As someone who worked closely with startups, I know that as much as your business idea could be innovative, your revenue model wouldn’t be. You can always resort to the internet to look for playbooks for the detailed guidelines on revenue models for startups and for ways to monetize your product.

SaaS or Subscriptions are the most popular amongst aspiring entrepreneurs. We understand that in order to ensure innovations; many startups struggle and invest their precious time in creating a different or new revenue model. We bring you the good news that you can save time and hassle by simply offering you the opportunity to include the different revenue models mentioned below.

Before discussing which revenue model would suit you best, let’s talk about the difference between three major parts of the Business Model for startups. The revenue model for startups is only part of the “delivering value” section.

1. Creating Value – What is the product or service you are providing to your customer.

2. Delivering Value – How you market and sell these products and services encompass your revenue model or revenue stream.

3. Capturing Value – This part of your business model represents the range of profits related to your efforts.

The revenue model is a part of delivering value which is further divided into profit-generating operation:

• Marketing – It is not enough to innovate or offer a product; how your target audience will find your offering is essential.

• Sales – You would need to choose from the four basic selling models to sell your product or service i.e. inbound web, web direct, channel sales and retail sales( for tech-based companies).

• Business development – It refers to the partnerships which aid in selling your products to a new market.

• Revenue Model – Refers to the models which will help you streamline and ensure the inflow of revenue.

We have narrowed down the marketing terms for you to comprehend as they will determine choices and revenue streams for your startup. Here are some marketing terms you will need to understand – because they will apply to all of your options and revenue streams.

The following marketing terms are both universal and specific in nature; however, each of them are necessary for the success of your company.

• Customer Acquisition Cost (CAC) – How much are you willing to pay as the marketing and sales expense to make your potential customer pay?

• Lifetime Value (LTV) – If your startup is relatively new your LTV is 12 months at maximum until your revenue stream is actualised. If your business involves transaction, how much transaction will take in the first year. If your business requires subscriptions, what will be the revenue generated from these subscriptions in the first year?

• Time to Close – How long is it going to take to turn your lead into a paying customer?

• Pricing – The price you set for your product or services.the price you elect to charge for your service

• The average revenue per order/customer –This might vary however you need to have set an average revenue goal.

All these components can be regarded as the prerequisite for your revenue model template. You would need this revenue or financial model to sweep your desired venture capitalist or venture investor off his feet.

In the beginning of your journey in the start-up ecosystem, you would need to rely on a primary revenue model. However, as you scale your business or bring in investments through your existing model you will be able to have more than one revenue model for your startup.

The good news is you could pick one of the revenue models for your startup and if it doesn’t work out, you can always switch to another mode. However, many companies rely on more than one model as well such as opting for both subscription as well as services based revenue streams.

SO WHAT IS A REVENUE MODEL?

Unlike a business model, the revenue model determines the strategy you would have to follow to monetize your product and services. You can also regard a revenue model as your revenue stream. It is a framework that helps you better manage your resources and revenue streams. It encompasses all the sources of revenue, techniques involved for generation of your target revenue and the target audience for your startup.

WHAT SHOULD BE YOUR REVENUE MODEL?

SUBSCRIPTION REVENUE MODEL:

In a subscription revenue model, you charge a periodic fee from your customers for your services. Such a model is common amongst “Over The Top” platforms and software service providers. The recurring payment may be weekly, monthly or yearly. The subscription fee is pertinent to access the services and products with a few additional charges to access special features. At times, the customers can have access to basic features of the services in the trial period free of cost; however if they would like to continue with the service, they would have to pay the allotted fees.

Pros: This revenue model ensures a steady and consistent flow of income for your services. It also ensures recurring revenue if the customers are interested in the product and are willing to pay extra to be able to use additional features being offered.

Cons: You would have to constantly introduce new features to add value to retain your customers and compete with the saturated market with similar models.

COMMISSION-BASED REVENUE MODEL

This revenue model enables you to charge a certain amount of commission for connecting the service provider with the customer. You can charge based on the product or service being offered. The nature of the commission can vary from being a flat rate to being a percentage of transaction size. Such a revenue model is commonly adopted by internet companies and is a popular choice for generating an income stream.

Pros: The revenue stream is consistent and predictable.

Cons: It might be difficult to ensure the scalability of your startup.

AFFILIATE MODEL

The affiliate model is often confused with the commission model. The two models are similar; however, unlike the commission-based revenue model, the commission would be charged from a seller rather than the customer in an affiliate revenue model. The affiliate model encompasses a contract between the product and service provider with the promoter. A promoter can be a startup like yourself or an individual that would recommend the provider’s product or service. The revenue stream is generated from a percentage of the sales done via a referral link.

Pros: You won’t have to invest a hefty amount to earn revenue. If you have enough traffic, you can apply for the affiliate model program.

Cons: The percentage offered to the promoter may not be high enough and has the tendency to fluctuate.

ARBITRAGE BUSINESS MODEL

This business model revolves around the concept of price difference in different markets pertinent to the same product. Revenue is generated through trading different currencies and commodities in various markets. You can easily earn a lot of money by allowing advertisement space on your website as well as purchasing traffic from a website that correlates to yours.

Pros: No hefty amount of investment is required.

Cons: In case of inflation or devaluation, your business can face an overwhelming loss.

ADVERTISING REVENUE MODEL

The advertising revenue model is the most popular in the market nowadays. All you have to do is allow companies to advertise their products and services through your channel or webpage. You can set your own profit based on how long the advertisement would be up on your webpage.. If you have social media platforms or offline channels such as journals, you can easily adapt to this revenue model.

Pros: If you draw a lot of traffic and outreach, you can easily switch to this model without the need of huge investments and complications.

Cons: It can jeopardize your goodwill and reputation if the product or services fails to satisfy the customers.

PAY PER USE BUSINESS MODEL

If you adapt to this revenue model, you can charge your customers a certain commission for each time they avail your services. The commission can vary depending on the product or services being availed. Such a model is popular amongst credit card companies.

Pros: Unlike a subscription revenue model, customers incline towards startups with such revenue models as it ensures flexibility and affordability.

Cons: It does not ensure a stable and predictable flow of revenue.

LICENSING REVENUE MODEL

If your startup is dealing with intellectual property, you can easily earn revenue by providing a licence for such innovative inventions. It is popular amongst businesses that have patented their products and services. Tech startups prefer such a revenue model as it allows them to monetize their idea by licensing it to other companies to be incorporated within their products and services. The price per licence may vary according to the time, volume as well as region.

Pros: You wouldn’t have to incur any expense pertinent to promoting, packaging or producing the product.

Cons: You will likely lose control over your product.

Once you’ve selected the revenue model that is the right fit for your startup, you should be able to design the framework for the expansion and growth of your startup. Equipped with the right revenue model you can set on the course of building your financial plan to achieve your goals. Having the right revenue model that aligns with your business model, you can catalyse the operations and revenue stream of your business. You can always switch to another revenue model if one fails to work out for your business.

If you are having trouble choosing between the variety of options that might help you achieve your financial goals, you can always reach out to us at Numberly for a financial consultancy. We can help identify the right fit for your business model along with taking the burden of creating a financial plan that you would be needing as your next big step for setting a strong foundation of your financial framework. So what are you waiting for? Book a consultation meeting with us and let us take the wheel of driving your startup to success.