Every successful business starts with a solid plan for how it will operate and grow. Choosing the right business model helps set the tone for your daily operations, customer experience, and long-term goals. This decision shapes everything from how you deliver your products or services to how you generate revenue. If you're just getting started or looking to adjust your current strategy, this guide will walk you through common business models and how to choose the one that aligns with your vision.
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What is a business model?
A business model defines how your business makes money. It outlines how you provide value to your customers and what they give you in return. This could be through selling products, offering services, running a subscription, or something else entirely.
Your business model plays a big role in shaping how your business grows, but that doesn’t mean it can’t evolve. Many successful businesses tweak their model over time as they learn more about their customers, products, and market. Facebook, for example, began as a free platform and later turned to advertising to generate revenue. They could have gone with a subscription model or added paid features, but they chose an approach that matched their audience and goals.
The same goes for Amazon. While it began as an online bookstore, Amazon now generates major revenue from Amazon Web Services (AWS), its cloud computing arm. That shift in strategy shows how a business model can expand as new opportunities arise.
Choosing the right business model depends on what your market values and how they prefer to pay. You may not land on the perfect model from day one, and that’s okay. The important thing is to stay flexible and open to testing different strategies.
Keep in mind that your business model and business plan are not the same thing. Your model is how you plan to make money, while a business plan is the full roadmap for building and running your business.
17 common business models
There’s no one-size-fits-all approach when it comes to how businesses make money. The model you choose will depend on what you offer and how your customers prefer to pay for it. Some models work best for digital products or services, while others are ideal for physical goods, memberships, or platforms.
Below are 17 of the most common business models to explore as you shape your strategy.
1. Advertising business model
With the advertising business model, revenue comes from selling ad space instead of charging customers directly. You create content that attracts an audience, then monetize that traffic through ads.
This model has evolved from traditional print ads to digital formats like display ads, video ads, and sponsored content. If you run a website, you can work with ad networks that pay based on impressions or clicks. The more traffic you generate, the more potential you have to earn.
| Pros | Cons |
| Generates revenue without directly charging customers | Requires businesses to maintain a large audience |
| Easily scalable | Ad blockers may reduce effectiveness |
| Introduces opportunities for targeted advertising to increase relevance and conversions | Excessive ads can harm the user experience and result in lost sales |
2. Affiliate marketing business model
Affiliate marketing is a way to earn revenue by promoting other companies’ products or services. You earn a commission for every sale or lead generated through your referral links. This model can be very lucrative and is especially common in blogs, review sites, and content-driven businesses. Once you join an affiliate program, like the Amazon Associates program, you can start sharing products that match your audience’s interests.
Many creators have built thriving businesses with this model. Michelle Schroeder-Gardner of Making Sense of Cents earns a large portion of her monthly six-figure revenue through affiliate marketing by sharing financial and lifestyle content. Another example is Ryan Robinson of ryrob.com, who consistently generates over $20,000 a month promoting business tools and hosting platforms to his blog readers.
| Pros | Cons |
| Low startup costs | Income is dependent upon third-party products and policies |
| Flexible and easily scalable | Significant, consistent traffic is required to generate substantial revenue |
| Potential to earn passive income | Income can be inconsistent |
3. Franchising business model
Franchising is a growth-focused business model used by brick-and-mortar businesses. You’ll find it in fast food, convenience stores, fitness studios, and more.
In this setup, a franchisor licenses out the brand, products, and business operations to a franchisee. In return, the franchisee pays fees or royalties, and in some cases, a percentage of revenue. McDonald’s is a well-known example—more than 93% of its locations are franchised.
This model works incredibly well if you're focused on expansion.
| Pros | Cons |
| Allows for rapid expansion with a lower investment | Limited control over individual franchises |
| Franchisees are responsible for most operational costs | Introduces the potential for brand inconsistencies |
| Leverages the skills and resources of franchisees | Ongoing royalty fees may be a financial burden for franchisees that hinders growth |
4. Freemium business model
The freemium business model is one you’re probably very familiar with. It gives users access to a basic version of your product for free, then offers paid upgrades for more features or functionality. It’s especially common in the software world, where the free version provides real value and helps build trust with users. The key here is that the free version doesn’t expire. Many users may never upgrade, but the model works even when only a portion of your audience chooses the paid tier.
Two great examples of the freemium business model in action are AppSumo and Evernote. AppSumo offers free apps to help business owners grow their websites, with optional paid upgrades for more advanced tools. Evernote is a note-taking and task management app that gives users a strong set of free features, while offering premium and business plans for those who need more.
| Pros | Cons |
| Often attracts a large user base | Relatively high conversion rate is needed to profit |
| Free options encourage users to try products risk-free | Potential for free users to strain business and product resources |
| Revenue from premium upgrades can be substantial | Potential for a lower perceived product value |
5. Razor blade business model
This business model gets its name from, you guessed it, razor companies. The idea is to sell one part of the product at a low cost—or even give it away—to drive repeat purchases of a more profitable component.
You’ll see this strategy in action with razors that come with a free or low-cost handle, while the real money comes from selling the replacement blades. Printers are another common example. The upfront cost is low, but you’ll end up buying ink cartridges regularly to keep things running. It’s a smart model for businesses that rely on consumables or ongoing add-ons to generate steady revenue.
| Pros | Cons |
| Encourages repeat purchases of consumable products | Potential for initial product loss if sold below cost |
| Builds customer loyalty through ongoing product usage | Revenue relies on consumable product sales |
| Consumable product sales offer more predictable revenue | Consumable products may be difficult to differentiate from competitors |
6. Reverse razor blade business model
This model takes the traditional razor blade approach and flips it. Instead of offering a low-cost entry product, you start with a high-margin item and build a product ecosystem with ongoing, lower-cost add-ons. Once someone buys in, they’re more likely to stay within the brand.
Apple is a great example. A customer might start with a MacBook, then add apps, subscribe to Apple Music, or pick up an iPhone later. Each smaller purchase adds long-term value while keeping customers engaged.
| Pros | Cons |
| Premium product sales result in higher initial revenue | Attracting customers requires high-quality, premium products that can be costly to produce |
| Offers ongoing revenue from low-margin consumables or services | Customer retention is critical for profitability and revenue predictability |
| Encourages customer engagement and loyalty | Highly dependent upon the success of your product ecosystem |
7. Subscription business model
The subscription model has been around for decades—from newspaper deliveries to magazine subscriptions—and it’s just as relevant today. Customers pay a recurring fee, usually monthly or annually, to access a product or service. It’s a go-to model for software, media, and streaming platforms. The value comes from convenience, consistency, and ongoing access.
Take The New York Times, for example. You can read a few articles for free, but continued access requires a subscription. Netflix follows a similar model in which your monthly fee gives you unlimited access to its entire streaming library.
| Pros | Cons |
| Recurring revenue stream offers predictability | Often has high customer acquisition costs |
| Strong potential for customer loyalty, retention, and advocacy | Revenue is significantly impacted by churn rate |
| Makes financial forecasting and planning easier | Must continuously deliver value to gain and retain subscribers |
8. Agency business model
The agency model is centered on providing services—typically in marketing, design, or consulting—to a diverse range of clients. You generate leads, close deals, and deliver results based on client goals and project scopes.
While today’s agencies look a lot different from the early days of advertising, the core idea remains the same: manage creative or strategic projects for other businesses. Neil Patel, for example, runs a successful digital marketing agency fueled by the traffic from his blog.
This model may not scale as easily as product-based businesses, but it can be highly profitable and flexible, especially if you build strong client relationships.
| Pros | Cons |
| Enables you to offer personalized services that cater to a larger audience | Scalability is often limited by workforce size |
| Potential for high profit margins with specialized expertise | Highly dependent upon client acquisition and retention |
| Flexibility in service offerings offers revenue and growth opportunities | Competitive market that puts pressure on pricing |
9. Ecommerce business model
Ecommerce is the fastest-growing retail sector. While giants like Amazon dominate the space, it's easier than ever for small businesses to launch their own online stores using tools like GoDaddy’s Online Store or Managed WooCommerce.
Success in ecommerce comes in all shapes and sizes. Dollar Shave Club modernized razor sales by offering both one-time purchases and convenient product subscriptions. Minaal started with a successful Kickstarter campaign and grew into a full ecommerce brand selling travel gear built for digital nomads and frequent flyers. No matter what you sell, ecommerce gives you the flexibility to run your business your way.
| Pros | Cons |
| Potential to reach a global customer base with minimal barriers | Intense market competition |
| Lower operational costs than physical storefronts | Relies heavily on logistics and shipping, which often have delays and other disruptions |
| Offers customers a convenient, 24/7 shopping experience | Exposes businesses to cybersecurity risks |
10. Platform business model
The platform business model connects different user groups so they can create and exchange value within the same ecosystem. Instead of offering a single product or service, platforms act as a bridge between providers and consumers.
You’ll see this model in companies like Airbnb, Uber, Etsy, and social media networks. As more users join, the platform becomes more valuable. This concept is known as network effects. These businesses often use data to improve matches, personalize experiences, and keep users coming back. It’s a powerful model for building communities, marketplaces, or gig-based services that scale through user participation.
| Pros | Cons |
| Network effects can lead to exponential growth and global reach | Requires a significant initial investment in technology and user acquisition |
| Offers diverse revenue streams through user interactions | Can be complex and time-consuming to maintain |
| Highly scalable | Subject to many regulatory challenges and data privacy concerns |
11. Sourcing business model
The sourcing model is built around working with external partners and suppliers to keep operations efficient and costs low. Instead of doing everything in-house, businesses team up with others to get the job done smarter.
This approach is especially useful for product-based companies that want to tap into specialized expertise, streamline production, or scale faster. Strategic outsourcing can also open the door to new innovations by combining different strengths across partners.
| Pros | Cons |
| Strategic partnerships can reduce operational costs | Depending heavily upon external partners can introduce vulnerabilities |
| Provides access to specialized skills and technologies without large investments | Potential misalignment of goals and values across partners |
| Flexible and scalable | Managing multiple supplier relationships can be complex |
12. Bricks and clicks business model
This hybrid model combines the best of both worlds: physical storefronts (bricks) and online shopping (clicks). It’s designed to give customers flexibility in how they browse, buy, and pick up products.
Retailers using this model might let customers shop online and pick up in-store, or browse in person and order online later. It’s all about creating a smooth, connected experience across channels. Behind the scenes, tools like synced POS systems help manage inventory and sales so everything stays up to date.
| Pros | Cons |
| Expands your reach and audience | Maintaining both sales channels requires significant investments |
| Increases convenience and flexibility for customers | Inventory and logistics management can be complex |
| Offers diversified revenue streams | Potential for brand inconsistency across sales channels |
13. Brokerage business model
Brokerage business models connect buyers and sellers to make completing transactions easier. Instead of offering a product or service directly, the broker earns a fee or commission for facilitating the deal.
You’ll see this model in industries like real estate, travel, and finance. It’s a strong choice for businesses that add value by simplifying complex transactions or giving people access to opportunities they wouldn’t find on their own.
| Pros | Cons |
| Creates value for customers by reducing search and transaction costs | Must have many buyers and sellers to be effective |
| Easily scalable by increasing user base | Faces competitive pressure from direct-to-consumer businesses |
| Multiple fee structures diversify revenue | Certain industries come with regulatory challenges |
14. Marketplace business model
Marketplaces create a space where buyers and sellers can connect and do business directly. The platform itself doesn’t sell products; it simply makes it easier for users to find each other and complete transactions. A few well-known examples of marketplaces are eBay, Etsy, and Amazon. The more users join, the more valuable the marketplace becomes.
| Pros | Cons |
| Can grow rapidly due to network effects as the user base grows | Attracting a large initial user base can be challenging |
| Can offer diversified products and services to attract a wider audience | Managing offering quality and trust in the marketplace requires robust technology, systems, and processes |
| Potential for multiple revenue streams, such as commissions, listing fees, and premium services | Highly competitive sector |
15. Product-as-a-Service (PaaS) business model
Instead of selling a product outright, this model turns it into an ongoing service. Customers pay for access and usage, while the company takes care of things like maintenance, updates, and support.
A good example is a company offering vehicles as a service. They manage everything from maintenance to fleet logistics while the customer simply pays to use the car. This setup creates steady, recurring revenue and keeps customers engaged over the long term.
| Pros | Cons |
| Generates recurring revenue | Requires robust service infrastructure |
| Encourages customer loyalty and continuous engagement | Maintaining service and product quality often comes with high operational costs |
| Minimizes the need for customers to make large upfront investments | Can be difficult to scale due to financial requirements |
16. Freelance model
Freelance business models let individuals offer their services and expertise independently on a project-by-project basis. Freelancers handle everything from client communication to delivery, without the structure or commitment of full-time employment.
Platforms like Upwork and Fiverr help connect freelancers with clients around the world. It’s a flexible approach that gives professionals more control over their schedules and lets businesses access specialized skills as needed.
| Pros | Cons |
| Low operational and overhead costs | Inconsistent, unpredictable income |
| Highly flexible | Dependent upon continuous client acquisition |
| Scalable income potential | Limited service scalability due to individual bandwidth |
17. SaaS (Software as a Service) business model
The SaaS business model delivers software through the cloud, allowing customers to access tools directly from their browser—no downloads or installations required. It’s convenient, scalable, and can be easily paired with subscription-based pricing.
Companies like Salesforce, Adobe, and Slack have built strong businesses using this model. SaaS makes it easy to roll out updates, gather user feedback, and improve features over time, all while generating consistent, recurring revenue.
| Pros | Cons |
| Predictable, recurring revenue | Requires significant upfront financial investment in technology and infrastructure |
| Makes software updates and maintenance easier | Highly competitive market |
| Highly scalable with the potential for global reach | Requires investments in strong customer support and consistent value delivery |
How to choose the best business model for you
Your business model sets the tone for how you make money and deliver value to your customers. Because of this, it’s crucial to choose a model that matches your goals and your audience’s buying preferences. So, where do you start?
1. Define your goals
Start with what success looks like for your business. Are you aiming for steady monthly revenue? A fast-growing user base? A high-profit product line? Get specific about what you want to achieve.
2. Set Key Performance Indicators (KPIs)
Choose a few metrics that will help you track performance. These could include customer lifetime value, churn rate, or average order value—whatever aligns best with your business goals.
3. Align the model with goals and KPIs
Not every business model fits every outcome. If retention is your focus, a subscription model might be the way to go. If you’re selling one-time items, ecommerce may make more sense. Choose a model that moves you closer to your targets.
4. Consider your customer needs
A good business model serves your customers first. For example, if you're offering a premium subscription, avoid adding ads that could hurt the experience. You can mix models, but customer satisfaction should always lead.
5. Consider how your customers buy
The way people purchase matters. If you're running a content-heavy site that draws tons of traffic but doesn’t drive many product sales, an ad-based model might be the better fit. If your audience is used to paying for premium experiences, subscriptions or high-ticket items could work well. Match your model to how your customers already behave.
6. Consider the market potential and competition
Take time to research your industry. If other businesses in your space are sticking with a certain model, there’s probably a good reason. However, that doesn’t mean you can’t do things differently; a fresh take on a proven model can set your business apart.
7. Consider your value proposition
Your business model should reflect what makes you different. Maybe you only source locally, offer a freemium app where others charge upfront, or include services competitors leave out. The clearer your value, the easier it is to pick a model that supports it.
Related: What is a value proposition?
8. Consider multiple revenue streams
Many successful businesses mix and match models. You might start with product sales and add a subscription option later. Use what works together to grow your revenue and reach more customers.
9. Experiment with various business models
You don’t have to commit to one approach right away. Test a few models to see what clicks with your audience and drives results.
10. Study the competition’s strengths and weaknesses
Study other businesses in your space: what are they doing well, and where are they falling short? Knowing how others operate can help you build a smarter model that better serves your audience and fills gaps in the market.
Key characteristics of effective business models
The most effective business models set your business up to grow, adapt, and thrive long-term. Here are a few traits to keep in mind as you build your own:
- Scalability: Can your business handle growth without costs growing just as fast? A scalable model lets you serve more customers without stretching your resources.
- Profitability: Your model should bring in enough revenue to cover expenses and leave room for healthy margins.
- Predictable operating costs: Keep your expenses low (or at least steady) so you can plan for the future with confidence.
- Flexibility: Markets change, and your model should be able to shift with them. Flexibility helps you stay relevant and responsive.
- Simple customer access: Make it easy for people to find you, buy from you, and return. Convenience goes a long way toward building loyalty.
Conclusions and next steps
Choosing the right business model isn’t a one-and-done decision. It’s something you can test, tweak, and grow into as your business evolves. What matters most is finding a model that fits your goals, works for your customers, and gives you room to scale.
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