How to Create an Effective Revenue Model for Startups

Arbaz Sayed Arbaz Sayed
Apr 8, 2021 6 min read
How to Create an Effective Revenue Model for Startups

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Revenue model is how a business makes money. It is important for the company's long term projections. It provides Current and future potentials to earn profit. Building a great revenue model convinces investors that you are worth investing in. Designing an effective and profitable revenue model for startup is difficult but is significant.

What is a Revenue Model ?
How to Create an Effective Revenue Model for Startups?
Top 10 Most Effective Revenue Model For Startups
FAQ

What is a Revenue Model ?

The Revenue model is a strategy for managing company revenue. It will determine the types and sources of revenue that your business will generate. It projects how a product and service will generate revenue.

How to Create an Effective Revenue Model for Startups?

Choose a Revenue Model that is suitable for your startup and your Market

Research the market you are entering extensively. Study your customers, address subscription options to them. Analyze how your product will fulfill the customers. On the other hand, if you are looking to sell your product to larger companies licensing is the fittest option for high returns.

Revenue is a key component of the business model. Also While identifying your market, analyze your competitors as well.

Create a Revenue model that expresses the value of your startup

Your revenue model should communicate your value. How different your products and services are from the competition. A prominent selling point is to stand out your product that people will sign up for.

Build a Revenue that helps you find the top investors for your startup

Build a great revenue model that convinces investors that you are worth investing in. Focus on investors that will be in for the long haul. The investors should get a complete idea of your business values by just looking at your revenue model. Investors also focus on how profitable your revenue model is.

Determine your revenue model

An important point to figure out is how you're going to charge your customers. There are two comprehensive types to charge your customers.

Transactional: You can Charge customers on a per transaction basis. Once the customer purchases the product from you they don't need to pay again. Examples: Tesla, Apple (hardware), Starbucks

Recurring: You can charge your customers a monthly or annual subscription fee for the ongoing service. Examples: Netflix, Blue Apron

Determine your customer acquisition model

There are many customer Acquisition models but we will shortlist three important customer acquisition model

  • Direct: Does Your company has direct contact with the customers of your product. This typically means contracting salespeople who engage directly with and sell the product to customers. This tends to work best for products that demand a high price. Examples: Tesla, Palantir, Boeing.
  • Indirect: If your company does not has direct contact with the customers of your end product. Indirect customer acquisition includes retail sales, channel partnerships, independent dealerships, consultants, etc. Examples: Mattel, Ford, Oracle, Coca-Cola.
  • Inbound: Customers have no or little contact with your company. This typically entails driving traffic to a website or app with Β sign-up and payment interfaces. This works best for low price products or services that customers understand easily. Examples: Netflix, Amazon Prime, Spotify.

Top 10 Most Effective Revenue Model For Startups

1. Ad-Based Revenue Model

Ad based revenue models require creating ads for product, service, or app and placing them on high traffic channels. Google's Adsense is one of the most practical and common tool to get ads for your website. For most websites, AdSense will make about $5-10 per 1,000 page views.

Revenue model
Google Adsense 

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2. Affiliate Revenue Model

Affiliate revenue is an affiliate web-based revenue model in which you signup with a company to promote their products via links. You receive a small commission for the sales of the product or if someone executes the desired action.

Affiliate revenue model
Affiliate Revenue Model

3. Subscription Revenue Model

The subscription revenue model is a model where the company earns revenue by charging customers a recurring fee at regular intervals. A quite common and popular example of the subscription Revenue Model is a popular streaming platform Netflix.

Subscription Revenue Model
Subscription Revenue Model

4. Arbitrage Revenue Model

An arbitrage revenue model is a model that is followed by traders since ancient times. This is a quite simple revenue model. In the arbitrage revenue model, a product is purchased from a market or a region to be sold at high profit in a different market.

5. Direct Sales Revenue Model

In the Direct Sales Revenue Model, The business or brand directly interacts with the customers for selling their products. There are two types of Direct Sales

Inside sales - When the customer calls to place the order for the product.

Outside sales - When the brands sell their product using face to face sales transaction.

6. Licensed Revenue Model

The licensed revenue model is quite a profitable revenue model that is commonly used by music industries for licensing their songs. The brands or companies earn revenue by licensing their products. It is quite common in media industry and for patents, copyrights, trademarks.

Examples of Best Brand Licenses

  • Angry Birds & Star Wars.
  • Microsoft & Fuji Xerox.
  • Microsoft & Canon.
  • Victoria Secret & NFL.
  • Lego & Star Wars.
  • Lego & Warner Bros.
  • Monopoly & McDonald

7. Data Sales

Data sales can be explained by a simple phrase β€œIf you can’t see how the money’s made, you’re the product”. The data sale revenue model is a complicated revenue model and is hard to maintain. In this revenue model, the data is sold to the business or consumers.

Specific companies use data sales as their primary revenue model while some use it to augment another revenue model. Data should be handled with care an proper public concern if you decide to go with it as your revenue model.

8. Retail Sales Revenue Model

In the Retail sales revenue model, you have to set up a traditional department store or retail store in which you offer physical goods to your customers. A retail business generates revenue from sales of the product with the help of its retail stores.


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9. Channel Sales(or Indirect Sales)

Channel sales are the most complex pursuance in the world of sales and marketing. In simple words, brands or companies rely on a third party to sell their goods.

Revenue model
Indirect Sales Revenue Model

10. Freemium Model

Fremmium Revenue model is a model in which the consumers are offered service for free of cost but additional cost is charged for premium features. Many companies use this type of revenue model for example Skype, Zoom, Spotify and many more.

Freemium model
Spotify Freemium Model

FAQ

What does a revenue model include?

A revenue model includes the offerings of value, the revenue generation techniques, the revenue sources, and the target consumer of the product offered.

What are examples of revenue streams?

Subscription fees, Renting, leasing, Licensing content to third parties, Brokerage fees, and Advertising fees.

What is the best revenue model?

Subscription-Based Business Revenue Model is one of the best types of revenue models for startups.

Conclusion

Build a revenue model for startup that is equipped for the future. Research the market you enter effectively. Creating a revenue model might seem challenging but not having one is not an option. The revenue model for startup is crucial to driving the success of your company.

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