Changing Your Business Model Series — The Lease to The Direct Sales Business Model

In our last newsletter, we covered the Marketplace, Membership, Franchise, and the Shared Assets Business Models.

Today, we’re looking at the Lease, Rent, Referral, and Direct Sales Business Models.

Here’s the list of business model categories we provided at the start of this series that you can reference as you evaluate the models that you might consider changing your business to —

• B2B (Business-to-Business) — where companies sell their solution to other businesses or organizations.

• B2C (Business to Consumer) — companies that sell to individual end consumers and may use retailers or wholesalers to sell to their customers.

• DTC (Direct to Consumer) — companies that sell directly to individual, end consumers.

• B2B2C (Business to Business to Consumer) — companies that sell their solution to other businesses to help those other businesses sell to consumers.

• C2C (Consumer to Consumer) — companies facilitate consumers selling to other consumers.

• B2C2B (Business to Consumer to Business) — companies who sell to the employees of other businesses who then advocate for their employer to buy the original company’s solution.

• B2G (Business to Government, also Business to Public Administration or Business to Public Sector) — companies sell their solution to government entities.

• C2G (Consumer to Government) — companies facilitate consumers directly interacting with a government entity.

Today’s Business Models — Lease, Rent, Referral, & Direct Sales

The Lease Business Model includes businesses that buy assets and sell them to customers by way of a lease which allows the businesses to transfer ownership of the asset to the customers while the customers pay a fee over the lifetime of the lease either equating to all or a portion of the assets market value. Leases tend to take place over a long-term time frame. This model type can fall under the B2B, B2C, DTC, B2B2C, B2C2B, C2C, B2G, & C2G categories.

The Rent Business Model includes businesses that allow customers access or use of their assets for a fee for a set amount of time, usually a short-term time frame. There’s no transfer of ownership. This model can fall under the B2B, B2C, B2B2C, B2C2B, and B2G business model categories.

The Referral Business Model includes businesses that sell a product or service and encourage their customers or affiliates to promote/refer other potential customers to the businesses or to use the businesses’ products or services in exchange for incentives (like commissions from sales resulting from the affiliate’s promotion). This business model type can fall under the B2B, B2C, DTC, B2B2C, B2C2B, C2C, and B2G categories.

The Direct Sales Business Model (also known as the Commission Business Model) includes businesses that sell a product or service but don’t use physical retail locations. Instead, they work with a network of salespeople to sell directly to customers. This model can fall under the B2B, B2C, B2B2C, B2C2B, and B2G categories. 

Mapping The Model: Lease Business Model

If you mapped out the Lease business model, it could look something like the following —

The Lease Business Model

Let’s look into some examples.

Lease Model Example #1

Lease a Bike is a bike leasing company for companies, public employers, and employees. Employers, employees, the self-employed, and freelancers can all benefit from the company’s services. Lease A Bike is a brand of Bike Mobility Services GmbH (aka BMS). They are a joint subsidiary of VWFS (Volkswagen Financial Services), the financial services provider of Volkswagen AG and Pon.Bike in the Netherlands. PON is among the top 5 in the global bike market and manufactures internationally sought-after brands like Gazelle, Kalkhoff, Cannondale, Schwinn, Caloi, Swapfiets, and more. They sell ~3 million bikes and e-bikes a year worldwide. Lease A Bike’s parent company, BMS, is the leading bicycle leasing company in Europe and is available in Germany, the Netherlands, Belgium, Austria, Sweden, & now the USA. BMS’s programmes include Lease a Bike, BusinessBike, Finance a Bike, B2Bike, and movelo Pool Solutions. More than 65,000 companies use their programs, with international corporations and small and medium-sized companies benefiting from them. Those 65,000 companies have more than 4 million employees that use BMS’s bikes. Lease a Bike is able to lease 1 or even 10,000 bikes at a time through their automated portal, and bikes are leased for 3 years generally.

Employers register via Lease a Bike’s registration form. Lease a Bike then does a credit check and — upon successful verification of the employer — provides them with access to the online portal. Businesses define the company policies they want for their bike program within the portal including details like — what is the maximum purchase price for a bike? And how many bikes may be leased per employee? They can then share their registration link with their staff. Each employee that goes through the electronic registration process is approved by the Employer and receives an order code to order their company bike from local specialist dealers. Employees can get a real-time data export from the portal to use for their payroll. Payment for the leased bike works using salary conversion, where employees do not receive part of their contractual and taxable agreed salary from their employer, but rather as a non-cash benefit put towards the use of the bike. When employees register to lease a company bike, they sign a supplementary agreement that’s added to their employment contract that allows their future salary to be reduced by a fixed amount (or a conversion rate) for the term of the use of the bike. Employees can benefit from tax and duty advantages because of this. For example, if an employee wants to lease a £500 e-bike ($544 USD with the All-Around Service & Insurance package) and they have a gross monthly salary of £7000 ($7619.96 USD), their monthly costs would be £16.95 [$18.45 USD]. And, their yearly savings would be £316.76 [$ 344.81 USD]. Or, if they wanted to lease a £2500 e-bike [$2721.41 USD] with a £6500 [$7075.68 USD] monthly salary, their monthly cost would be £51.96 [$ 56.56 USD] and total savings £785.46 [$ 855.02 USD].

Lease a Bike’s use of the Leasing business model for 36-month contractual terms allows them to have sustained and stable revenue from a variety of employers of different sizes, which has surely been a part of how they’ve been able to scale their business. It’s also a great win-win-win (for Lease a Bike, Employers, & Employees) because employers are able to provide their employees with a mode of transportation that employees increasingly love instead of using cars. It also helps employees stay fit, reduces sick days, increases productivity, helps fight climate change and protect the environment, helps companies save on social security contributions and taxes, and helps employees save 40% on e-bikes instead of having to purchase them full-price on their own.

Lease Model Example #2

John Deere is a global leader in the production of agricultural, construction, and forestry equipment and solutions. John Deere also develops drivetrain components, engines for industrial and marine equipment, and generator drives. They’ve been in business for nearly 2 centuries, are the #1 World Leader in Agriculture, Forestry, and Roadbuilding Equipment, have $51.7 billion in Net Sales & Revenue, and are #64 on the Fortune 100 list. We mention these numbers and the amount of time John Deere has been in business to show the direct relationship between the benefits of using the Leasing Business Model to provide products and services and address problems that are essential for human beings to solve in order for our everyday lives to exist as they do. As John Deere shares, they’re committed to innovating on behalf of our (aka the world’s) ever-growing population and investing in efforts that support all communities. Attaching their research and development to continually helping solve some of the world’s biggest problems decade after decade — and leasing out their equipment to their customers who are also helping to improve how we solve those problems — has resulted in them having the lives-long success they’ve had.

Their business also includes John Deere Financial which delivers financing solutions to their customers for equipment and technology, seed, feed, and more. Their Agricultural & Turf business is made up of the Production & Precision Agriculture and Small Agriculture & Turf Operating Segments, and their Construction & Forestry segment includes the Wirtgen roadbuilding business. Overall, the John Deere Financial Services, Power Systems, Intelligent Solutions Group, and Aftermarket & Customer Support that they provide gives them a unique competitive advantage to help their customers year after year get better at solving the world’s biggest challenges that are essential to everyone’s daily life.

Pros of Using the Lease Business Model:

• Businesses make recurring revenue. They’re able to have predictable and steady revenue streams to sustain and grow their businesses. This allows them to continually invest in the improvement of their products and support services.

• Lower barrier to entry for customers. This business model lowers upfront costs to customers who want to use the products these businesses have. This increase in product accessibility means customers can run or start their businesses or projects without the worry of having to buy the potentially very expensive product or equipment outright.

   

• Customer retention is high. The low barrier to entry often leads to companies building strong, long-term relationships with their customers who rely on them to deliver their own product and services.

• Increases brand recognition and awareness. The lower barrier to entry makes it easier for customers to engage with the business and brand. This can cause a business’ market share to grow faster and in a way that might not have occurred otherwise.

• Companies retain the assets they lease. Businesses can re-lease those same products or renew leases to continue receiving recurring revenue from long-time customers.

• Customers have a more flexible experience. Along with lower upfront costs to customers, they don’t have to worry about the logistics of owning assets like the ones leasing businesses provide. They can return the product, swap it for another, or upgrade it at the end of their lease term without having to give that much thought.

• Companies can receive tax benefits. B2B customers to companies using this model can often write off their lease payments as operational expenses. That deduction allows them to reduce their tax liability. B2B customers are able to deduct the full lease payment at the initial time of lease instead of having to spread a full product/equipment purchase over several years. It keeps companies from having to deal with depreciation complexities and accelerates their access to tax benefits.

Con of Using the Lease Business Model:

• The upfront investment is high. Companies have to have the funding to purchase or develop the assets they need in order to lease them.

• Depreciation is a risk. Assets lose value over time, so a business’s profitability can decrease because of that.
  

• Companies leasing assets have to cover maintenance & potential liabilities. The companies using this model are responsible for repair and insurance for all assets under their ownership. This can eat into their margins.

• Customers may be a credit risk. If customers default on their lease payments, it could lead to company losses.

• Profits may be limited per transaction. A company’s reaching profitability might be slowed because it generates revenue over a longer time horizon than a company that operates with outright sales with an immediate whole purchase of an asset.

• Regulatory & compliance requirements can be costly. A business using this model can run into legal and financial requirements that can add further challenges, and therefore further expenses, to operations.

Up next is…

Mapping The Model: Rent Business Model

If you mapped out the Rent business model, it could look something like the following —

The Rent Business Model

Here are a couple of examples of this model.

Rent Model Example #1

Rent The Runway is the pioneer of the ‘Closet in the Cloud’, where they provide a dream closet filled with an infinite selection of designer styles to rent, wear, return, or keep. They offer every trend, color, print — everything someone has wanted to wear from over 750 brands — for a fraction of the cost. Customers can rent outfits for every day or a special occasion, and find pre-loved designer pieces to keep. Their vision is to become the starting point of the circular economy. Rent The Runway has two ways for customers to rent their clothing. First, customers can do one-time Reserve rentals for specific dates for either 4 or 8-day periods. Reserve rentals start at $35/day for an item, include a free backup size in case that’s needed, and free at-home pickup or dropoff at your local UPS. The second way customers can rent pieces is by choosing one of Rent The Runway’s subscription plans that allows them to rent up to 10 items/month.

They have 2 levels of access. There’s the 'Limited Closet Access’ subscription where customers can rent 5 items at a time with 1 shipment per month from a limited collection of styles with retail values up to $350 (priced at $79 for Month 1 + $94/mo to continue afterward). And, there’s the ‘Full Closet Access’ rental subscription plan where customers can access Rent The Runway’s entire collection of designer styles with individual retail values up to $3000 (except for those available through the Reserve rentals offering or in the Rent The Runway Vault). There’s a plan for customers to rent 5 items at a time with 1 shipment per month (priced at $80 for Month 1 + $119/mo to continue), and there’s a plan to rent 10 items at a time with 2 shipments available per month (priced at $87 for Month 1 + $144/mo to continue). When selecting a plan, customers can customize the type of plan they have by selecting the number of shipments they’d like — whether that’s 1, 2, 3, or 4. Items can be rented as long as customers would like with extended rental items included in the monthly allowance for the following months. Item rental pricing starts at $15, free 2-3 day business day delivery is provided, free replacements are provided for a customer’s first 60 days, plans allow people to try before they buy a piece (always at a discount), and Rent The Runway makes sure renters always receive items freshly-pressed. There’s no extra laundry required; the company picks up the clothing when customers are done with them.

Rent Model Example #2

Agiliti is a medical equipment company that helps healthcare organizations access, manage, and maintain equipment for optimal patient outcomes. They rent out high-quality medical equipment spanning critical care, surgical lasers, and specialty beds and surfaces. Some of Agiliti’s main rental items include hospital beds, air mattresses, ventilators, infant care, isolette incubators (called pop tops), and breast pumps. Agiliti’s equipment is usually rented for the short-term with rental periods not surpassing a year, and customers can rent from 1 item up to a fleet of them to handle higher census numbers in peak season. Agiliti picks up and prepares the equipment for upcoming rentals when their customers have finished with them. They also provide Equipment Value Management (EVM) to their customers (like hospitals for example) to help them recover high costs and a lot of time wasted because of miscommunication and equipment supply chain mismanagement. EVM helps Agiliti customers cut millions from their spending by helping them fix their challenge with unnecessary equipment orders because of hoarding, lost, stolen, or broken equipment. Medical professionals don’t have to rely on their broken processes any longer with EVM. EVM integrates with their customers’ Supply Chain, Patient Care, and Clinical Engineering teams so the typically silo-ed groups are brought together with a streamlined process to improve clinical productivity and patient satisfaction.

Pros of Using the Rent Business Model:

• Revenue is predictable. Companies that use this model receive recurring and predictable, steady payments from rental customers that they can use to sustain and grow their businesses.

• The barrier to entry is lower for customers. Rental customers don’t have to worry about high upfront costs to use an asset or product that a company is offering. Making the product more easily accessible increases a company’s market share and, therefore, the demand for their product.

• Increase in brand awareness and recognition. The higher accessibility can lead to a greater spread of word-of-mouth promotion and more successful marketing.

   

• Long-term customer relationships. The continuous short-term rentals can lead to developing long-term relationships with customers. Long-term relationships with customers can provide these companies with the opportunity to get to know their customer base on a deeper level and help them improve their product and customer experience more effectively based on those insights.

• Ownership of the asset. Since a company using this model owns the assets they are renting, they can re-rent out the same product or allow customers to renew their short-term rental for the same product they have in their inventory. They get more efficient use of their assets.

• Scalability increases. Renting out the assets instead of continually having to produce or develop new assets helps improve a company’s ability to scale. They can purchase more of the same asset that they are already renting out or expand their catalogue of assets to rent out and maximize the profitability of each through its use over time.

• Sustainability. This model allows for both environmental and economic sustainability practices. Similar to our example, Rent The Runway, a circular economy is enabled through the Rent model that helps reduce waste and extends the lifespan of products because of their reuse.

• Increase capacity for market adaptability. Businesses with this model are able to respond to changes in their markets more easily. They can change pricing or rental terms to meet the level of demand at different times. This is helpful to combat the dynamics that come from economic shifts.

Cons of Using the Rent Business Model:

• Upfront investment can be high. Companies need to have the initial investment to get the assets they will be renting out to customers. They need to purchase an inventory of assets large enough for them to make their return on their investment back in a timely manner.

• Asset maintenance and management. Since they own the assets, companies are responsible for the ongoing maintenance, repairs, and replacements of their products. This can take away from profits. Dealing with potential damage is always a risk. Also, the continuous dealings with inventory logistics and customer relations will be a large part of your company operations and expenses.

• Depreciation is a risk. Assets lose value over time — and can also be damaged or lost — which can lead to a decrease in a business’s profitability. If the business needs to sell the assets off at some point, they won’t be able to get back what they invested in purchasing the assets because depreciation would have decreased their value and potential selling price.

• Risk of nonpayment. There’s always the risk of customers not making payments which could lead to company losses.

• Legal & liability considerations. With this model, there are legal and liability responsibilities that will continuously need to be addressed. These could involve contracts for rentals, liability waivers, and insurance for the company and the assets it rents to customers.

• Competition. Even though a rental business model may require a high initial investment to start, its industry may not have high barriers to entry to competitors. Because of this, companies will have to be mindful of the fact that there is probably going to be high competition with possible price wars taking place to compete for customer attention.

  Up next is…

Mapping The Model: Referral Business Model

If you mapped out the Referral Business Model, it could look something like the following —

The Referral Business Model

Referral Model Example #1

World of Warcraft is a Massively Multiplayer Online Role-Playing game (MMORPG) for PC created by Blizzard Entertainment, an American video game developer and publisher. In the game, users play as powerful heroes who fight towering monsters, delve into perilous dungeons, defend the world of Azeroth against all threats, and much much more. Blizzard Entertainment published World of Warcraft in 2004 and used a historically, very successful Referral business model to grow its user base. In addition to using the freemium and subscription business models to convert people into users via a frictionless access experience, Blizzard Entertainment integrated a viral referral business model into their company by rewarding players who made referrals and new players referred in with in-game benefits.

Their program is called Recruit A Friend. Players can recruit up to 10 friends to play with them, and players receive rewards for every month a referral stays subscribed. As each one of the player’s recruits adds game time to their account, the player progresses towards a new award. The more friends recruited the easier it is to collect all of the rewards. So one referral Friend playing multiple months of game time is equivalent to multiple recruited Friends playing one month of game time. The rewards include things that enhance the gameplay experience like — a Volatile Self-Driving Toolbox after 1 Month, a Shredderizing Glove after 2, a Sappy Buddy after 3 months, 30 Days of Game Time after 4, a S.C.A.N.N.E.R. Mk3 after 5, and The Rocket Shredder 9001 after 6 months. After the 6th month, recruiters will be awarded 30 days of game time for every 3 months their recruits are subscribed to World of Warcraft (up to a total of 12 months per recruit). After that, there are even more rewards recruiters can win from referring friends to play.

The World of Warcraft subscriptions are as follows — Free to play up to Level 20 (these levels make up the starting adventure called Exile’s Reach where they can experience multiple classes and races); the 1 Month monthly subscription for $14.99/mo; the 3-Month subscription package for $13.99/mo (saving $12/year); the 6-Month Offer for $12.99/mo (saving $24/year); and the 12-Month Offer for $12.99/mo (saving players $24/year). Each increasing level of subscription comes with access to an increasing number of gaming benefits. As of March 14, 2025, Blizzard Entertainment has also released World of Warcraft: The War Within an Epic Edition to the game where players can “descend into the never-before-seen subterranean worlds of Khaz Algar, filled with hidden wonders and lurking perils. Their task is to “deliver justice upon the servants of the Shadow, and investigate the dark motives behind the Harbinger’s machinations in this thrilling first adventure of the Worldsoul Saga”.

Referral Model Example #2

HelloFresh is a meal kit service spanning 18 countries and serving 1 billion meals. They are America’s #1 meal kit and the largest service in the world. They provide customers with pre-portioned recipe ingredients to get home-cooked meals on tables worldwide. HelloFresh also provides Ready Made Meals as a new offering where customers only have to heat and enjoy the meals they order. Their philosophy is to make it easy for everyone to prepare a delicious, home-cooked meal for themselves and their loved ones. Customers can personalize their HelloFresh meal plan subscription by choosing their preferences (Meat & Veggies, Veggies, Family Friendly, Fit & Wholesome, Under 20 Minutes, or Pescatarian). They then can select their plan size based on the number of people who will be served (2,3,4, or 6) and the number of meals desired per week (2-6). Plan pricing varies based on the choices selected. HelloFresh has made great use of the Referral Business Model to convert people into customers. Currently, HelloFresh subscribers can refer their friends to the meal kit service with a $40 discount on their first meal kit box. Once the referred friend signs up with the subscriber’s referral code, a $10 credit is rewarded on the subscriber’s next delivery. Long-term HelloFresh customers have been known to be able to provide up to a week of free meals to a friend they are referring to HelloFresh.

Pros of Using the Referral Business Model:

• Customer acquisition is more cost-effective. Businesses don’t have to pay for or rely as much on only traditional advertising and marketing which involves broadcasting the brand and product to unaware or current customers. They utilize the relationships their customers have with people unaware of their business, brand, or product/service, as well as their customers’ positive experience sharing with the unaware, as the strong attractors for why a person should try the business’s product/service. The opinions or recommendations from friends, family, and colleagues are also called earned media. And, earned media plays a much bigger role in converting people into customers than traditional advertising or marketing. According to Nielson, 83% of consumers completely or somewhat trust word-of-mouth recommendations about products and services from family, colleagues, and friends. They are the highest-ranked trustworthy source that lead to customer conversions.

• Customer loyalty increases. Customer retention and customers engagement with a company is higher with a Referral model than those attracted and acquired through a company’s ads. The trust they have in their friends’ and family’s recommendations cause them to be more open to considering a business’s product or service and more likely to stay with something that seems to work so well for the people they trust. This also leads to long-time customers becoming strong brand ambassadors who can help grow stronger advocacy for your business and enrich the community around your brand.

• Increased market share. If customers are rewarded well enough for their referrals and referees receive a remarkable experience from those invitations, a company using a referral business model can dramatically increase the amount of word-of-mouth promotion it gets from an increasing number of converted customers — which means it can lead to a dramatic increase in the growth of your business from all of the new customers that will come from hearing about peoples’ experience with your product/service.

• Easy to scale. Once this model is in place, it can continue without excessive effort from your business. So, it can be easier to scale the model, your incentive programs within it, and your brand experience to cater to your growing customer base.

Cons of Using the Referral Business Model:

• Setup & management costs need to be considered. Work will need to be put into designing how the referral model will be built, incentives, and execution of the model. It may require creating systems to monitor and track referrals, design and create incentives, and distribute those incentives to customers. The tools needed to operate this model, so that it can scale efficiently, will need to be acquired and updated as needed and the cost attached to providing the incentives will need to be accounted for.

• Large dependency on customers. With this model, businesses rely a lot on their customers being active in referring the business’ product or service to people. If people aren’t as active in making referrals as your business needs them to be (or there are issues with the value your incentives have to your customers), it will render your referral business model ineffective.

• Competitors. If several competitors in your market are offering the same type of referral programs for customers, it could make your model ineffective and unattractive to potential customers. It will also create a comparison competition in the minds of customers who will then require higher value incentives more and more often to compete for their word-of-mouth promo.

• Risk of fraud. Companies with this model will need to look out for fraudulent behavior. There may be people who try to make multiple accounts with your company to try and win more rewards when you may only allow one account per person. Some people may try to use fake referrals, or referral codes, to trick your company into giving them referral rewards. Resources will need to be invested in managing this.

Mapping The Model: Direct Sales Business Model

If you mapped out the Direct Sales Business Model, it could look something like the following —

The Direct Sales Business Model

Direct Sales Model Example #1

Scentsy is an award-winning fragrance company that delivers amazing fragrance experiences to its customers. Their goal is to fill people’s lives with fragrance, and their products include their flagship scented wax and wax warmers, diffusers and oils, air purifiers, fan diffusers and pods, body products, cleaning products, kids products, laundry, and unplugged fragrance products. They sell their products through a family of hundreds and thousands of Scentsy Consultants they’ve built since their start in 2004 and are the Official Home Fragrance of Walt Disney World Resort. They also have licensed partnerships with several recognized brands like the NFL and NHL. Scentsy has won many awards including being #22 on Global One Hundred’s 2024 DSN (Direct Selling News) Global Top 100.

Scentsy’s Consultants run independent businesses selling Scentsy’s products with the support and resources of the direct selling company. Scentsy provides them with tools, training, inventory management, an online workstation, and a personal website where they can take orders, track customers, grow a team, and more. Scentsy Consultants invite hosts to gather friends together to share Scentsy in their homes, a coffee shop, on an online Scentsy party page, in a Facebook event, or even a quick-and-easy basket party. Hosts connect their Consultants with their friends and family so they can shop Scentsy products. Hosts can earn rewards (like free or half-priced Scentsy products) based on the total sales made from the host’s party. At these parties, the Consultant will set up a small display of products so everyone can check them out. When the guests arrive, the Consultant will give a short demo of all of the products, answer any questions about them, and pass around Scentsy testers so people can experience Scentsy fragrances and pick their favorites. Before guests leave, the Consultant will invite them to place an order and will help tally up the Host’s Rewards so they can then redeem them.

Direct Sales Model Example #2

Mary Kay is a multi-level marketing company that has sold top-quality cosmetics and customized advanced skincare for over 60 years. They sell sunscreens, mascaras, bronzer, highlighter, brow kits, face oils, cleansers, scrubs, toners, and moisturizers for customers’ skin care routines. Mary Kay sells its products through Independent Beauty Consultants. All Mary Kay Independent Beauty Consultants are independent business owners. Commissions are paid for promoting the retail sale of Mary Kay products, and Beauty Consultants make 50% profit on everything they sell. Consultants get ongoing customer support, access to business resources, and digital marketing resources that help them utilize the brand for business success. Consultants meet one-on-one, organize in-person, virtual, or hybrid parties, and use online means (like their apps or consultant websites) to sell Mary Kay directly to customers.

Pros of Using the Direct Sales Business Model:

• Lower barrier to entry for the business. Companies using this model don’t rely as much on intermediaries, like wholesalers and distributors, so logistics that might add friction to their operations in a traditional Retail model would not be as big of a concern here.

• Higher profit potential. Their profit margin can be higher since they don’t have to pay for the services of intermediaries or the logistics that come with positioning their products on retailer shelves.

• Direct customer relationships. The close relationship that sellers have with customers or develop from one-on-one interaction with customers can lead to strong, and long-term relationships with them. This can also lead to an increase in market share because of how strong word-of-mouth promotion is as an attractor to new and potentially more invested (and loyal) customers who trust the referrals of people close to them who have had positive experiences with your product/service.

• Brand management. Businesses that use this model are able to better manage and control how their brand is used so they can provide a consistent experience to all customers.

• An immediate customer feedback loop. Direct selling allows sellers to get immediate, real-time feedback from customers regarding their preferences and thoughts about the product or service being provided. Companies can change their product, service, or brand experience more quickly based on those immediate insights.

Cons of Using the Direct Sales Business Model:

• Revenue depends on the sales reps. The revenue a company makes will be based on the amount of successful sales made by reps. If sales reps are not active or not skillful enough in making sales, it could hurt the business and render the model ineffective.

• Costs more to acquire a customer. More resources will have to be invested in attracting customers to the business’s product/service without the use of established distribution channels. The company will also need to continually invest in training its reps to have the sales skills necessary to create revenue for the company and in advertising campaigns to help create greater brand recognition and awareness.

• Workforce scalability. This type of model requires a company to increase the amount of reps they have selling their products/services significantly in order to scale their business, which can be costly and time-consuming. It can take a lot more effort for a business to grow versus a business that operates with an e-commerce model for example.

• A lot of logistics are managed in-house. Companies have to be prepared to handle management of, costs, and challenges with inventory, shipping logistics, and customer service all in-house as they navigate their way through growth with higher demand for their offering and hiring, training, and managing relationships with more consultants to address demand.

• Compliance challenges. Following all the regulations and compliance needed to operate a direct sales company can be costly. A business with this type of model will need to be mindful of required licenses, product certification, labeling compliance, tax compliance, and consumer protection laws. They will also have to manage the regulatory and compliance requirements of other countries if they expand internationally.

Key Notes About The Lease, Rent, Referral, Direct Sales Models

The models we discussed today focused on creating strong, close relationships with customers and developing them into long-term mutually beneficial ones. The second half of today’s models also focused on how a customer’s relationships with other people, like family and friends, can be a prime driver for company growth. We also reviewed how the strongest tool for converting unaware customers into brand advocates is through word-of-mouth promotion of your product or service.

Would changing your business model to a Lease or Rental model — or adding a lease or rental model to your company — help you create more predictable revenue from the more efficient use of your products? Would changing your model to either of these help you create a win-win scenario for you and your customers where your business is able to have a more long-term relationship with your customers and your customers can have less of a barrier to entry to what they are trying to accomplish by using your assets?

Is there a way to make your offering more attractive to current and potential customers by putting a referral business model in place? What incentives can you create that would be valuable enough to customers to help them increase your market share? And valuable enough to potential customers that they would consider becoming a permanent customer?

Would it make sense to change to or add a direct sales model to your business to develop stronger and closer one-on-one relationships with customers? Could you use direct selling and the strong word-of-mouth promotion between your customers and their friends family, and colleagues as a tool for connecting with the right target customers for growing your business?

Next Steps

We will continue to look at examples of business model categories and the types we covered in our first newsletter over the next several newsletters to help you with your thought process around which business model may be a good fit for your business case.

If you’d like LUSID to help you work through your business model change and strategize around which business model is most appropriate for your company vision, you can set up a free call with us here. We’re excited to learn more about you and your company!

Feel free to reach out with any questions, comments, or additional thoughts you may have at [email protected]. We love connecting with visionary Founders, CEOs, and Leadership teams working on impactful ventures.

Let’s Make Your Vision Your Reality.    

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