As Warren Buffet once said:” The more you learn, the more you earn.” And today you’re going to learn how to earn even before you start your business. Yes, we’re talking about revenue models and these 20 types that we’ll show you today will help you choose a business strategy that suits you best.
Business Model, Revenue Model, and Revenue Stream are not the same
To start things off, we’ll cover the basics first. Before you start to brainstorm all kinds of different business start-up ideas, you need to make sure you understand the differences between these three basic concepts:
- Revenue Model – is a revenue management strategy that is in charge of all revenue streams and their resources.
- Revenue Stream – a fancy term for only one source of revenue. One company can have many different revenue streams.
- Business Model – A structure that explains how revenue models and revenue streams work together to stimulate profit.
1. Lead Generation
Is a process where marketers acquire leads (or in other words, potential customers) and send them to a specific product/service for a fixed payout. Lead Generation is extremely profitable, but only if done right. Marketers that facilitate Lead Generation are paid via the CPL model (Cost-per-Lead), or in other words:
They get paid for each lead (customer) they bring to a product/service
2. Commerce (or E-Commerce)
Ah, the concept that made Amazon an online sales giant. This one is fairly simple. You set up an online shop that sells products for a certain price. The product can be yours, but it doesn’t necessarily have to be. You can sell just about any product, as long as you can deliver it to your customer.
3. Metered Services
Or Pay-per-Use is a revenue model where your customers pay only for the services they actually use. Electricity and water bills you pay for each month are perfect examples of metered services.
4. Productizing a service
A revenue model that charges a flat fee for product/service. In the eyes of your customers, your service becomes a “we’ll do it for you” product with a flat fee. In your eyes, your product now runs systematically, both with and without you involving.
Licensing is not actually as profitable as it was before, but it’s worth mentioning because it gave birth to Subscriptions, which are becoming increasingly popular as times go by. However, it’s not that licensing is dead, it’s still being used, and the biggest example is undoubtedly Microsoft’s Windows. But since we’re talking about brand new businesses and not well-established, globally-recognized businesses, this isn’t the way to go.
If you’re a bit older, you’ll know what magazine subscriptions are and how they work. This is no different. You get charged for a product/service and you usually pay on a monthly or a yearly basis (depending on the service).
7. Big Data
This isn’t exactly a start-up idea, but a rather profitable opportunity that comes as an outcome of a successful start-up business. For example, you start an e-commerce store, you’re working hard and after approximately two years, you have a really extensive data set of all users that purchased your products.
This is where this revenue model comes into place. You can sell this extensive data set to competitors and just like that you’ve got tons of cash at your disposal.
8. Markup (Profit Margin)
If you’re familiar with basic economic principles, this one should be easy as pie. The basic idea is to calculate the cost of goods you have and make a profit margin on the original purchase. If you’re not familiar with economics, then let’s put it this way:
A Markup model is a model where you sell something for a higher price than what you’ve actually paid for.
Are basically middlemen between buyers and sellers, and transaction fees are their rewards. One of the most popular marketplaces are Amazon, Paypal, eBay, AliExpress, etc.
This model is arguably one of the most well-known models of all time. You rent or lease a physical asset (usually) for temporary use. That’s it. If you have physical assets at your disposal, then it’s time to include them in your start-up business. If you’re looking for profit, or possibly to create a full-blown business by providing rental services, try to remember this:
The more physical assets = the merrier
11. Advertising/Search PPC
If you’re looking to start a business that doesn’t necessarily involve you leaving the comfort of your home, then you’re gonna love this one.
Advertising models usually include ad-based revenue models, where a Publisher (the guy with the website) showcases ads that he created through an Advertising Network (Such as Google AdSense). If your business has a website in the making, then placing non-intrusive ads might be exactly what you need to stimulate your passive income.
Search PPC revolves around targeting niche-related keywords that will display your promoted website on top of google’s search results. Bottom line, you’re getting paid for each click on that website.
If you already thought you understood gaming, and that it’s all about selling games, you couldn’t be more wrong. This particular revenue model offers more than one trick up its sleeve, and some of the most popular ones are:
- In-App advertising – You place ads inside your game and you earn money for each click on that ad. The biggest benefit to this is the fact that modern in-app advertisements serve as a reward system for players (i.e if you watch this video you’ll earn 20 points)
- In-App purchases (Freemium) – Your game is free to download but your players need to pay to access additional in-game features.
- Premium (Pay to download) – The old fashioned model that is in decline for the past few years.
13. Fee for service
This model is most commonly seen in health insurance and health care industries. Fee for Service basically means that all provided services are paid for separately, so if you offer multiple services that fall under one category, then you should take your time to see if you can implement this revenue model.
14. Commission (Affiliate Marketing)
In this revenue model, you provide a commission(a previously agreed fixed amount of money) each time the other party completes a successful action (lead, sale, call, click, etc depending on the agreement).
Although this might not seem like a good idea, it’s actually extremely profitable since statistical data has been showing continuous growth of Affiliate Marketing (10% each year since 2015).
This is a relatively poor model in terms of potential growth and overall performance. The only scenario where your startup business actually benefits from this particular model is if you’re either Wikipedia or a popular streamer with millions of viewers. So it’s best to re-consider this one if you’re not a popular gamer.
Most common in B2B (Business-to-Business) sales, mainly seen as effective when software sales/services are involved. The process is simple, you pay for each user you gain through internal promotions between both businesses.
This model requires you to set up a traditional retail store. You offer goods to your customers that have been distributed to you through wholesale. Besides traditional, there’s also online, such as Amazon, so it’s up to you to choose which way you want to go.
Arbitrage is a model where taking advantage of the price difference between two markets is your main goal. You manipulate temporary price differences and use them to stimulate your profit. In plain English:
You buy a good/service on one market and sell it on another one at a higher price.
19. Direct Sales
Direct sales are just a fancy word used to describe selling products in non-retail environments. Sales mostly happen online, within the comfort of your home, for both you (in most cases), and your customer. The main goal of the system is to eliminate all middlemen in the process. It’s just between you, and your customer, so make sure you do it right.
20. Hybrid Models (Combination of different Revenue Models)
Usually includes two (or more) different models combined to stimulate profit. For example, if you have your own product, you can combine Markup + Subscription. You start by directly selling your product to your users, and after some time, you include personalized subscription plans (subscribe to receive 2 products for the price of one.
Also, remember to take great care when you start to calculate your profit margin since it will most likely take a bit more time to create a profitable subscription.
Enjoy the content? Make sure you follow us for more!