How will you earn money from a business? It is probably the most asked question when people start a new business venture. This may feel like a guessing game when you first start. However, a revenue model can help you gain powerful insight into your business’s revenue stream and help you find the answer to this question.
The knowledge you’ve gained and the research you’ve done on more established firms may provide you with a plethora of information to help you start your own revenue model. Once you start making money, utilize the revenue model as a live document to adjust your strategy. It will help you concentrate on the most profitable sources of income while changing your approach to the ones that aren’t.
Define Revenue Model
A revenue model is a method of producing financial profit. It determines which income source to seek, what value to deliver, how to price the value, and who is responsible for paying for the value. It’s an essential part of a company’s business model. A revenue model is a conceptual structure that expresses and explains a company’s revenue-generating strategy.
It comprises value propositions, income-generating strategies, revenue sources, and the target market for the product being supplied. In a nutshell, this model describes how a company earns money. It is the same as a sales funnel in which the company chooses a certain pathway for letting customers purchase the products.
How To Write A Business Revenue Model?
There are several types of revenue models available in the business environment. However, none of the models will yield a positive result for your business if you don’t know how to write them. Writing a revenue model does not necessarily mean you have to write down the steps manually. Instead, it means what data you need to collect to give the model a realistic outlook. So, let’s find out the steps to write a revenue model.
Step 1: Data Accumulation
If your company has already made a profit, you must start by gathering your sales statistics. Make a list of each sort of revenue source, as well as an estimate of overall revenue. Your revenue model will be more accurate if you have more sales history.
Step 2: Decide Your Customers
Conduct thorough market research to decide how many customers you currently have for your existing products and services. You can either hire an expert marketing consultant or look at the recent economic census report to identify your customers.
Step 3: Navigate Through Revenue Model Types
Jot down some of the primary revenue modeling types that you may use. For example, you can either use a subscription revenue model or an advertising revenue model. But, the choice will depend on how many revenue models there are and how your business operation accommodates them.
Step 4: Use Marketing Methods
Your marketing activities will have a significant impact on your revenue model. For example, you may index your company on Google Adwords, create a business page on Facebook, or have an eCommerce platform that accepts payment from PayPal. So, narrow down all your marketing platforms before you decide on the revenue model.
Step 5: Launch The Software
Now, open a word processing software on your computer. Now, create a new document for your chosen revenue model. You can also add it to your business plan in a different section.
Step 6: Write Down All Your Revenue Sources
Your business may have some secondary activities that will yield a certain amount of revenue in the long term. These sources may bring a lot of income but are not enough to sustain your business at present. Therefore, you have to consider them as well before writing the revenue model.
Step 7: Set Up Different Page For Different revenue Sources
On your word document, create a new page for different revenue sources. Now, write down the steps you need to consider to complete the goal of each of those revenue sources. Also, mention the time you will need to implement the revenue model on this page.
Step 8: Review The Model Regularly
If you are just getting started on your business, you will have a much better idea of your revenue than firms in the market for a long time. Review your revenue models, and focus more on the ones that work the most effectively. If some of the revenue sources are not bringing good results, stop focusing on them for now, and revise your strategy later.
What Are Some Of The Most Popular Revenue Models?
There are many different revenue models, and this list does not attempt to cover them all. But that’s because many of them have other names in the business world. However, if you look at the following list of revenue model examples, you will have the upper hand in selecting the one that fits your business needs the best.
1: Advertising Revenue Model
An advertising revenue model includes producing advertisements for a particular website, service, app, or other product and placing them strategically on high-traffic channels. The ad revenue model is one of the most straightforward income sources to establish, which is why so many businesses rely on it. Advertising revenue model examples are magazines and newspapers that generate sales by publishing adverts.
2: Affiliate Revenue Model
The affiliate revenue model operates by posting advertising links to related items and earning commission on the sales of those products. It is a common web-based revenue source. It can be used in conjunction with advertisements or separately. The affiliate revenue model earns more money than the advertising revenue model, so many companies are using it nowadays.
3: Transaction Revenue Model
For a good reason, many tech and non-tech aim to rely on the transactional revenue model. This is one of the most prominent methods of earning money since it includes a firm giving a service or product in exchange for money from consumers. Moreover, because of its simplicity, consumers are more drawn to firms using this revenue model.
4: Subscription Revenue Model
Offering your consumers a product or service that they may pay for over a more extended period, generally, month to month or even year to year is the philosophy behind the subscription revenue model. This model may produce recurring revenue if your firm is far enough along in its growth. A company can even benefit from those consumers who are probably too lazy to terminate their membership in your company using this revenue model.
5: Retail Sales Revenue Model
The retail revenue model implies setting up a typical retail store where you sell tangible products to clients. Remember that the retail sales strategy necessitates paying for shelf space in existing stores and is best suited for items that require logistics to reach your clients. However, it is a wonderful method to provide existing customers discounts and additional items while raising brand recognition.
6: Freemium Revenue Model
The freemium model is one in which a company’s core services are provided for free, but consumers must pay for premium features and functionalities. Linkedin and Spotify are some of the most successful companies using this revenue model. It is a fantastic approach to give customers a sample of your product while also tempting them to pay for it later.
Starting from what is revenue model is to its types-we have covered almost everything in this article. However, if you still have some questions, you can take a look at this section.
1: How Do You Create A Revenue Model?
Ans: Firstly, you have to find the right fit for your startup and create a value proposition framework to differentiate yourself from competitors. Select a revenue model strategically that will help you find investors. Make your financial projections for a set timeframe, and identify the critical variables of your firm.
2: Why Is Revenue Model In Business Model?
Ans: A revenue model is critical for long-term business predictions since it provides an overview of its present and future earnings possibilities. There are numerous benefits to employing a revenue model, including scaling income to the cost of providing the service. Increasing revenue per subscriber, and lowering entry barriers with low- or no-cost are also benefits of using a business revenue model.
3: What Are The Types Of Revenue Stream?
Ans: A revenue stream is not the same as a revenue model. A revenue stream is a business’s only source of income. On the other hand, a revenue model is a plan for managing a company’s revenue streams and resources. Some popular revenue streams are selling assets, usage fees, brokerage fees, advertising fees, renting, leasing, licensing, subscription, etc.
In this article, we have covered revenue model definition and different types of revenue models. On top of that, we have also presented a detailed guideline on how to write a business revenue model. If you follow the steps, the process will become much more apparent to you. For further questions regarding this topic, post them in the comment box.