Three Business Models Explained
In business, there are three basic ways for you to make money, each with its own level of value and complexity. The business model you choose largely determines your earning potential. Here they are in order of their value…
- You can sell advertising space.
- You can sell other people’s products for a commission.
- You can sell your own products or services.
The first level is selling advertising space. It is the easiest way to start making money in business. You simply create content or collect, sort, and organize it such that people will have an interest in reading it. After you attract a readership, you now have the foundations in place to sell advertising space.
How much you make will be determined by the number of readers you have. This is why newspapers will often charge you more if you want only the Sunday newspaper and less if you take the paper seven days a week. If you only get Sunday’s paper, their readership numbers drop, which negatively impacts their advertising rates during the week. But if they can get you to subscribe for every single day, their readership numbers go up, which allows them to increase advertising rates.
While selling advertising space may be a relatively simple business model, it is usually not as profitable as other models (Google Adwords being the major exception).
The next business model is selling other people’s products for a commission. This is called affiliate marketing in the online world. In this case, you must still attract the audience. But instead of selling ad space for other companies to promote their products and services, you promote those same products and services for a commission. Each person who purchases through your recommendation generates a commission for you.
The strength of this model (compared to selling ad space) is that you are paid based on results. If you are skilled at selling, then you stand to make a lot more money from promoting products yourself. This is different than selling ad space where you make your money even if the ads are ineffective at generating sales.
The downside to this model is that you are at the mercy of the tracking mechanisms and the companies that allow you to promote their products. If the tracking mechanism doesn’t function properly, then you may lose commissions that are rightfully yours. And if the company is dishonest or disorganized, you may not receive all the commissions you’ve earned.
The final business model, like the prior two models, still require you to attract an audience. But this time you don’t sell ad space and you don’t promote other people’s products and services. You promote your own products and services. Whether you source the products or create them yourself is irrelevant. Whatever product you have, you then sell directly to your audience.
Selling products or services directly is often the most profitable business model. You are in control of every aspect of the sale. You attract the audience; you sell the product; you collect the money. It is also the most complicated model, which is why fewer people go this high up on the “food chain.”
So now that we’ve examined each of the three major business models, all of this begs the question… Which business model are you involved in? Which business model should you be in?
-Ryan M. Healy