Dictionary / How companies make money
What Is a Business Model?
A business model is how a company makes money: what it sells, who pays for it, and why they keep paying. It is the first thing to understand before buying any stock.
A business model in one sentence
A good test: can you finish the sentence "This company makes money by..."? Netflix makes money by charging a monthly fee for streaming. Google makes money mostly by showing ads next to search results. Every Stooocks company page starts with exactly this.
Common business models
- Selling products: make something and sell it, like cars or phones.
- Subscriptions: customers pay every month, like streaming or software.
- Advertising: the product is free; advertisers pay.
- Marketplaces: take a cut of each sale between buyers and sellers.
- Licensing: others pay to use your designs or brand.
Why the model matters
Two companies with the same revenue can be worth very different amounts. Subscription revenue that repeats every month is usually worth more than one-time sales. A model that is hard to copy has an economic moat.
See it in real companies
Open a company to see what it sells and how it makes money.
Related terms
RevenueAll the money a company takes in from sales.
Economic moatWhat protects a company from competitors.
Profit marginHow many cents of profit from each dollar of sales.
Economies of scaleGetting cheaper per unit as you get bigger.
Total addressable marketHow big the market could ever get.
Revenue vs profitMoney coming in versus money left over.