In the world of finance, the effectiveness of a business model is measured by looking at gross margin, which is the percentage of revenue left after deducting the cost of goods sold, i.e. inventory, from revenue. There are many different types of business models, especially with the advent of the Internet--however, in general, there are six main business models that are most prevalent regardless of the delivery medium. Two other business models (not discussed here) were made popular for small business by the Internet: the subscription model and the pay-per-view model (PPV).
The manufacturing model, also known as the direct model, is perhaps the oldest small business model. In this model, the small business owner is the manufacturer of a service or product and sells that service or product directly to the consumer via a license, lease or one-time payment.
The advertiser business model is based on making revenues or sales from advertising other businesses. Billboards are one example of how small business capitalizes from this model. Online examples include sites like Craigslist or search engines like Google and Yahoo.
Information is a commodity in the business world, especially to small businesses. As such, the data business model provides information to other businesses about consumer behavior. Examples of successful data models are Nielsen and Alexa.
The merchant model is commonly used by wholesalers or retailers of goods and services. One of the most common small businesses that uses the merchant model is mail-order through a catalog.
Those professionals that have more knowledge about a particular service may wish to share this knowledge with others for a fee. One common example is a real estate agent. The agent is paid to have more knowledge about the real estate market than the average person and can therefore charge a fee for the use of these services. In this way, the professional acts as the broker between the buyer and the seller.
Similar to the advertising model, the commission model thrives from purchases, not advertising space. In many ways, the commission model is a cross between the advertising model and the broker model. However, in general, the commission model requires less up-front investment and/or licensing than the broker model.
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