What Is a Business Model? Types and Hospitality Examples

Key Takeaways

• A business model is the framework that describes how a company creates, delivers, and captures value: what it offers, who it serves, and how it earns revenue.
• The nine building blocks of the Business Model Canvas cover: customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partners, and cost structure.
• Common types of business models include manufacturer, retailer, subscription, freemium, marketplace, franchise, advertising, and razor-and-blade models.
• A business model matters because it is the first thing an investor, lender, or panel will probe, and the first place a good idea shows whether it can pay for itself.

The hotelier this school is named after did more than run hotels successfully. César Ritz worked out who would pay a premium for a night away from home, what those guests were actually buying, how to reach them, and how to make the numbers hold at that price. In business terms, he had identified his target customer, value proposition, marketing approach, and pricing strategy. Every new venture must make the same choices.

Those answers shape almost every major decision that follows, from pricing and marketing to operations, partnerships, and growth. César Ritz Colleges students work through the same questions during Innovation Week, where a raw idea has to become something a panel of entrepreneurs and industry figures would actually fund.

What Is a Business Model?

A business model is the framework that explains how a company creates, delivers, and captures value. It defines what the business offers, who its customers are, how it reaches them, how it earns money, and what costs, resources, and partnerships support the work.

Joan Magretta, a renowned management expert, author, and former strategy editor at the Harvard Business Review, helped popularize the idea that a business model is not just a financial plan. It is the story of how a business works: who the customer is, what they value, and how the company can serve that customer profitably.

On the other hand, Alexander Osterwalder, a Swiss business theorist and entrepreneur, made the concept more practical through the Business Model Canvas, a visual tool that maps the key parts of a business on one page. The canvas helps leaders see how customer segments, value propositions, revenue streams, costs, channels, resources, activities, and partners connect.

Essentially, a business model answers two questions: how does the business create value, and how does it make that value financially sustainable? A model is not the same thing as a good idea. An idea becomes a business only once someone has priced it and matched it to a customer willing to pay.

Key Components of a Business Model

Alexander Osterwalder's Business Model Canvas organizes a business model into nine building blocks: To show how the blocks connect rather than sit side by side, each one below is applied to a single venture: a summer wellness and gastronomy retreat operating out of an underused alpine property during the shoulder season.

1. Customer segments

Customer segments are the groups of people or organizations the business serves.

A company may serve one main customer group or several. The alpine retreat has three: wellness travelers booking for themselves, companies booking offsites, and regional visitors coming for a weekend or a single day. Each group values something different, which affects every block that follows.

2. Value propositions

Value propositions explain why customers choose the business.

This is the product, service, or experience the company offers, but it also includes the benefit behind it. The retreat sells recovery and quiet to the first group, a productive change of setting to the second, and an affordable day out to the third. Three propositions, one property.

3. Channels

Channels are the ways a business reaches customers and delivers its offer.

These may include a physical location, website, app, sales team, distributor, delivery platform, social media, or email. Individual guests can be reached by buying visibility on specialist platforms. Corporate bookings arrive through direct relationships that no platform sells, and day visitors come through the regional tourism board. Three segments, three routes, three very different costs to acquire.

4. Customer relationships

Customer relationships describe how the business attracts, keeps, and supports customers.

Some businesses rely on personal service. Others rely on self-service, automated support, subscriptions, loyalty programs, communities, or account managers. Small cohorts make the relationship the model rather than a support function. A guest who returns twice a year costs almost nothing to reach the second time, which means the economics rest on retention rather than on constant new acquisition.

5. Revenue streams

Revenue streams show how the business earns money from customers.

This may include product sales, subscriptions, licensing, advertising, service fees, commissions, rentals, or usage-based pricing. Each stream does a different job across the calendar. Packaged stays cover the fixed costs, food and beverage raises the value of each booking, and day passes fill midweek capacity that would otherwise sit empty. A stream that adds volume without margin can make a model look healthier than it is.

6. Key resources

Key resources are the assets the business needs to operate.

These may include staff, equipment, technology, data, brand reputation, intellectual property, supplier access, or physical locations. Ask which of these could be replaced by Friday. Another chef could be found and equipment can be bought again. The valley cannot be moved, which is where this business is defensible as opposed to merely well run.

7. Key activities

Key activities are the core operations the business relies on to create and deliver value.

These are the activities the model depends on most. The distinction that matters is between what the team does itself and what it buys in. Most of the retreat’s week goes on two things: designing a program worth the price, and keeping the calendar full. Everything else is a candidate for someone else to handle.

8. Key partners

Key partners are the outside organizations or people the business depends on.

These may include suppliers, manufacturers, delivery providers, technology partners, distributors, or strategic partners. Almost nothing here is owned. The building is leased, the practitioners are freelance, the produce comes from farms down the valley, and guests arrive on a transport link the retreat does not run. That keeps the capital needed to start low and hands real risk to whoever can change terms.

9. Cost structure

Cost structure explains what it costs to run the business model.

This includes fixed costs such as rent and salaries, as well as variable costs such as materials, production, delivery, marketing, and customer support. One number dominates: the lease, owed whether a week sells out or stands empty. It sets the occupancy the business has to hit before food and practitioner fees matter at all, and it is the reason the retreat cannot afford to build around only one of its three segments.

Types of Business Models in Hospitality

Most businesses do not fit neatly into one category. A hotel, restaurant, retailer, or technology company may combine several business models depending on how it earns revenue, reaches customers, and delivers value.

The types below are some of the most common:

Manufacturer

A manufacturer transforms raw materials or components into finished products, then sells those products to businesses or consumers.

In hospitality, a coffee roaster is an example of a manufacturer: it sources green coffee beans, processes them, and supplies hotels, cafés, and restaurants with branded products. Similarly, a company producing artisanal food products, beverages, or hospitality supplies can build a business by selling directly to hospitality providers or through distribution networks.

Retailer

A retailer purchases finished products from manufacturers or creates its own products, then sells them directly to customers at a profit margin.

A hotel boutique operates as a retailer by offering guests curated products such as local crafts, branded merchandise, wellness items, or luxury goods. Restaurants and hospitality brands that sell packaged products, such as signature sauces, coffee blends, or gift collections, also apply this model.

Subscription

A subscription model charges customers a recurring fee for ongoing access to a product, service, or benefit.

Netflix is one of the most recognized examples of this model, where customers pay a recurring fee for ongoing access to entertainment content. In hospitality, the same principle applies through private dining memberships, wellness club subscriptions, and hotel loyalty programs that provide members with ongoing benefits, priority access, or exclusive experiences. This model helps hospitality businesses create predictable revenue while building stronger long-term relationships with guests.

Freemium

A freemium model provides a basic service at no cost while charging users for premium features, additional services, or enhanced visibility.

In hospitality, digital platforms may allow businesses to create free listings while offering paid options for increased visibility, advanced booking tools, or promotional placement. This approach allows platforms to attract a large user base while creating additional revenue streams through premium services.

Marketplace or aggregator

A marketplace connects buyers and sellers, then earns money through commissions, transaction fees, listing fees, or service charges.

Booking.com and Airbnb are major examples in hospitality. They do not own every hotel room or rental property listed on their platforms. Instead, they connect guests with accommodation providers and earn fees from the transaction.

Franchise

A franchise model allows entrepreneurs to operate a business using an established brand name, operating systems, and proven processes.

Franchising is widely used in hospitality, particularly in the hotel industry. Brands such as Marriott and Hilton allow independent owners to operate properties under their names while providing access to brand recognition, reservation systems, marketing support, and operational standards. In return, the brand earns franchise and service fees while expanding its global presence.

Advertising

An advertising model generates revenue by offering free or valuable content, tools, or access while charging businesses to reach a targeted audience.

Within hospitality, this model can be seen in travel platforms, destination websites, and restaurant discovery platforms that offer users information while generating revenue through sponsored placements, promoted listings, or partnerships with hospitality businesses.

Razor-and-blade

A razor-and-blade model sells a core product at a low price, then earns recurring revenue from refills, accessories, or consumables.

Gillette’s razors and blades are the classic example of this model, where the initial product creates ongoing demand for replacement blades. In hospitality, a similar approach can be seen with coffee systems, where a machine creates the need for recurring purchases of branded coffee pods, ingredients, or related supplies. The value comes from building a long-term revenue stream around repeat customer needs.

How to Build a Business Model From an Idea

Rethink. The first stage of the César Ritz Colleges innovation philosophy, Rethink, Refine, Realize, means starting from the problem rather than the offer. What is underused, mispriced, or badly served? Innovation Week teams begin from a real-world challenge set by an industry partner rather than from a product idea, and the ordering is deliberate: a model built around a problem someone already has is far easier to price than a model built around something that simply seemed like a good idea.

Refine. The next stage requires turning the initial idea into a structured business model. Teams use the nine sections of the Business Model Canvas to define elements such as their target customers, value proposition, revenue sources, costs, and key partners. They then test the weakest assumptions through research, prototypes, and feedback from potential customers.

CRCS teams spend two days of Innovation Week at the InArTiS hub developing their projects, and the work continues through coaching sessions, consulting assignments with real companies, and repeated feedback from faculty and industry partners. Each cycle tightens the pricing, clarifies who the customer is, and removes an assumption that would have failed later. More on that process in turning an idea into a working model.

Realize. The final stage tests whether the model is financially and operationally viable. Innovation Week ends with a pitch to a panel of entrepreneurs, industry figures, and academics, and the questions asked there are the questions an investor asks: who pays, how often, what does it cost to serve them, and what happens when a cost line moves. The sequence does not change once you leave the classroom. Only the audience does.

Why Business Models Fail

A model rarely fails because the idea was bad. It fails at a specific point, and the same five points come up whenever an investor, a lender, or a board starts asking questions:

• Customer acquisition costs more than the customer returns, so growth makes the problem larger rather than smaller.

• Revenue depends on a single channel or a single partner, which hands pricing power to someone else.

• The value proposition is real but too small to price, so customers agree it is useful and still will not pay for it.

•  Fixed costs are sized for a level of demand that does not arrive, which is the most common failure in property-heavy businesses.

• The model works at ten customers and breaks at a thousand, because one part of it does not scale.

Business Model vs. Business Plan

Knowing the difference between a business model and a business plan is essential for anyone starting or managing a business. While both are closely related, they serve different purposes and are used at different stages of development.

A business model explains how a business works. It shows how the company creates value, reaches customers, earns revenue, and manages costs. In contrast, a business plan is broader and more detailed. It turns that model into an execution document, including market research, goals, budgets, timelines, staffing, and financial projections. An investor tests the model before the plan. A detailed plan built on a model that does not work is a longer document with the same problem inside it.

Conclusion

César Ritz's question has not changed: who is the customer, what are they really buying, and can it be delivered profitably at the price they will pay? The nine components are how that question gets answered in detail, the common types show the structural options available, and the failure points show where the answer usually breaks. Working through it properly is what allows a manager to make sound decisions about pricing, cost, partnerships, and growth.

Building this kind of strategic thinking requires structured exposure to financial modeling, customer analysis, and competitive positioning. The Bachelor of Science in Hospitality Business Management at the César Ritz Colleges covers business modeling, revenue strategy, and entrepreneurship within a hospitality management context, including two paid global internships that give you direct exposure to how different organizations structure and operate their models.

For professionals moving into more senior roles, the Master of Science in Leadership covers the corporate finance and strategic management capabilities behind assessing and adapting business models at an organizational level.

Frequently Asked Questions (FAQs)

What is the difference between a business model and a revenue model?

A revenue model is one component of a larger business model; it describes the specific mechanism by which the business earns income, whether through subscriptions, commissions, advertising, or direct sales. A business model includes the revenue model but also covers the value proposition, cost structure, customer relationships, and all other elements that determine whether the business is viable.

Can a company have more than one business model?

Yes. Large companies regularly run multiple models simultaneously. Amazon combines retail, marketplace, subscription, and cloud computing revenue within a single organization. Smaller hospitality businesses often layer models too: a restaurant may earn from direct dining, catering contracts, and branded retail products.

What is a digital business model?

A digital business model generates revenue primarily through digital products, platforms, or channels, such as software as a service, online marketplaces, or app-based services. These models typically carry lower marginal costs and faster scaling potential than physical operations, which is why hospitality operators increasingly build them alongside physical ones. Study routes such as applied AI in hospitality business management sit on that shift.

How often should a business model be reviewed or updated?

A business model should be reviewed whenever market conditions, technology, cost structures, or customer behavior shift materially. Many organizations treat it as an annual review item and revisit it again at each major growth stage. A model designed for one competitive environment may not hold up when that environment changes substantially.

Who created the Business Model Canvas?

Alexander Osterwalder and Yves Pigneur created the Business Model Canvas, introduced in their 2010 book "Business Model Generation." The canvas maps the nine core building blocks onto a single visual template, making it the most widely used tool for business model design in both academic and professional settings.

Do you need a business degree to design a business model?

There is no formal requirement, but a business or hospitality management education builds the financial literacy, strategic thinking, and market analysis skills that make a model more rigorous and realistic. Programs that combine academic content with practical experience through internships and live business challenges are particularly effective at developing this capability.