when evaluating a company as a possible investment find out exactly how it makes its money not just what it sells but how it sells it that s the company s business model 
types of business modelsthere isn t one type of business model not all companies are the same and each has different ways of making money business models can vary considerably an aerospace company such as boeing for example may operate similarly to a peer such as airbus but won t share much in common in terms of how it makes money with say a shoe store or bar direct sales franchising advertising based and brick and mortar stores are all examples of traditional business models there are hybrid models as well such as businesses that combine internet retail with brick and mortar stores or with sporting organizations like the nba below are some common types of business models note that the examples given may fall into multiple categories one of the more common business models most people interact with regularly is the retailer model a retailer is the last entity along a supply chain they often buy finished goods from manufacturers or distributors and interface directly with customers example costco wholesalea manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor machinery and equipment a manufacturer may make custom goods or highly replicated mass produced products and can sell what it makes to distributors retailers or directly to customers example ford motor companyinstead of selling products fee for service business models are centered around labor and providing services a fee for service business model may charge an hourly rate or a fixed cost for a specific agreement fee for service companies are often specialized offering insight that may not be common knowledge or may require specific training example dla piper llpsubscription based business models strive to attract clients in the hopes of luring them into long time loyal patrons this is done by offering a product that requires ongoing payment usually in return for a fixed duration of benefit though largely offered by digital companies for access to software subscription business models are also popular for physical goods such as monthly reoccurring agriculture produce subscription box deliveries example spotifyfreemium business models attract customers by introducing them to basic limited scope products then with the client using their service the company attempts to convert them to a more premium advance product that requires payment although a customer may theoretically stay on freemium forever a company tries to show the benefit of becoming an upgraded member example linkedin linkedin premiumsome companies can reside within multiple business model types at the same time for the same product for example spotify a subscription based model also offers a free version and a premium version if a company is concerned about the cost of attracting a single customer it may attempt to bundle products to sell multiple goods to a single client bundling capitalizes on existing customers by attempting to sell them different products this can be incentivized by offering pricing discounts for buying multiple products example at tmarketplaces receive compensation for hosting a platform for business to be conducted although transactions could occur without a marketplace this business model attempts to make transacting easier safer and faster example ebayaffiliate business models are based on marketing and the broad reach of a specific entity or person s platform companies pay an entity to promote a good and that entity often receives compensation in exchange for their promotion that compensation may be a fixed payment a percentage of sales derived from their promotion or both example social media influencers such as lele pons zach king or chiara ferragniaptly named after the product that invented the model this business model aims to sell a durable product below cost to then generate high margin sales of a disposable component needed to use that product also referred to as the razor and blade model razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run example hp printers and ink tying is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different and often required good for example imagine gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades 1instead of relying on high margin companion products a reverse razor blade business model tries to sell a high margin product upfront then to use the product low or free companion products are provided this model aims to promote that upfront sale as further use of the product is not highly profitable example apple iphones applications the franchise business model leverages existing business plans to expand and reproduce a company at a different location often food hardware or fitness companies franchisers work with incoming franchisees to finance the business promote the new location and oversee operations in return the franchisor receives a percentage of earnings from the franchisee example domino s pizzainstead of charging a fixed fee some companies may implement a pay as you go business model where the amount charged depends on how much of the product or service was used the company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed example utility companiesa brokerage business model connects buyers and sellers without directly selling a good themselves brokerage companies often receive a percentage of the amount paid when a deal is finalized most common in real estate brokers are also prominent in construction development and freight example re max