What Is a Business Model? Follow the Profit, Not the Sales

What is a business model? It is the plain account of who pays a company, what they pay for, and which of those payments leaves a profit once the costs are taken out. Every listed company publishes the answer in its annual report, so we read the latest ones for 12 companies you probably used this week.

You know their products. You may not know where their money comes from, and the answers are often a long way from the shop window.

What We Found

In 4 of 12 household-name companies we checked, a line under half of revenue was worth more than half of operating profit; Costco’s membership fees were 1.9% of fiscal 2026 revenue but equal to 51% of operating income.

The other three are Amazon, Microsoft and Disney. Amazon Web Services brought in 18.0% of Amazon’s 2025 sales and 57.0% of its operating income. At Disney, the parks, cruises and resorts segment was 38.3% of fiscal 2025 revenue and 56.9% of segment operating income.

Two of the 12 are advertising businesses at heart. Meta took 97.6% of its 2025 revenue from advertising. Alphabet took 73.2% from Google advertising, and more than half of its revenue from search alone.

In most of the 12, the product a company is famous for is its biggest revenue line. In those four, something quieter pays for the rest.

What Is a Business Model?

A business model is the way a company turns what it does into profit: who the customer is, what they pay for, how often, and what it costs to serve them. Two firms can sell the same product under different models. One sells coffee by the cup, another sells franchises to people who sell coffee by the cup.

The Harvard Business Review summary of Joan Magretta’s 2002 article on why business models matter puts it in one line: “A good business model begins with an insight into human motivations and ends in a rich stream of profits.”

The second half is the one to check. Business model meaning, in practice, comes down to two numbers in the accounts. Where does revenue come from, and where does profit come from? When those two answers differ, the second one tells you what the company depends on.

A model also differs from a purpose. A company’s business mission statement says why it exists and who it serves. The model says how the bills get paid while it does that. Read them side by side and you can usually tell whether the mission is funded or merely hoped for.

The quickest way to understand what is a business model in practice is to read the segment table in an annual report, which is how we built the table below.

The 12 Companies and Where Their Money Comes From

Figures are from each company’s latest full-year filing or results release available on 31 October 2026, in US dollars. Fiscal years differ, so the year is shown beside each name. Percentages are our own calculations from the reported lines.

Company (fiscal year)	Model	Total revenue	Biggest revenue line, share	Where the profit sits	Source
Costco (FY2026)	Membership	$303.2bn	Net sales, 98.1%	Membership fees: 1.9% of revenue, equal to 50.6% of operating income	Costco results release
Amazon (FY2025)	Retail marketplace plus cloud	$716.9bn	North America segment, 59.5%	AWS: 18.0% of revenue, 57.0% of operating income	Amazon Q4 2025 release, SEC
Disney (FY2025)	Media plus experiences	$94.4bn	Entertainment, 45.0%	Experiences: 38.3% of revenue, 56.9% of segment operating income	Disney FY2025 release
Microsoft (FY2026)	Licensing and cloud subscriptions	$331.8bn	Server products and cloud services, 39.0%	Productivity and Business Processes: 42.2% of revenue, 54.0% of operating income	Microsoft 10-K, SEC
Meta (FY2025)	Advertising	$201.0bn	Advertising, 97.6%	Reality Labs lost $19.2bn on $2.2bn of revenue	Meta FY2025 release
Alphabet (FY2025)	Advertising	$402.8bn	Google advertising, 73.2%	Google Cloud: 14.6% of revenue, 10.8% of operating income	Alphabet 10-K, SEC
Apple (FY2025)	Hardware plus services	$416.2bn	Products, 73.8%	Services: 26.2% of revenue, 42.2% of gross margin	Apple FY2025 release
McDonald’s (FY2025)	Franchise	$26.9bn	Franchised restaurants, 61.6%	Franchised margins: 90.7% of all restaurant margins	McDonald’s 10-K, SEC
Tesla (FY2025)	Hardware plus energy	$94.8bn	Automotive sales, 69.4%	Energy: 13.5% of revenue, 22.2% of gross profit	Tesla 10-K, SEC
Visa (FY2026)	Payment network	$45.9bn net	Data processing, 36.4% of gross revenues	Operating margin 61.2%	Visa FY2026 release
Nike (FY2026)	Brand, wholesale and direct	$46.4bn	Sales to wholesale customers, 60.5%	Profit not reported by channel	Nike 10-K, SEC
Netflix (FY2025)	Subscription	$45.2bn	Membership fees, not split out	Operating margin 29.5%	Netflix 10-K, SEC

The last column mixes measures because companies report profit differently. Amazon, Microsoft and Alphabet give operating income by segment. Disney gives segment operating income. Apple and Tesla give only gross margin by line, which is revenue minus the direct cost of producing it.

Where Revenue and Profit Part Company

Amazon is the cleanest example. Its North America retail segment brought in $426.3bn in 2025, nearly 60% of the total. AWS, its cloud computing arm, brought in $128.7bn. Yet AWS produced $45.6bn of Amazon’s $80.0bn in operating income, according to the company’s fourth quarter release. The shop you know is the bigger business. The cloud you never see earns more of the profit.

Costco is the most extreme case in our sample. Its fiscal 2026 results show $297.2bn of net sales and $5.9bn of membership fees, against $11.7bn of operating income. Costco does not allocate costs to the fees, so we cannot call them half its profit. We can say the fees alone come to half of it, while the whole company runs on an operating margin of 3.9%.

The low prices on the shelf give members a reason to renew, and the renewals carry a large share of the profit. On this evidence, thin margins on goods look like a design choice.

Disney looks like a film studio from the outside. In fiscal 2025 its Entertainment segment had the most revenue at $42.5bn. The Experiences segment had $36.2bn of revenue and $10.0bn of segment operating income, more than Entertainment and Sports combined.

Microsoft is the quietest of the four. In the year to June 2026, the Productivity and Business Processes segment earned $83.9bn of the company’s $155.2bn operating income, on 42.2% of its revenue. Microsoft 365 commercial products and cloud services alone brought in $102.0bn.

If you sell to any of these firms, or work for one, the profit line is the part of the business that gets protected first in a bad year. The revenue line is only where the size is.

Before you judge a smaller company’s numbers against these, note the scale. Our guide to what is a good profit margin for a small business gives the ranges that apply when you are not running a global cloud.

What Are the Main Types of Business Model?

The common types are advertising, subscription, membership, franchise, hardware plus services, marketplace, network fees and licensing. Each answers the same question differently: who pays, and how often. Advertising charges a third party for your attention. Subscriptions charge you monthly. Franchises charge the operator. Networks charge a small fee on every transaction that passes through.

Advertising first. Meta’s 2025 results show $196.2bn of advertising revenue out of $201.0bn. The user pays nothing, and the advertiser pays for the user’s attention. Meanwhile its Reality Labs segment lost $19.2bn on $2.2bn of revenue, all of it paid for by the ads.

Units that lose money on purpose are hard places to work. When a parent company funds a long bet, the pressure to show progress lands on the people inside it. If that pressure has started to cost you sleep, our guide to stress leave from work covers how it works and how to ask for it.

Alphabet runs on the same model with more variety. Its 10-K revenue table shows $224.5bn from Google Search and other, 55.7% of the total. Google Cloud brought in $58.7bn, 14.6% of revenue and 10.8% of operating income.

Subscription is the model you feel monthly. Netflix’s 10-K says its revenues “are primarily derived from monthly membership fees.” The pages we checked break revenue down no further, so we could not calculate a share, but its 2025 statement of operations shows $13.3bn of operating income on $45.2bn of revenue, a margin of 29.5%.

Franchise is the model hidden behind the counter. McDonald’s says about 95% of its 45,356 restaurants were franchised at the end of 2025. Its 10-K shows $16.5bn of franchised revenue and $9.7bn of sales from the restaurants it runs itself. Franchised restaurants produced $13.9bn of margin, company-run ones $1.4bn.

So the roughly 5% of restaurants McDonald’s runs itself bring in about 36% of revenue and about 9% of restaurant margin. The 10-K says franchised revenues “include rent and royalties based on a percent of sales with minimum rent payments, and initial fees.” The operators run the kitchens.

Hardware plus services is Apple’s model. Its fiscal 2025 results show products at $307.0bn of $416.2bn in net sales. Services brought in $109.2bn. After the direct costs, services kept about 75 cents of each dollar against about 37 cents for products, which is why services are 26.2% of sales and 42.2% of gross margin.

This is the old razor-and-blades idea in a modern form, where the device brings you in and the recurring purchases after it carry the margin.

Tesla is a hardware business with a growing second line. Its 2025 statement of operations shows automotive sales of $65.8bn out of $94.8bn. Energy generation and storage was 13.5% of revenue but 22.2% of gross profit. Automotive regulatory credits came to $2.0bn, equal to 45.8% of the company’s $4.4bn of operating income. Readers who want the background on Tesla’s chief executive will find a reading list in our guide to Elon Musk books.

Network fees are Visa’s model. Its fiscal 2026 release shows $45.9bn of net revenue and $28.1bn of operating income, a 61.2% margin. Its largest line is data processing revenue, $23.4bn, or 36.4% of gross revenues before it deducts $18.3bn of client incentives. A payment network earns on the flow of transactions through it.

Nike sits between two models. In fiscal 2026, sales to wholesale customers were $28.1bn of $46.4bn, or 60.5%, and its own stores and apps brought in 39.2%. The brand is Nike’s. Most of the shelf space still belongs to someone else.

How Do You Find a Company’s Business Model in Its Annual Report?

Open the 10-K or annual report and go to two places. The revenue note, often called disaggregation of revenue, shows what customers pay for. The segment note shows revenue and operating income for each part of the company. Divide each segment’s profit by the total, then compare it with its share of revenue.

The SEC’s beginners’ guide to financial statements explains the income statement in plain words. At the top is “the total amount of money brought in from sales of products or services.” After operating expenses, it says, you arrive at operating profit, which “is often called ‘income from operations.'”

Those two lines are all the method needs. Write down each segment’s revenue and operating income. Work out each as a percentage of the total. Any segment whose profit share is well above its revenue share is the engine. Any segment with a loss is a bet the engine is paying for.

Watch three traps. Fiscal years end in different months, so Costco’s year ends in August and Microsoft’s in June. Some companies report only gross margin by line, as Apple and Tesla do. And a total can be smaller than one segment, as at Alphabet and Meta, because other units lose money.

Once you have done it for a large company, do it for your own. The same two questions, who pays and what is left, are the core of how to validate a business idea before you spend money on it, and of how to value a small business when you are buying or selling one.

Why the Model Matters in Your Own Career

Knowing what is a business model in theory will not help much in a meeting. Knowing where your own employer’s profit sits will. It tells you which teams get budget in a downturn, which projects are bets, and which jobs sit closest to the money.

You may have sat through a strategy discussion afraid to ask how the company actually makes its money, in case everyone else already knew. If that silence sounds familiar, our piece on how to overcome imposter syndrome is a good place to start, and the segment table is a good question to bring.

It is also the best question to ask in a job interview. “Which part of the business earns most of the profit, and how does this role touch it?” shows you have read the filing. Our guide to interview outfits covers how to look the part. The question shows you understand the business.

The model shapes your pay as well as your prospects. A company with fat, steady margins can afford generous benefits, and a thin-margin retailer has less room. When you compare offers, set the salary beside the benefits, starting with the 401k match, which is real money the business has chosen to spend on you.

If you want the formal version, business models are a core part of any MBA. Our list of the cheapest online MBA programs covers the routes that will not cost a year’s salary. You can also start with nothing more than a 10-K and an afternoon.

For the customer side of the equation, the Hormozi value equation is a useful lens on why people agree to pay in the first place.

How We Did This

On 31 October 2026 our newsroom took 12 US-listed companies whose products most readers use, and fetched each one’s latest full-year results from the SEC’s EDGAR database or the company’s own investor relations release. We recorded total revenue, the biggest reported revenue line, and, where reported, segment operating income or gross margin, then calculated each share ourselves. We used each company’s own line names. Starbucks was dropped because its results page would not load. Apple’s fiscal 2026 results could not be retrieved and Disney’s were not yet published on the date we checked, so both are shown for fiscal 2025. The full dataset, with the exact source lines, is available on request.

Frequently Asked Questions

What is a business model in simple terms?

It is how a company gets paid and keeps some of the money. Name the customer, what they pay for and how often, then check which of those payments leaves a profit after costs. Costco sells groceries at thin margins and earns heavily on the membership card you renew each year.

What is the most common business model among big companies?

In our sample of 12, no single model dominated. Two were advertising businesses, Meta and Alphabet, and the rest used ten different mixes. The more useful finding is that in four of the 12, a line under half of revenue was worth more than half of operating profit.

Is a business model the same as a business plan?

A business plan is a document about what a company intends to do, with targets and timelines. A business model is the mechanism that makes money, and you can see it in the accounts. A plan without a working model is a forecast, and the annual report is where the forecast gets checked.

Revenue tells you what a company is known for. Profit tells you what it depends on, and every company in our sample has published that in its own filing, a few clicks from anyone who wants to look.