The nature of your idea for a startup, or flash of cash, will in many cases determine the type of business model that is appropriate for your business. For instance, if you are going to sell something that is going to be used repeatedly month after month, your business model will differ from one where there is only going to be a one-time sale. Picking the right business model before you launch your startup may be the difference between success and failure in the future.
One-Time Payment Models
The most common type of business model is the one-time payment model. Most retailers, like gas stations, grocery stores and car dealers use this model. For example you walk into a store, or make a purchase online, and that’s it. You pay for it and you are done. While the retailer or online business hopes that you will return to make additional purchases in the future, you are under no obligation to do so. There are some variations to this depending on the industry, i.e., you may have to make a down-payment if you are building a house or buying a custom boat, but in principal the outcome is the same. Once you have paid the entire bill, there are no additional payments.
The benefits to a business for one-time payment models is that you don’t have to worry about collections every month. You collect the money one time and that’s it — end of story. The downside of this business model is that your revenue or income stream is not as steady as other types of models described below.
Everyone loves the subscription model because it assures you of a steady stream of income month after month. Subscription models can be found almost everywhere you look, including health club memberships, cable television services, cleaning services, and even razor blades. In this model, your customers agree to pay you a set monthly fee every month and in return you provide them with a quantified set of goods or services every month. For instance, the health club owner like Planet Fitness allows people that spend $20 per month access to any of its franchise facilities 24 hours a day to use the their gym equipment.
Another subscription model that has become wildly popular is Netflix — which allows subscribers’ unlimited viewing of its entire library of movies and TV shows for a monthly subscription fee of approximately $10 per month. What’s interesting about Netflix is that it started a subscription based service when the most common form of movie rental was a one-time fee for an overnight rental. In the early days, what Netflix really did is brought the subscription based model to a pay-per-use industry and then was able to grow into the online behemoth that it is today.
In many instances you will find subscription models that incorporate pay-per-use (or one-time payments) for additional services. For instance, if you have a cable television subscription service and want to order a premium movie or entertainment special, then you have to make an extra one-time payment to view the event. Utilities, like power, gas and electric companies use a pay-per-use model, and charge only for what the customer uses. In most instances though there are some monthly recurring fees just to have the service available for your use.
Amazon provides a great example of a company that is using a hybrid service. You have the option of purchasing from their vast catalog of products online and pay for shipping, or you can subscribe to their Prime Service and get everything shipped for free.