25 Mature Business Models: A Guide to Understanding and Building Your Organization’s Model

Background

A well-structured business model can be a powerful source of innovation and sustainable competitive advantage—or, if poorly designed, a substantial constraint on performance. By defining how an organization creates, delivers, and captures business value, a business model underpins your company’s potential to excel in today’s dynamic markets. Each model has distinct advantages and drawbacks, and many organizations blend multiple models to address their specific strategic objectives.

Definition of Business Models

A business model is a conceptual framework that explains how an organization creates, delivers, and retains value over the long term. It serves as a blueprint for operations, revenue generation, and overall resilience. Critically, the design of a business model should precede—and guide—decisions across other organizational domains, including Strategy, Business Functions, and Management Systems.

Core Components of a Business Model

According to The COMPASS Model, a business model extends and aligns with the organization’s stakeholders, vision, and mission. It encompasses the following ten elements:

1. Value Propositions

   • A set of products or services offering unique benefits to defined customer segments.

2. Revenue Streams

   • Key income sources derived from various customer segments.

3. Competitive Advantage

   • Distinctive assets or capabilities—such as patents, partnerships, or technologies—that differentiate you from competitors.

4. Customer Segments

   • Targeted groups of people or entities with specific needs, guiding your product, service, and marketing strategies.

5. Key Resources

   • Critical assets (e.g., technology, facilities, intellectual property) necessary to deliver the value proposition.

6. Cost Structure

   • The expenses (fixed and variable) incurred to run the business model effectively.

7. Key Activities

   • Core tasks or processes essential for operational success.

8. Customer Relationships

   • Methods of engaging with each customer segment to drive loyalty and growth.

9. Channels

   • Communication and distribution pathways for delivering value to customers.

10. Key Partnerships

    • Collaborations and alliances that enhance capabilities, reduce risk, or optimize operations.

Common Business Models

Below are 25 established business models. Technological and societal changes continue to spur the emergence of new (including Web 3.0) models, which The COMPASS Model covers in separate discussions.

1. Subscription Model

   • Description: Customers pay a recurring fee (monthly, yearly, or quarterly) for continuous access to a product or service.

   • Usage: Ensures steady revenue and encourages long-term customer relationships. Ideal for offerings that provide ongoing value or frequent updates.

2. Freemium Model

   • Description: Basic features or services are free, while advanced or premium features require payment.

   • Usage: Common in software and online services where the cost of an additional free user is minimal, aiming to convert free users into paying customers.

3. Marketplace Model

   • Description: A platform connects buyers and sellers, usually generating revenue through commissions, listing fees, or premium services.

   • Usage: Effective for consolidating fragmented markets, offering convenience and variety to consumers.

4. Direct-to-Consumer (D2C) Model

   • Description: Manufacturers sell directly to consumers, bypassing traditional wholesalers and retailers.

   • Usage: Allows tighter control over branding, pricing, and customer experience, popular among startups and niche brands.

5. Franchise Model

   • Description: A franchisor licenses its brand, business model, and operational procedures to franchisees, generating revenue through fees and royalties.

   • Usage: Enables rapid expansion without the franchisor shouldering the full capital costs of new locations.

6. Advertising Model

   • Description: Provides free or subsidized products/services to users, funded by selling advertising space.

   • Usage: Common in media and online platforms where attracting a large user base is essential.

7. Affiliate Marketing Model

   • Description: Businesses earn commissions by promoting products or services from other companies, rewarded for each user or sale generated.

   • Usage: Ideal for influencers and content creators who want to monetize their audience without creating their own products.

8. Razor and Blade Model

   • Description: The primary product is sold at a low price, while complementary consumables or accessories carry higher margins.

   • Usage: Encourages initial adoption, with ongoing revenue derived from repeat purchases of consumables.

9. Licensing Model

   • Description: A company permits another entity to use its intellectual property in exchange for fees or royalties.

   • Usage: Offers market expansion and revenue growth without the licensor directly manufacturing or selling products.

10. Aggregator Model

    • Description: Aggregates products or services from multiple providers under one brand, ensuring consistency and quality standards.

    • Usage: Effective in fragmented service industries, giving consumers a reliable single point of contact.

11. Retail Model

    • Description: Businesses purchase products from manufacturers or wholesalers and sell to consumers at a markup, either in physical stores or online.

    • Usage: Traditional model for reaching end consumers directly, suitable for broad product portfolios.

12. Pay-Per-Use (Usage-Based) Model

    • Description: Customers are charged according to actual usage rather than a flat rate.

    • Usage: Offers flexibility for users with variable needs; common in utilities and services where consumption fluctuates.

13. Dropshipping Model

    • Description: Retailers sell products online without holding inventory, forwarding orders to third-party suppliers who ship to customers.

    • Usage: Minimizes upfront investment in stock, enabling entrepreneurs to test markets with lower risk.

14. Crowdsourcing Model

    • Description: Relies on contributions from a large group of individuals (the crowd) for ideas, funding, or content.

    • Usage: Harnesses diverse input or community support, often used in innovation challenges or crowdfunding campaigns.

15. Network Marketing (Multi-Level Marketing) Model

    • Description: Independent distributors sell products and recruit others, earning commissions on their own sales and those of their network.

    • Usage: Rapidly expands sales force through individual entrepreneurial efforts.

16. On-Demand Model

    • Description: Delivers products or services precisely when the consumer needs them, often via mobile apps.

    • Usage: Addresses consumer desire for immediate access and convenience, exemplified by ride-hailing and food delivery apps.

17. Freelancer Model

    • Description: Professionals offer services on a contract basis without formal employment, usually through dedicated platforms.

    • Usage: Flexible for both businesses needing specialized, short-term skills and professionals seeking variable work arrangements.

18. Brokerage Model

    • Description: Facilitates transactions between buyers and sellers, earning fees or commissions.

    • Usage: Common in industries requiring specialized expertise, networks, or negotiation abilities (e.g., real estate, stock trading).

19. Manufacturing Model

    • Description: Transforms raw materials into finished goods to be sold to wholesalers, retailers, or directly to consumers.

    • Usage: Focuses on efficient production processes, quality control, and cost management.

20. Social Enterprise Model

    • Description: Pursues social or environmental objectives while also aiming for profitability. Profits are reinvested to advance these missions.

    • Usage: Appeals to consumers and employees who prioritize ethical and purpose-driven organizations.

21. Freight/Logistics Model

    • Description: Specializes in transporting, storing, and managing goods. Revenue is earned through shipping fees and additional logistical services.

    • Usage: Critical for global trade, e-commerce fulfillment, and supply chain management.

22. Consultancy Model

    • Description: Provides expert guidance to organizations in exchange for fees, drawing on specialized knowledge or skills.

    • Usage: Ideal for businesses needing external expertise in strategy, operations, finance, or technology.

23. Data Sales Model

    • Description: Collects, analyzes, and sells data for market research, customer targeting, or analytics.

    • Usage: Increasingly important where data-driven insights offer competitive advantages.

24. Utility Model

    • Description: Similar to pay-per-use but specific to fundamental services (e.g., electricity, water, telecom) billed based on consumption.

    • Usage: Addresses essential services, offering predictable yet usage-variable billing.

25. Educational Model

    • Description: Provides learning materials, courses, and training, generating revenue through tuition, subscriptions, or certifications.

    • Usage: Meets growing demand for accessible, flexible education—especially via online platforms.

Summary and Conclusions

Choosing the right business model is pivotal to driving organizational performance and fostering sustained growth. However, it is equally essential to ensure that this model is well-aligned with the six core domains of an organization defined by The COMPASS Model:

1. Stakeholders

2. Vision & Mission

3. Business Model

4. Strategy

5. Business Functions

6. Management Systems

When these domains operate in concert, your organization is positioned to seize opportunities, innovate effectively, and navigate an ever-evolving marketplace.