Lesson 7 of 11 12 min
Business Models
Subscriptions, marketplaces, advertising, licensing, and more.
Written by Mateo LermaLast reviewed 2 sourcesEditorial standards
All lessons in Understanding Businesses
Step 1: The lesson
What is a business model?
A business model is the answer to "How does this company make money?" Two companies can sell similar things with completely different models.
Some patterns show up everywhere:
- Subscription: customers pay regularly for ongoing access. Recurring revenue is predictable.
- Marketplace: connects buyers and sellers and takes a cut of each transaction.
- Advertising: the product is free to users; advertisers pay to reach them.
- Freemium: a free basic version, with paid upgrades.
- Retail / resale: buy goods and sell them for more.
- Razor and blades: sell the main product cheaply and earn on refills or add-ons.
- Licensing and franchising: let others use your brand, content, or system for a fee.
"If it's free, you might be the product"
When a service is free, ask who's paying. With advertising models, your attention and data are often what's being sold.
Step 2: See it
Common business models
Subscription businesses earn recurring payments and must keep customers. Marketplaces earn a cut of each transaction and need both buyers and sellers. Advertising businesses earn from advertisers and need large audiences. Razor-and-blades businesses earn on refills and depend on repeat purchases.
| Who pays | Key challenge | |
|---|---|---|
| Subscription | Customers, every month or year | Keeping customers from canceling |
| Marketplace | A cut of each sale | Attracting both buyers and sellers |
| Advertising | Advertisers | Building a huge, engaged audience |
| Freemium | The few who upgrade | Converting free users to paid |
| Razor and blades | Buyers of refills and add-ons | Keeping customers buying refills |
Step 3: Real-world example
Three ways to sell music
- Subscription streaming: listeners pay a monthly fee for access to everything.
- Ad-supported free tier: listeners pay nothing; advertisers pay to play ads between songs.
- Digital downloads: listeners buy individual songs or albums, once.
Same songs. Different models mean different customers, different risks, and different numbers to watch — cancellations for subscriptions, audience size for ads, and sales volume for downloads.
Step 4: Knowledge check
Quiz: Business Models (3 questions)
Answer each question, then check your answer to see the explanation. Retake it as many times as you like.
Question 1 of 3
Step 5: Summary
Summary: Business Models
A business model explains how a company makes money. Common models include subscriptions, marketplaces, advertising, freemium, retail, razor-and-blades, and licensing. The same product can use different models, each with its own customers, risks, and key numbers.
Step 6: What you should remember
Key takeaways: Business Models
- Business model = how a company makes money.
- Subscriptions → watch cancellations. Marketplaces → need both sides.
- Advertising → you're the audience being sold.
- Same product, different model, different risks.
Key terms in this lesson
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Sources and further reading
Rules, rates, and official figures in this lesson are based on these sources. People and numbers in examples are hypothetical.
- 1.Plan your business (opens in a new tab)
U.S. Small Business Administration · sba.gov
- 2.How to Read a 10-K/10-Q (opens in a new tab)
Investor.gov (U.S. Securities and Exchange Commission) · investor.gov
Cite this lesson
Financial Literacy Club. (2026, September). Business models. https://learnwithflc.org/courses/understanding-businesses/business-models
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