Business Models: Definitions, Types, Importance, Examples, and How to Build One

Explore business models, its types, pros and cons, how to build one, examples, and differences from business plans.
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16 July, 2025

A strong business model forms the backbone of any successful enterprise. This guide delves into the concept of a business model, its importance, and the various types—from freemium and subscription-based models to more complex structures. You’ll explore the advantages and drawbacks of each, gain step-by-step guidance on creating an effective model, and see how real-world companies put them into practice. We’ll also break down the difference between a business model and a business plan, and highlight how business loans can play a role in supporting your strategy. Whether you’re launching a new venture or refining an existing one, this guide provides actionable insights to help you build a model geared for growth and long-term success. Check your business loan eligibility to explore funding options that align with your business goals.

What is a Business Model

A business model explains what products or services a business plans to offer, who the target customers are, and what the expected costs will be. It helps show how the business will earn a profit. Business models are important for both new startups and well-established companies. They help attract investors, hire the right people, and keep the team motivated.

It’s important for businesses to update their business model regularly so they can stay ready for future changes and challenges. A clear business model also helps investors decide if they want to invest in the company, and helps job seekers understand the company’s direction and growth plans. Check your pre-approved business loan offer to take the next step in building a strong and scalable business model.

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Importance of Business Models

A well-planned business model is key to the success and long life of any business. Here’s why it matters:

  1. Gives clear direction
    A good business model guides the company’s plans and decisions, helping everyone work towards the same goal.
  2. Builds a competitive advantage
    A creative and different business model helps a company stand out from its competitors and stay ahead in the market.
  3. Helps use resources wisely
    With a clear model, it’s easier to focus time, money, and effort on the most important areas of the business.
  4. Attracts investors
    A solid business model shows that the business has potential to grow, making it easier to get investment and funding.
  5. Adapts to market changes
    A flexible model allows a business to change with the market, meet customer needs, and keep up with new technology.
  6. Tracks progress
    It helps set goals and measure success through performance indicators, so the business stays on track.
  7. Supports growth
    A strong business model can be expanded to new areas or markets, helping the business grow faster.

Types of business models

There are five main types of business models:

  1. Business to consumer (b2c)
    This involves a business selling directly to individual customers. It can include online sales, physical stores, or both.
  2. Direct to consumer (dtc)
    A form of b2c where the manufacturer or brand sells directly to customers, rather than through retailers. This model often uses online platforms for sales.
  3. Business to business (b2b)
    This is commerce between two businesses, such as supplying goods or services in bulk. Many companies use both b2b and b2c models.
  4. Consumer to consumer (c2c)
    This peer-to-peer model allows individuals to sell goods or services to other individuals, often via online marketplaces.
  5. Consumer to business (c2b)
    Here, individuals offer products or services to businesses. This could include freelancers, consultants, or creators who work for or supply businesses.

Pros and cons of different business models

Business model

Advantages

Disadvantages

Subscription model
  • Regular and predictable income
  • Builds long-term customer relationships
  • Good chance to offer more services to existing users
  • High cost to bring in customers
  • Risk of customers cancelling
  • Must keep adding value to keep users

Freemium model
  • Attracts a large number of users
  • Lets users try before they pay
  • Can grow quickly through recommendations
  • Few users may convert to paid plans
  • Costly to support free users
  • Too few features may push users away

Marketplace model
  • Easy to scale
  • Low cost as no need to manage stock
  • Can grow fast with more buyers and sellers
  • Relies on third-party sellers
  • Needs strong checks for quality
  • High competition from similar platforms

Franchise model
  • Can expand quickly
  • Business risk shared with franchise owners
  • Offers same brand experience everywhere
  • Less control over each outlet
  • Possible disputes between owner and franchisee
  • Poor service at one location can harm brand

Pay-as-you-go model
  • Customers only pay for what they use
  • Pricing is flexible
  • Can attract heavy users
  •  Earnings are not stable
  • Needs accurate tracking and billing
  • May lead to low profit per customer


How to build a business model

There is no single method that works for everyone when it comes to creating a business model. Different people may follow different steps, depending on their goals and business type. However, here are some general steps you can follow to build a solid business model:

1. Identify your audience

Start by understanding who your customers are and what problem you are solving for them. A strong business model focuses on the target audience, helping you design your product, communication, and approach to meet their needs.

2. Define the problem

It’s important to be clear about the issue or need your business is addressing. Whether you're offering a product or service, there must be a clear demand for it. If there’s no real problem being solved, the business may struggle to grow.

3. Understand your offerings

Once you know your audience and the problem, think about what you can offer to solve it. Consider the products or services you want to sell and how well your skills or experience match. You may need to adjust your offering based on what the market wants and what you can realistically deliver.

4. Note down your requirements

Now that you've chosen your product or service, list out the challenges you may face. This could include production issues, logistics, or daily operations. Writing down these needs will help you prepare better before launching.

5. Identify key partners

Most businesses rely on others to grow. You might need suppliers, service providers, or local vendors to support your business. Building good relationships with these partners can strengthen your offering and improve customer satisfaction.

6. Plan how to earn money

A business model must clearly explain how the business will earn income and become profitable. Choose the right way to make money—whether by selling directly, offering subscriptions, or through other methods.

7. Test your model

Once your plan is ready, try it out on a small scale. You could take feedback through surveys, offer limited-time discounts, or run a soft launch. Real feedback from customers will help you improve your model before a full launch.

Examples of business models

Business models are the blueprints that guide a company's operations, revenue generation, and value proposition. They encapsulate the essence of how a business creates, delivers, and captures value. Here are a few examples of widely adopted business models:

  • Subscription model: Customers pay a recurring fee for access to products or services, fostering loyalty and providing a predictable revenue stream.
  • Freemium model: Basic services are offered for free while premium features are charged for, enticing users to upgrade and generating revenue.
  • E-commerce model: Leveraging online platforms to sell products directly to consumers, eliminating the need for physical storefronts and expanding reach.

These examples highlight the diversity and adaptability of business models in meeting market demands and driving profitability.

Difference between business model and business plan

Both a business model and a business plan are important for any business, but they are not the same. They have different goals and uses. Here’s a simple comparison:

Business model

Business plan

Explains how a business creates and earns value

Explains how the business will run and manage its finances

Covers key parts of the business like what is being offered, who it’s for, how money will be made, and costs involved

Includes detailed info about products or services, marketing, financial plans, and the team

Gives a simple overview of how the business will operate and earn income

Gives a step-by-step plan on how to make the business idea work

Used as a strategy tool to guide decisions and explain how value will be created

Used to get funding, attract investors, and manage daily work

Can be updated often based on market trends or customer feedback

More fixed and used to track business performance over time

Usually shorter and to the point

Usually longer and more detailed, sometimes many pages

 

How a Business Loan Supports Your Business Model

Implementing a business model requires financial resources, and Bajaj Finserv Business Loan can help in securing funding to establish or expand your business. Our loan offers several benefits, including competitive business loan interest rates, high loan amounts up to Rs. 80 lakh, and collateral-free financing that makes it easier for you to launch your business or expand operations. With a flexible repayment tenure of up to 96 months, you can also tailor your repayment schedule to your financial capacity.

Here are some ways a business loan from Bajaj Finance can help with a business model:

  1. Launching a new business: Our business loan can provide funds for the necessary equipment, staff, or facilities to establish a new business model.
  2. Adapting to changes: In adapting to shifting market dynamics, you might often find the need to adjust your business strategy. Our business loan stands ready to offer the essential financial support required for seamlessly navigating and embracing these changes.
  3. Expanding operations: In cases where you are experiencing growth opportunities, such as expanding into new markets or adding new product lines, our business loan can be used to fund these ventures.
  4. Testing new ideas: Our business loan can be used to test new products or services that can complement an existing business model.
  5. Upgrading technology: With our business loan, you can access the funds necessary to purchase new technology that can optimise existing business models.

Conclusion

A business model is a critical component of any business, and choosing the right one can be key to the long-term success of the business. Bajaj Finserv Business Loan can help you implement and grow your business models by providing the necessary financial resources. Our loan offers several benefits, including high loan amounts, competitive interest rates, and flexible repayment tenure. If you are an entrepreneur looking to establish or expand your business, consider availing of Bajaj Finserv Business Loan, and take the first step towards realising your entrepreneurial dream.

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Frequently asked questions

What is a business model?

A business model is the framework outlining how a company operates, generates revenue, and delivers value to customers. It defines the strategy for creating and capturing value within a market.

What is an example of a business model?

One example is the subscription model, where customers pay recurring fees for access to products or services. Another is the e-commerce model, where products are sold online directly to consumers.

What are the main types of business models?

The main types include subscription models, e-commerce models, freemium models, advertising-based models, and franchise models, among others. Each type serves different purposes and targets distinct market segments.

What are the 4 elements of a business model?

The four key elements of a business model are the value proposition, revenue model, market strategy, and financial model. These components collectively outline how a business intends to create value, generate revenue, attract customers, and manage finances.

What are the criticisms of business models?

Criticisms of business models include their potential to oversimplify complex business dynamics, become quickly outdated, or rely on unrealistic assumptions. They may also focus too narrowly on revenue generation while neglecting other critical aspects like customer satisfaction and operational efficiency.

Why are business models important?

Business models are crucial because they define how a company creates, delivers, and captures value. They provide a structured approach to understanding revenue generation, cost management, and market positioning, helping businesses plan effectively and attract investors or partners.

What are the 4 approaches to the business model?

The four approaches to business models include:  

  1. Customer-centric: Focusing on delivering value based on customer needs.  
  2. Product-centric: Emphasising product features and innovation.  
  3. Revenue-centric: Concentrating on revenue generation strategies.  
  4. Cost-centric: Aiming to optimise cost structures and efficiencies.
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