Types of Business Models (with examples)

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Creating a successful business requires understanding and choosing the right business model. A business model outlines how a company creates, delivers, and captures value. It's the blueprint for how a business operates, generates revenue, and sustains itself.

This blog will explore what a business model is, its components, how to choose the right one, and the metrics to measure success and different types of business models.

What is a Business Model?

A business model is a framework that explains how a company functions, makes money, and sustains profitability. It encompasses the core aspects of a business, including its purpose, target customers, product or service offerings, operational processes, and financial strategies.

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Note: Although there are a plethora of business models, the models discussed in these blogs are centred around internet-first and emerging businesses.

Components of a Business Model

The components of a business model are crucial for determining the viability and sustainability of a business. Key components include:

1/ Value Proposition

A value proposition is the aspect of your business that sets it apart from competitors. It is what makes your product or service stand out, providing customers with unique benefits they can't find elsewhere. It helps users choose your offering over others by highlighting the distinctive value you provide.

2/ Target Customer Segment

When you decide to start a business, you have customer profile in mind, characterized by certain traits, demographics, income levels, and a shared need for a product.

By identifying this segment, you can focus on catering to their needs and work on strategies to acquire these potential customers.

3/ Revenue Streams

The ultimate goal of any business is to make money. A business can have one or multiple revenue sources that provide the funds necessary to operate.

These revenue streams can be categorized as primary and ancillary streams and vary for each business.

4/ Cost Structure

Cost structure refers to the various expenses a business incurs, which can be either one-time or recurring.

These costs are a crucial aspect of any business operation and can include fixed costs, like rent and salaries, as well as variable costs, such as raw materials and utilities.

As an entrepreneur, it is essential to optimise these costs to ensure the business remains financially healthy and sustainable.

5/ Distribution Channels

Distribution channels are the various methods through which you sell your product or service.

For example, you can sell your product via your website, a marketplace like Amazon, or through general trade or merchant trade.

A well-planned distribution channel helps you reach your target audience effectively and creates multiple consumer touchpoints, enhancing your ability to engage with and meet customer needs efficiently.

6/ Key Resources

Running a business requires various resources, including capital, infrastructure, human resources, technology, and more.

These resources are essential for developing products or services, executing operations, and achieving business goals.

Having the right resources in place is crucial for ensuring smooth business operations and driving growth.

7/ Key Partnerships

Building and maintaining cordial relationships with suppliers, agencies, other firms, and government entities can help you navigate the ebbs and flows of business more smoothly.

These partnerships provide support, resources, and opportunities for collaboration, contributing to the overall success and resilience of your business.

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If you are interested to uncover business models of D2C brands you can check out Starbucks Business Model, BookMyShow Business Model & other blogs here.

How to Choose the Right Business Model

Choosing the right business model requires understanding your market, competition, and unique strengths. Here are some steps to guide you:

1/ Identify Customer Needs

The first and most important step is to find a problem to solve. Look around you; a problem could be a stone's throw away. It could be a problem you face or one that people in your circle face. When you identify this problem, you discover a gap in the market—an opportunity to build something.

2/ Analyze the Competition

Once you've identified a problem, evaluate who else is attempting to solve it. Examine their approaches, identify what they are doing well, and determine where their products or services fall short.

3/ Leverage Strengths

After conducting a SWOT analysis of your competitors, use the insights to create a superior product and a nurturing business model. Develop a value proposition that stands out from the competition. Design a business model that leaves a lasting impression on consumers and motivates them to switch to your offering.

4/ Test and Iterate

Before launching your business model, test it to evaluate its feasibility. Determine if it is viable for your product and scalable to new markets. Ask questions and conduct a root cause analysis when things don't work. This process will help you refine and perfect your business model.

5/ Align with Goals

Your business model objectives should always align with your vision and mission. Whether your goal is to become the best in the market or to solve specific customer problems, it will vary from one entrepreneur to another.

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By the way, the depth you see here is just a feeler of the depth we teach at GrowthX 💫 GrowthX is an invite-only club of over 3000 members who are product, marketing, and business leaders, and founders from top internet-first companies like Google, Canva, CRED, Stripe, Netflix, and more 💎 We teach our members how to scale revenues via frameworks that can be applied starting next Monday morning. The GrowthX Membership is built on 3 core pillars:

1. Learning experience: Where you learn the science of revenue-led growth with frameworks actionable the next Monday morning. 2. Curated community: Where you access a safe space for you to soundboard anything that is stressing you at work.

3. Career outcomes: Over 35% of members are founders & are able to hire growth teams to scale revenue for their companies while operators are able to get into breakout leadership roles. Explore GrowthX Membership 🏆

Types of Business Models with Examples

1/ Direct to Consumer

The direct-to-consumer business model involves selling goods or services to the end user practically eliminating the role of intermediaries like wholesalers and retailers. This approach gives companies more control over their brand, customer experience, and pricing, while enabling them to engage with their customers on a deeper level.

The D2C segment in the Indian market is projected to reach a valuation of $100 billion by 2025.

The top categories for the D2C segment include:

1/ Fashion

2/ Hygiene and Personal Care

3/ Beauty and Skin Care

4/ Healthy Snacks and Beverages

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The fashion industry holds the largest share in this sector and is expected to grow to $43.2 billion by next year.

D2C brands have adopted tech-enabled solutions for efficient supply chain and warehouse management as well as incorporating voice-based technology to help customers shop. Using chatbots and social media linking is also gaining traction with a rise in affiliates for D2C brands.

Revenue Opportunity

By cutting out intermediaries such as wholesalers and retailers, D2C brands can retain a larger portion of the sales margin. This allows them to offer competitive pricing while maintaining profitability.

Various consumer touchpoints provide valuable data on purchasing behavior, preferences, and feedback. This data can be leveraged to optimize product offerings, marketing strategies, and customer service, ultimately driving higher sales.

D2C companies with significant traffic and customer engagement can monetize their platforms by selling advertising space to other businesses. This can include sponsored content, banner ads, or collaborations with other brands.

One of the best examples of a D2C business model is The Whole Truth Foods.

They are an internet-first multi-category healthy foods brand with a total funding of $22 million over 5 rounds and a valuation of $72 million.

To understand their business model, check this GrowthX Wireframe video that digs deep into its success in the ₹83,000 crore healthy food market.

2/ Marketplace

A marketplace business model is a way of monetizing a platform that brings buyers and sellers together and facilitates business. A seller lists their products on the platform and a buyer discovers and buys the product. When you are thinking of marketplace development, you want people to pay you for being a mediator.

The online marketplace sector is rapidly maturing and experiencing growth across various niches, with numerous marketplaces documented in categories like

1/ Retail

2/ Healthcare

3/ Travel,

4/ Financial services.

The scope for scaling a marketplace business model is huge! Currently, online marketplaces generate slightly over $100 billion in sales.

By 2027, India's online marketplaces could reach $350 billion in annual sales!

Sellers have trust and confidence in these marketplaces as well and are rapidly using these channels to distribute products.

15 million enterprises are projected to sell products and services online through these marketplaces, potentially creating 7 million new jobs in India and boosting the country's economy by 5%.

Business to Consumer (B2C) segment:

B2C marketplaces marketplaces will continue to dominate, projected to account for 40% of total sales by 2027. Additionally, the online food delivery sector is anticipated to almost triple in size to nearly $22 billion.

The government is also taking steps towards pushing the marketplace businesses so that digitization becomes a viable, if not the main channel of distribution for sellers.

The Indian government has reduced the TDS rate for e-commerce operators from 1% to 0.1% as announced in the Union Budget for 2024-25. This reduction significantly alleviates the financial burden on online sellers, creating a more favorable environment for online transactions and enhancing global competitiveness.

The government is setting up e-commerce export hubs across the country through public-private partnerships. These hubs aim to provide infrastructure and support to facilitate exports, enabling Indian businesses to access international markets more effectively.

The Reserve Bank of India (RBI) has proposed reforms to improve cross-border payment systems. These reforms are expected to streamline international transactions, making it easier for Indian businesses to engage in global trade.

The government is focused on empowering Indian Micro, Small, and Medium Enterprises (MSMEs) by facilitating their participation in global markets. Initiatives like Amazon's Global Selling program are helping Indian businesses adopt e-commerce exports, contributing to their growth and competitiveness in the global market.

Business to Business (B2B) segment:

B2B marketplace startups have the potential to follow a similar growth path as B2C internet companies did over the last decade.

It is estimated that India's B2B online marketplaces represent a $200 billion opportunity by 2030.

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B2B service marketplaces, powered by the dual forces of the internet and AI, could be a catalyst for transforming India into a $6-$7 trillion economy this decade!

Top B2B companies will stand out by demonstrating a high return on capital employed (ROCE) of up to 30% in the long term.

To fully capitalise on this opportunity, B2B marketplaces must expand beyond the role of traditional distributors, focusing on end-to-end transaction management and incorporating advanced technology and software, while maintaining strict control over supply, quality, and service levels.

Revenue Opportunity

There are various ways to monetise a marketplace, we’ll break down the most popular ones:

1/ Commission

Charging a commission fee for every transaction that takes place on your platform is the most popular common way to earn revenue from this business model. It could be a flat fee, or a percentage of the transaction.

2/ Subscription

A marketplace that charges a periodic subscription to both buyers and sellers to access the marketplace. This is feasible when products/services sold are used regularly. Although this is a viable option, it’s more suitable for products that have a daily or monthly requirement.

3/ Listing Fee

In this case, only the seller pays a fee to list a product or service. This is not a revenue model that will work for a newer business as you need to create trust that buyers will come to your platform to buy. This could work well as an ancillary revenue stream, like an add-on to another primary source of revenue.

4/ Lead Fee

Sellers only pay a fee when they find buyers using your platform. The platform acts as a connector between the seller and the buyers and you earn an income when they have their first interaction. The con of using this model is that after their first interaction, these buyers and sellers after meeting on your platform, may conduct business without using your platform leading to a higher churn rate.

Funding opportunities

Since 2019, about 2,400 marketplaces have launched, with 15% obtaining funding, much higher than the average startup rate.

Indian marketplaces raised $16 billion last year, four times the 2018 amount. Despite a slowdown in 2022 due to global uncertainties, investor interest remains strong.

Investors are drawn to the Indian market due to large, unorganized offline industries with significant potential for e-commerce growth. This is driven by rising disposable incomes and a growing middle class. Indian marketplaces show scalability and profitability, with successful exits and global analogs boosting investor confidence.

Key factors for investors:

Market size and appeal: A large, fragmented market with opportunities for value addition.

Unique business model: A clear value proposition, strong monetization potential, and a focus on unit economics.

Advice for founders:

Early-stage: Leverage industry disruptions and focus on product-market fit. Monitor key metrics and understand demand-supply constraints.

Late-stage: Build defensible moats, enhance user retention, and focus on unit economics for profitability.

Ofbusiness is the an apt example for a marketplace business model. Founded by Ashish Mohapatra, Ofbusiness is a tech-enabled platform that facilitates raw material procurement and credit for SMEs by integrating technology and consumer behavior.

To gain a deeper understanding, watch this GrowthX Wireframe video on how this company valued at $5 billion + is able to thrive in the nascent B2B online marketplace industry.

3/ FinTech

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According to a research report, digital payments in India are expected to grow over three-fold to ₹7,000 trillion by 2025 because of government policies around financial inclusion and the growing digitisation of merchants.

A fintech business model focuses on making transactions easier and secure. It often makes money by charging fees for using the platform or taking a commission from transactions.

Here are some key characteristics of this model:

Common in Fintech and Payment Businesses: This model is often associated with companies in the fintech and payment sectors.

One-Time Transactions: Transactions are typically one-time rather than recurring, focusing on facilitating individual exchanges.

High Volume, Low Fee: These businesses usually operate with a high volume of transactions, charging a low fee, often between 1-3%.

Consistent Revenue Through Repeat Usage: Successful transactional businesses maintain steady revenue streams by encouraging high repeat usage among customers.

The business usually plays a role of either a payment aggregator or a payment gateway service.

Payment Aggregators serve as intermediaries that assist merchants in offering various electronic payment methods to customers. They handle the collection of payments, pool the funds received, and then distribute these funds to merchants, thereby fulfilling the payment obligations of customers.

In contrast, Payment Gateways provide the technological infrastructure necessary to facilitate online payment processing. They offer technology that supports the routing and processing of electronic payments by transmitting transaction data.

Explanation 🌟

This diagram explains the process of how an online transaction takes place using a payment gateway and UPI (Unified Payments Interface). Here's a step-by-step breakdown of the process:

Customer Initiates Payment:

The customer makes a payment via UPI to purchase goods or services from the merchant.

Payment Aggregator:

The payment is processed through a Payment Aggregator, which acts as a Payment Gateway. This entity facilitates the transaction between the customer and the merchant.

Authorization Process:

The Payment Aggregator sends an authorization request to the bank associated with the customer to confirm that the payment can be processed.

Customer's Bank:

The bank receives the authorization request and checks the customer's account for sufficient funds.

If funds are available, the bank sends an authorization response back to the Payment Aggregator, approving the transaction.

Notification to Customer:

The customer receives a debit notification from their bank, indicating that the payment has been deducted from their account.

Escrow Account:

The funds are temporarily held in the Payment Aggregator’s Escrow Account until the transaction is finalized. This ensures that the payment is secure until the goods or services are delivered.

Authorization with NPCI:

The Payment Aggregator sends an authorization request to the NPCI (National Payments Corporation of India) to further verify and process the transaction.

NPCI processes the request and sends an authorization response back to the Payment Aggregator.

Merchant's Payment:

Once the transaction is authorized, the Payment Aggregator transfers the funds from the escrow account to the Merchant's Bank on the settlement date.

Merchant Receives Payment:

The Merchant’s Bank credits the funds to the merchant’s account.

The merchant receives a credit notification confirming the receipt of funds.

Shipping Goods:

After the merchant receives the payment, they ship the goods to the customer.

This process ensures secure and efficient payment transactions between customers and merchants, leveraging UPI and payment gateway services to facilitate the flow of funds.

Revenue Opportunity

Platform Fees/Transaction Commissions: Charging a % of each transaction value.

Advertising Space: Selling ad space on the platform.

Licensing Technology: Selling APIs or technological innovations, such as sound boxes for UPI payments.

Bank Partnerships: Forming partnerships with banks to offer exclusive discounts or perks.

Government regulations for payment aggregators To protect consumers and businesses, the Reserve Bank of India (RBI) introduced a payment aggregator framework in March 2020. According to this regulation, payment gateways must obtain a license to acquire merchants and provide them with digital payment acceptance solutions. As of 2024, 32 fintech companies applied for this license and received in-principle approval to operate in India.

Let’s understand this with the business model of Paytm:

Core Business Areas:

1/ Payment Services:

Paytm provides a platform for merchants to accept payments from customers through various methods, including QR codes and point-of-sale devices. Revenue is generated from transaction fees and subscriptions for devices.

Paytm enables consumers to make payments for various services, including utility bills, recharges, and online shopping, generating revenue from transaction fees.

2/ Financial Services:

Loan Distribution: Paytm partners with financial institutions to offer loans to consumers and merchants. The company earns commission fees for loan disbursements and collection services.

Insurance and Wealth Products: Paytm distributes insurance products and mutual funds, earning fees from partners for successful distribution.

PayTM also came up with a UPI credit card for users, a strategy that aims to make it the biggest lender in India. Check out the GrowthX Newsletter that explains this move in detail:

3/ Marketing Services:

Advertising and Loyalty Programs: Paytm provides advertising space and loyalty services to merchants, earning revenue through platform fees and commissions.

Ticketing and Gift Vouchers: The platform offers ticketing for travel and entertainment events and sells deals and gift vouchers, generating revenue from transaction margins.

4/ Other Revenue Streams:

Bank Partnerships: Paytm collaborates with banks to offer exclusive discounts and perks, sharing in the revenues generated from increased transactions.

Technology Licensing: The company licenses its technology, such as payment APIs and devices like soundboxes for Unified Payments Interface (UPI) payments, earning additional revenue.

Growth Strategy:

Paytm focuses on expanding its merchant base and consumer engagement, driving growth through innovative payment solutions and diversified financial products.

The company aims to reactivate dormant users and acquire new customers in the UPI space, enhancing its user base and transaction volumes.

By diversifying its loan offerings and insurance products, Paytm seeks to increase monetisation opportunities and strengthen its position in the financial services sector.

This business model allows Paytm to leverage its large customer base and extensive merchant network to drive growth and profitability across various financial services and payment solutions.

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4/ Software as a Service (Subscription & Freemium)

Software as a Service (SaaS) is a modern way to use software where you access applications online rather than installing them on your computer.

Think of it like streaming music or movies—just as you don’t own the physical media but stream it over the internet, with SaaS, you use software via your web browser without needing to download or manage it yourself in return for payment on a subscription basis.

This model is popular for services like email, online document editing, and project management tools. It simplifies things by handling updates and maintenance for you, making it easier and often more cost-effective for individuals and businesses to stay up-to-date with the latest technology.

Horizontal SaaS

Horizontal SaaS solutions are designed to serve a broad range of industries and business functions. They provide versatile applications that can be used by various organisations regardless of their specific industry. Key characteristics and examples include:

Wide Applicability:

CRM Software: Tools like Salesforce and HubSpot help manage customer relationships, sales, and marketing activities across various sectors.

Collaboration Tools: Platforms such as Slack and Microsoft Teams enhance communication and collaboration within any organisation.

Accounting Software: QuickBooks and Xero streamline financial management for businesses of all types and sizes.

Scalability and Flexibility:

These tools are designed to scale with the growth of any business, offering modular features that can be customised to suit different business needs.

Economies of Scale:

Horizontal SaaS providers benefit from serving a large, diverse customer base, which can drive down costs and facilitate more robust support and development resources.

Vertical SaaS

Vertical SaaS solutions, on the other hand, are tailored to meet the needs of specific industries. They offer specialised functionalities that address industry-specific challenges and compliance requirements. Key characteristics and examples include:

Industry-Specific Solutions:

Healthcare SaaS: Solutions like Epic and Cerner offer electronic health records (EHR) management, patient scheduling, and billing tailored to healthcare providers.

Real Estate SaaS: Platforms like Zillow and Propertybase provide tools for property management, real estate transactions, and customer relationship management specifically for real estate professionals.

Retail SaaS: Shopify and BigCommerce enable e-commerce businesses to set up online stores, manage inventory, and process payments.

Deep Integration and Customisation:

Vertical SaaS products often offer deep integrations with other industry-specific tools and workflows, providing a seamless experience tailored to industry norms.

Regulatory Compliance:

These solutions are designed to comply with industry regulations, such as HIPAA in healthcare or PCI-DSS in e-commerce, ensuring that businesses meet legal requirements.

To learn more about other types of SaaS, toggle this!

Packaged SaaS:

These are ready-to-use applications that address common business needs with minimal customisation. Examples include Microsoft Office 365 and Google Workspace for productivity.

Custom SaaS:

Tailored solutions developed to meet specific business requirements. These are often built from the ground up or heavily customised versions of existing SaaS platforms.

Enterprise SaaS:

Designed for large organisations, these solutions offer robust, scalable tools to manage complex business operations. Examples include SAP, Oracle ERP, and Salesforce for large-scale customer and resource management.

Micro-SaaS:

These are niche solutions that focus on solving a very specific problem within a larger ecosystem. Often developed by small teams, they enhance or add specific functionalities to broader platforms. Examples include analytics tools for email marketing software like Mailchimp or add-ons for project management tools like Trello.

Types of Revenue Models used by SaaS companies

1/ Freemium Model:

The freemium business model is a combination of “free” and “premium” elements. It’s a strategy where a business offers basic services or products to users at no cost, but charges for advanced features or premium services. The idea is to attract a large number of users with the free option, and then convert some of them into paying customers by offering additional, valuable features.

Why Consider a Freemium Model?

1. Retaining Acquired Users:

When offering a free trial, users must decide whether to pay after the trial ends. While some will be willing and able to pay, others may be hesitant or lack the budget. Freemium helps retain these users by keeping them engaged with the product on a free plan, increasing the likelihood they'll upgrade in the future.

2. Unlocking New Market Segments:

Using a freemium model can help expand your product's market reach. This is particularly useful for B2B products, where the ideal customers are usually very specific. By offering a basic version of your product for free, you can attract a wider audience and explore new market segments without having to create new products.

3. Boosting Market Share:

When basic services become commodities, competition shifts to price, making differentiation challenging. For instance, streaming services with similar content compete mainly on cost. To stand out, companies should offer unique value, such as exclusive shows, interactive features, or premium options like enhanced picture quality and ad-free viewing. This approach moves beyond basic access to delivering distinctive experiences, helping to attract and retain customers and boost market share.

Strategies for Implementing Freemium

Scenario 1: Unlimited Basic Use with Extra Costs for Premium Features

Description: Provide unlimited access to core features for free or at a low cost, charging separately for premium features.

Benefits:

High User Adoption: Attracts more users with free core features.

Strong Brand Growth: Builds loyalty and encourages word-of-mouth.

Potential for Upselling: Users may upgrade to premium features.

Drawbacks:

Lower Immediate Revenue: Free access to core features means less upfront income.

Revenue Risks: Competitors might offer similar features for less.

Best For:

Businesses with significant value in advanced features like Adobe, offer a basic version of their product for free or at a low cost, with premium features available for an additional fee. The core product might be widely accessible, but the advanced tools or functionalities provide substantial added value, driving revenue through upselling.

Companies aiming for broad market reach and high user engagement.

Scenario 2: Limited Basic Use with Fees for Extra Access

Description: Offer limited access to core features, charging for additional usage or extended features.

Benefits:

Direct Monetisation: Generates revenue from users who need more than basic access.

Better Short-Term Revenue: Converts users to paid tiers sooner.

Drawbacks:

Lower User Growth: Limited free access might reduce initial user acquisition.

Potential Retention Issues: Users may drop off if they hit limits.

Best For:

Businesses with variable costs tied to usage like Spotify or Dropbox. Spotify incurs costs based on the amount of data streamed and the number of premium features accessed, while Dropbox charges for additional cloud storage and higher usage levels. Both use tiered pricing to manage and cover these variable costs effectively.

Companies focused on immediate revenue generation rather than broad market reach.

Comparing both scenarios

Aspect	Unlimited Basic Use with Extra Costs for Premium Features	Limited Basic Use with Fees for Extra Access
Acquisition	ㅤ	ㅤ
Brand Awareness	High	Moderate
Promoting User Growth	High	Moderate
Value Proposition Strength	Strong	Weak
Retention	ㅤ	ㅤ
Audience Expansion	Strong	Moderate
User Satisfaction	High	Moderate
Preferred Approach	Focus on market share expansion	Focus on revenue growth
Positioning of the Basic Offering	Standard and accessible	Special and tailored
Incremental Cost of Service	Low additional cost	High additional cost
Monetisation	ㅤ	ㅤ
Short-Term Conversion to Paid	Low	Moderate
Long-Term Conversion to Paid	Moderate	Moderate to High
Key Conversion Drivers	Advanced Features	Limitations and Advanced Features
Advanced Functionality	Enhances basic use significantly (e.g., cost savings, revenue growth)	Addresses additional use cases
Additional Revenue Streams	Advertising	None

2/ Subscription Model

The subscription business model involves charging a recurring fee, typically monthly or yearly, for a product or service. This model focuses on customer retention over customer acquisition as they prioritise recurring revenue from existing customers.

For customers, the appeal lies in the convenience and personalisation it offers, while businesses benefit from stable, recurring income and the opportunity to build long-term customer relationships.

By locking in customers for extended periods, businesses can create a steady income stream and develop deeper customer relationships.

Types of Subscription Models

1/ SaaS (Software as a Service)

This involves offering software hosted on the cloud, available through a subscription fee. It is a popular model due to its scalability and cost-effectiveness. E.g. Dropbox, Adobe Suite

2/ Subscription Boxes

Companies deliver curated physical goods regularly, such as monthly or quarterly. These boxes can range from essential goods to luxury items or niche interests. E.g.Bokksu, Indifix

3/ Newsletters

Subscription-based newsletters have seen significant growth, with a rise in monthly subscriptions as people seek specialized content delivered directly to their inboxes. E.g. GrowthX Newsletter

4/ Media/SVoD (Subscription Video on Demand)

Services like Netflix and Amazon Prime Video provide media content through subscriptions. The SVoD market is expected to reach $100 billion by 2025.

5/ Automotive Subscriptions

This model allows customers access to various vehicles for a monthly fee, offering flexibility without the commitment of owning a car. The market for automotive subscriptions is estimated to surpass $40 billion by 2026. Porsche is one such company that uses this subscription model.

Who should be using a subscription revenue model?

A subscription business model is particularly suitable for companies that have continuous product improvement strategies.

By offering products on a subscription basis, companies can routinely update and enhance their offerings without needing to adjust the pricing every time a change is made.

This approach prevents confusion for both the company and its customers.

Without a subscription model, they would face the challenge of constantly changing prices to reflect daily updates, leading to potential discrepancies and frustration among customers paying different amounts for the same product.

Thus, a subscription model provides consistency, predictability, and value for both the business and its clients.

Funding Opportunities for SaaS businesses

In recent years, the Indian SaaS industry has experienced remarkable growth, attracting substantial investment.

Total Investment in Indian Saas Startups

In 2022, investors poured nearly $6 billion into Indian SaaS companies, marking a nearly 3.5 times increase from 2020 and an astonishing 8 times increase from 2018.

However, funding has sharply declined in 2023, with investments plummeting almost 81% to $635 million in the first half of the year compared to $3,000 Million during the same period in 2022.

Reasons Behind the Decline in Funding

Geopolitical Conflicts: Ongoing geopolitical tensions have created uncertainty in global markets.

Interest Rate Hikes: Central banks have raised interest rates to curb inflation, leading to a more cautious investment climate.

Overvaluation Concerns: Many investors believe they overpaid for startups in previous years, prompting them to reassess their investment strategies.

Funding Caution: Smaller funds have exhausted their capital, and larger funds are adopting a wait-and-watch approach, extending the time required to complete deals.

Maturing Ecosystem and Growth Milestones

Despite the funding slowdown, the Indian SaaS ecosystem continues to mature. Private SaaS companies that have crossed the $100 million Annual Recurring Revenue (ARR) mark, known as centaurs, represent a significant milestone of success. The number of Indian centaurs has grown to 11, including notable companies like Postman and GupShup.

Promising Growth in Early-Stage Companies

The early-stage segment of the Indian SaaS market is also showing robust growth. The number of companies surpassing $10 million in revenue has increased nearly threefold, from approximately 30 six years ago to over 85 today.

Efficiency as a Competitive Edge

Indian SaaS businesses are well-positioned to thrive in a high-interest-rate environment due to their efficiency. Global capital markets are placing a premium on efficient operations, and Indian SaaS companies typically exhibit higher efficiency metrics than their international counterparts with early-stage Indian SaaS companies having a median efficiency of 165%.

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Median Efficiency Explained

Median efficiency means that, on average, Indian SaaS companies are growing their revenue significantly faster than their expenses. Specifically, they are earning 165% more in revenue compared to what they spend, indicating that these companies are very good at increasing their income without overspending.

Two key drivers contribute to this efficiency advantage:

Cultural Emphasis on Efficiency: Indian SaaS companies prioritise efficient operations, often requiring less capital to scale compared to startups in other countries.

Rapid Multi-Product Development: These companies tend to develop and launch additional products quickly, enhancing revenue potential from existing customers.

Strategic Product Development

Indian SaaS firms also benefit from launching comprehensive products rather than minimum viable products. This strategy enables them to capture more value from customers. Companies like Zoho and Freshworks have successfully used multi-product strategies to boost revenue without heavy reliance on external capital. Zoho, for instance, has surpassed $1 billion in ARR independently, showcasing the potential for sustainable growth.

To learn more about how Zoho achieved this remarkable feat without raising a single rupee of funding in 28 years of existence and to explore the core insights that have driven its success, check out this GrowthX Wireframe video!

5/ Agency (Marketing, Real Estate, Travel & Talent)

Imagine you need help with something you’re not an expert in, like advertising your new product, buying a house, or planning a vacation. An agency steps in to help you with their expertise. They connect you with the right resources and guide you to achieve your goals. Here’s how it works:

Expert Help: Agencies have a team of experts who know their field well. Whether it's marketing, real estate, or travel, they offer specialised knowledge.

Connecting Clients: Agencies act as a bridge between you and what you need. They have connections and networks that you might not have.

Getting Results: Agencies are focused on delivering results. Their success depends on how well they meet your needs.

How Do Agencies Make Money?

Service Fees: Agencies charge clients for their services. For example, a marketing agency might charge a fee to create an advertising campaign for a client.

Commission: Some agencies earn a commission based on sales. For instance, a real estate agency might take a percentage of the sale price of a house.

Retainer Agreements: Agencies can have ongoing contracts where clients pay a regular fee for continuous service. This is common in fields like public relations or digital marketing.

Project-Based Fees: Agencies might charge for specific projects, like designing a website or organising an event.

Revenue Opportunity

Category	Description	Benefits	Opportunities
Retainer Agreements	Clients pay a fixed monthly fee for ongoing services.	Provides predictable and consistent revenue.	Develop long-term relationships with clients, offering continuous support and improvement.
Project-Based Fees	One-time payments for specific projects or campaigns.	Higher one-time revenue and flexibility.	Large-scale projects, seasonal campaigns, or special initiatives.
Hourly Billing	Charging clients based on the number of hours worked.	Direct correlation between work done and payment	Suitable for consultancy services or unpredictable workloads
Performance-Based Pricing	Revenue tied to the success or performance of campaigns (e.g., commissions, bonuses)	Aligns the agency's interests with client goals.	Digital marketing campaigns, lead generation, sales growth initiatives.
Subscription Models	Clients pay a recurring fee for access to services or software.	Recurring revenue and customer retention.	Access to marketing tools, data analytics platforms, or content libraries.
Service Packages	Bundled services offered at a fixed price.	Simplifies client decision-making and increases the value proposition.	Create tiered packages (basic, standard, premium) to cater to different client needs.
Productised Services	Standardised services offered at a fixed price.	Scalability and ease of sale.	SEO audits, social media management, website audits.
Event Management	Organising and managing events for clients.	High-ticket revenue opportunities.	Corporate events, product launches, trade shows.

Types of Agency Business Models in India

1. Marketing and Advertising Agencies

The global market for Traditional Advertising Agency Services generated a revenue of $234.58 billion in 2022 and is expected to reach $380.45 billion accounting for a CAGR of 5.52% by 2030.

Digital Advertising involves promoting products or services through online platforms, such as social media, search engines, and websites. Unlike traditional advertising, which uses mediums like TV, radio, and print, digital advertising allows for precise targeting and real-time analytics.

These agencies create and manage marketing campaigns, branding strategies, and advertising efforts for their clients.

They offer services such as:

Creative Development: Designing advertisements, logos, and promotional materials.

Media Buying: Purchasing advertising space in various media channels.

Digital Marketing: Managing online campaigns, social media, SEO, and content marketing.

The digital advertising market in India is projected to grow at an impressive CAGR of 23.5%, expected to account for 55% of ad spends by 2025.

In a notable shift, digital media surpassed television for the first time, capturing a 44% share of ad spending in 2023, compared to television's 32%. This significant change highlights a major transformation in media consumption habits across the country.

Components of the Advertising Ecosystem 👇🏻

Component	Who they are	What they do
Advertisers	Businesses or individuals looking to promote their products or services.	Pay for ad space to reach potential customers.
Publishers	Entities that provide ad space, such as websites, TV channels, magazines, or social media platforms.	Display ads to their audience and charge advertisers for this exposure.
Ad Agencies and Networks	Intermediaries that create and place ads for advertisers.	Handle the creative, strategic, and logistical aspects of advertising campaigns.
Customers	The specific group of people advertisers want to reach via these ads.	Consume content where ads are placed, potentially leading to purchases

In the context of the agency business model, advertising businesses typically fall into several categories:

Full-Service Agencies: These agencies provide comprehensive advertising solutions, including strategy, creative development, media buying, and analytics.

Specialised Agencies: These focus on specific aspects of advertising, such as digital marketing, social media management, or SEO.

Media Buying Agencies: These agencies specialise in purchasing advertising space and time on various platforms to maximise reach and efficiency.

Creative Boutiques: These agencies focus on the creative aspects of advertising, such as developing ad concepts, copywriting, and graphic design.

In-House Agencies: These are internal departments within a company that handles all advertising and marketing efforts, offering the convenience of close collaboration with other departments.

How do advertising agencies charge?

Metric	Definition	Usage
Cost Per Mille (CPM)	Advertisers pay for every 1,000 impressions (views) of their ad	Common in display advertising on websites.
Cost Per Click (CPC)	Advertisers pay each time someone clicks on their ad.	Common in search engine advertising and social media ads.
Cost Per Acquisition (CPA)	Advertisers pay only when a specific action is completed, such as a purchase or sign-up.	Performance-based marketing, often used in affiliate marketing.
Cost Per Engagement (CPE)	Advertisers pay when users engage with the ad (likes, shares, comments)	Social media platforms and interactive ads.

Vertical Social Networks in India

Vertical social networks are online communities that are focused on a specific industry, interest, or demographic. The rise of vertical social networks (VSNs) catering to niche communities is growing rapidly in India, creating opportunities for unique engagement and innovative monetisation strategies. VSNs are essential in the context of the advertising business model because they offer highly targeted advertising opportunities and deeper user engagement, leading to more effective and personalised ad campaigns.

Indian Success Stories in Vertical Social Networks

India's burgeoning internet user base, currently over 900 million, provides fertile ground for VSNs. Here are some notable examples:

Pratilipi: A platform for vernacular storytelling, with 28 million monthly active users (MAUs). It has expanded into publishing books and comics in multiple languages, supported by over 3,50,000 writers.

Eloelo: An influencer-led interactive platform with over 5 million users and 100 million+ gameplays in just two years.

Kuku FM and Pocket FM: Dominating the audio streaming market. Kuku FM has 1.3 million+ premium listeners and 30,000+ content creators, while Pocket FM boasts 50 million users and 3 billion + monthly listening minutes.

Innovative Monetisation Strategies

VSNs in India are pioneering new ways to monetize their platforms:

E-commerce Integration: Platforms like SHEROES and Pratilipi are integrating e-commerce to monetize their user base. SHEROES allows users to sell handmade products, while Pratilipi offers stories and books directly to readers.

In-app Content Sales: Pratilipi’s model of selling in-app content, such as stories and books, provides a more direct and potentially more profitable revenue stream than traditional ads.

Reward Programs: Explurger enhances user engagement through travel reward programs, offering a gamified experience that encourages frequent app use, resulting in 400,000+ MAUs.

Brand Partnerships: The Bridge leverages brand partnerships for targeted advertising, allowing brands to reach a highly segmented audience with specific interests, resulting in effective ad campaigns.

Verticalization by Demographics

Verticalisation, for the uninitiated, advocates for a deep focus on a single industry or niche. This allows businesses to develop specialised expertise and tailor solutions to the particular needs and pain points of that industry. It is also targeting specific demographics and life stages:

Savage: Offers health and wellness programs for women, targeting conditions like PCOS and menopause, in a market expected to reach $17.8 billion by 2024.

Leap Club: A social-professional community for women, already boasting over 8,500 paying members across 150+ cities with an ARR of $500k+.

Sarathi Healthcare: Provides end-to-end care solutions for the elderly, acquiring almost 5,000 customers in Jodhpur, and plans to expand through franchise partnerships.

BabyChakra: An online parenting platform merging e-commerce with content and community, aiming to tap into an $11 billion market growing at a 17% CAGR YoY.

2. Real Estate Agencies

Real estate agencies facilitate the buying, selling, and renting of properties. They provide:

Market Insights: Understanding local market trends and property values.

Negotiation: Assisting in price negotiations between buyers and sellers.

Property Management: Handling rental properties on behalf of owners.

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India's real estate market is expected to grow from $200 billion in 2021 to $1 trillion by 2030, contributing 13% to the GDP. This huge number showcases the massive potential in this sector.

3. Travel Agencies

Travel agencies plan and book travel arrangements for individuals or groups. Their services include:

Itinerary Planning: Creating detailed travel plans and schedules.

Booking: Arranging flights, hotels, and transportation.

Travel Insurance: Offering insurance options to cover travel-related risks.

India's overall travel market is valued at ₹3.8 lakh crore, growing at a CAGR of 9%. And get this, the online travel agency segment alone is worth ₹1.24 lakh crore. To understand how India's second-largest OTA, Ixigo, which generates over ₹500 crores annually, is revolutionising this market, check out our GrowthX Wireframe video!

4. Talent Agencies

Talent agencies represent artists, athletes, and other professionals, helping them secure work and manage their careers. Collective Artists Network (CAN) is a notable talent management agency based in India. It focuses on representing and managing a diverse range of artists, including actors, musicians, and other performers. Key functions of talent agencies include:

Representation: Negotiating contracts and deals on behalf of clients.

Career Management: Guiding clients' career paths and public relations.

Networking: Connecting clients with opportunities and industry contacts.

Investment Opportunities for Businesses

The rapid growth and potential of startups, particularly in emerging markets like India, make it an attractive sector for venture capitalists. Investment can help brands scale operations, enhance technology, and expand market reach.

Revenue-Based Financing (RBF):

RBF is a flexible funding method where businesses secure capital based on their Monthly Recurring Revenue (MRR). Unlike traditional loans, RBF doesn’t require fixed EMI payments or equity dilution. Instead, businesses repay a set percentage of their monthly revenue, adjusting payments according to their revenue fluctuations.

Debt Financing:

Traditional Loans: Businesses can obtain loans from banks or financial institutions, which require regular interest payments and repayment of the principal amount over a set term. This model does not involve giving up ownership but does require regular payments regardless of business performance.

Convertible Debt: This is a hybrid form of debt that can be converted into equity at a later date, typically during a future financing round. It allows businesses to raise capital without immediately diluting ownership while giving investors the potential to benefit from equity upside.

Equity Financing:

Venture Capital (VC): VC firms provide capital in exchange for equity stakes in startups. This model involves giving up a portion of ownership and control but can provide substantial funding and strategic support. VC funding is ideal for high-growth startups looking to scale quickly.

Angel Investors: Individual investors who provide capital in exchange for equity, often in the early stages of a startup. They offer not only funds but also mentorship and industry connections.

Thorasio-Style Firms:

These firms specialise in acquiring and scaling businesses. They offer a model for investors to support multiple brands under one umbrella, optimizing economies of scale and operational efficiencies.

Initial Public Offerings (IPOs) and Public Funding:

As the startup ecosystem matures, more companies are exploring IPOs or other public funding routes to raise capital for further growth and innovation. Going public allows companies to access larger pools of capital and offers liquidity options for early investors.

This dynamic environment suggests that the market is ripe for continued investment and growth. With various funding options—ranging from flexible revenue-based financing to traditional debt and equity models—there are compelling opportunities for venture capitalists to invest in a burgeoning market with substantial potential for scalability and profitability.

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Core Performance Metrics for Businesses

When evaluating the success of a business model, it's crucial to go beyond just tracking revenue. While revenue is a key indicator, several other metrics provide a comprehensive view of a business’s performance and potential for growth. Here are some important metrics to consider

Customer Acquisition Cost (CAC)

This metric represents the total cost of acquiring a new customer, including marketing and sales expenses. It helps assess how effective your campaigns and channels are in bringing in new customers.

Formula to calculate CAC:

CAC = Total cost of all marketing and sales efforts / Number of customers acquired

Customer Lifetime Value (CLV)

CLV measures the total revenue you can expect from a customer throughout their relationship with your brand. It’s crucial for evaluating long-term profitability and making informed decisions about customer acquisition and retention strategies.

Formula to calculate CLV:

CLV = (Average Purchase Value) x (Number of Repeat Purchases) x (Average Customer Lifespan)

Conversion Rate

This metric shows the percentage of website visitors who complete a desired action, such as making a purchase or subscribing to a newsletter. It helps identify bottlenecks in your sales funnel and understand how effectively you’re turning visitors into customers.

You can track how many visitors to your site make a purchase and analyze the conversion rates at different stages of your funnel, such as landing pages and checkout processes.

Formula to calculate Conversion Rate:

Conversion Rate = (Number of Conversions / Total Visitors) x 100

Customer Retention Rate

Retention rate measures how well you keep customers over a specific period. It’s an indicator of how engaging and valuable your product or service is to customers. You can measure how many of your customers continue to purchase from you over time, which will help gauge the effectiveness of your customer engagement and retention strategies.

Formula to calculate Retention Rate:

Retention Rate = (Number of Active Customers at End of Period / Number of Active Customers at Start of Period) x 100

These are some of the many metrics you can use to measure, discover more metrics, and gain a deeper understanding by exploring our jargon dictionary!

Types of Business Models (with examples)

What is a Business Model?

Components of a Business Model

How to Choose the Right Business Model

1/ Identify Customer Needs

2/ Analyze the Competition

3/ Leverage Strengths

4/ Test and Iterate

5/ Align with Goals

Types of Business Models with Examples

1/ Direct to Consumer

2/ Marketplace

3/ FinTech

4/ Software as a Service (Subscription & Freemium)

5/ Agency (Marketing, Real Estate, Travel & Talent)

Investment Opportunities for Businesses

Core Performance Metrics for Businesses

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