Software Business Models, Examples, Revenue Streams, and Characteristics for Products, Services, and Platforms

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  • Published: 17 Jan, 2018
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Business model characteristics

How to choose a revenue model for a software product

Check our video explainer on revenue models and streams

Business Model Characteristics

On-premises software distribution approach

Pros of traditional on-premises software distribution approach.

  • On-premises deployment allows you to customize the product, aligning it with client' needs.
  • It allows simple integration with a client’s other corporate systems over the intranet.
  • All infrastructural expenses are covered by one client.

Cons of traditional on-premises distribution approach

  • Implementation of a new on-premises environment requires a lot of time.
  • The client must have its own IT support staff and in-house server hardware if you provide corporate-level software.
  • These first two factors may turn potential customers towards cloud competitors.
  • If a product is distributed via a license model, your clients will be hesitant about making a large, upfront investment in a license considering the risks.
  • If on-premises software was customized, upgrading it becomes increasingly more complicated.

Cloud-based software distribution approach

Pros of the cloud-based distribution approach.

  • Cloud products and services have faster implementation timeframes for clients
  • Users will be able to access products and information remotely from anywhere at any time, given that they have an Internet connection
  • The SaaS approach doesn’t require any initial setup costs from users. The customers just need to subscribe and log into their account to get full access to the app and its updates
  • The SaaS approach gives you the opportunity to provide the same software version for all your customers. This means that you have a single version to maintain, upgrade, de bug, and provide storage support for.
  • The main revenue stream of the cloud distribution approach is subscriptions,and as a result you will be able to receive revenue as long as the client uses the software, on an ongoing basis.

Cons of cloud distribution approach

  • There may be compatibility issues between cloud solutions and integration with existing on-premise enterprise applications that your clients already have.
  • You are fully responsible for service outages that may occur.  Setting up reliable infrastructure is required.

Hybrid software distribution approach

Pros of hybrid software distribution.

  • It allows a client the flexibility to move information between on-premises data centers and third-party cloud services, without being locked into a particular cloud provider or their own infrastructure
  • Users can take advantage of tight integration with existing corporate systems and they can also easily transfer large files regardless of their Internet speed.
  • A provider can ensure seamless updates of on-premise software and distribute different features between on-premise and cloud
  • Sensitive or highly regulated information (e.g. medical records) can stay on-premise, while operations that don’t involve sensitive data can be conducted in the cloud

Cons of hybrid software distribution

  • On-premise has limited customization opportunities compared to that of a pure cloud version
  • If customizations are available, updating software becomes a critical engineering challenge
  • If software is accessible both from a web interface and an on-premise interface, the amount of front-end development tasks significantly increases

Source code licensing

Proprietary software, pros of creating proprietary software.

  • Users will be sure that the product will work properly due to a single source for support, bug fixes, security fixes, and regular upgrades
  • Software is protected by copyright and can be monetized

Cons of proprietary software

  • As described in the “pros” section, the owner of proprietary software is responsible for all updates, customization (if needed), and maintenance. Having a limited engineering capacity may slow down feature development compared to competing providers.
  • Proprietary software may be unaffordable to a chunk of potential clients
  • The code owning organization is the only one responsible for finding and fixing code vulnerabilities. So, closed-code software is more likely to be vulnerable to malware and attacks than open-source code where possible exploits can be better detected as a community effort

Open source software

open source technology - areas by year

Open source technology areas

Source: Black Duck Source Software Survey

Drivers for oss adoption

Drivers for OSS Adoption

Pros of creating open source software

  • OSS is a great opportunity to present the innovative features and technical capabilities of your product to attract more users.
  • Clients can customize a product for their needs.
  • OSS is a good way to improve brand recognition among technology companies
  • As mentioned above, OSS has less chance of having vulnerabilities as they can be detected by a community

Cons of open source software

  • Many corporate clients will struggle to create formal policies for selecting and approving open source code
  • Creating open source products require finding additional revenue streams

Revenue streams

Paid apps and license.

Paid apps - cinema 4D

For instance, the Cinema 4d, 3d modeling and animation package requires paying for each new version even if a customer has paid a full price for a perpetual licence

Free, with in-app advertising

Example free with in-app advertising

In-app advertising

In-app sponsorship realized in RunKeeper

In-app sponsorship realized in RunKeeper

Free, with in-app purchases

In-app purchases

In-app purchases

Subscriptions

Standard subscription in iTunes

Standard subscription in iTunes

Free trial subscription

Free trial subscription

tinder freemium model

Tinder has a freemium version that can be upgraded to get broader feature-support

Usage-based license

Usage-based license Lambda Amazon Web Service

Usage-based license Lambda Amazon Web Service

Transaction Fee

Extra charge for enterprise services, support, and consulting, business model interaction, closing thoughts.

  • Proliferation of freemium services. As competition both in B2C and B2B segments is tense, users expect to receive the core features for free or they'll consider competitors. So, the product should provide quite unique experiences and services to mass consumers to be distributed for a license or subscription only. For instance, the media and entertainment industry hold up as every movie or a video game is expected to deliver a unique experience. This can’t be said about lifestyle management, time management, and messaging apps.
  • Cloud surge in the corporate sector. Enterprise mobility and BYOD (bring your own device) trends have become common in the corporate sector. People tend to use their corporate software from any device, blending work and leisure lifestyles. Making B2B and corporate software cloud accessible is no longer a foregone conclusion.
  • Personalization and precise ad targeting. Advertising in applications hasn’t gone anywhere, but selling ads space isn’t enough. Users expect to see personalized ads based on their previous interactions with the web. While making your own ad personalization is expensive, using such services as AdSense from Google is a good option to make ads more valuable to customers.

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Business Plan for Software Company

Written by Dave Lavinsky

how to start a software company

Software Company Business Plan

Over the past 20+ years, we have helped over 500 entrepreneurs and business owners create business plans to start and grow their software companies.

If you’re unfamiliar with creating a software company business plan, you may think creating one will be a time-consuming and frustrating process. For most entrepreneurs it is, but for you, it won’t be since we’re here to help. We have the experience, resources, and knowledge to help you create a great business plan.

In this article, you will learn some background information on why business planning is important. Then, you will learn how to write a software company business plan step-by-step so you can create your plan today.

Download our Ultimate Business Plan Template here >

What Is a Business Plan?

A business plan provides a snapshot of your software company as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategies for reaching them. It also includes market research to support your plans.

Why You Need a Business Plan

If you’re looking to start a software company or grow your existing software company, you need a business plan. A business plan will help you raise funding, if needed, and plan out the growth of your software company to improve your chances of success. Your software company business plan is a living document that should be updated annually as your company grows and changes.

Sources of Funding for Software Companies

With regards to funding, the main sources of funding for a software company are personal savings, credit cards, bank loans, and angel investors. When it comes to bank loans, banks will want to review your business plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to ensure that your financials are reasonable, but they will also want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate a business. Personal savings and bank loans are the most common funding paths for software companies.

Finish Your Business Plan Today!

How to write a business plan for a software company.

If you want to start a software company or expand your current one, you need a business plan. The guide below details the necessary information for how to write each essential component of your software company business plan.

Executive Summary

Your executive summary provides an introduction to your business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.

The goal of your executive summary is to quickly engage the reader. Explain to them the kind of software company you are running and the status. For example, are you a startup, do you have a software company that you would like to grow, or are you operating a chain of software companies?

Next, provide an overview of each of the subsequent sections of your plan.

  • Give a brief overview of the software company industry.
  • Discuss the type of software company you are operating.
  • Detail your direct competitors. Give an overview of your target customers.
  • Provide a snapshot of your marketing strategy. Identify the key members of your team.
  • Offer an overview of your financial plan.

Company Overview

In your company overview, you will detail the type of software company you are operating.

For example, you might specialize in one of the following types of software companies:

  • Open source: An open source software company is one that produces a code base that is free for any entity that desires to use it. The value of this structure is found in the auxiliary services and customizations that are provided to clients. Examples of highly-profitable open source software companies include Linux and Red Hat.
  • Client-specific: As cloud computing continues to grow in popularity, more companies look to specific software programs to drive their businesses further into high-growth positions. Examples of client-specific software companies include Oracle and SAP.
  • Programming services: Software companies that provide programming are essential to the tech industry. Examples include Microsoft and ADP, well-known giant software companies.
  • System services: Software companies have become highly successful, as they’ve perfected the art of creating systems for personal computers and the growing field of tablets and other personal devices. Examples of software companies that focus on systems include Intuit and Adobe.

In addition to explaining the type of software company business you will operate, the company overview needs to provide background on the business.

Include answers to questions such as:

  • When and why did you start the business?
  • What milestones have you achieved to date? Milestones could include the number of software programs created, the number of specialized SaaS services created, or reaching X number of clients served, etc.
  • Your legal business Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.

Industry Analysis

In your industry or market analysis, you need to provide an overview of the software company industry. While this may seem unnecessary, it serves multiple purposes.

First, researching the software company industry educates you. It helps you understand the market in which you are operating.

Secondly, market research can improve your marketing strategy, particularly if your analysis identifies market trends.

The third reason is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.

The following questions should be answered in the industry analysis section of your software company business plan:

  • How big is the software company industry (in dollars)?
  • Is the market declining or increasing?
  • Who are the key competitors in the market?
  • Who are the key suppliers in the market?
  • What trends are affecting the industry?
  • What is the industry’s growth forecast over the next 5 – 10 years?
  • What is the relevant market size? That is, how big is the potential target market for your software company business? You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.

Customer Analysis

The customer analysis section of your software company business plan must detail the customers you serve and/or expect to serve.

The following are examples of customer segments: start-up tech companies, companies in need of CRM software, research and development companies, and cloud-computing corporations.

As you can imagine, the customer segment(s) you choose will have a great impact on the type of software company business you operate. Clearly, start-up tech companies would respond to different marketing promotions than major cloud-computing corporations, for example.

Try to break out your target customers in terms of their demographic and industry profiles. With regard to demographics, include a discussion of the locations, type of services or programming needed and revenue potential of the client companies you seek to serve.

Psychographic profiles explain the wants and needs of your target clients within the companies you will target. The more you can recognize and define these needs, the better you will do in attracting and retaining your customers.

Finish Your Software Company Business Plan in 1 Day!

Don’t you wish there was a faster, easier way to finish your business plan?

With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!

Competitive Analysis

Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.

Direct competitors are other software company businesses.

Indirect competitors are other options that customers have to purchase from that aren’t directly competing with your product or service. This includes generic software outlets, private individual providers, and computer servicing companies.You need to mention direct competition, as well.

For each direct competitor, provide an overview of their business and document their strengths and weaknesses. Unless you once worked at your competitors’ businesses, it will be impossible to know everything about them. But you should be able to find out key things about them such as

  • What types of customers do they serve?
  • What type of software company are they?
  • What is their pricing (premium, low, etc.)?
  • What are they good at?
  • What are their weaknesses?

With regard to the last two questions, think about your answers from the customers’ perspective. And don’t be afraid to ask your competitors’ customers what they like most and least about them.

The final part of your competitive analysis section is to document your areas of competitive advantage. For example:

  • Will you provide options for the customized software?
  • Will you offer products or services that your competition doesn’t?
  • Will you provide better customer service?
  • Will you offer bundled pricing?

Think about ways you will outperform your competition and document them in this section of your plan.

Marketing Plan

Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. For a software company business plan, your marketing strategy should include the following:

Product : In the product section, you should reiterate the type of software company that you documented in your company overview. Then, detail the specific products or services you will be offering. For example, will you provide open source programming, SaaS products, or software to support Microsoft systems?

Price : Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your plan, you are presenting the products and/or services you offer and their prices.

Place : Place refers to the site of your software company. Document where your company is situated and mention how the site will impact your success. For example, is your software company located in a professional technology park, a standalone building or is it purely online? , Discuss how your site might be the ideal location for your customers.

Promotions : The final part of your software company marketing plan is where you will document how you will drive potential customers to your location(s). The following are some promotional methods you might consider:

  • Quarterly press releases to industry-wide interest groups
  • Engage in social media mining and marketing
  • Offer informative blogs; become a speaker in seminars
  • Create a strong presence at tech trade shows and conferences
  • Give expert opinions on tech social media platforms
  • Improve the SEO (search engine optimization) on your website for targeted keywords

Operations Plan

While the earlier sections of your business plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.

Everyday short-term processes include all of the tasks involved in running your software company, including meeting with clients, planning new software development, training personnel, and running administrative services.

Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to sign your Xth contract, or when you hope to reach $X in revenue. It could also be when you expect to expand your software company business to a new city.

Management Team

To demonstrate your software company’s potential to succeed, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.

Ideally, you and/or your team members have direct experience in managing a software company. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.

If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act as mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in managing a software company or successfully running a small technology development firm.

    Finish Your Business Plan Today!

Financial plan.

Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet, and cash flow statements.

Income Statement

An income statement is more commonly called a Profit and Loss statement or P&L. It shows your revenue and then subtracts your costs to show whether you turned a profit or not.

In developing your income statement, you need to devise assumptions. For example, will you introduce a new software program on a yearly basis, or will you customize software for return clients? And will sales grow by 2% or 10% per year? As you can imagine, your choice of assumptions will greatly impact the financial forecasts for your business. As much as possible, conduct research to try to root your assumptions in reality.

Balance Sheets

Balance sheets show your assets and liabilities. While balance sheets can include much information, try to simplify them to the key items you need to know about. For instance, if you spend $50,000 on building out your software company, this will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a lender writes you a check for $50,000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.

Cash Flow Statement

Your cash flow statement will help determine how much money you need to start or grow your business, and ensure you never run out of money. What most entrepreneurs and business owners don’t realize is that you can turn a profit, but run out of money and go bankrupt.

When creating your Income Statement and Balance Sheets be sure to include several of the key costs needed in starting or growing a software company:

  • Cost of computer and software equipment
  • Payroll or salaries paid to staff
  • Business insurance
  • Other start-up expenses (if you’re a new business) like legal expenses, permits, furnishings and office supplies

Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include the patents you own on software programs or a list of clients on monthly retainers.

Writing a business plan for your software company is a worthwhile endeavor. If you follow the template above, by the time you are done, you will truly be an expert. You will understand the software company industry, your competition, and your customers. You will develop a marketing strategy and will understand what it takes to launch and grow a successful software company.

Software Company Business Plan FAQs

What is the easiest way to complete my software company business plan.

Growthink's Ultimate Business Plan Template allows you to quickly and easily write your software company business plan.

How Do You Start a Software Company Business?

Starting a Software Company business is easy with these 14 steps:

  • Choose the Name for Your Software Company Business
  • Create Your Software Company Business Plan
  • Choose the Legal Structure for Your Software Company Business
  • Secure Startup Funding for Your Software Company Business (If Needed)
  • Secure a Location for Your Business
  • Register Your Software Company Business with the IRS
  • Open a Business Bank Account
  • Get a Business Credit Card
  • Get the Required Business Licenses and Permits
  • Get Business Insurance for Your Software Company Business
  • Buy or Lease the Right Software Company Business Equipment
  • Develop Your Software Company Business Marketing Materials
  • Purchase and Setup the Software Needed to Run Your Software Company Business
  • Open for Business

Where Can I Download a Free Business Plan Template PDF?

Click here to download the pdf version of our basic business plan template.

Our free business plan template pdf allows you to see the key sections to complete in your plan and the key questions that each must answer. The business plan pdf will definitely get you started in the right direction.

We do offer a premium version of our business plan template. Click here to learn more about it. The premium version includes numerous features allowing you to quickly and easily create a professional business plan. Its most touted feature is its financial projections template which allows you to simply enter your estimated sales and growth rates, and it automatically calculates your complete five-year financial projections including income statements, balance sheets, and cash flow statements. Here’s the link to our Ultimate Business Plan Template.

Don’t you wish there was a faster, easier way to finish your Software Company business plan?

OR, Let Us Develop Your Plan For You

Since 1999, Growthink has developed business plans for thousands of companies who have gone on to achieve tremendous success.   Click here to see how Growthink’s business plan writers can create your business plan for you.

Other Helpful Business Plan Articles & Templates

Technology Business Plan

Business Model Canvas: Explained with Examples

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Got a new business idea, but don’t know how to put it to work? Want to improve your existing business model? Overwhelmed by writing your business plan? There is a one-page technique that can provide you the solution you are looking for, and that’s the business model canvas.

In this guide, you’ll have the Business Model Canvas explained, along with steps on how to create one. All business model canvas examples in the post can be edited online.

What is a Business Model Canvas

A business model is simply a plan describing how a business intends to make money. It explains who your customer base is and how you deliver value to them and the related details of financing. And the business model canvas lets you define these different components on a single page.   

The Business Model Canvas is a strategic management tool that lets you visualize and assess your business idea or concept. It’s a one-page document containing nine boxes that represent different fundamental elements of a business.  

The business model canvas beats the traditional business plan that spans across several pages, by offering a much easier way to understand the different core elements of a business.

The right side of the canvas focuses on the customer or the market (external factors that are not under your control) while the left side of the canvas focuses on the business (internal factors that are mostly under your control). In the middle, you get the value propositions that represent the exchange of value between your business and your customers.

The business model canvas was originally developed by Alex Osterwalder and Yves Pigneur and introduced in their book ‘ Business Model Generation ’ as a visual framework for planning, developing and testing the business model(s) of an organization.

Business Model Canvas Explained

What Are the Benefits of Using a Business Model Canvas

Why do you need a business model canvas? The answer is simple. The business model canvas offers several benefits for businesses and entrepreneurs. It is a valuable tool and provides a visual and structured approach to designing, analyzing, optimizing, and communicating your business model.

  • The business model canvas provides a comprehensive overview of a business model’s essential aspects. The BMC provides a quick outline of the business model and is devoid of unnecessary details compared to the traditional business plan.
  • The comprehensive overview also ensures that the team considers all required components of their business model and can identify gaps or areas for improvement.
  • The BMC allows the team to have a holistic and shared understanding of the business model while enabling them to align and collaborate effectively.
  • The visual nature of the business model canvas makes it easier to refer to and understand by anyone. The business model canvas combines all vital business model elements in a single, easy-to-understand canvas.
  • The BMC can be considered a strategic analysis tool as it enables you to examine a business model’s strengths, weaknesses, opportunities, and challenges.
  • It’s easier to edit and can be easily shared with employees and stakeholders.
  • The BMC is a flexible and adaptable tool that can be updated and revised as the business evolves. Keep your business agile and responsive to market changes and customer needs.
  • The business model canvas can be used by large corporations and startups with just a few employees.
  • The business model canvas effectively facilitates discussions among team members, investors, partners, customers, and other stakeholders. It clarifies how different aspects of the business are related and ensures a shared understanding of the business model.
  • You can use a BMC template to facilitate discussions and guide brainstorming brainstorming sessions to generate insights and ideas to refine the business model and make strategic decisions.
  • The BMC is action-oriented, encouraging businesses to identify activities and initiatives to improve their business model to drive business growth.
  • A business model canvas provides a structured approach for businesses to explore possibilities and experiment with new ideas. This encourages creativity and innovation, which in turn encourages team members to think outside the box.

How to Make a Business Model Canvas

Here’s a step-by-step guide on how to create a business canvas model.

Step 1: Gather your team and the required material Bring a team or a group of people from your company together to collaborate. It is better to bring in a diverse group to cover all aspects.

While you can create a business model canvas with whiteboards, sticky notes, and markers, using an online platform like Creately will ensure that your work can be accessed from anywhere, anytime. Create a workspace in Creately and provide editing/reviewing permission to start.

Step 2: Set the context Clearly define the purpose and the scope of what you want to map out and visualize in the business model canvas. Narrow down the business or idea you want to analyze with the team and its context.

Step 3: Draw the canvas Divide the workspace into nine equal sections to represent the nine building blocks of the business model canvas.

Step 4: Identify the key building blocks Label each section as customer segment, value proposition, channels, customer relationships, revenue streams, key resources, key activities, and cost structure.

Step 5: Fill in the canvas Work with your team to fill in each section of the canvas with relevant information. You can use data, keywords, diagrams, and more to represent ideas and concepts.

Step 6: Analyze and iterate Once your team has filled in the business model canvas, analyze the relationships to identify strengths, weaknesses, opportunities, and challenges. Discuss improvements and make adjustments as necessary.

Step 7: Finalize Finalize and use the model as a visual reference to communicate and align your business model with stakeholders. You can also use the model to make informed and strategic decisions and guide your business.

What are the Key Building Blocks of the Business Model Canvas?

There are nine building blocks in the business model canvas and they are:

Customer Segments

Customer relationships, revenue streams, key activities, key resources, key partners, cost structure.

  • Value Proposition

When filling out a Business Model Canvas, you will brainstorm and conduct research on each of these elements. The data you collect can be placed in each relevant section of the canvas. So have a business model canvas ready when you start the exercise.  

Business Model Canvas Template

Let’s look into what the 9 components of the BMC are in more detail.

These are the groups of people or companies that you are trying to target and sell your product or service to.

Segmenting your customers based on similarities such as geographical area, gender, age, behaviors, interests, etc. gives you the opportunity to better serve their needs, specifically by customizing the solution you are providing them.

After a thorough analysis of your customer segments, you can determine who you should serve and ignore. Then create customer personas for each of the selected customer segments.

Customer Persona Template for Business Model Canvas Explained

There are different customer segments a business model can target and they are;

  • Mass market: A business model that focuses on mass markets doesn’t group its customers into segments. Instead, it focuses on the general population or a large group of people with similar needs. For example, a product like a phone.  
  • Niche market: Here the focus is centered on a specific group of people with unique needs and traits. Here the value propositions, distribution channels, and customer relationships should be customized to meet their specific requirements. An example would be buyers of sports shoes.
  • Segmented: Based on slightly different needs, there could be different groups within the main customer segment. Accordingly, you can create different value propositions, distribution channels, etc. to meet the different needs of these segments.
  • Diversified: A diversified market segment includes customers with very different needs.
  • Multi-sided markets: this includes interdependent customer segments. For example, a credit card company caters to both their credit card holders as well as merchants who accept those cards.

Use STP Model templates for segmenting your market and developing ideal marketing campaigns

Visualize, assess, and update your business model. Collaborate on brainstorming with your team on your next business model innovation.

In this section, you need to establish the type of relationship you will have with each of your customer segments or how you will interact with them throughout their journey with your company.

There are several types of customer relationships

  • Personal assistance: you interact with the customer in person or by email, through phone call or other means.
  • Dedicated personal assistance: you assign a dedicated customer representative to an individual customer.  
  • Self-service: here you maintain no relationship with the customer, but provides what the customer needs to help themselves.
  • Automated services: this includes automated processes or machinery that helps customers perform services themselves.
  • Communities: these include online communities where customers can help each other solve their own problems with regard to the product or service.
  • Co-creation: here the company allows the customer to get involved in the designing or development of the product. For example, YouTube has given its users the opportunity to create content for its audience.

You can understand the kind of relationship your customer has with your company through a customer journey map . It will help you identify the different stages your customers go through when interacting with your company. And it will help you make sense of how to acquire, retain and grow your customers.

Customer Journey Map

This block is to describe how your company will communicate with and reach out to your customers. Channels are the touchpoints that let your customers connect with your company.

Channels play a role in raising awareness of your product or service among customers and delivering your value propositions to them. Channels can also be used to allow customers the avenue to buy products or services and offer post-purchase support.

There are two types of channels

  • Owned channels: company website, social media sites, in-house sales, etc.
  • Partner channels: partner-owned websites, wholesale distribution, retail, etc.

Revenues streams are the sources from which a company generates money by selling their product or service to the customers. And in this block, you should describe how you will earn revenue from your value propositions.  

A revenue stream can belong to one of the following revenue models,

  • Transaction-based revenue: made from customers who make a one-time payment
  • Recurring revenue: made from ongoing payments for continuing services or post-sale services

There are several ways you can generate revenue from

  • Asset sales: by selling the rights of ownership for a product to a buyer
  • Usage fee: by charging the customer for the use of its product or service
  • Subscription fee: by charging the customer for using its product regularly and consistently
  • Lending/ leasing/ renting: the customer pays to get exclusive rights to use an asset for a fixed period of time
  • Licensing: customer pays to get permission to use the company’s intellectual property
  • Brokerage fees: revenue generated by acting as an intermediary between two or more parties
  • Advertising: by charging the customer to advertise a product, service or brand using company platforms

What are the activities/ tasks that need to be completed to fulfill your business purpose? In this section, you should list down all the key activities you need to do to make your business model work.

These key activities should focus on fulfilling its value proposition, reaching customer segments and maintaining customer relationships, and generating revenue.

There are 3 categories of key activities;

  • Production: designing, manufacturing and delivering a product in significant quantities and/ or of superior quality.
  • Problem-solving: finding new solutions to individual problems faced by customers.
  • Platform/ network: Creating and maintaining platforms. For example, Microsoft provides a reliable operating system to support third-party software products.

This is where you list down which key resources or the main inputs you need to carry out your key activities in order to create your value proposition.

There are several types of key resources and they are

  • Human (employees)
  • Financial (cash, lines of credit, etc.)
  • Intellectual (brand, patents, IP, copyright)
  • Physical (equipment, inventory, buildings)

Key partners are the external companies or suppliers that will help you carry out your key activities. These partnerships are forged in oder to reduce risks and acquire resources.

Types of partnerships are

  • Strategic alliance: partnership between non-competitors
  • Coopetition: strategic partnership between partners
  • Joint ventures: partners developing a new business
  • Buyer-supplier relationships: ensure reliable supplies

In this block, you identify all the costs associated with operating your business model.

You’ll need to focus on evaluating the cost of creating and delivering your value propositions, creating revenue streams, and maintaining customer relationships. And this will be easier to do so once you have defined your key resources, activities, and partners.  

Businesses can either be cost-driven (focuses on minimizing costs whenever possible) and value-driven (focuses on providing maximum value to the customer).

Value Propositions

This is the building block that is at the heart of the business model canvas. And it represents your unique solution (product or service) for a problem faced by a customer segment, or that creates value for the customer segment.

A value proposition should be unique or should be different from that of your competitors. If you are offering a new product, it should be innovative and disruptive. And if you are offering a product that already exists in the market, it should stand out with new features and attributes.

Value propositions can be either quantitative (price and speed of service) or qualitative (customer experience or design).

Value Proposition Canvas

What to Avoid When Creating a Business Model Canvas

One thing to remember when creating a business model canvas is that it is a concise and focused document. It is designed to capture key elements of a business model and, as such, should not include detailed information. Some of the items to avoid include,

  • Detailed financial projections such as revenue forecasts, cost breakdowns, and financial ratios. Revenue streams and cost structure should be represented at a high level, providing an overview rather than detailed projections.
  • Detailed operational processes such as standard operating procedures of a business. The BMC focuses on the strategic and conceptual aspects.
  • Comprehensive marketing or sales strategies. The business model canvas does not provide space for comprehensive marketing or sales strategies. These should be included in marketing or sales plans, which allow you to expand into more details.
  • Legal or regulatory details such as intellectual property, licensing agreements, or compliance requirements. As these require more detailed and specialized attention, they are better suited to be addressed in separate legal or regulatory documents.
  • Long-term strategic goals or vision statements. While the canvas helps to align the business model with the overall strategy, it should focus on the immediate and tangible aspects.
  • Irrelevant or unnecessary information that does not directly relate to the business model. Including extra or unnecessary information can clutter the BMC and make it less effective in communicating the core elements.

What Are Your Thoughts on the Business Model Canvas?

Once you have completed your business model canvas, you can share it with your organization and stakeholders and get their feedback as well. The business model canvas is a living document, therefore after completing it you need to revisit and ensure that it is relevant, updated and accurate.

What best practices do you follow when creating a business model canvas? Do share your tips with us in the comments section below.

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

FAQs About the Business Model Canvas

  • Use clear and concise language
  • Use visual-aids
  • Customize for your audience
  • Highlight key insights
  • Be open to feedback and discussion

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Amanda Athuraliya is the communication specialist/content writer at Creately, online diagramming and collaboration tool. She is an avid reader, a budding writer and a passionate researcher who loves to write about all kinds of topics.

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Software Business Models Guide: SaaS, Licensing, Open Source & More

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Table of Contents

SaaS Marketing

On-premise or cloud. Open source, open core, restrictive, hybrid...

Even the savviest tech connoisseur can sometimes get tangled in the rapidly evolving world of software.

software business model sample

Some terms can mean more than one thing. Some models sound deceptively similar but have very little in common.

Some can even be seen as ideologies (seriously).

If that foundation doesn't support your vision statement and your customers' needs, even the smartest software marketing strategy won't get you the results you want.

The entire thing will inevitably collapse.

To make the right decision, you need to know:

  • What options you have
  • How they differ
  • Which models could support your needs long-term, and
  • Which ones you’re better off without

Let’s get you untangled.

Types of Software Business Models

In terms of how you plan, build, market and make money from your software, there are a lot of options to choose from. And each choice you make affects all other aspects of your business.

For example, you could choose to build on-premise software. As an extension of that decision, you would have to come up with a marketing strategy that suits that model, and that probably wouldn’t end up looking a lot like SaaS marketing .

Does that make sense? 

Depending on which way you go with one decision, you could open or close doors in other departments and drastically change the direction of your business.

Picking a software business model shouldn’t resemble a risky order from a questionable restaurant. You need to know what everything is, what species they belong to, and which combinations could get you hospitalized.

So here’s your basic atlas:

Some of these are pretty self-explanatory, others we will cover in more detail in a second. And, if you were wondering earlier, all software marketing starts with understanding your buyer personas .

But first, let’s talk about ethics.

Ethics of software business models

Ethics of software development refer to ethical issues, good and bad practices, questions of integrity, and law. Things like:

  • Accessibility
  • Accountability
  • Transparency
  • Responsibility, etc.

There have been a lot of pledges and codes of conduct suggested by different organizations over time in attempts to protect users and promote values like honesty and integrity among developers.

Ethics of software business models

The ACM Code talks about professional responsibilities, as well as basic human decency matters like “ do no harm ” and “ contribute to society .”

General Ethical Principles

You get the picture. Many others cover similar points, but despite that, no ethical standard has been widely adopted so far.

Now, in terms of software business models, no model is inherently more ethical than the rest. To say that would be some top-tier holier-than-thou-ism if we’ve ever seen it.

“Unethical” implies things like:

  • Algorithmic bias
  • Privacy breaches
  • Unclear personal data ownership
  • Inaccessible design
  • Poor security
  • Misleading information

You know, general bad practices.

“Unethical” doesn’t mean “this company’s philosophy differs from ours.” Unless by “ours” you mean “legal and sane.”

But that’s exactly it. If someone hit you in the face with a shovel, you’d call them a criminal. You wouldn’t call gardening unethical.

Software as a Service (SaaS) Business Model

You might have read some stats about companies flocking over to SaaS, the market's steady expansion (estimated at $138 billion by 2022), and the recent massive profits of the industry giants.

So what makes the SaaS business model the new black?

Using a SaaS model instead of on-premise software is like renting a furnished place instead of building a house from scratch:

  • All you need is already there
  • The initial investment (and risk) is way lower
  • You don’t have to know anything about building houses

Plus, the reality of many companies is that they need more than one tool to power them. Even if they have an on-premise package running, it’s easier for them to incorporate a SaaS product as needed than to spend a bunch of money, time, and storage to try a new on-premise package.

These are some of the sexier features of this model:

  • Recurring payments (the so-called SaaS pricing model)
  • Higher customer retention
  • Cloud-based hosting
  • Smaller but frequent updates
  • Ease of use and access

For instance, next to the standard Microsoft Office package which you have to buy, you now have Microsoft Office 365 , which you can subscribe to and access through the Internet.

SaaS Business Model

SaaS business models can be:

Horizontal SaaS is the standard model used by popular companies like Salesforce, Zendesk, Trello, Slack, Hubspot, etc. It’s meant to target a wide range of customers from different industries by offering services to help them run their businesses efficiently.

Because they solve a pain point shared by many industries, these products are super simple to use, but not so easy to customize.

Vertical SaaS, on the other hand, targets a very specific niche audience and solves problems unique to their industry verticals.

One such SaaS is Toast.

Restaurant Software Business Model

Instead of targeting everyone who needs help with one common pain point, Toast offers a range of services that solve multiple pain points unique to restaurants, with separate landing pages for each.

software business model sample

This approach allows companies to have all their needs met by one product, instead of having to mix and match universal apps and use just one or two of their features or waste precious time on customization.

Vertical SaaS has been on the rise recently with less competition and high customer acquisition rates.

Open Source Software Business Models

An attitude. A lifestyle. A commitment to the greater good. Open source is often described as a set of values rather than a mere business model. 

The three main reasons are:

  • Its source code that anyone can access, modify or enhance
  • Depending on the license, it’s fully customizable
  • It promotes collaboration and community values

Despite how that sounds, open-source can actually be a lucrative business model. Some of the most popular examples are Linux and Mozilla Firefox. If you scroll to the bottom of Mozilla’s support site , you can find its source code...

Open source business model

... and take a peek behind the scenes.

Github

That’s an easy way to spot these good boys in the wild. If you’re so inclined, you could even volunteer to contribute to its development. As could anyone else.

That’s the appeal, anyway.

If you’re new to the concept, you might be thinking, yeah that’s neat, but how does that work as a business model?

Well, it takes a bit of work, but there are four common approaches:

  • Marketplace

Here’s a very simplified explanation of each model:

Most businesses offer some combination of these.

  • Open-source is great because it’s completely customizable
  • It can be tricky to get into as you usually need some level of expertise
  • If you’re not a professional developer or IT-curious, it’s not as user-friendly
  • Despite that (and sometimes because of that), the open-source model is still very much on the rise

Take a look at these metrics and judge for yourself.

Open source software business use case

Image source: bcg.com

Software Licensing Business Models

Software licenses are basically the terms of use you have to sign when you’re buying software. They regulate things like who gets to inspect and edit the source code, under what circumstances, whether you’re allowed to share the code with or without the modifications, etc.

Software licensing

We mentioned proprietary and open-source licensing, but there are many more models for businesses to choose from.

Most popular types of licensing business models:

But why stop there? Here are some other common models:

  • Element pools software
  • Consumption-based
  • Account-based
  • End-date based
  • Suite-based

We could keep going.

With seemingly endless options, how should you choose?

Firstly, if you’re building a business, the software license shouldn’t be among the first decisions you make. This choice should be based on your product and desired direction, not the other way around.

Your options will narrow down on their own when you make that decision anyway. Building a SaaS product? Well, a perpetual license shouldn’t linger in your thoughts.

Another important thing to note is that you’re allowed to offer multiple different licenses.

It all depends on what you want to sell. So here are some prompts to help you decide:

  • What type of software business are you building?
  • What terms would you like to give your customers?
  • Are there any limitations you want to impose?
  • What distribution and pricing models are you going to use?
  • Which license sounds closest to what you had in mind?

If you can’t decide yet, don’t worry. This might be one of those things you have to put in a mental drawer and revisit later.

Cloud Software Business Models

Cloud-based software has been one of the defining models of the past decade and continues to soar today.

These are its key features:

  • Remotely-hosted infrastructure, platforms, and apps
  • Internet-based access through any device
  • Resource pooling and automation of services

As we collectively continue to spend more time on our smartphones, tablets and other devices, these features are only becoming more attractive with time.

Before we get to the juicy part of the story, let’s quickly cover the logistics. So, when it comes to cloud infrastructure, you’ve got your basic four categories:

  • Public Cloud

Offers storage and sources that are openly shared, owned, and run by a service provider. It’s the least secure of the options and is best suited for pay-per-use deals.

  • Private Cloud

Intended for a single organization or company. It can be operated on or off-site and has better security than the public cloud.

  • Hybrid Cloud

Two or more public, community or private clouds combined. Sensitive information is usually stored in the private section while the rest can be public.

  • Community Cloud

Infrastructure shared by a group of organizations or businesses with similar needs.

All clear so far?

Cloud services are where the story gets interesting. Remember these three:

  • SaaS (software as a service)
  • PaaS (platform as a service)
  • IaaS (infrastructure as a service)

We’ve already talked about SaaS, but the other two models are by no means the ugly step-sisters.

Infrastructure as a service offers the basic, raw setup required to build and deploy applications on-demand and compensated on a pay-per-use basis.

Compared to SaaS and PaaS, this model provides the lowest level of control but higher flexibility.

IaaS services include the essentials, like IT facilities, storage, networking, firewalls, and servers to help you:

  • Avoid the costs of owning and maintaining on-premise infrastructure
  • Scale up or down as needed

A great example of IaaS is Microsoft Azure .

IaaS Model

If you’re still not convinced of the potential in Iaas, just remember that the global IaaS market grew 40.7% in 2020. It may be time to start thinking about what sort of infrastructure you’d like to develop.

Platform as a service offers the full environment necessary to develop and run an application in the cloud. It builds on the IaaS foundation, but also includes:

  • Development tools
  • Embedded Business intelligence
  • Graphic user interface, etc.

Basically, PaaS supports the entire application development cycle.

The only things a PaaS customer has to worry about are the services and apps they develop. Everything else is taken care of by the platform, stored on the cloud, and paid per-use.

A prime example of this model is Heroku .

PaaS model

Like Iaas, the global PaaS market is growing and is expected to reach $319 billion by 2030.

Final Word on Software Business Models

Weighing out the available software business models and picking the right solution is the first and most vital decision for your company.

There’s no obvious winner here. No, all models aren’t equal either, but your perfect combination really depends on your

  • Target audience
  • Technical requirements
  • Business objectives
  • Personal preference, etc.

Now that you know what’s out there, you can pick one or two options that obviously satisfy most of your needs and go from there.

Want to learn more about the world of software beyond business models? Then feel free to take a look at some of our other articles .

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Ulf Lonegren

Ulf is one of the co-founders here at Roketto. His passion shines brightest when tasked with increasing business growth through inbound marketing. If you want to talk strategy, give Ulf a shout and you’re likely to see him spark with excitement.

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10 Free Business Model Canvas Templates in Word and ClickUp

Haillie Parker

February 13, 2024

The foundation of a successful business is an effective business model—your organization won’t be able to get off the ground without one!

At the same time, creating your business model is no walk in the park, and you’ll likely need to lean on some or all of your resources in the development process. One of the most accessible and time-saving resources in this area is a business model canvas template, and if you don’t have one yet or are seeking a new one, you’ve come to the right place!

Follow along as we dive into the top FAQs, benefits, and features of the best business model canvas templates and 10 downloadable examples for any type of business.

What is a Business Model Canvas Template?

Elements of a business model canvas template, 1. business model canvas template by clickup, 2. startup business model canvas template by clickup, 3. lean canvas template by clickup, 4. business planning template by clickup, 5. business planning document template by clickup, 6. lean business plan template by clickup, 7. business ideation template by clickup, 8. clickup business brainstorming template, 9. business model canvas template for microsoft word, 10. blank business model canvas template for microsoft word.

Business model canvas templates are pre-built and customizable tools to outline and visualize your business model on a single page. These documents quickly define your company’s unique value proposition , target audience, revenue, cost, resources, key partnerships, and more.

Without a template, developing your business model canvas can be a lengthy and difficult process. Plus, business model canvas templates reduce the margin for error and ensure you’re thinking strategically, working efficiently, and meeting your stakeholder’s expectations.

Business model canvas templates are also great resources to share with the entire team and keep everyone aligned on your organization’s long-term goals.

There are tons of simple, accessible, and free business model canvas templates available for virtually every business management software —but not all templates are created equally! Here are five must-have features to look for before downloading:

  • Multiple views to customize the structure of your business model plan and how you visualize it
  • Collaboration features to involve the team, stakeholders, and other departments
  • Ease of use and simplicity to ensure you’re using the template correctly
  • Flexibility to accommodate different company sizes, industries, and business models
  • Multiple integrations to bring context and information from other work tools into your template

10 Business Model Canvas Templates

Searching for the perfect business model canvas template can be an overwhelming process.

Instead of fishing through pages of links or resorting to the trial-and-error method, start here with 10 of the best business model canvas templates for ClickUp and Microsoft. 

Business Model Canvas Template by ClickUp

The Business Model Canvas Template by ClickUp empowers teams to create new business models with ease on a collaborative Whiteboard . The template starts with nine main color-coded segments to structure your business model canvas:

  • Key Partners
  • Key Activities
  • Value Proposition
  • Customer Relationships
  • Customer Segments
  • Key Resources
  • Cost Structure
  • Revenue Stream

Defining these segments will help you develop every element of your business model and give your organization the foundation to thrive. This template also prompts you to indicate the company you’re creating the business model for, along with the designer involved and the date of creation. You can also specify the version name and number if you plan on creating multiple iterations of a business model using this template. And since ClickUp Whiteboards provide an infinite canvas, you’ll never run out of space developing your ideas.

Startup Canvas Whiteboard Template by ClickUp

Startups have unique planning requirements and need a tool that can build a solid foothold for the new company. The Startup Canvas Whiteboard Template by ClickUp was designed with this in mind, and why ClickUp itself is one of the best tools for startups in the planning phase. 

This template includes everything you need to gauge the feasibility of your startup business based on various parameters. The template includes 13 segments that cover nearly every aspect of your startup to help you fully realize your vision for the business. Easily name your organization’s key partners, the problem your business or product will solve, your target market, objectives, equipment costs, the key factor to your success, and more. 

This beginner-friendly Whiteboard template allows you to create a concise summary of your business, what you want to achieve with it, and how you can succeed. It can also serve as a skeletal roadmap for a more comprehensive business plan as your company grows.

Lean Canvas Template by ClickUp

The Lean Canvas Template by ClickUp helps business leaders identify the most crucial and dangerous assumptions in their organization. It’s especially helpful when launching a new product or service, as it presents all ideas and potential problems in an organized, easy-to-understand list. Another great resource for startups, this template isn’t just for the planning phase—you can use it multiple times to organize any area of your business throughout its lifecycle.

A little different than the Whiteboard diagrams we saw above, this template applies a pre-made List to your Workspace with three five views including ClickUp’s unique Form view , Kanban-like Board view , and Table view . Using these views, managers can choose how they visualize the issues at hand and can categorize them based on factors like customer segment, cost, metrics, channels, and more.

In this template, you’ll also find a detailed Getting Started Guide ClickUp Doc to support your setup process, three custom statuses, and eight Custom Fields to access key information quickly and directly from your tasks.

If you’re starting a new business idea, the Business Planning Template by ClickUp will help you develop a thorough business plan that leaves no areas overlooked. This details all tasks you and the team must complete and keep everything organized on a clear timeline .

This template will immediately prompt you to plug in your organization’s information, deadlines, and projects into ready-made tasks arranged on an interactive list, Kanban board, or table. With four custom statuses and three Custom Fields to add references, approvals, and sections to each task, this template is somewhat simpler to learn than the previous one but includes a comprehensive Business Plan ClickUp Doc to built-out your strategy.  

Ready to learn more about business strategy? Use this template along with another strategic planning template to ensure you’re taking the proper course of action.

Business Plan Doc Template by ClickUp

If you’re not ready to put your business model plans into action, start with the Business Planning Document Template by ClickUp to fully outline and visualize your business strategy. What’s unique about this template is that it’s specifically and only for ClickUp Docs. And while it’s intuitive to learn and start using quickly, it’s by no means a simple one-pager !

The formatted Doc guides you from the top down. Starting with your company name, overview, background, and team, you’ll soon be prompted to define key metrics and research including:

  • Your marketing analysis
  • Sales and marketing strategy
  • Operational strategy

And more! Plus, you can link tasks directly in your Business Plan Doc and turn any text into an action item, helping you act on new ideas the moment they come up. And with an automatically saved version history, collaborative live editing, and assigned comments, your Doc will remain updated and act as a referrable source of truth throughout the development of your business proposal and model.

Lean Business Plan Template by ClickUp

For something a bit less extensive than our other business plan and Whiteboard templates, you can make the most of your resources with this Lean Business Plan Template by ClickUp . 

In this template, you’ll have access to multiple views depending on your preferred layout including a dynamic List, a pre-built Kanban board, and multiple Help Docs . Within each view, you’ll find convenient sections for all of your key information including your plan summary, business model canvas, prioritized tasks, or notes.

In your plan summary, you can categorize your tasks by five different custom statuses, add multiple assignees for cross-functional teams , set deadlines, attach Docs, and more. This template will establish the bare bones of a business plan as you and your team get things done, working toward your business goals.

Business Ideation Template by ClickUp

Need the perfect tool to practice and develop your ideation techniques ? Apply the Business Ideation Template by ClickUp to start mapping out new concepts. It’s also a great resource to have on hand during group discussions or brainstorming sessions . 

The template presents users with an Ideation Diagram that includes different segments to help categorize and organize ideas. You can jot down all ideas based on whether they’re process, product, or people-oriented. The legend indicates each category, and the Pool of Ideas segment will allow you and others to add certain general ideas that you can categorize later.

The entire diagram is highly visual and organized using ClickUp’s digital whiteboard software to capture and develop ideas the moment you have them.

Business Brainstorming Template by ClickUp

Especially if you rely on ClickUp as brainstorming software , the Business Brainstorming Template by ClickUp will help you nurture new ideas. 

This template allows you to categorize ideas based on:

  • What you love
  • What you know
  • What people need
  • What people will pay for 

Include multiple people on your Whiteboard diagram and use collaborative detection to see viewing your work and edit alongside each other without overlap.

This unique visual aid will make everyone feel like they’re actively contributing to discussions and brainstorming sessions, even if you work asynchronously. You can also take this template a step further and use your completed diagram to prioritize newer ideas and determine what’s worth exploring further.

Business Model Canvas Template for Word

Another option to help develop your business model is the Microsoft Word Business Model Canvas Template. It’s similar to ClickUp’s business model canvas templates and allows for simple organization of the various facets of your company.

Using this basic template, you can establish multiple key details about your business model including key partners and suppliers, your value proposition, and relationships. Identify the channels you’ll need to use to reach your customers, along with the resources required for each activity. In addition, you can add information about revenue streams and cost structure.

This tool is free to download and allows for instant use through Microsoft Word. If simplicity is something you’re looking for from your business model canvas template, this is a good place to start.

Business Model Canvas Word Template

Looking for a different Word template to build your next business plan? This Blank Business Model Canvas Template is a little more complex and flexible than the previous document—it’s also free to download!

This template gives you and members of your team a centralized view of your business model, keeping everyone on the same page, literally and figuratively. It takes the segments from the template above and presents them in a diagram format. You can view all key partners, activities, and more in organized sections and add details in the form of sticky notes. Choose from different formatting options, including colors, fonts, and arrangements to optimize how you present your data.

Find the right business model canvas template for your team

Choosing the right business model template is essential for developing a successful plan that aligns with your business goals and objectives. With a variety of options available, it can be overwhelming to find the ideal template that fits your specific requirements.

ClickUp’s extensive Template Library offers a range of customizable templates to streamline your business planning process and achieve your goals. Plus, you can access any template, hundreds of productivity features , and over 1,000 integrations for free when you sign up for ClickUp today .

Questions? Comments? Visit our Help Center for support.

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Business model canvas deep dive

Business models: the toolkit to design a disruptive company

In today's fast-paced business world, having a solid understanding of business models is essential for creating a successful and disruptive company. In this deep dive article, we will explore the toolkit to design a disruptive company through the lens of the Business Model Canvas.

1. What is a business model?

Definition:.

A business model describes the rationale of how an organization creates, delivers and captures value. It can be described through 9 building blocks: Customer Segments, Value Propositions, Channels, Customer Relationships, Revenue Streams, Key Resources, Key Activities, Key Partnerships & Cost Structure.

Business Model History

Where did the term even come from?

The search to define what a business model is goes as far back as 1994, when Peter Drucker introduced the theory of the business was a set of assumptions about what a business will and won’t do in an article for the Harvard Business Review. He speaks about how companies fail to keep up with changing market conditions, as well as their duty to identify customers and competitors, their values and behaviour. Now considering that we've had businesses for over hundreds of years - it's pretty remarkable we only just came up with the term 'business model' a few decades ago!

In the middle of the 2002 dot com crisis, Joan Magretta  built on Drucker’s business definition to exclaim that business models are “at heart, stories. Stories that explain how enterprises work. A good business model answers Peter Drucker’s age-old questions: ‘Who is the customer? And what does the customer value?'

The shift from a business plan to business model goes hand-in-hand with the rise of personal computers and the use of spreadsheets. Entrepreneurs used to plan their businesses year by year, quarter by quarter, and write it down in a document almost like a book who’s copy is final. The change occurred hand in hand alongside the introduction of powerful new technology such as Microsoft Excel, enabling people to model them digitally and more accurately. Being able to calculate your entire profit and loss for a business was now available to you on a single Microsoft Excel page. This now meant businesses could be modelled before they were actually launched. Products or services could be done ahead of time in terms of calculating the business' recurring revenue, profit, marketing costs, advertising spend etc. in order to model the framework of the business.

This change in approach prompted the likes of Alexander Osterwalder and Yves Pigneur to invent the Business Model Canvas in 2005, the first ever visual business tool of its kind. Long gone are the days of having to come up with a long & highly unrealistic business plan,  trying to predict what product or service you'll be selling at the company five years from now!

What is the Business Model Canvas (BMC) ?

what-is-a-business-model-BMC-canvas

The Business Model Canvas is a strategic management and lean startup template for developing new or documenting existing business models. It is a visual tool with elements describing a company’s value proposition, infrastructure, customers and finances. It provides an organized way to lay out your assumptions about not only the key resources and key activities of your value chain, but also your value proposition, customer relationships, channels, customer segments, cost structures, and revenue streams.

It assists companies in aligning their activities by illustrating potential trade-offs by comparing them to one another and being able to see the bigger picture of their overall business framework. It's essentially taken Peter Drucker's hypothetical concept of a business 'model' and turned it into something much more tangible, that we can now see visually and use as a tool to consider all the different aspects of a single business model.

The Business Model Canvas explained in a short 2-minute video:

Why use the Business Model Canvas?

what-is-a-business-model-whyuse

Create a shared language

This concept can become a shared language that allows you to easily describe and manipulate business models to create new strategic alternatives. Without such a shared language it is difficult to systematically challenge assumptions about one’s business and innovate successfully.

Simple, visual and practical

The canvas is perfect for any good discussion, meeting, or workshop on business model innovation and creates a shared language. We need a concept that everybody understands: one that facilitates description and discussion. We need to start from the same point and talk about the same thing. The challenge is that the concept must be simple, relevant, and intuitively understandable, while not oversimplifying the complexities of how enterprises function.

Discover opportunities

By going through the process of listing the different parts of your business on the canvas, you begin to visualise and understand the different relationships between the nine building blocks that make up the tool.

Iterate quickly

Whether you’re using sticky notes on a real life Business Model Canvas or you’re designing your business model on the Strategyzer app , you can iterate on your designs very quickly. The tool enables you to prototype a first version and simply keep iterating until you’ve tested enough ideas to find product-market fit.

Read more: 14 Ways to Apply the Business Model Canvas

2. The 9 building blocks of The Business Model Canvas

We believe a business model can best be described through nine basic building blocks that show the logic of how a company intends to deliver value and make money. The nine blocks cover the three main areas of a business: desirability, viability and feasibility. The business model is like a blueprint for a strategy to be implemented through organizational structures, processes, and systems. Let’s take a look into the three different sections:

building-blocks-DFV-canvas

Desirability

Value propositions.

The Value Proposition's Building Block describes the bundle of products and services that create value for a specific Customer Segment The Value Proposition is the reason why customers turn to one company over another. It solves a customer problem or satisfies a customer need.

Each Value Proposition consists of a selected bundle of products and/or services that caters to the requirements of a specific Customer Segment. In this sense, the Value Proposition is an aggregation, or bundle, of benefits that a company offers customers. Some Value Propositions may be innovative and represent a new or disruptive offer. Others may be similar to existing market offers, but with added features and attributes

Customer Segments

The Customer Segments Building Block defines the different groups of people or organizations an enterprise aims to reach and serve Customers are the heart of any business model. Without (profitable) customers, no company can survive for long. In order to better satisfy customers, a company may group them into distinct segments with common needs, common behaviors, or other attributes. A business model may define one or several large or small Customer Segments. An organization must make a conscious decision about which segments to serve and which segments to ignore. Once this decision is made, a business model can be carefully designed around a strong understanding of specific customer needs.

The Channels Building Block describes how a company communicates with and reaches its Customer Segments.

Channels are customer touch points that play an important role in the customer experience. Channels serve several functions, including:

  • Raising awareness among customers about a company’s products and services
  • Helping customers evaluate a company’s Value Proposition
  • Allowing customers to purchase specific products and services
  • Delivering a Value Proposition to customers
  • Providing post-purchase customer support

Customer Relationships

The Customer Relationships Building Block describes the types of relationships a company establishes with specific Customer Segments. A company should clarify the type of relationship it wants to establish with each Customer Segment. Relationships can range from personal to automated. Customer relationships may be driven by the following motivations:

  • Customer acquisition
  • Customer retention
  • Boosting sales (up-selling)

Revenue Streams

The Revenue Streams Building Block represents the cash a company generates from each Customer Segment (costs must be subtracted from revenues to create earnings).

If customers is the heart of a business model, Revenue Streams are its arteries. A company must ask itself, For what value is each Customer Segment truly willing to pay? Successfully answering that question allows the firm to generate one or more Revenue Streams from each Customer Segment. Each Revenue Stream may have different pricing mechanisms, such as fixed list prices, bargaining, auctioning, market dependent, volume dependent, or yield management.

A business model can involve two different types of Revenue Streams:

  • Transaction revenues resulting from one-time customer payments
  • Recurring revenues resulting from ongoing payments to either deliver a Value Proposition to customers or provide post-purchase customer support

Cost Structure

The Cost Structure describes all costs incurred to operate a business model. This building block describes the most important costs incurred while operating under a particular business model.

Creating and delivering value, maintaining Customer Relationships, and generating revenue all incur costs. Such costs can be calculated relatively easily after defining Key Resources, Key Activities, and Key Partnerships. Some are more cost-driven than others. So-called “no frills” airlines, for instance, have built business models entirely around low cost structures

Feasibility

The Key Resources Building Block describes the most important assets required to make a business model work Every business model requires Key Resources. These resources allow an enterprise to create and offer a Value Proposition, reach markets, maintain relationships with Customer Segments, and earn revenues.

Different Key Resources are needed depending on the type of business you are building. A microchip manufacturer requires capital-intensive production facilities, whereas a microchip designer focuses more on human resources. Key resources can be physical, financial, intellectual, or human. Key resources can be owned or leased by the company or acquired from key partners.

Key Activities

The Key Activities Building Block describes the most important things a company must do to make its business model work. Every model calls for a number of Key Activities. These are the most important actions a company must take to operate successfully. Like Key Resources, they are required to create and offer a Value Proposition, reach markets, maintain Customer Relationships, and earn revenues. And like Key Resources, Key Activities differ depending on business model type. For software maker Microsoft, Key Activities include software development. For PC manufacturer Dell, Key Activities include supply chain management. For consultancy McKinsey, Key Activities include problem solving.

Partnerships

The Key Partnerships Building Block describes the network of suppliers and partners that make the business model work. Companies forge partnerships for many reasons, and partnerships are becoming a cornerstone of many business models. Companies create alliances to optimize, reduce risk, or acquire resources. We can distinguish between four different types of partnerships:

  • Strategic alliances between non-competitors
  • Coopetition: strategic partnerships between competitors
  • Joint ventures to develop new businesses
  • Buyer-supplier relationships to assure reliable supplies

3. Types of business models

In 2009, Amazon expands from platform to sales by launching Amazon private labels. It copies third-party sellers who created successful businesses by sourcing products absent from Amazon’s platform. Amazon sees this as an opportunity to create its own line of products.

Amazon Business Model

In 1999 Amazon launched its third-party seller marketplace and established itself as an incredibly successful e-commerce platform for other retailers. In 2007 Amazon began to use its platform to sell its own electronic devices (Kindle e-reader) and expanded to private label products under the AmazonBasics brand. While many companies aim to shift from sales to platform, Amazon executed are verse shift from platform to sales. With its private label business Amazon started to compete with third-party suppliers who are also customers of its e-commerce business. Amazon continuously expanded its private label product catalog with a wide selection (from electronics to clothing and everyday accessories) and lower prices.

The term “freemium” was coined by Jarid Lukin and popularized by venture capitalist Fred Wilson on his blog. It stands for business models, mainly Web-based, that blend free basic services with paid premium services. The freemium model is characterized by a large user base benefiting from a free, no-strings-attached offer. Most of these users never become paying customers; only a small portion, usually less than 10 percent of all users, subscribe to the paid premium services. This small base of paying users subsidizes the free users. This is possible because of the low marginal cost of serving additional free users.

In a freemium model, the key metrics to watch are:

(1) the average cost of serving a free user

(2) the rates at which free users convert to premium (paying) customers

Flickr Business Model

Flickr, the popular photo-sharing Web site acquired by Yahoo! in 2005, provides a good example of a freemium business model. Flickr users can subscribe for free to a basic account that enables them to upload and share images. The free service has certain constraints, such as limited storage space and a maximum number of uploads per month. For a small annual fee users can purchase a “pro” account and enjoy unlimited uploads and storage space, plus additional features.

Multi-sided platforms, known by economists as multi sided markets, are an important business phenomenon. They have existed for a long time, but proliferated with the rise of information technology. The Visa credit card, the Microsoft Windows operating system, the FinancialTimes, Google, the Wii game console, and Facebook are just a few examples of successful multi-sided platforms. We address them here because they represent an increasingly important business model pattern.

What exactly are multi-sided platforms? They are platforms that bring together two or more distinct but interdependent groups of customers. They create value as intermediaries by connecting these groups. Credit cards, for example, link merchants with cardholders; computer operating systems link hardware manufacturers, application developers, and users; newspapers link readers and advertisers; video gaming consoles link game developers with players.

The key is that the platform must attract and serve all groups simultaneously in order to create value. The platform’s value for a particular user group depends substantially on the number of users on the platform’s “other sides.” A video game console will only attract buyers if enough games are available for the platform. On the other hand, game developers will develop games for a new video console only if a substantial number of gamers already use it. Hence multi-sided platforms often face a “chicken and egg” dilemma.

One way multi-sided platforms solve this problem is by subsidizing a Customer Segment. Though a platform operator incurs costs by serving all customer groups, it often decides to lure one segment to the platform with an inexpensive or free Value Proposition in order to subsequently attract users of the platform’s “other side.” One difficulty multi-sided platform operators face is understanding which side to subsidize and how to price correctly to attract customers.

Multi-sided platforms bring together two or more distinct but interdependent groups of customers. Such platforms are of value to one group of customers only if the other groups of customers are also present. The platform creates value by facilitating interactions between the different groups. A multi-sided platform grows in value to the extent that it attracts more users, a phenomenon known as the network effects.

Let’s take a look into Google ’s multi-sided business model.

Google Business Model

As a multi-sided platform Google has a very distinct revenue model. It makes money from one Customer Segment, advertisers, while subsidizing free offers to two other segments: Web surfers and content owners. This is logical because the more ads it displays to Web surfers, the more it earns from advertisers. Increased advertising earnings, in turn, motivates even more content owners to become AdSense partners. Advertisers don’t directly buy advertising space from Google. They bid on ad-related keywords associated with either search terms or content on third party Web sites. The bidding occurs through an AdWords auction service: the more popular a keyword, the more an advertiser has to pay for it. The substantial revenue that Google earns from AdWords allows it to continuously improve its free offers to search engine and AdSense users.

Google’s Key Resource is its search platform, which powers three different services: Web search (Google.com), advertising (AdWords), and third-party content monetization (AdSense). These services are based on highly complex proprietary search and match making algorithms supported by an extensive IT infrastructure.

Google’s three Key Activities can be defined as follows:

1. Building and maintaining the search infrastructure.

2. Managing the three main services.

3. Promoting the platform to new users, content owners, and advertisers.

More platform business model examples: Visa, Google, eBay, Microsoft Windows, Financial Times

In 1999 Salesforce.com disrupts the customer relationship management (CRM) arena by offering CRM-as-a service over the Internet. Salesforce unlocks a new market and continuously strengthens its business model with new innovations.

Salesforce.com was founded in 1999 with the goal of “making enterprise software as easy to use as a website like amazon.com.” Salesforce pioneered the software as-a-service (Saas) for customer relationship management tools. The company didn’t stop there and has constantly improved its services and business model. We distinguish between two, non-exhaustive phases: the early business model in 1999 and extensions starting in 2005.

Salesforce Business Model

Subscription

In 2006, Spotify launches a free online music service to compete against freely available, pirated music. Its main revenue source comes from users upgrading to a premium subscription.

Spotify is a music streaming platform that gives users access to a large catalog of music. It uses a freemium revenue model that offers a basic, limited, ad-supported service for free and an unlimited premium service for a subscription fee.

Spotify relies heavily on its music algorithms and its community of users and artists to keep its premium experience delightful. Its premium subscriber base has grown from 10% of total users in 2011 to 46% in 2018.

From the start Spotify saw itself as a legal alternative to pirated music and paid song purchases on iTunes. Spotify pays a significant portion of its revenue in the form of royalties to music labels. It has paid close to $10 billion in royalties since its launch in 2006.

The company accelerated the shift from music downloads to streaming and disrupted Apple iTunes in the process. For the first time in company history, Spotify made a profit in 2019.

Spotify Business Model

4. What is business model innovation?

Business model innovation describes the innovative processes and rationale of how an business creates, delivers and captures value as opposed to how to create a new product or service. It's about fundamentally rethinking your business around a clear, new customer need, and then realigning your key resources, processes and profit formula with this new value proposition.

It’s not easy approach to take when making decisions as it pushes people out of their comfort zones. But the results can be dramatic, providing a real competitive business advantage - and we're seeing this sort of disruption a lot more often. Internet technology giants such as Amazon as world-class at demonstrating this kind of business acumen, where the founder Jeff Bezos even describes his company as 'the best place to fail in the world', referring to his company's approach to coming up with new business ideas.

Take Amazon Web Services for example: A project grew out of the company's need to improve their own tech stack performance. The American company went on to create Amazon Web Services to offers customers reliable, scalable, and inexpensive cloud computing services, paying only for what they used. Within 5-years would go on to totally dominate the cloud computing market and make Amazon over $10bn.

Read the case study we put together for Amazon Marketplace, using the business model portfolio to tell the story of how they validated their business idea: Patience is a Virtue: An Amazon Case Study in Three Parts . Otherwise you can read about the differences between organizations such as Amazon and Nestle .

4. Business Model Patterns

In the following section we outline a pattern library that is split into two categories of patterns: invent patterns to enhance new ventures and shift patterns to substantially improve an established, but deteriorating business model to make it more competitive.

www.strategyzer.comhubfs01-Hero-BusinessModelPatterns

Invent Patterns

Codify aspects of a superior business model. Each pattern helps you think through how to compete on a superior business model, beyond the traditional means of competition based on technology, product, service, or price. The best business models incorporate several patterns to outcompete others.

Shift Patterns:

02-HiltiShift-HiltiShiftCase

Codify the shift from one type of business model to another. Each pattern helps you think through how you could substantially improve your current business model by shifting it from a less competitive one to a more competitive one.

Applying Business Model Patterns

Understand patterns to better perform the following business model activities:

Design and assess

Use patterns to design better business models around market opportunities, technology innovations, or new products and services. Use them to assess the competitiveness of an existing one.

Disrupt and transform

Use patterns as an inspiration to transform your market. In the following section, we provide a library of companies that disrupted entire industries. They were the first to introduce new business model patterns in their arena.

Question and improve

Use patterns to ask better business model questions, beyond the traditional product, service, pricing, and market-related questions. Regardless, whether you are a senior leader, innovation lead, entrepreneur, investor, or faculty, you can help develop superior business models based on better questions.

03-InventPatterns-BusinessModelPatterns

Frontstage Disruption

Market explorers: unlock markets.

Develop innovative value propositions that create, unleash, or unlock completely new,  untapped, or underserved markets with large potential.

Be a pioneer and unearth new revenue potential through market exploration.

Channel Kings: Access customers

Radically change how to reach and acquire a large number of customers. Pioneer innovative new channels that haven’t been used in your industry before.

Gravity Creators: Lock in customers

Make it difficult for customers to leave or switch to competitors. Create switching costs where previously there were none and turn transactional industries into ones with long term relationships.

A great product isn’t enough to bring a flock of customers to your door. You must design a superior business model to attract and retain customers into your ecosystem. Switching costs have enabled industry leaders such as Adobe, Salesforce, Microsoft or Rolls Royce to lock customers in and outcompete other players.

Backstage Disruption

Resource castles: build moats.

Build a competitive advantage with key resources that are difficult or impossible for competitors to copy.

Activity Differentiators: Better configure activities

Radically change which activities they perform and how they combine them to create and deliver value to customers.Create innovative value propositions based on activity differentiation.

Scalers: Grow faster

Find radically new ways to scale where others stay stuck in conventional non-scalable business models.

Profit-Formula Disruption

Revenue differentiators: boost revenues.

Find innovative ways to capture value, unlock previously unprofitable markets, and/or substantially increase revenues.

Recurring Revenue – Generate recurring revenues from one-time sales. Advantages include compound revenue growth (new revenues stack up on top of existing revenues), lower cost of sales (sell once and earn recurrently), and predictability.

Bait & Hook – Lock customers in with a base product (the bait) in order to generate recurring revenues from a consumable (the hook) that customers need recurrently to benefit from the base product.

Freemium Providers – Offer basic products and services free of charge and premium services and advanced product features for a fee. The best freemium models acquire a large customer base and excel in converting a substantial percentage to paid users.

Subsidizers – Offer the full value proposition for free or cheaply by subsidizing it through a strong alternative revenue stream. This differs from freemium, which only gives free access to a basic version of products and services.

Cost Differentiators: Kill costs

Build a business model with a game-changing cost structure, not just by streamlining activities and resources, but by doing things in disruptive new ways.

Resource Dodgers – Eliminate the most costly and capital-intensive resources from your business model to create a game-changing cost structure. (Examples: Airbnb, Uber, Bharti Airtel)

Technologists – Use technology in radically new ways to create a game-changing cost structure. (Examples: WhatsApp, Skype)

Low Cost – Combine activities, resources, and partners in radically new ways to create a game-changing cost structure with disruptively low prices. (Examples: EasyJet, Ryanair, Trader Joe’s)

Margin Masters: Boost margins

Achieve significantly higher margins than competitors by focusing on what customers are willing to pay for most, while keeping your cost structure in check. Prioritize profitability over market share.

Contrarians – Significantly reduce costs and increase value at the same time. Eliminate the most costly resources, activities, and partners from your business model, even if that means limiting the value proposition. Compensate by focusing on features in the value proposition that a well-defined customer segment loves and is willing to pay for, but which are relatively cheap to provide. (Examples: CitizenM, Cirque de Soleil, Nintendo Wii)

High Enders – Create products and services at the high end of the market spectrum for a broad range of high-end customers. Use these to maximize margins and avoid the small size and extreme cost structure of a luxury niche. (Example: iPhone )

5. Business model examples

Below are 4 examples of business models. See our searchable business model examples catalog for dozens of business models analyzed using the business model canvas.

Tesla was founded in 2003 with the goal of commercializing electric vehicles, starting with luxury sports cars and then moving onto affordable, mass market vehicles. In 2008, Tesla began selling its Roadster. Its first breakthrough was in 2012 when it launched the Model S.

Tesla’s first “affordable” car, the Model 3, was announced in 2015 and produced in 2017. Prior to Tesla, the market for electric vehicles was relatively insignificant and was served by utilitarian and unremarkable models. Tesla was the first car manufacturer to view the market for electric vehicles differently: Tesla saw a significant opportunity by focusing on performance and the high end of the market.

Tesla Business Model

Learn more about Tesla’s business model by downloading your free copy of the 100-page preview of our bestselling book: The Invincible Company.

IKEA, the popular furniture company, also relies on customers as their free workforce but in a different way. Hundreds of thousands of IKEA customers assemble their bookshelves, tables, and other furniture at home after buying big boxes at big stores.

This was unthinkable before IKEA made it popular, because people used to expect furniture manufacturers to perform the assembly task. There’s a reason why customers are willing to do the work and it's because IKEA’s business model of boxed furniture offers a larger choice, immediate delivery, and all at a lower cost.

Ikea - Business Model

Read more about how Facebook, IKEA, WhatsApp, and Uber's business model make billions .

Dollar Shave Club

Dollar Shave Club (“DSC”) disrupted the market for shaving products by selling directly to consumers through its online store. Because they cut out the middleman (retail), they can pass on savings to customers. DSC makes up for the lack of established brand and distribution reach by harnessing the power of viral videos and internet marketing.

Could you access your customers in an unprecedented and scalable way? How could you cut out the middleman and create direct access to your end-customers?

Dollar Shave Club - Business Model Canvas Example

Apple is one of the leading smartphone manufacturers in the world. But their product doesn’t do it all; in fact, you could argue that there are better smartphones out there. But Apple’s business model has moats that make it extremely difficult for others to overthrow them.

Apple - iPhone - Business Model

For example Apple’s app store connects its millions of iOS users with countless software developers that supply hundreds of thousands of apps searching for an audience. It's this ecosystem that's hard to copy, not the technology. Even with the best technology it is very hard to gain market share. Only Google with its Android operating system has managed to create a competing ecosystem.

Other interesting business models: AirBnb , ARM , citizenM , Dell , Didi , Dyson , Fortnite , M-Pesa , Microsoft Windows , Patagonia , Spotify , Tupperware , Waze , Whatsapp , Zara .

6. Business model tools and resources

  • Business Model Canvas template
  • The Portfolio Map template
  • Business Model Generation masterclass
  • Business Model Generation book
  • Value Proposition Design book
  • Testing Business Ideas book
  • The Invincible Company book
  • Business Model Generation Masterclass
  • Testing Business Ideas by David Bland & Alexander Osterwalder
  • The Invincible Company: Manage a portfolio of innovation

About the speakers

Download your free copy of this whitepaper now, explore other examples.

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5 Business Models to Consider When Starting a Tech Company

Tech entrepreneurs discussing their startup's business model

  • 20 Jul 2023

What separates successful from unsuccessful startups? Is it their innovative ideas , the way their products fill a market need , or how they distribute their offerings and make money? Is it their founders and teams or the investors and partners backing them?

According to the online course Launching Tech Ventures , it’s all of the above—which also comprise a startup’s business model.

“As an entrepreneur, the onus is on you to construct each element of your startup business model through a process of search and discovery,” says Harvard Business School Senior Lecturer Jeffrey Bussgang, who teaches Launching Tech Ventures. “In parallel, you must evaluate those elements to ensure you’re building a sustainable, valuable company. To do so, each business model element must be aligned.”

To help launch your venture on the right track, here’s a breakdown of a business model’s eight components and five examples to consider.

Access your free e-book today.

The 8 Components of a Startup Business Model

A business model is a plan for how your business will succeed. You can define success in terms of finances, product-market fit , sustainable production and distribution, or reaching and converting customers.

In Launching Tech Ventures , Bussgang presents the eight components of a business model using the Diamond-Square framework, coined by HBS Professor Thomas Eisenmann.

The first four facets are internal and operational in nature, and the remaining four encompass the stakeholders involved:

  • Customer value proposition (CVP) : How will your venture deliver value?
  • Go-to-market (GTM) strategy : How will your venture reach customers?
  • Profit formula (PF): How will you make money?
  • Technology and operations management (T&O): How will you create and maintain your product?
  • Founders: Are they a strong fit for the opportunity and business model?
  • Team : Do they complement one another? Can you fill any gaps?
  • Investors : Who have you assembled to finance your business? Are you all aligned?
  • Partners: Who have you selected to aid in your execution? How will they help?

Determining your business model is critical to mapping your direction and goals before launch. All eight components work together to form yours, so it’s crucial to carefully craft each.

“Not all business models are created equal,” Bussgang says in Launching Tech Ventures . “Some business models yield companies that are valued dramatically differently than others.”

The term “business model” often refers to how you deliver your product and drive revenue, or your GTM strategy and PF from the Diamond-Square framework. To decide how to make money and reach end users, here are five business models to consider.

Related: 5 Skills Needed to Launch a Successful Tech Business

5 Examples of Tech Startup Business Models

1. freemium model.

The freemium model—a portmanteau of the words “free” and “premium”—is popular for directly distributing to your target audience. This model offers one tier of your product for free and charges users for the full or upgraded version.

One tech startup that uses a freemium model is the screen time regulation app One Sec . It pairs with other apps so that, upon opening a particular one, you’re prompted to take a deep breath and receive statistics on how many times you’ve attempted to open it that day, followed by the choice to continue or exit.

One Sec offers one free app pairing. If you’d like to use it for multiple apps, unlock more breathing exercises, and access additional features, you must pay for the premium version.

A freemium model can be effective because it gives users a taste of the product experience before purchase. If they love the free version, they may be inclined to upgrade to the premium one.

The downside is that, sometimes, users are content with the free version and never convert to paying customers. Ensure your premium version offers features your target audience is willing to pay for before committing to a freemium model.

2. Advertisement-Based Model

If you’d rather offer your product for free, an advertisement-based model may be the right fit. Like the freemium model, it delivers your product directly to your end user, but the profit formula differs. With an advertisement-based model, you sell ad space within your product to other businesses to bring in revenue.

This model is effective when your product creates enough value for users that they engage with it despite the presence of ads. Social media apps, such as Facebook and Instagram , are common examples. You can sign up and access all their features, knowing you’ll receive ads.

Another option is to combine the freemium and advertisement-based models—like some streaming platforms do—by offering your product’s free version with ads and the premium version without them.

Launching Tech Ventures | Build a viable, valuable tech venture that can profitably scale | Learn More

3. Employee Benefit Model

If your tech startup offers products focused on well-being, the most effective way to reach your end users may be through their employers or insurance providers. In the employee benefit model, your product is free to your end user and paid for by a corporation to offer as a benefit.

For example, caregiver support app ianacare partners with employee assistance programs and human resources teams. Together, they aggregate end users’ resources—including their employee benefits—into the ianacare app so they feel supported personally and professionally.

To sell to employers, ianacare cites several statistics on its website about working caregivers, including the 80 percent who report a loss of productivity at work and the 32 percent who’ve voluntarily left a job to care for a loved one. If an employee benefit model is right for your startup, ensure you communicate why your product will help boost companies’ employee productivity, retention rate, or satisfaction.

In addition to its employee benefit model, ianacare uses a direct distribution method by allowing individuals to download and sign up for the app. Certain features are “locked” and can only be accessed through a partnership with the user’s employer.

In Launching Tech Ventures , Bussgang recommends using a mix of direct and indirect methods to reach your target audience.

“Do you have the right mix of direct and indirect channels to educate, support, and distribute the product to customers in a repeatable and scalable fashion?” Bussgang prompts.

Ask yourself this question when crafting your business model.

4. Intermediation Model

Another business model to consider is intermediation, in which your business acts as the bridge between your product and end user.

For example, travel sites such as Booking.com and Expedia act as intermediaries between you and airlines, hotels, and vehicle rental agencies. You have the option to purchase tickets and book accommodations directly from each provider, but doing so through a site provides the ease of doing everything in one place. It also grants access to potentially greater deals and the convenience of comparing options.

If you can think of a way your venture would add value to the customer experience as an intermediary, consider using this model.

5. Disintermediation Model

The opposite can also make a strong business model. Disintermediation removes a step in the supply chain process to streamline product delivery.

A well-known example of disintermediation is e-commerce giant Amazon , which removes retailers’ transaction and delivery processes, simplifying the experience for the seller and end user.

A disintermediation model is a good fit for scenarios that seem cumbersome or complex. Could your product leverage innovative technology to remove one or more steps in a process? Doing so can create value for you and your end user while driving profit.

So You Want to Be an Entrepreneur: How to Get Started | Access Your Free E-Book | Download Now

Selecting the Right Business Model for Your Tech Company

Your tech startup’s business model is a critical decision that can impact whether it succeeds or fails. When thinking it through, consider how the eight elements impact each other.

“You can’t focus on individual pieces of the model in isolation,” Bussgang says in Launching Tech Ventures. “You need to think about each element—your value proposition, go-to-market strategy, profit formula, and tech and operations management—in a holistic fashion so that you can align them clearly.”

One way to gain the perspective needed to craft your business model is by learning from tech entrepreneurs who came before you.

Launching Tech Ventures features several founders, team members, and investors who offer first-hand insight into the challenges and processes of launching a tech business—from ideation to growth stage.

Are you interested in building the skills to launch a viable, valuable tech startup? Explore Launching Tech Ventures —one of our online entrepreneurship and innovation courses —and download our free guide on how to start your entrepreneurial journey.

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Software Development Business Models: What to Choose for Your Business?

Svitlana Omelia

Your project success depends on many things, and one of them is how you deliver your product and services and how you’ll receive income through this.

Software development business models describe how businesses deliver value to clients. It describes products that you provide and the way you get compensation. Every type of business model is different and has both advantages and disadvantages.

In this article, you’ll find the most popular business models explained, and we hope that it will help you pick the perfect type of business model for your organization.

What Is A Business Model?

The business model is a conceptual framework that describes to whom business serves, what it delivers, how it gives it, and how it achieves its goals to sustain the firm's profitability. The business model includes all of the business procedures and rules that a company develops and maintains. A business model should address who your consumer is, what value you can generate for them, and how you can do it at a decent price. As a result, a business model describes how a firm develops, distributes, and collects profit for both its customers and itself. Identifying value entails comprehending and forecasting revenue. The way the company makes money is determined by several elements that must be identified and examined. These are the following:

  • Competencies in the market
  • Proposition of value
  • Strategies for competition
  • Revenue Streams Cost Structure
  • Consequences of the network

Cooperation Models

There are three typical cooperation models — time and materials, dedicated teams, and fixed price. The time and materials software development model allow modifying the team size and workload according to project requirements. Flexibility, transparency, and project control make this development model work well for projects with unclear requirements and multiple iterations.

Isn’t it wonderful to have a team of developers who are all about your project and blend seamlessly with your existing teams? The dedicated team model is the only approach that reflects this type of cooperation. After you have your requirements ready, you can receive engineers with skills that suit the needs of your project. Surely, team size and skill-set changes are possible whenever needed.

Having a small project means the software development process will be less complicated and a fixed price model can be a good option in this case. Your vendor will define the project scope and provide you with proper estimation and cost. This approach requires thorough planning and business analysis as later modifications are impossible.

Remember, identifying the project type is the foundation of the right choice.

Software Development Business Models

Often the companies use a distribution approach, to deliver services or develop a product for their clients. 

Marketing channels, vendors, and sales procedures are all described in the distribution business model. The following are the components of the software distribution model:

  • Cloud - combines the most effective cloud migration methods.
  • Infrastructure is referred to as "on-premise."
  • Infrastructure and cloud systems are combined in hybrid systems. 

What factors should you consider while starting a business? Of course, there are factors that might impact the software business model. Which are the following:

  • Industry and competitive landscape
  • Portraits and client requirements
  • Resource environment, stakeholder opportunities, and financing ecosystem.

On-premises Software Development Business Model

The first business model example is called on-premises. The on-premises business model for software development presupposes that software is installed and functioning within an in-house infrastructure of the client. This business model option has been used by Microsoft, Oracle, and SAP.

Why is the on-premises software model the number one choice for particular companies? The on-premises distribution business model allows customizing a product as well as adjusting it according to the requirements. Simple integration with a client’s corporate system server is another advantage that makes this IT company business model attractive.

There’s no perfection in this world and the on-premises distribution approach is not an exception. Besides time-consuming implementation, it requires in-house server hardware and a support team. Distributing a product via a license model may prevent potential customers from making big investments due to the risks. Moreover, upgrading customized on-premises software is a difficult process.

Cloud-based Software Development Business Model

The cloud-based distribution approach or Software as a Service business model is a method in which the software functions in the cloud service or at a hosting provider.

With the Software as a Service business model companies have access to the software via mobile device or a browser without installing software on their data centers. Nowadays more and more businesses opt for cloud hostings like Amazon Web Services or Microsoft Azure.

Benefits of Cloud-based Business Model Option

  • The cloud services implementation is a quick process.
  • Whenever your users have an internet connection they will be able to access the product remotely.
  • No initial setup costs are needed, your customers will have to log in, and you will receive revenue as long as they subscribe.
  • All your clients will be able to have the same version of the software, allowing you to provide maintenance to only one version of the software.

Disadvantages of Cloud-Based Business Model Option

- If your clients already have on-premise software or application there might be compatibility issues between on-premise and cloud software.

Hybrid Software Business Model

Some businesses prefer a hybrid business model for software development. This is a combination of on-premises and SaaS models which lets your customers have their application installed on-premises and take advantage of cloud services as well. The balance of the strategies is determined by customers according to their needs.

The hybrid business model for software development is flexible (allows transfer data between cloud services and on-premises data centers); allows sending huge files and making seamless updates; allows storing sensitive data on-premise.

However, the approach is twice as difficult as the on-premise or cloud model alone. It requires a bigger team of front-end developers to handle the interface tasks, update software, and deal with limited customization opportunities.

Source Code Licensing

There are two models of source code licensing: proprietary or open-source software business model.

To protect software from copying, companies use proprietary software, as this software can’t be changed or reused by third-party users.

The open-source software business model is totally opposite — users get access to both software and source code.

Revenue Streams

Once you know your product distribution strategy choose a software revenue model for your income source. Mostly, companies use a combination of revenue streams to increase the number of users and income.

  • Paid apps. Customers are charged for installing a product.
  • In-app advertising. The application is free, however, you sell app places for advertising.
  • In-app purchases. The application is free, but you earn from selling products or services via an app.
  • Subscriptions. Users pay annually or monthly a subscription fee.
  • Usage-based software revenue model. Customers pay only for what they use.
  • Charges for support, enterprise services, and consulting.

Final Thoughts

Take your time to think about what type of business model is best for your business. The internet connection we have nowadays allows us to use a mix of business models and revenue streams. The sky's the limit! We suggest creating an MVP to assess target customer expectations and figure out what software business model and revenue streams you are supposed to use.

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software business model sample

SaaS business model: Stages, pros & cons + essential tools to get ahead

The SaaS business model is unlike the traditional business model in many different ways. Perfecting it can be difficult without the right tools. Explore the fundamentals of how SaaS works, including models, metrics, and tools for SaaS growth.

What is SaaS?

  • The SaaS business model

SaaS business stages

9 saas business examples.

  • Key SaaS business metrics
  • 4 SaaS growth tools

What’s next for SaaS businesses?

Saas business model faqs, join our newsletter for the latest in saas.

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Ever since John Koenig first coined the term “SaaS” back in 2005, the software-as-a-service industry has been one of the fastest-moving and creative in the world. And with the field having undergone a couple of “ knockout expansion years ,” with more revenue pouring into SaaS than ever, it has never been a better time for a young SaaS company. The SaaS business model powering all of this activity is startlingly unique, still young, and inextricably tied to the power of cloud computing. Understanding the fundamentals of how SaaS works is vital when building out a plan for your company’s forward growth.

software business model sample

SaaS, or software as a service, is a delivery model in which a centrally hosted software is licensed to customers via a subscription plan. Any company that leases its software through a central, cloud-based system can be said to be a SaaS company. A SaaS company maintains responsibility for the servers, database (and the data they contain), and other software that allow their product to be accessed and used. The subscription plans offered to customers can vary considerably within separate companies; some SaaS company business models involve offering multiple applications within their product, with different subscription plans giving access to different services.

How does the SaaS business model work

The reason we’re distinguishing between the SaaS business model and the rest is that the SaaS model includes a number of factors peculiar to it, such as:

Recurring payments

In SaaS, clients do not buy hardware. The software-as-a-service business and pricing model involves providing a  subscription  service to use the app, so you will have to worry about paying the yearly or monthly subscription as opposed to only once. Recurring payments take the form of monthly recurring revenue, otherwise known as MRR. Because a  SaaS company  provides a service, not a product, accounting for revenue properly can be difficult. When your customer signs the contract and subscribes, you may get some cash upfront, but that cash cannot be counted as revenue until you've earned it. Until then, it is a liability—money that your customer can ask to be returned at any point if you don’t deliver your service. As a result,  revenue recognition  is a fundamental part of the SaaS business model.

Heightened customer retention

All businesses care about customer retention, but in the SaaS revenue models, it is 10 times more important because retention of paying customers is the only thing that keeps you afloat. As we said above, you can’t lay claim to all of your clients’ subscription money until you’ve provided a complete term of service, so if you’re signing customers up for 12 months who are then leaving after 2, then you’ll be without the other 10 months of recurring revenue. As a result, the SaaS business model puts tremendous value on cultivating customer relationships and upselling. An existing SaaS customer spends more, on average, than a new customer, and are more than seven times more likely to churn (leave your business) to go to a competitor because of poor customer service than they are for a better product.

Consistent updates

While other products may come out with “next-gen” product versions, SaaS consistently provides smaller and more frequent upgrades to their services to keep the end-users happy and have better customer lifetime value. Part of this comes from the nature of being in the software business: software vulnerabilities can put customer information at risk from hackers, so continually assessing the state of security fixes is a top priority in the SaaS model. Hosting their own products also means SaaS companies can push updates whenever they need to, releasing new features, enhanced versions of old ones, and new product enhancements. By combining this with good customer communication, SaaS companies can be highly responsive to the  needs and feedback  of their customer base.

As we’ll see shortly, highly successful SaaS businesses can boast valuations in the $100 millions, serve a huge number of customers, and completely change the way in which entire industries think about aspects of their business. That, however, is the final and most successful stage of the SaaS business model. Broadly speaking, a SaaS business’s life can be broken down into three stages:

1. Early-stage

In the early stage of your SaaS business, you as the business owner or entrepreneur are still operating at the bare-bones level. You’re unlikely to have many customers, and your product will still be in its early  developmental stages . You may be seeking your first round of pre-seed  funding , or you may have decided to go for the  bootstrapping  approach to maintain better control of your operations. In the early stage, your staff roster will still be small, you will more than likely still have only one product you’re focusing your attention on, and you may not have started to turn real profit yet. At this stage, you should be asking yourself these main questions: Am I tracking metrics, bringing in new users, and looking to optimize pricing? Have I begun developing my own personal business model that will enable me to seek the right kind of funding and use it well?

2. Growth stage

The growth stage is where things start to get exciting. You’ve built something that’s growing fast, your product is gaining subscribers, and you’re beginning to bring in MRR and possibly positive cash flow. To kick off your growth stage and to continue powering through it, you will need to begin raising serious funds that will allow your company to grow its team, invest in product development and iteration, and scale. There are a number of funding types that serve the SaaS business model, including:

  • Venture Capital:  The glamour means of procuring funds for your startup, venture capital is provided by firms or funds that see high growth potential or a strong track record of recent growth in a SaaS company, enough to merit substantial financial assistance.
  • Angel Investors:  An angel investor is a single operator with substantial financial means who is prepared to make an investment in your company. They can be ideal for startups looking for their first big investment, although, more recently, so-called “super” angels have begun to play a decisive part in later funding rounds too.

Venture capitalists and angel investors are not the only routes to growing your business. Some companies go through  incubators  in their very early days; other, slightly more established SaaS companies find startup  accelerators  that meet their needs and use them for a different kind of funding experience. Some companies continue to bootstrap for a much longer time, and others are so adept at raising revenue from the start that they find they don’t need external funding until much later.

Now, you should be asking yourself these questions: Have I established key performance indicators (KPIs) to ensure I’m primed for further scaling? Do I have a strong monetization strategy in hand for when I do decide to seek some form of investment?

3. Mature stage

A SaaS company that has reached the mature stage has proved itself and can consider itself established. A company at the mature stage has a well-defined target audience that it’s catering to and has a reliable product that it’s making updates to. The company is bringing in good MRR, and all the other key KPIs (more on those to come) are stable. Mature-stage companies might still seek and receive investment, but it’ll be of a much larger order, aimed at breaking new markets or buying out competitors. The main question a SaaS company should be asking itself at this stage is: When is the last time we checked our pricing strategies? SaaS companies often reach the mature stage and settle into a sense of complacency, thinking that, because their business is solidly profitable, it must be running at its maximum potential. In fact, mature-stage SaaS companies are often positioned on a pile of potential revenue that they’re wasting with  poorly chosen price points .

software business model sample

The variety of successful SaaS-type businesses is astonishing; there are examples of tremendous success in the B2B and B2C spheres, in AI and video hosting, in e-commerce, in data analytics, and more. To show you just how broad success in SaaS can be, we’ve compiled a list of a few SaaS businesses that have made a serious impact in their fields — or, in some cases, created new ones!

Wistia is a company providing video-hosting services for businesses, from uploads to tracking performance to building audiences and brand attention. Brendan Schwartz and Chris Savage founded the company in 2006 and got their first client, a medical devices company, that year. In 2019, the picture is pretty rosy for Wistia. Despite taking relatively little investment in its early days, it's now the video-hosting service of choice for more than 300,000 businesses across 50 countries that depend on Wistia, bringing them more creative and authentic communications .

Shopify is an e-commerce platform for online stores, allowing businesses to create online stores without needing to know how to code. Shopify has completely revolutionized the way businesses think about e-commerce in the process; now, any retailers, big or small, looking to sell online, on social media, or in person have a single integrated solution that can meet their needs. Shopify has been amply rewarded for its innovations in e-commerce. It made over $1 billion in 2018 and have well-exceeded that total in 2019. Since then, Shopify has grown to 4.4 million active merchants in 2023 .

Artificial intelligence has been one of the primary growth areas in SaaS during the late 2010s, and no company exemplifies the potential of that field more strongly than Chorus.ai . Chorus is a leading conversation intelligence platform for sales teams. The company’s solution functions as a plug-in to video-calling services, allowing sales teams to record their business calls and extract meaningful data.By recording and analyzing the contents of sales calls, commercial teams are able to refine their approach to selling, curate new training surveys , and regimes for their reps, and come up with new in-depth strategies for better communicating with clients. Chorus’ solutions are used by world-class revenue teams at other great (SaaS!) companies like Zoom, Adobe, Asana, and Segment.

Just when you thought recruitment was one of those fields that could never change, a SaaS company came along and changed everything. Lever revolutionized the recruitment sphere with its streamlined processes for sourcing, attracting, and hiring new talent. Its talent software makes it easier for employers to vet candidates, take care of talent marketing, and foster connections between employers and employees through the company’s cloud service. Much like Chorus, proof of Lever’s success comes with it being used by such seminal companies such as Shopify, Eventbrite, and Netflix to fill their offices with the best employees.

Clearbit creates products and curates data APIs aimed at providing insights throughout the customer life cycle to help businesses grow. There are few industries where clear communication between client and customer is more vital than in SaaS, and Clearbit’s resolution to help those who work with it “ understand [their] customers " has made it a vital asset to those they work with. Clearbit’s ability to do this, as well as their cutting-edge means of identifying future leads and personalizing marketing approaches, has led it to be designated one of the fastest-rising companies in SaaS.

The SaaS business metrics to keep an eye on

SaaS companies are powered by data, and success in the field is predicated on how you maintain awareness of key metrics, how they interact, and how to improve then. The following are five key business metrics that determine the health and potential of a SaaS business.

Lifetime value, (LTV)

LTV is the total amount you’re due to receive from a customer over the life of their account with your product. The  LTV  of a user is one of the  most important metrics  for a SaaS business, and it’s vital that you  calculate it the right way . Retention-rate numbers (which we’ll come to shortly) are important but leave gaps in your understanding of how much retained customers are bringing in each month and won’t tell you much about the success you are (or aren’t) having with upselling. LTV brings you this precise understanding.

Customer acquisition cost (CAC)

CAC is the total cost of sales and marketing efforts that are needed to acquire a customer.

The fact of the matter is that bringing on new customers costs—and it’ll be a considerable time after bringing a new customer on board that the additional MRR offsets the cost of winning that new customer. You need to keep tabs on your CAC to ensure that your LTV is able to comfortably outpace it. Being too conservative with how much you’re willing to spend on CAC can lead to missed opportunities for revenue and growth from new customers; but being too reckless with it can lead to often critically low profitability.

Monthly & annual recurring revenue (MRR & ARR)

MRR and ARR are the lifeblood of a SaaS business. They measure the total amount of predictable revenue that a company expects on a  monthly or yearly basis. Many companies manage to make a mess of their MRR, nevertheless. A survey hosted by ProfitWell showed that one in five SaaS companies were not  reporting expenses  correctly when accounting for MRR; two in five were incorrectly including trialing or free users in some manner in their MRR; and a majority were making mistakes when differentiating between monthly, quarterly and annual payment timelines. There is no excuse for slackness with MRR, regardless of the fact that it’s not a figure you need to report to a government entity. It is a key statistic that allows investors to monitor the status of your company and is as important for you when plotting your trajectory.

Churn rate is the percentage of your customers leaving your service over a given period. It’s the nightmare statistic in the SaaS business model; even a little bit can be extremely damaging to a company’s hopes for sustaining the momentum of its growth. In fact, churn can be ruinous for companies  even when all of their other metrics are reasonably healthy. Knowing the foundation of your customer churn rate and the means by which you can reduce it could not be more important in SaaS. It can be a complex metric to get a full picture of. Breaking down your churn into segments and cohorts will reveal the different drivers behind your churn, while failing to correctly account for trialers or episodic/seasonal customers when plotting churn can muddle the picture. At our last count, there were 43 different ways public SaaS companies were accounting for the metric.

Retention rate

Your ability to retain customers is your  foundation for growth  in subscription-based services; churn is the flip side of retention, and keeping retention high is as important as keeping churn low. You may have noticed a pattern emerging in our speculations on key  SaaS metrics —and, yes, like all the rest, there’s a serious tendency among SaaS companies to calculate their retention rates incorrectly, too. Both user and MRR retention need to be calculated in tandem, so you can account for both the effects of your product, marketing, customer service, and pricing and the likelihood of sustaining profitability. You might not be taking care to differentiate between customer life-cycle stages when calculating retention rate, either, or between the plans your customers are on. In short, there’s a lot that can go wrong with your retention-rate calculations.

3 tools that help SaaS businesses grow

Now that we have a pretty solid understanding of the SaaS business model, you might already have started wondering what’s available to allow your business to get the best of the competition and really start to grow. We’ve got a few tools here at Paddle that can really help young SaaS companies grow.

Billing software

The SaaS business model is based on recurring billing, so you won't get very far without a decent recurring billing tool. There are a variety of solutions for managing subscriptions and recurring billing out there, but in many cases, you'll need to integrate these tools with a broader payments stack to manage payments and revenue. This can get messy fast. Or you can take an all-in-one approach and use a merchant of record .

As we saw above, your grasp on your data informs your success as a SaaS company: a well-organized, powerful  analytics solution  can make all the difference. Continued insight into the drivers behind your growth is fundamental for success in the SaaS business model: which customer segments are driving and detracting from subscription growth, which features in your product command the highest willingness to pay among your customer base, which features are leaving customers at more persistent risk of churn.

software business model sample

Retention software

For all their importance when gauging the health of your SaaS business, churn and retention rates are seldom completely understood by young companies. Identifying customer cohorts and tracking revenue retention, MRR churn, and delinquent churn can be difficult to do without resorting to a plethora of spreadsheets.  Tools  that aid your retention rates and help drive down churn, while minimizing the chances of human error or misreporting, are vital.

The range of applications in SaaS is virtually limitless, and with the means of fundraising continuing to diversify, it has never been a better time to join the field. Still, all of the most successful software-as-a-service companies underpin their success by adhering to a few fundamentals in the SaaS business model: a reliance on good statistics and the use of the right tools and solutions. Apply the same principles to your business and you might find yourself heading in the same direction.

software business model sample

Take the headache out of growing your software business

We handle your payments, tax, subscription management and more, so you can focus on growing your software and subscription business.

What is SaaS business model?

SaaS business model is based on selling cloud-based software for a subscription fee. The cloud-based software is usually accessible via mobile, desktop, and web apps, and the subscription fee is usually monthly or annually.

What is SaaS revenue model?

The SaaS revenue model is based on regular and ongoing payments to use software or a different digital product or tool. The payments have a defined period, and the most common two are monthly and annually.

Is Netflix a SaaS?

It may sound unusual initially, but yes, Netflix is indeed a SaaS. Netflix sells the software to stream movies and TV shows, both licensed through distribution deals and produced by Netflix.

What are the benefits of using Saas?

There are many benefits to SaaS software. The biggest include cost-effectivity, scalability, better security, no licensing management, and more scalability.

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  • 10 Best Business Model Canvas Examples

10 Best Business Model Canvas Examples For Your Inspiration

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Have you ever listed out all important aspects to consider while launching a product or strategy? You must find that this process quite challenging since one paper is not enough to show all this information as well as the connection between them.

Luckily, there is still an effective way for you to focus on your product’s most strategically important elements, which is Business Model Canvas . Many famous brands around the world have made use of it successfully.

In this post, we will bring about all things you need to know about Business Model Canvas as well as 10 Best Business Model Canvas Examples For Your Inspiration .

Let’s dive in with us!

What is a business model canvas?

Before digging into the best examples of Business Model Canvas around the world, let’s find out how the Business Model Canvas was designed.

Generally speaking, the Business Model Canvas is a summary that tells how the key drivers of a business fit together. It means showing the strategic details necessary to help a business get success within the market.

One important thing is that this summary’s length is within one sheet of paper. Imagine when you include all this down in a document, and it turns into many pages to capture all information. This will make you hard to remember as well as waste time opening pages over pages.

When it comes to the Business Model Canvas, you have a smart and clear way to read and describe any company with any scale ranging from the largest business to just a small one with some staff members.

software business model sample

While the categories or buckets included in a canvas can be adjusted according to your wishes, there are nine elements or building blocks that make up the canvas.

Each building block represents each key drivers and segments of a business. To fill in these blocks, you need to answer the following questions:

  • Customer segments : Who do you target as customers?
  • Value proposition : What are your strengths to make customers buy from your business?
  • Channels : Which channels do you use to deliver your products or services to the market?
  • Customer relationships : What are your strategies to get, keep, and build up the relationships with your customers?
  • Revenue streams : How will you make money?
  • Key resources : What are the special strategic resources that you own as well as a need?
  • Key activities : What will your business do to deliver your value proposition?
  • Key Partnerships : What are the non-key activities that you do to help your company focus more on your key activities?
  • Cost structures : What are the biggest costs that your business earns?

There is one thing to note before finding out what these elements detailedly are. That is the connection between the left side and right side of the Business Model Canvas. If you notice, all elements on the left-hand side of the canvas show the business’s costs, while those on the right-hand side represent revenue generated for the business.Along with a business model canvas, it is advisable to have a well-crafted presentation in the form of a pitch deck . These can be created effortlessly using an AI presentation maker .

Now, it’s time to discover the definitions as well as meanings of 9 elements:

Customer segments

The first building block you should look at is Customer Segments . Here is where you will add in all the different customer groups that you will target. Besides naming these customer groups, you can also build one or more personas for each segment your company serves.

If you are confused about the information you should include when it comes to a persona, it is just a detailed description of each customer group you list. They can include what motivates your customers to buy products, what problems they are suffering that you can help, and perhaps the essence of who they are.

Many businesses make a mistake when assuming that customers exist for themselves to serve. In fact, businesses exist to serve their customers instead.

Depending on your business’ goals, you can have one customer segment or more. Many companies target only one customer group, but many serve two or even multiple. For example, the giant SEO company serves two customer segments, which are those performing searches and those working as advertisers.

In case you want to break down the advertiser customer group into many personas, there will be various kinds of advertisers that you can examine.

Value proposition

The second building block refers to Value Proposition . It means the values that your company or your service can bring to each customer segment. Before filling in this building block, question yourself what problems you can solve for each customer segment are as well as what needs you can satisfy. In other words, the value proposition means the reasons why customer segments buy from you but not from others.

software business model sample

If you still find it difficult to define, here are some of the most common value propositions:

  • The performance quality
  • The ability to customize depending on customers’ wishes
  • The designing
  • The pricing plans
  • The cost reduction
  • The risk reduction
  • Convenience

Next, let’s come to the way your products or services are given to your customers. It is Channels . It is about how you sell your products and how your customers want to be approached. Consider the way your company is reaching them at the moment before adding in the Channels building block.

There are two types of channels that you might concern which are having your own channels and having partner channels with someone else.

When it comes to the first type, having your own channels means a combination of all shops you belong to, all sales staff you are employing, or all your websites .

In terms of having partner channels with someone else, you have a wide range of choices, from using Google Adsense to sell your services to using a wholesaler or even partnering with affiliates to advertise your products. You can promote your product with a blog post, social media mentions, a viral video campaign, or a live stream (here is an example of simple streaming software , you could start with).

Customer relationships

software business model sample

The following building block is about Customer relationships . Here you will enter the way you get, keep, and grow your customer base.

  • How you get your customers refers to the ways audiences find out about you and decide to buy things from you. It may be via advertising on Google or posts on social media.
  • How you keep your customers looks at the customer service that you offer or discount programs appreciate and help your customers who buy from you.
  • How you grow your customers means the way you start to make your customers continue buying and spending money on your company. A very common way is sending a newsletter every month to customers so that they can be informed about the latest campaign and consider buying more.

In order to enter details in this building block, you should understand your customer journey clearly. Question yourself on how your customers find out about you, how they decide to buy your products, how they purchase them, and how they manage after purchasing.

Revenue streams

Revenue streams building block refers to the sources where the money comes from. Here you will need to enter where your revenue is generated. Perhaps, this building block is the most confusing on the right side.

It is because you will need to find out the strategy as well as the campaign you will start to generate the most value from your customer base.

It looks at multiple aspects. You might consider a monthly subscription fee or a one-time fee for your customers. You might also think about giving away products for free so that your customers will decide to upgrade to the paid premium product.

Take Advertising on Google as an example. In order to be displayed in front of users and customers, advertisers need to pay Google money and send it their buying intent together with ads information. As an audience, only when you search for something with purchasing intent will you see ads. On the other hand, you probably will not see anything related to advertising if you search for something without purchasing intent.

If you are starting a subscription-based business , you will have the benefit of recurring revenue streams pouring in regularly. However, it can be more of an uphill struggle to convert customers than if you are charging them a one-time fee, because more of a commitment is required on their part. It’s a case of determining which approach fits best with your goals and product category.

As you can see, we have gone through all building blocks on the right side which are related to customers. Now, it’s time to work on the building areas to the left of the Value proposition which shows the costs to the business.

Key resources

The first building block to concern when it comes to the left hand is Key Resources . That means the main strategic assets that are needed to enable your business model to work.

software business model sample

There are four categories of resources, they include:

  • Physical resources : They can be cars, machines, buildings, or distribution networks.
  • Human resources : They are your staff members who make your business work in real life. Human resources take an indispensable part in every business. When it comes to creative and knowledge-intensive industries, they seem to be the most important resource of a company.
  • Intellectual resources : They are specialist knowledge, documentation, patents and copyrights, partnerships, customer information, or brands.
  • Financial resources : They are lines of credit, cash balances, and so on.

Key activities

The next building block is Key activities which refer to the most important strategic things you Must do to make your business model work. Remember that the Key activities block should be completely relevant to the value proposition block.

Check to see whether your Key activities are relatable to your value proposition or not. If they aren’t, then something must be changed. There will be one or more activities you regard as the most important but generate no values or revenue.

There are three main types when it comes to key activities. They are:

  • Production : The first one looks at the delivery process of your products. Businesses tend to do this with a high number and high quality at the same time.
  • Problem solving : Do you work with consultancies and other service organizations to bring about the best solutions to solve the problems of each customer segment.
  • Platform or Network : They can be networks or software platforms as long as they can work as a platform.

Many businesses go in the wrong direction while listing all the activities that are done by their businesses. Prevent yourself from that by only entering activities that are main to delivering your value proposition.

Key Partnerships

Key partners building block is quite similar to the previous one. You also list the activities which you view as important. However, they are not done on your own but by working with suppliers and partners to make the business model work.

Take Spotify as an example. The company let updating its platform be the key activity. Nonetheless, Spotify cannot produce the music it provides. Therefore, the company needs to list its deals with record labels and publishing houses in the Key partners building block.

software business model sample

If you are wondering why your business should create a partnership, it is because of economies of scale. What’s more, that can help prevent yourself from risk and uncertainty which leads to crisis. Finally, it brings about the acquisition of resources or activities.

Cost structures

The last building block is Cost Structure in which you map key activities to costs.

One thing to keep in mind is making sure all the costs you list are related to your value proposition.

Additionally, Cost structure should be the last building block you fill in. Therefore, after defining your Key Resources, Key Activities, and Key Partnerships, it is necessary to find out the most important costs as well as the most expensive ones.

Why might you want to create a business model canvas?

You might wonder why creating a business model canvas is crucial and how you will benefit from this canvas when starting your own business. There are various answers to your questions but here are the three most noteworthy:

Roadmapping rapidly

A canvas can be handled in a short time, even with the sticky-notes. You do not need to make every effort to put down everything about your product plan, you can simply list out the features, the necessary content.

However, it will be useless if you just stop at these highlights. The next step is to convert the canvas into your roadmap with your product’s details.

Time saving

Before the business model canvas appeared, people who wanted to get their product to market were familiar with the old structure of citing a business model. On the other hand, the issue with this traditional method was that it was hardly accurate by the time the writer completed the draft.

It is also accessible to explain this situation as this model consisted of important elements such as detailed cost estimates, revenue projections going years into the future, and permanent plans for growing the staff, which are all changeable in just a short period of time.

When it comes to products, these plans are considered MRD (Market Requirements Document). This particular paper is lengthy, intricate, and can barely be true as soon as it’s finished.

Luckily, a canvas is here to help you overcome these obstacles. You can quickly combine a canvas that is capable of showing your strategy and your brand’s current status. And in case there are changes, you will need less effort and time to edit.

Easy to swivel

It is so evident that the market is at no time stable. There are always new things adopted and some old ones have to be eliminated, which require you to be ready for any changes , to swivel due to reality.

Therefore, a canvas should be your priority. It is so sharp and top-level that you can easily adjust if needed rather than MRD or traditional business plans . With the length of just one page, a business model canvas plays a vital role in your brand guiding strategy.

Moreover, you can instantaneously and rapidly update your approach or any features due to your market observation.

10 examples of business model canvas in different industries

Example #1: a lemonade stand.

software business model sample

A lemonade stand can be a great example of your initial approach to a business model canvas. It is likely the most understandable model for one’s first experience with starting a business.

In this model canvas, you can clarify your customer segments, possibly your neighbors, walkers, family, and friends. However, they are not limited to your customers; they can be your partners, suppliers, resources as well.

Therefore, you need to write down the proper ways of reaching customers in the Channels building block. And Facebook groups, booths, or stands are considered the most suitable choice for a lemonade stand. Turning to revenue streams, it is quite simple with a lemonade stand because they mostly come from a finite price for a drink.

Example #2: Skype

software business model sample

As can be seen, Skype provides users with 2 value propositions: free Internet & Video calling and cheap calls to phones. These propositions correspondingly help Skype attract 2 customer segments: free users and users who want to call phones.

In Skype’s model business, there is a majority of users who make free calls via the Internet, and just 10% of users choosing the prepaid service. We can explain this business model by looking at key partnerships, key activities, and key resource building blocks.

Key partnerships, key activities, and key resources are the three elements that allow Skype to offer low-priced and free calls. Unlike other traditional telecoms providers, Skype does not have to build and manage a huge and complicated infrastructure to work effectively, Skype just relies on backend software and the servers hosting user accounts, which is called the freemium business model.

Example #3: Gillette

software business model sample

In Gillette’s case, their business model follows the business model pattern called “Bait & Hook”, the pattern that is followed by many SaaS (Software as a Service) companies.

Gillette gives their customers a cheap or even free of charge original offer, a razor handle. This offer is the bait that enables customers to experience and get acquainted with Gillette’s products and makes them more likely to buy related products, the blades.

In the above diagram, the size of the arrow is in direct proportion with the revenues generated. All Gillette’s revenues are from just one customer segment, which mainly depends on Frequent Blade Replacements.

Pay attention to the left corner of Gellettes Business Model Canvas, it will demonstrate the consistent relation between all major costs and the value proposition. For instance, Gillette strengthens its brand by spending money on marketing and assures the brand’s uniqueness in the blade and handles technology with R&D costs.

Example #4: Google

software business model sample

When it comes to business model canvas, we will not want to miss the outstanding example of Google.

Google’s business model is many-sided, which means their customer segments are not exclusive. Google has separate groups of customers, but these groups are related to each other.

In Google’s model, it is a platform whose customers are search users and advertisers. If there are no search users, there will not be advertisers and vice versa, search users will not be able to freely take advantage of this platform without advertisers.

As we can see, Google displays ads in search results or on web pages which costs advertisers an amount of money. With this money, content creators are paid and search users can browse free of charge.

Google’s kind of business model creates a network, which means the ads it displays to web users are directly proportional to advertisers and so as the content owners.

In terms of key resources, Google.com, Adsense (for content owners), and Adwords (for advertisers) build up Google’s search platform. Hence, managing the existing platform and its framework must be Google’s key strategic activities.

It is clear that one of their key partners is content owners, without whom there would not be search users or advertisers. Another partner of Google is OEMs (Original Equipment Manufacturers).

OEMs (Original Equipment Manufacturers) provide Google with mobile handsets that allow this huge platform to operate its system at no charge. And to give back, when users of these handsets surf the Internet for information or entertainment or whatever, they choose Google’s platform by default. This process will consequently lead more web users to the ecosystem, meaning that more revenue will be raised.

Example #5: Airbnb

software business model sample

Another example is Airbnb, a widely-known online marketplace that lets people rent out their properties or spare rooms to guests and then Airbnb takes 3% commission of every booking from hosts, and between 6% and 12% from guests. And now, it is time to figure out its business model canvas.

It is clear that Airbnb has 2 separate customer segments: guests and hosts, but they can be divided into other small categories with particular characteristics. Airbnb’s value propositions also follow the same pattern: they give their customers more affordable choices than traditional hotels and provide customers with deluxe or fancy services.

About Airbnb’s revenue, as mentioned above, their main revenue is from the fees that they charge both guests and hosts.

Example #6: Uber

software business model sample

Our next business model canvas is Uber, the world’s largest taxi company, which owns no vehicles. Uber is an excellent illustration of a business model canvas as it is an outstanding business with such representative innovation in technology.

As can be seen, Uber’s customer segments include 2 big categories: drivers and riders. In drivers, Uber targets 2 particular groups: unemployed drivers and drivers looking for part-time jobs, which consequently lead to their corresponding methods of approaching customers. It means, for example, to attract unemployed drivers who are likely to live in areas with high unemployment rates, Uber has to use Word of mouth as a channel.

Example #7: LinkedIn

software business model sample

LinkedIn is the online platform that enables you to find the right job or internship, connect and strengthen professional relationships, and also learn the skills you need to succeed in your career. It means LinkedIn provides users with diverse services as shown in the Value propositions building block.

Therefore, in their business model canvas, LinkedIn pointed out 3 big customer segments: recruiters, professionals seeking to network, and marketers.

Turning to LinkedIn’s revenue streams, LinkedIn’s revenues mostly come down to these 3 sources: freemium business model, hiring solutions, and marketing solutions. And as a result, they have to consider developing the platform as the most important activity.

Example #8: Amazon

software business model sample

Amazon’s business model canvas is an example that we should not miss in the e-commerce field. Amazon’s model’s most remarkable element is its key activities, which help Amazon stand out among many competitors.

As we know, time and money are important to every buyer and so is Amazon.

Hence, Amazon’s key activities are quick fulfillment processes, in-time delivery, and shipping systems allowing for Amazon Prime to deliver orders within 1-2 days, and Offshore R&D Center to streamline and improve the efficiency of fulfillment centers and other projects (e.g. Amazon Grab & Go stores) to lower costs.

About Amazon’s customers, there are two main groups that use Amazon’s products and services: business clients and retail clients, which means they have to develop strong and complicated ways of serving their customers.

Example #9: Netflix

software business model sample

Many companies compete against Netflix, such as Amazon Prime Video, Apple TV+, Disney+, HBO, Hulu, Vevo, and Youtube. However, Netflix is still doing well and developing its business worldwide with such a unique and effective business model canvas.

Netflix uses 6 key resources: brand, apps, platform, employees, filmmakers, and prizes, to attract its customers. Recently, Netflix’s content production activity shows its strengths as Netflix series are welcomed by large audiences and are gradually dominating the film market.

Example #10: Tesla

software business model sample

Tesla is a business model that chooses technology as a benefit. As shown in the business model canvas, one of Tesla’s customer segments is the green buyer which directly leads to the corresponding key activities. They have to concentrate on research and development, design, electric power technologies, car manufacturing, and also charge point infrastructure to provide customers with synchronous solutions and services.

If you are about to start a business, make sure that you will not forget about the business model canvas. The business model canvas, which consists of 9 elements will help you determine what is crucial for your business regardless of whether your business is big or small.

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