model and increase your ability to generate a high return on investment.

    Alternatively, you could consider using a model that isn’t being used in your industry yet, to create a point of differentiation for your business to great effect.

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