Module 5: Business Models &
Monetization
1. Different Types of Business Models
A business model explains how a company creates, delivers, and captures
value. Startups choose a model based on their product, market, and revenue goals.
Common Business Models with Real-Life Examples:
Business Description Example
Model
Users pay a recurring fee Netflix – Monthly subscription
Subscription
(monthly/yearly) for access for streaming movies and
Model
to a product/service. shows.
Freemium Basic service is free; users Spotify – Free music with ads,
Model pay for premium features. premium ad-free subscription
available.
Marketplace Platform connects buyers Uber – Connects drivers and
Model and sellers, earns via riders, takes a commission per
commission or fees. ride.
Advertising Revenue comes from ads Facebook – Free platform,
Model shown to users. earns from targeted ads.
On-Demand / Provides services/products Airbnb – Charges service fees
Service Model as needed; charges per use. on every booking.
Product Sales Revenue from selling Amazon – Sells products online
/ E-commerce physical or digital products and earns profit per sale.
directly.
Licensing Users pay to use your Microsoft Office – Licensed
Model product/IP. software for businesses and
individuals
2. How to Decide Pricing
Pricing is critical because it affects revenue, growth, and market
adoption. Key methods to decide pricing:
1. Cost-Plus Pricing
• Add a margin on top of production cost.
• Example: Eco-friendly edible cutlery — if the cost per
piece is ₹5 and you add ₹2 margin, price = ₹7 per piece.
2. Value-Based Pricing
• Price based on perceived value to the customer, not cost.
• Example: Uber surge pricing – passengers pay more
during peak demand because of convenience.
3. Competitive Pricing
• Price your product in line with competitors.
• Example: Netflix subscription is priced similarly to
Amazon Prime Video to remain competitive.
4. Penetration Pricing
• Set a low price initially to attract users, then increase
later.
• Example: Spotify initially offered free trials to get users
hooked before converting them to premium.
5. Premium / Skimming Pricing
• Start with high price targeting early adopters, then reduce
over time.
• Example: Apple iPhones launch at high prices for tech
enthusiasts, later prices drop for mass market.
3. Unit Economics Basics
Unit economics refers to the revenue and costs associated with a single unit of
product or service. It helps measure if a business is profitable at scale.
Key Terms:
• CAC (Customer Acquisition Cost): Cost to acquire one customer.
o Example: If marketing ₹5000 brings 50 customers, CAC = ₹100 per
customer.
• LTV (Customer Lifetime Value): Total revenue from a customer during
their lifetime.
o Example: If a Netflix user pays ₹500/month for 2 years, LTV = ₹500
× 24 = ₹12,000.
• Contribution Margin: Revenue per unit minus variable costs.
o Example: Selling an edible cutlery at ₹7 with production cost ₹5 →
contribution margin = ₹2.
Rule of Thumb:
LTV should be greater than CAC for a sustainable business.
4. Key Takeaways
1. Choosing the right business model depends on product type, market, and
revenue goals.
2. Pricing strategy must balance cost, competition, and customer value.
3. Unit economics helps ensure the startup can scale profitably.
4. Real-life examples like Netflix, Uber, Airbnb, Spotify, and Apple show
how models and pricing work in practice.