Whether you’re thinking about selling your company so you can move into a different type of online business model, or you are a prospective buyer of an online business, it’s important to be knowledgeable about some of the different types of online business models out there and which ones might appeal to you specifically or even appeal to your prospective buyer. The term business model is a word that is used to describe a way in which a company generates revenue.
In addition to the services or goods that company might provide, you can think of the business model as an overall make up and blue print of a company’s operations. Business models influence a number of different factors necessary to run and grow an online business, like skills, experience and time commitment required.
Five Online Business Models
Online business models can generally be broken down into five different categories. These are transactional, services, e-commerce, content and software as a service. Transactional businesses are those in which revenue is created by making a transaction between two or more users on an online platform in exchange for the payment of a commission. Services involve revenue being generated from the sale of services to customers found online. E-commerce businesses generate sale from physical or digital products that are delivered to customers via the internet or, more traditionally, through the mail. A content business involves the generation of revenue by visitors being monetized through a website, through tools such as affiliate sales or advertising. Software as service involves selling software on a subscription basis, which enables the customer to access it as long as the subscription is active.
Many companies have what is known as a hybrid business model. This is because the company might be utilizing multiple forms of the business models mentioned above. The hybrid model is relatively rare, since there is usually always one single underlying model with some additional factors to consider.
One of the most popular types of online businesses sold today is software as a service because it has the potential for recurring revenue. When the subscription to the service expires, the customer’s access to the software is taken away. There is an important distinction to make between a software e-commerce model and the software service model. The SaaS model involves selling a software on a subscription basis, whereas a software e-commerce model gives the user lifetime access to the software. Many companies for a long time used the software e-commerce model, but today in the world of digital business, software as a service has become much more popular.
This is a big reason why it is one of the most common types of online businesses purchased today, because someone who has already done a great deal of the legwork to establish the company and generate plenty of traffic and prospective customers, can pass it on to another business owner and that business owner can continue to generate revenue and income from this particular business model.
One important factor that a software as a service buyer will look at is the number of people who cancel their subscription during a given time period. This is known as a customer churn rate. If you have more questions on how to approach the purchase or sale of a software as a service business, consider speaking to our business brokers today.