When you think about starting a business, one of the first decisions is how to structure it for revenue, delivery, and customer engagement. Should you open a physical store? Sell through an online shop? Offer subscriptions to generate recurring income? Each model has its own pros and cons, and not every approach suits every type of product or audience. Understanding these differences can make or break your venture’s long-term success. In this guide, part of the OCEAN Business Guides series, we’ll explain a few of the more common business models.
What is a Business Model?
A business model outlines how you plan to make money and deliver value to customers. It is the blueprint that shows how your venture operates, from getting supplies and creating offerings to pricing and distribution. Think of it as the big picture that explains who you sell to, how you connect with them, and how revenue flows back to you. Without a clear model, you risk confusion in daily tasks, uncertain financial projections, and mismatched objectives within your team.
In broad strokes, a business model covers:
- What product or service you provide.
- Who your target customers are.
- The channels you use to reach them.
- The cost structure, including overhead and production.
- The way you charge or earn money, such as per-transaction, monthly fees, or ongoing subscriptions.
This can take different forms—like subscription packages for monthly deliveries, a simple e-commerce shop that sells individual products, or a physical retail store. Each model’s viability depends on your market, your resources, and what your customers expect.
Subscription Model Explained
Overview
The subscription model revolves around recurring charges rather than one-time purchases. Instead of paying for a product once, customers pay a regular fee—monthly, quarterly, or yearly—to use or receive ongoing goods or services. This approach appears in many sectors, from streaming services like Netflix to curated monthly box deliveries.
Common Examples
- Software as a Service (SaaS): Customers pay a monthly or annual fee to access online tools like project management apps or design platforms.
- Product Subscriptions: Companies deliver physical items regularly, such as meal kits or beauty product boxes.
- Membership Sites: People pay recurring dues for access to specialized content, courses, or community features.
Pros
- Predictable recurring revenue that makes budgeting easier.
- Strong relationships with customers who become used to your service.
- Better forecasting of inventory or staffing needs.
Cons
- High churn risk if customers do not keep seeing the value.
- Requires ongoing content, product updates, or new features to maintain interest.
- Some items or markets might not naturally fit a subscription model.
E-Commerce Model Explained
Overview
E-commerce refers to selling products or services online, typically through a dedicated website or a platform like Amazon, Etsy, or Shopify. Transactions happen through digital channels, letting businesses reach customers almost anywhere.
Variations
- Online Retail Stores: Selling physical goods that you ship to buyers.
- Digital Downloads: Selling e-books, music, templates, or other intangible items.
- Dropshipping: Partnering with suppliers who handle storage and shipping, so you do not keep inventory in-house.
Pros
- Lower overhead than physical stores.
- Global reach, letting you serve customers beyond your immediate region.
- Detailed analytics to track buyer behavior.
Cons
- Competitive, with many online sellers fighting for attention.
- Shipping and returns can be logistically complex and cost-sensitive.
- Trust can be a barrier if you are new, requiring strong social proof or marketing to stand out.
Brick and Mortar Model Explained
Overview
A brick and mortar store is a traditional physical location where customers visit in person. Think local boutiques, restaurants, or big-box retailers. Many established businesses use this model, though some also integrate e-commerce or other digital channels.
Benefits
- Personal engagement: Face-to-face interaction can build loyalty.
- Tangible experience: Shoppers can see, touch, or try products before buying.
- Strong local presence: Good for community-based marketing.
Drawbacks
- High overhead costs: Rent, utilities, staffing, and more.
- Limited geographic reach: Usually draws customers from a certain radius.
- Requires consistent foot traffic: If your location is out of the way, you may struggle unless you do big promotions.
Other Common Business Models
Beyond those three, many others exist, each with its own structure:
- Franchise: Licensing a proven brand and process, like a fast-food chain.
- Freemium: Offering a free basic version and charging for premium features (common in software).
- Marketplace: Bringing together buyers and sellers—like Airbnb or eBay.
- Consulting / Freelance: Selling expertise by the project or hourly.
- Agency: Handling tasks (like marketing or design) for multiple clients.
This variety means you can adapt or combine elements from multiple models to create something that fits your unique vision.
Pros and Cons of Each Model
Subscription
Pros: Recurring revenue, stable forecasting, strong brand loyalty.
Cons: Might struggle with churn, depends on continuous engagement.
E-Commerce
Pros: Broad market reach, flexible overhead, easy to start with minimal physical presence.
Cons: High competition, shipping issues, possible return complexities.
Brick & Mortar
Pros: Personal connection, in-person experience, local brand identity.
Cons: Potentially large rent or real estate cost, less flexible if location proves weak.
Other Models
Freemium: Great for quick user adoption, but can be hard to convert free users to paid.
Franchise: Benefits from brand recognition, but you pay fees and follow strict franchise rules.
Consulting: Low overhead, but limited by your personal bandwidth unless you scale into an agency.
Factors to Consider When Choosing a Model
Product or Service Nature
Do you sell a physical item that customers might want to touch, or do you offer a digital tool that can be delivered instantly? The nature of what you sell shapes whether a store, e-commerce, or subscription approach works best.
Customer Preferences
Check how your target audience likes to shop. If they are older or prefer in-person experiences, a physical location might help. Younger or tech-savvy shoppers might want online convenience or subscription-based options.
Startup Capital and Risk Tolerance
Some models, like brick and mortar, usually need more upfront capital for rent and inventory. E-commerce can cost less to start, though you might face heavy online competition. Subscription often calls for investing in recurring product updates or content.
Time to Revenue
If you need income fast, you might prefer e-commerce or a small local shop. Subscription revenue can take time to build. A business that invests heavily in a store might face months of set-up before the first sale.
Combining or Adapting Multiple Models
Businesses do not have to pick only one. Many mix approaches:
- Brick & Click: A physical store plus an online channel.
- Subscription Add-On: A small retailer might offer a monthly membership for special perks or curated products.
- Freemium with E-Commerce Upsell: A software platform might be free, but advanced features or physical merchandise come at a cost.
Think about whether merging models helps or complicates your operations. For instance, a local store that also runs an e-commerce site can broaden reach but must handle inventory sync, shipping, and multiple marketing channels.
Real-World Examples and Lessons
Subscription Success: Dollar Shave Club
Dollar Shave Club launched with a monthly razor subscription, targeting people tired of overpriced blades. Their comedic ads and direct-to-door convenience made them a hit. The lesson is that a subscription approach can thrive if it addresses a real pain point (like the high cost of razor refills) and adds humor or brand personality.
E-Commerce Star: Gymshark
Gymshark, known for fitness apparel, started online. They used influencer marketing on social media to generate buzz among gym enthusiasts. By focusing on a niche (young fitness fans wanting stylish gear) and selling only online at first, they grew quickly. The takeaway is that e-commerce can create major brand loyalty if the product hits a niche interest and the marketing resonates.
Brick & Mortar Champion: Trader Joe’s
Trader Joe’s, a quirky grocery chain, invests in a fun in-store experience. They do not rely on an online shop. They bank on brand personality, curated product lines, and local event vibes. If your business model relies on personal interaction and curated experiences, a well-located physical store can be a strong advantage.
Choosing a Model That Fits Your Niche
Let us say you want to start a craft chocolate brand. If your brand story revolves around local ingredients and personal connections with farmers, a physical store might highlight the sensory experience of tasting samples. Or you might adopt e-commerce to ship boxes of curated chocolate to fans worldwide. If your line includes monthly chocolate subscription boxes, you blend subscription with e-commerce, letting fans get fresh flavors each month. Each approach can work, depending on your brand story, your capital, and your audience’s preferences.
How to Validate Your Chosen Model
Never assume your model is perfect. Do small tests:
- Pop-Up Shops: If you consider going brick and mortar, open a pop-up for a few months. Measure foot traffic and sales.
- Pilot Subscription: Offer a small group of early adopters a monthly plan to see if they stay engaged.
- Online Pre-Orders: If e-commerce is your plan, set up a minimal site or landing page to gauge interest and gather emails before investing in full stock.
Gathering real data helps confirm that your approach works. If it does not, pivot quickly. You might discover you need a hybrid approach or must refocus your product line to a narrower set of customers.
Financing and Revenue Streams
Subscription: Recurring Revenue
Investors like the predictability of subscription revenue. However, you might face heavy churn, so you need marketing budgets to replace any cancellations.
E-Commerce: Transaction-Based
You earn money per sale, which can spike around holidays or promotions. You might also add upsells or cross-sells. The challenge is consistent marketing to drive traffic.
Brick & Mortar: In-Person Transactions
If you have a steady local presence, you can benefit from daily foot traffic. But watch out for high rent, staffing costs, or slow foot traffic if your location is less than ideal.
Whichever model you choose, plan your finances to handle slow months or marketing experiments. Factor in how quickly you need to break even.
Operational and Marketing Implications
Different models require different day-to-day operations and marketing techniques:
- Subscription: Ongoing product updates, shipping cycles, or content creation. Key marketing channels might be email nurtures to keep engagement high.
- E-Commerce: Inventory management, shipping logistics, and return handling. Marketing might revolve around SEO, social ads, or influencer partnerships.
- Brick & Mortar: Location scouting, in-store merchandising, local events or flyers. Word-of-mouth is powerful for local shops, but you can also run targeted ads on local channels.
Make sure your chosen approach matches your skill set or the skill set you can hire. If you are clueless about shipping logistics, you might face a tough learning curve in e-commerce, or you might outsource it to a fulfillment service.
Adapting to Changing Markets
Markets evolve, sometimes quickly. E-commerce soared during certain periods while foot traffic at physical stores dropped, then adjusted. Subscriptions can become oversaturated if every brand tries to do a monthly box. Stay aware of consumer trends, tech shifts, and competitor moves. If needed, you can pivot—like adding a small subscription arm to an existing e-commerce site or building a physical pop-up to complement your digital presence. The best entrepreneurs see these signals early and adapt.
Key Takeaways and Next Steps
- Know Your Product and Audience: Not every approach fits every offering or demographic.
- Confirm Demand: A pilot or test can reveal if your chosen model resonates.
- Plan Finances: Each model has distinct cost structures and revenue patterns.
- Embrace Possible Combinations: Hybrid setups can expand your reach while minimizing risk.
- Stay Flexible: Markets change. Keep an eye on data, remain open to modifying or blending models as needed.
When examining business models explained: subscription, e-commerce, brick & mortar, etc, you discover each has distinct benefits and challenges. A subscription approach might give you recurring revenue but requires you to continuously engage subscribers. E-commerce gives global reach with lower overhead, yet you face stiff competition online. Brick and mortar can build local loyalty but demands rent and location-based marketing. No single approach is “best” across all industries or situations.
Ultimately, think about your product, your customers’ shopping habits, and your resources before settling on a model. If your brand thrives on personal experiences, a physical shop might be key. If you want scale and convenience, e-commerce might be the way forward. If you see an ongoing need for your item or service, subscription can yield stable revenue. You can even blend them—like running a local store with an online extension, or combining e-commerce with a monthly membership to add value for customers.
With your model chosen, be ready to pivot or refine if real-world data suggests a shift. Remember, the business environment is never static. Adapting to feedback and market changes can keep you competitive, whether you run a tiny local boutique or a growing online platform. By taking the time to pick and shape your business model carefully, you lay a strong foundation for your company’s long-term success.