Choosing the Right Business Model for Your Small Business

When you decide to venture into the business world, there are a lot of things to consider before launching a company. Among the things to consider is a business model which determines how your structure of your operations will be.

Choosing a business model affects how your business will deliver goods or services to customers and generate revenue. With so many options for entrepreneurs to choose from, it can be overwhelming to choose the right model for your business.

This guide will help you understand the process of choosing the right business model for your small business and the factors to consider.

Overview of the business model

A business model is a structure used to deliver value to customers. What value? You may ask. A business creates something of value to meet its target market needs and preferences. As an entrepreneur, your work will be to capitalise on the target market’s needs and preferences and deliver them at a fee. This is where a business model comes in. While value may be subjective, entrepreneurs need to understand what type of value people are willing to pay for and come up with a concept that will provide those values.

A business model is an operational structure on how you will deliver the goods or services and charge for the value you are creating. This process helps in generating revenue and at the same time satisfying customers. A viable business model provides a blueprint for the growth and sustainability of a business.

A well-defined business model in the UK will help you attract investors and potential partners to help you secure funding since your business’ ability to understand the market and meet customers’ needs. The model will also help small businesses identify potential risks and opportunities making it easier to make adjustments along the way.

Let's explore the different types of business models used by small businesses. Each model has its advantages and disadvantages making it easier for entrepreneurs to weigh and choose the one that will align with their business goals.

Subscription business model

This is a business model that allows you to offer products or services on a recurring basis for a subscription fee. Depending on the payment plan a client or a customer chooses, the fee will automatically be charged from their payment method from the day of subscription.

This is a way of ensuring the continual value of services and payment. You may choose to bait customers and offer free services for a couple of days or months before subscription, or choose to hook them on premium services only.

This provides a steady income while fostering customer loyalty at the same time. However, acquiring and retaining customers can be challenging in case you fall short of offering the value of your services within the duration of the subscription plan.

For example, when creating a website, you will have to subscribe to a hosting plan that is charged annually. With this plan, you get to hook customers to use your service for one year. However, in case the hosting company falls short in offering good customer service and prompt maintenance of the website, a customer may choose to unsubscribe from the plan and look for another provider.

·         Pros: Provides ongoing revenue streams, making financial forecasting a bit easier. Businesses also benefit from a loyal client base.

·         Cons: To run this model, your business operations must be strong. If you can’t deliver value consistently over time, you may want to consider a different business model.

Freemium business model

If you are looking to acquire a large user base that you can later convert into paying customers, then a freemium business model is viable for you. This model is a marketing strategy that offers low-cost versions of products or services.

The freemium business model offers the basic version of a service or a product then later encourages users to upgrade to the paying version which comes with additional features. The upgrade could require a monthly, quarterly, annual, or one-time subscription.

For example, Canva allows users to use the templates and designs for free. However, if you need advanced templates, you can subscribe to the premium plan monthly or annually.

·         Pros: You can grow a customer base at a low cost. It is also easier to attract customers and cross-sell them to contemporary services or products.

·         Cons: It can be difficult to convert customers from using free subscriptions to premium.

Service-based

This is a model where service is offered at a fee. A service-based business model involves having a skill and providing it to either an individual or a business, and financially benefiting from it.  

Service-based businesses can be hairdressing, digital marketing, web development, consultancy, tutors, teachers, construction workers, and interior and fashion designers. They get to exchange their high-quality skills and earn good money.

·         Pros: You can attract a huge client base if the skill is in high demand. Earn money without the need to have capital.

·         Cons: If many people have the same skill, the market demand will be low.

Lean startup business model

This is a business model that builds a product, measures its success, and then uses the feedback to make data-driven decisions. The model is built around three principles which are;

·         Minimum viable products (MVP): A basic version of the product that only contains essential features to test the core value.

·         Build-measure-learn: Encourages entrepreneurs to build a basic version of their product, measure it through customer feedback, and use the decisions to improve the product.

·         Validated learning: Businesses use customers’ feedback to validate their wants.

This business model emphasises continuous improvement and adaptability which leads to efficiency in creating a product.

·         Pros: Lean business model helps businesses mitigate risks early to avoid failures. Small businesses that use this model, get their products to the market faster.

·         Cons: It is not suitable for every business, like the ones with long-term product development.

How do I choose a model?

Choosing a business model can be a complex process; however, various factors can guide you to choose a viable model. Some of the key considerations to keep in mind include;

The demand for your products and services: Conduct a market analysis to understand your target audience's needs, preferences, and demographics. Also, learn their purchasing behavior to understand when they purchase a certain product to determine if there is a viable market for your goods or services.

Assess your capabilities: Determining your strengths and weaknesses is vital since it will determine the best model for your business. Consider the financial resources available and see if they will align with the business model. If you do not have capital for your business, you can choose service-based and marketplace business models.

Consider your long-term goals: Assess how every business model aligns with your future goals and if it can support them. Are your plans to expand your business or maintain a steady sustainable business?

Analyse your competitors: Assess both direct and indirect competition targeting the same market as you. Look at the business model they are using and evaluate which model will be viable for your business and still give you the competitive edge.

In conclusion, you should not choose a business model blindly. You should ensure you understand your target market pain point and changes in the market to make a viable decision. Always keep assessing changes and innovations taking place to adjust your business.

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Check out their website to find the perfect package for your business.

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