How to Choose the Right Business Model? And Establish Your Own

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How to Choose the Right Business Model For Your Startup?

Digital Marketing Strategy | Jul 22, 2019

Your choice of a business model is among the key factors that will determine if your startup will excel in the future. If your chosen model is not scalable, profitable, or sustainable, your business is prone to failure.

If you are planning on launching a market place, the business plan should be implemented with extra care. Creating a tech platform, especially an online platform where customers can buy products from different vendors, is essential. Unfortunately, without a transparent business model in mind, technology is powerless.

Balance is essential for any marketplace. You need to think your strategy through carefully and plan not only how you will make maximum profits, but also how you will make the said marketplace convenient and profitable for users who you are targeting to be buying and selling from your platform.

There are a few business models that you can utilize to monetize your services or products effectively…

The Most Viable Business Models That You Can Opt for and Succeed

Transaction Fee

Introducing a per-transaction fee is one of the most effective ways to monetize a marketplace. This method’s effectiveness can be arrived upon in three ways: when he is paid by the vendor, by the buyer or by both of them

Membership Fee (Also Known as a Subscription Fee)

In this business model plan for startups, a section, or the entire group of members is regularly charged some amount of money to access the marketplace for an opportunity to find potential customers or new suppliers. Contrary to the laws applied in transaction fees, this method is best suited for merchants who sell expensive products and services.

Listing Fee

Marketplaces who operate a large number of listings mostly operate under a particular payment per listing. This method mimics paid advertisements. It works only if the vendors are willing to pay to access a large number of audiences in a platform that can guarantee an extensive coverage.

Lead-Fee

Lead-fee is payment charged for connecting the performer to the contractor, or lead generation. It is widespread in platforms where the customers or users leave their requests on a waiting list and wait for a specialist to make their offers. In this model, the principal market place will charge an appropriate fee for connecting the performers to a potential client.

This process does not, however, guarantee that you will always land on the right deals. Nevertheless, compared to listing fees, the possibilities of harvesting a more favorable outcome in this model are higher.

How Can You Establish Your Own Business Model?

Determining the best business model for startups will require as much diligence as designing the right product, although the skill and approach applied are very different. These skills are the reasons why investors state that two co-founders are better than one so that as one is focusing on the technical solution, the other one can pay attention to defining and building the business model.

Below are some of the steps that I would personally recommend in establishing the right business model.

#1 Size the Value of Your Solution in the Target Segment

It is not uncommon to find customer complaining that the existing approaches are not appropriately integrated, but the old answers may be locked in better and more familiarized. Carefully estimate your cost allowing for a 50% gross margin as a bound price on the lower side if you suspect that a product is too expensive for the market, then it will probably not succeed, and again if your prices are too small, they might leave you exposed

#2 Test Your Support and Channel Strategy

This step is the perfect stage to pitch the entire business model to a group of specially selected customers or a focus group. Apart from pitching, also include all the elements of your pricing, distribution, marketing, and maintenance. This stage is your chance to make pivot at no cost.

#3 Ensure That Your Service or Product Solves a Specific Problem

Once you have established the alpha version of your business model, its time to present it to some real customers to see if it will fetch some delight or excitement. You can also ask around for opinions on how you can make your services and product delivery better.

#4 Make Friend With Industry Investors and Experts

All you need is a small board of an advisory board, people from outside who are experienced in your specific domain so that they can give you uncensored and unbiased feedback that you might need. They can also suggest some connections where you can set up sales and distributions channels.

#5 Focus Mainly on Getting References From Your Customers

Pay extra attention to your first few customers. You can also ask them for published testimonials and word of mouth referrals. If you notice that you are not able to get support from your pioneer clientele, this is one of the alarming signs that your business is not heading in the right direction.

Summary

When selecting the right business model to settle for, there are a lot of factors that you should account for ranging from the scope of your potential future marketplace, the average prices of the products and services you have listed and the problems addressed bu=y your business model in the market.

Your focus should be mostly on attracting and retaining a party that will enable you to realize the most profits at the end of the day. Calculation your economics units (gains and losses per user) is also very crucial as well.

You can do this by only subtracting the cost incurred in attracting a customer, carrying out their whole order, and the revenue that the said customer-generated. This calculation will help you gauge whether your chosen business model is financially viable or not.

Remember that choosing the right business model for your startup is a process. There is another process that involves starting the actual business. Therefore, you need to carefully weigh all the available options before coming to one final decision.

For any business endeavor to be profitable and successful, research should be thoroughly conducted to determine whether the model you are about to choose is compatible with your target market.

Venkatesh C.R

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