Choosing the Right Business Model for Your Tech Business
From my own experience, many businesses we work with are often uncertain about the type of business model they should adopt. It can be surprising, especially considering that most of our clients generate millions in revenue and have extensive experience in their industries.
Beyond designing and developing platforms for our clients, we also offer advice on the best business models suited to their unique needs and how to maximize their profitability.
We’ve listed down some models that could potentially work for your next venture.
Business to Consumer
This is a straightforward model where you own an e-commerce store and sell your products directly to consumers through your platform. For each product sold, you need to consider the costs associated with delivery, payment gateways, and other related expenses like server and platform maintenance. There are numerous factors to account for when adopting this method. The most critical aspect is to manage your costs effectively to ensure a good profit margin. You will likely rely on high volume sales. Additionally, it’s important to factor in marketing costs as well.
Subscription Service
Much like your favorite subscription services such as Netflix, this model involves customers paying a monthly or annual fee. It sounds fun and can be highly lucrative, but it’s not an easy task to pull off. The key here is volume. If you hit your target subscriber numbers, you’ll be laughing all the way to the bank.
However, not all businesses can apply this model. It needs to be reasonable and practical for your particular industry and audience. Figuring out the right pricing can be tough, and managing costs is critical. The good news is that once you secure a customer, they’re likely to stick around for the next few months. This provides you with a steady revenue stream and some runway to innovate and experiment with your offerings.
Advertising
Fifteen years ago, when we started as freelancers, the term “advertising” was constantly thrown around. The dream was to have millions of users on your platform, hoping to sell ad space and generate revenue. Today, reaching millions of users seems more achievable. Creating content on TikTok to grab attention doesn’t seem to be a huge challenge for some.
However, the idea that advertising money will bring in significant revenue is becoming more difficult. This is not to say it’s a bad model, but it does require you to continuously seek brands willing to advertise on your platform. Even if you have an online advertising system in place, you need to figure out why these brands would choose to advertise with you.
Membership
Not all businesses can successfully implement membership fees. Most platforms allow users to sign up for free and pay later for specific services, which is similar to a freemium model. However, a membership model involves building a community where users sign up as members to access exclusive content.
Freemium
As mentioned above, users sign up for free, and you charge them when they upgrade to premium. I recommend this model after the business-to-consumer and subscription models. You attract users to the platform by offering free sign-ups and then push content or information that adds value to them, eventually charging them for premium access. Many online platforms and tech companies use this model as it is considered highly effective. However, be aware that it requires significant investment initially because the cost per acquisition and go-to-market expenses will be high. Only a few are successful, typically those with substantial financial resources.
There are many other models to consider, such as digital products, marketplaces, affiliate marketing, dropshipping, and more. Each model has its own unique characteristics and fits well with certain industries and businesses. If you’re just starting out, it’s crucial to fully understand how you plan to generate revenue. This is important because, at the end of the day, if you’re building a platform to make money, you need to thoroughly understand the mechanisms by which your platform will achieve that goal.