Starbucks doesn’t require an introduction. It is the largest coffeehouse chain operating in more than 70 countries of the world. Founded in 1971 by three friends who met at the University of San Francisco, Starbucks was originally launched to sell high-quality coffee beans. However, today the company brews and sells premium quality hot and cold drinks, whole-bean coffee, beverages, snacks in over 30,000 locations over the world.

Ever wondered how much and how does this world’s largest coffeehouse chain make money? Yes? Then let’s delve deep into how it makes money, how much it makes and what is the business model behind its success. So, shall we? But before that, let’s have a quick look at its history to understand more about its business model.

Short History of Starbucks

It’s no wonder that Starbucks has become a synonym for premium-quality coffee. Along with coffee, it offers a wide assortment of products such as hot and cold drinks, full-leaf tea, loose-leaf tea, fresh juices, pastries, latte, Frappuccino beverages, salads, yogurt etc. It charges premium prices for its products for the quality it offers and this is why it has a regular higher-end customer base. However, Starbucks isn’t launched to offer these services when the founders started it. The founders opened Starbucks to sell high-quality coffee beans.

It was on March 30, 1971, in Seattle, Washington, the history of Starbucks began. Jerry Baldwin, Zev Siegl and Gordon Bowker opened the first Starbucks that sells coffee beans in Seattle. Although the name Starbucks remembers the chief mate in the book Moby Dick, it has nothing to do with it and it was just a coincidence.

In 1980, the founders sold Starbucks to Howard Schultz who made the coffee-bean retailer into a coffee shop serving espresso-based drinks. Schultz aggressively expanded the company with franchises in different locations despite downfall. However, in the California market, the company brand gained immense prosperity. Starbucks buys green coffee beans directly from growers.

The company went public in June 1992. During that time, it had over 140 outlets and posted a revenue of $73.5 million and its market value was $271 million.

Although the company innovates new products and services, it has never compromised on the quality of its products and services since its inception. For instance, it keeps innovating new tastes and products which people love. It launched the Starbucks app, offered customers to sit and work even without ordering. Again, although the service doesn’t bring money directly, it paid off well as more customers got used to the brand. In the same way, its app made over 10% in-store purchases in July 2013. 

Okay, enough said about its history! Let’s quickly get into the business model of Starbucks without any ado.

Read: Uber Eats Business Model – How Uber Eats Makes Money

Starbucks Business Model

As you can see Starbucks offers a variety of hot and cold drinks, espresso coffee, snacks yet it is uniquely different from other coffee shops. It directly purchases coffee beans from growers, coffee beans are roasted by trained experts, brews coffee using automated espresso machines, and treats its customers and employees equally well ensuring safety and experience.

It partners with growers, coffee machine makers, and suppliers to channelize its business. Despite all its business model is quite simple. It rakes profits by delivering the utmost quality in its products and services. Its employees are well trained to provide outstanding customer service, it offers unique style spaces to awe its customers. However, apart from selling coffee and snack products in-stores and online around the world, it also uses grocery stores, convenience stores, warehouse clubs to sell products in some locations.

With a giant network of stores across multiple locations, Starbucks is misunderstood as a franchise model. But it isn’t. It adopted a mix of franchise and own stores unlike McDonald’s. Over 51% of restaurants are owned by Starbucks and 49% are its franchises, which means it holds control over operations and strategies of the majority of stores.

Okay now getting into its actual business model, Starbucks business model depends on 5 segments. Let’s discuss them.

Customer Segment

Starbucks sells coffee and its other products to anyone who wants to have them. However, its key targets are office clients and high-end customers as it charges premium prices.

Customer Relationship

Starbucks is uniquely different in offering its products and services. It offers personal assistance to its customers, unlike most other brands. The employees are trained to make and serve orders to customers and offer any help they need. Thus they maintain a smooth and strong relationship with them and build loyal and repeat customers.

Read: Dunzo Business Model – How Dunzo Makes Money

Innovation & Brand Image

It’s no secret that Starbucks is a powerful brand that drives several customers to its business. However, the brand image alone can’t bring billions of profits to a company and Starbucks knows it well. Starbucks provides ultimate convenience for its customers to order products and avoid lines at stores. Besides, it offers access to a wide range of products that spoil customers with its innovation.

Operations

Starbucks’ has become successful due to its successful operations right from research & development, production to marketing and supply.

It buys coffee beans grown under professional guidance, innovates new products with them, and serves them to customers.

Cost Structure

Starbucks aims to deliver premium quality coffee, snacks and other products to its customers. In the same way, it charges premium costs that include store operation, administration costs and variable expenses.

Read: Zomato Business Model – How Zomato Makes Money

How does Starbucks Make Money?

Now that you have seen the business model of Starbucks, let us see how it makes money.

Starbucks makes money primarily by selling its products over different channels.

Present in over 30,000 locations, Starbucks has both its own and franchise stores. However, as said the majority are Starbucks owned stores and they bring over 79% revenue to the company.

Read: Swiggy Business Model – How Swiggy Makes Money

It makes money from selling premium coffee, whole bean coffee, food items and premium teas. Moreover, as discussed, Starbucks coffee is not only sold online or in-stores, people can buy them from grocery stores and convenience stores. Thus Starbucks is able to serve its customers from anywhere in the world. However, again, the largest portion of its revenue comes from in-stores which is why it inspires people to visit Starbucks restaurants.

Starbucks in Numbers

The American multinational coffeehouse chain reported net revenue of $26.1 billion in 2019. It sees a year-over-year growth in revenue for the past decade.

The premium quality products and outstanding services of the company brings a good deal of profits. In 2019, Starbucks’ highest portion of revenue ($16.65 billion) came from the Americas whereas the international stores brought $6.19 billion.

Coming to funding, Starbucks has raised $900 million in 2 funding rounds funded by Pershing Square Capital Management and Upfront Ventures.

Bottom Line

So, this is how Starbucks makes money. The business model of Starbucks pays well as the company constantly grows its customer base who agree (and love) to pay whatever Starbucks asks for. Again, the prices are non-arguable as it offers superior quality products that no other brand offers. Thus, promising the premium-quality, building robust customer relationships, and innovating new products, Starbucks generates huge revenue for the company.

Today’s world is filled with gadgets. If you just look around you will realize that you are surrounded by all kinds of devices. When people talk about technology most of the time they are talking about software. But what is often not discussed is the hardware part of the technology. You have telephones, bulbs, and many other things that do not have any kind of software in them. These are products that are more important for people. Because they make life so much easier but no one actually realizes this. A simple thing such as an LED bulb is a very important part of our life. Just imagine if you did not have a light bulb then how difficult your life would have been. When people talk about technology companies all they talk about are companies like Microsoft, Apple, Google, and some other companies. But they never talk about the companies that manufacture typical hardware products. 

This is because there is not much innovation in them and most of them are basic products. However, the products manufactured by these companies are used by a large number of people around the world. Some of these companies also provide telecommunications and software products but people do not know much about them. They might know the name of the company and they might even be using the company’s product. One such company is Cisco. This is a company that most people might have heard about but do not know anything about. Well, after reading this article you don’t have to feel that way again because this article is completely about that. In this article, you are going to learn about the business model of Cisco and how it makes money. But before knowing about those things first let’s know a little bit more about the company. 

What is Cisco?

Cisco or Cisco systems incorporated is a multinational technology company. This is an American company that was founded in the year 1984. The founders of this company are a couple, they are Sandy Lerner and Leonard Bosack. Before founding the company both of them used to work at Stanford University. While Leonard Bosack was the manager of the computer science department Sandy Lerner was the director of computer facilities at the business school. They wanted to come up with something that helped them to communicate with each other from their offices that were very close. So Bosack designed a technology that could connect the LANs of both their offices. The specialists of this device are that it could choose the best part for the flow of data among the networks. They tried to sell this product to many companies but they did not have any success.

This is when they decided to launch their own company. Apart from there are other co-founders like Kirk Lougheed, Bill Westfield, and Greg Setz. Things were not easy in the beginning. Both the founders had to mortgage their homes to invest in their companies. Not only that but they used their credit cards and even postponed the salaries of their early employees. It was in 1986 the company sold its first product that is a router. It became the first company to sell a multi-protocol router as the router was of TCP/IP protocol suite. Cisco was one of the first companies that successfully sold the routers commercially. 

By the end of 1987, the company was generating more than one million in revenue. After this, the company started producing different kinds of routers for various communication protocols. The company had its IPO in the year 1990. It generated $224 when it went public. In the same year, Sandy Lerner was fired because of this Leonard Bosack resigned from his position. In 2000 it was the most valuable company as it was worth more than $500 billion. As of today, the company is worth $173 billion which is less compared to 2000 but it is still one of the most valuable companies.

Business model of Cisco

Cisco has been in the industry for more than three decades and it has been one of the most valuable companies in the world for many years. There are a few things that helped the company to be as successful as it is today. Let’s take a look at the things that helped it become so successful. 

Offering services to different customer segments

This is a great advantage and opportunity for Cisco to do a lot of business. The company has products for customers that belong to different customer segments. So it can sell products to all these customers to run their business. Cisco manufacturers different types of products for different customers. Let’s look at the customer segments it offers its services to. 

Public sector

Educational institutions, Federal governments, state and local governments come under this segment.

Enterprises

These are usually firms that have more employees and many offices in different geographical locations.

Service providers

These are the companies that provide telecommunications services, wireless services, cable services, internet services. Not only that it also provides audio and video communication services to businesses and consumers.

Brand

As mentioned earlier the company has been in the market for more than three decades. It is a very popular company. People all around the world recognize Cisco. Cisco has a good reputation for providing high-quality products for all kinds of customers. Having Cisco products or partnering with them will help the companies a lot. The brand is one of the reasons that attract customers.

Variety of products

If you just look at the number of products that Cisco offers your mind will be blown. It literally manufactures every technology product that an IT company needs except for computers. It offers everything from servers to routers to telecommunication products. Not only that it also offers software services. You can avail of software networking and cloud services. 

How does Cisco make money?

Many companies of this size have multiple revenue streams but Cisco has only a few. There are two ways in which it makes most of the money. Let’s look at them. 

Selling high-quality hardware products

This is something that you already know. When people think of Cisco the first thing that comes into their minds is the hardware products that they sell. As mentioned earlier it manufactures almost all kinds of products that a company needs to run its operations. Not only that but it also keeps innovating their products so that they are compatible with new technology. The majority of its revenue comes from selling telecommunication products, network hardware, and other similar products.

Subscription fees

It also generates revenue from the software and infrastructure services it provides. Cisco provides the infrastructure for companies to run their operations both offline and online. It also has a video and audio conferencing application in the form of WebEx. Cisco WebEx is one of the leading video conferencing services that are used by businesses for online meetings and other things. It charges a monthly fee for using its services.

Conclusion

This is the business model of Cisco. It is one of the most popular hardware manufacturers in the world. Cisco provides its services to thousands of businesses around the world. You can learn about other interesting business models on Postling. Click here to know about the business model of American Express.

Fiverr is an online marketplace for freelance services. It is one of the biggest and popular freelance platforms where interested people can buy and sell services of all professional categories. Those include graphic design, programming, web development, content writing, SEO etc. In fact, it is a giant platform where one can find any kind of digital service.

The platform operates globally and it has over 2.4 million customers as of 2019. In fact, the company was designed as a marketplace to buy and sell digital services due to which Fiverr is able to balance the buyers and sellers count.

Read: Upwork Business Model – How Upwork Makes Money

With all this in mind, most people wonder how does Fiverr make money? So, if you are one of those people, then dive into the article. Let’s discuss how Fiverr works, what is its business model and how it makes money in detail. But before that, let’s have a quick look at its short history. So, shall we?

Brief History of Fiverr

Fiverr International Ltd. or Fiverr was founded by Micha Kaufman and Shai Wininger in February 2010. The company is based in Tel Aviv, Israel, however, it offers its services to people all over the world. The founders created Fiverr with an idea to launch a marketplace for professional services the same as e-commerce platforms. As there were only a few marketplaces for professional services a decade ago, their plan panned out well. Fiverr was developed as a SaaS model to make working with freelancers as easy as buying something on Amazon.

As the number of unemployed was (and is) higher, freelance platforms like Fiverr experienced a great user-base. Not to mention, the platform made it easy and affordable for buyers to avail of required service which it calls a “gig”. The services on Fiverr start at $5 and go up to higher based on the requirement. Although the platform is free for anybody to sign-up, it charges a certain share from every transaction happening on the platform from sellers.

The platform was a huge success initially as within two years of its launch, Fiverr hosted more than 1.3 million gigs. Fiverr has been ranked among the top 200 most popular websites in the world and top 100 in the US since 2013. The transaction volume on the website has raised by 600% since 2011, which is highly significant growth.

In June 2010, the company raised $1 million in seed investment and in May 2012, it received $15 million in funding from Bessemer Venture Partners and Accel Partners. In August 2014, Fiverr had raised $30 million in Series C round and in 2015, it had raised $60 million in Series D funding round led by Square Peg Capital. Its total funding amount counts to $110 million as of 2019.

The company reported $107.1 million in revenue in FY2019.

How does Fiverr Work?

Fiverr is a freelance platform, an online marketplace for freelancers to advertise their services and buyers can avail the services. It lets freelancers or sellers or service providers promote their services and accept gigs from buyers. The price of the service or gig is set by the service provider.

Read: WeWork Business Model – How WeWork Makes Money

To avoid low-quality services, Fiverr allows sellers to publish their profiles so that interested buyers can go through them before assigning a gig. Buyers can also see pricing, work samples, ratings of the sellers to make the right decision.

Coming to the payment part, Fiverr simplifies and secures certain things. It takes care of the payment process and ensures the best-sellers are shown for buyers when searching. In return, it charges a 20% fee from every transaction from sellers. In fact, this is what Fiverr’s business model is to generate income and continue its operations.

Fiverr also offers Top Pro services for interested buyers who need higher quality services. Only sellers that are vetted by Fiverr can offer their services to Pro buyers.

Fiverr Business Model

Fiverr generates its revenue majorly through transaction-based fees. Buyers on Fiverr will have to pay the gig price and service of 5% for a successful order. The minimum service fee Fiverr charges is $2 and it can go high based on the location, and gig price. Fiverr transfers 80% of the gig price paid by buyers to the seller and keeps 20%. And that is how it earns income.

However, the company succeeds and generates a good deal of profits only when sellers and buyers on the platform are active and successful. In fact, Fiverr takes advantage of the flywheel effect which means when more buyers join the marketplace, the more the demand for sellers due to an increase in jobs. This results in more services available on the platform which drives more buyers again. Thus buyers and sellers are the only revenue generators for the company.

Fiverr targets individuals in different industries who are responsible for business functions such as getting things done in a specific time and budget. With this simple yet effective marketing strategy, the company avoids too much spending on the sales force. Fiverr claims that the majority of new buyers come from non-paid and organic sources.

How Fiverr Makes Money?

So, now that you have seen how the popular marketplace for freelance services, Fiverr works and what is its business model. By now you might have understood how it makes money. Anyway, let’s see that in detail here.

Fiverr charges a flat fee of 20% from sellers for every transaction they receive. For example, if a gig costs $100, then Fiverr takes $20 plus a minimum $2 service fee and payment processing fee of up to $1. It transfers the remaining amount to the seller.

In fact, the share of Fiverr is quite reasonable as it takes care of promoting the advertisements of sellers, payment process and shows the sellers to buyers’ search queries. Fiverr estimates that their freelancer market is about $100 billion in the US alone whereas the market in the United States is estimated to be $750 billion annually. They claim their market share would continue to increase more with the addition of new categories on to the platform. Although the marketplace is available for people in over 160 countries, around 70% of revenue is generated from English-speaking countries.

Read: LinkedIn Business Model – How LinkedIn Makes Money

Fiverr in Numbers

The world’s largest marketplace for freelancers reported $107.1 million in revenue for FY2019, there was a 42% rise from the previous year. The market cap of Fiverr is roughly estimated at $1.9 billion. The company has raised $111 million in funding over six rounds. It is funded by 8 investors, of which ION Crossover Partners, Bessemer Venture Partners are the most recent ones.

In 2019, Fiverr acquired a premium subscription-based content marketing platform, ClearVoice for an undisclosed amount.

Bottom Line

As you can see, this is how Fiverr makes money. The world’s largest freelancing platform that matches buyers and sellers relies on its user base to generate income. However, with its successful business and marketing strategies, the company is able to keep and grow its buyer and seller base. Hence, there is a great demand for services and gigs on the platform, these are likely to increase more with the new feature launches on the platform.

Can you imagine how hard it would have been if we did not have credit cards or debit cards to pay the bills? While this is a normal thing now it was not heard of a few decades ago. People who are born in the age of credit cards and the latest banking services would never know how difficult it was for your elders to pay large amounts of money. Most of the people who are reading this article are in a time where banking transactions are way easier. Not only that but your people are also witnessing the time when transactions can also be made through your mobile phone. All you need is a mobile phone and an account in a neo bank application along with the internet to make transactions. However, you are still not witnessing the decline of issuing or usage of credit cards or debit cards anywhere.

Have you ever thought about that? Have you ever thought why do you still carry these cards when we can just make payments through your mobile phones? Well, there are a couple of reasons for this. The first reason is that not every place accepts mobile payments. And the second reason is that you cannot rely on mobile payments all the time. This is because the servers that are operated by these banks stop working suddenly for a temporary period of time.  During this time no transactions can happen so you will face a lot of problems when this happens and you don’t want that. You don’t want this especially when you are traveling. Traveling is also something that has become very easy for people these days. It’s not like you have to go to a travel agent to book your tickets or hotel room for you. You can do this on your phone using smartphones. Especially booking hotels has become very sophisticated.  A person can literally see how the hotel room looks, what are the services available along with its price. 

What if you have a company that provides both banking services and travel services? Many people don’t think that such a company does not exist but it does and it is also quite popular. The company that is being discussed is American Express. This is a company that is known to offer both banking and travel services. But not many people know about its business model or the way it makes. This article is completely about that. Before knowing about the business model of American Express, let’s know a little bit more about the company.

What is American Express?

As you already know American Express is a company that offers multinational financial and travel services. This is a very old company. It was founded in the year 1850. This is a combination of three companies that were founded prior to 1850. The company has seen tremendous growth in the following years. It had more than 900 offices across 10 states in the US. But it has faced fierce competition from another company called Merchants Union Express. Both of these companies merged to become a strong player. During this period of time, the company was known as American Merchants Union Express. It was renamed American Express in 1873. In 1881 James Cogdell Frago took over as the president of the company after the death of William Frago who was his younger brother. James was responsible for many innovative ideas of the company and made sure it got more success in the span of 33 years he served as a president.

After James, the position was taken by George Chadbourne who worked in the company for over 30 years. During the next few decades, American Express has played a significant role in the financial history of the United States. It was during this time the company thought of introducing a type of charge card. However, this idea was not taken seriously until a card was launched by Diners club in 1950. It took more than half a decade for the company to seriously think about entering the card business. It decided to launch its cards on October 1st but the public demand was so severe that it had to issue them before the launch date. American Express issued a staggering 250,000 cards before the launch date. In 1966 the company introduced Gold cards and after nearly two decades it released a Platinum card. American Express also partnered with Warner Communications to create a satellite entertainment company. This company is the reason for the creation of MTV and Nickelodeon. By the end of 2019, the company had more than 110 million users. Currently, the company is worth more than $24 billion.

Business model of American Express

Let’s look at the main aspects of its business model.

Giving great offers to its customers

You should not forget that while being a banking service, American Express also provides travel services to its customers. The cardholders get a lot of offers from the company. These offers are given to the customers only because they are using their cards. It gives ridiculous offers to people who own their cards. It can do this because of its affiliations with various institutions across the globe. This brings us to the next topic.

Affiliations

American Express is affiliated with a lot of businesses in America and around the world. This makes it easy for people to spend money using their cards. The businesses that are affiliated with American Express are happy to do this because of the huge customer base the company possesses. American Express can recommend its customers to avail services from those companies. Not only that but it provides offers on hotels. Apart from that it also provides offers on healthcare, groceries, and dining. It does this to boost the revenue of those companies. 

Various types of Cards

American Express provides different types of cards to people for different purposes. People can choose these cards according to their financial needs and their requirements. It has several types of cards for travel and financial purposes. You have cards like Platinum, Platinum reverse, and Gold cards which can be used for travel and financial purposes. The Platinum card has all the premium benefits. It also has a Smart earn and membership rewards card. These cards can be used to earn points on each spends. The last card is the Platinum travel card which is exclusive to people who want to enjoy travel rewards. 

Benefits of owning a card

Apart from the offers, there are a lot of benefits that you get from owning a card. People receive gift cards, travel vouchers, dining vouchers, shopping vouchers, as well as jewelry vouchers which can be redeemed for reward points. The company also provides online services to its customers. You can even get various types of insurance like health insurance, car insurance, life insurance, and personal accident insurance. If you ever lose your card then American Express makes sure that the payments made will cover your losses. Not only that but you will also receive a new card in two days. 

How does American Express money?

The company makes money from both sides of the market that is the end-users who make the payments and the businesses that accept card payments. There is more than one way in which American Express makes money. Let’s go through them one by one.

Commissions per transaction

This is probably the most obvious way in which a card issuing company makes money. You might have already thought about this. The company charges a fee every time a transaction is made. It charges a merchant fee whenever a customer uses the American Express card to make the transaction. The company used to charge a considerable percentage of money in the past. But in recent years it decided to decrease the amount so that more people get their cards and use them more often. This will make sure that their revenue increases even more over a period of time. 

Fee on cards

American Express charges a fee from customers who own their cards. Everyone who owns an American Express card has to pay an annual fee. This fee depends on the type of card you are owning. The more the benefits the more annual fee you have to pay. You have to pay thousands of dollars as an annual fee if you own a Platinum card.

Travel and Insurance

Apart from the above-mentioned ways, American Express makes money by providing insurance and travel-related services. Every time you use American Express to get travel services or get insurance from a company you the company makes money.

Conclusion

This is the business model of American Express. It is one of the largest card issuers in the world. The majority of its revenue comes from America even though it provides services all over the world. The company’s cards are great for people who want to travel and lifestyle benefits. You can know more about other interesting business models on Postling. Click here to learn about the business model of eToro.