Startup founders and leaders are always searching for new and innovative ways to grow their businesses. Some prefer to optimize the existing revenue stream, whereas others opt to build a new one. 

If you are happy with the growth pace of your enterprise, it is fantastic. But who knows for how long your current revenue sources can keep you afloat in the market?

Given the uncertainty these days, one never knows what might disrupt the revenue pipeline at any time. That is why strategists always advise having diversified revenue streams to mitigate the risks. 

But wait, you aren’t sure how to build a new revenue stream, so what to do?

Don’t worry; we’ve got you covered. 

Let us walk you through the various revenue options we’ve jotted down for you. You can pick the right one for your business based on its relevance and feasibility.

What is a Revenue Stream?

The revenue stream is the source of business revenue and the amount of money that flows into a company through various commercial activities.

Any revenue stream has three main components: The source of revenue stream, the reason for the revenue stream, and the method of revenue stream.

 

Component	Definition	Examples
Source	The originating source of your revenue.	Specific customer, customer segment, consumer segment.
Reason	The reason(s) why someone is paying the money.	It could be your item, service, product, or contractual relationship.
Method	The method of how the payment occurs and how is it structured.	Monthly subscription through recurring invoicing

 

Different types of Revenue Streams:

Based on variations of these sub-components, we can categorize the revenue streams into different types. Following are some of the popular revenue streams you will come across. 

1) Recurring Revenue

Companies provide access to a product or service in exchange for a recurring fee which is charged at scheduled intervals.

This stream of revenue ensures predictable cash flow and a sustainable profit margin for the businesses. It also helps establish a deeper relationship with customers to attain high customer retention.

This model is usually suitable for the following businesses:

1. Subscription and Membership Service

Here, people pay weekly, monthly, or yearly fees in exchange for products and services.

When people subscribe to these services, they sign up to enjoy access to these services exclusively. Some notable examples of subscription models are Netflix, HBO, Spotify, and product box subscriptions. 

Advantages:

For the right product, brand, and industry, a subscription model can be a very effective and lucrative approach to running a business for the long term as it heavily focuses on customer retention. In this model, you receive monthly recurring revenue which helps you to keep your business afloat in difficult times.

 

2) Renting, Leasing, or Lending Assets

 

This type of recurring revenue model provides the rights to the customers to use the company’s asset or service for a fixed period. Here, the customer has to return the asset to the company after an agreed period.

 

Common examples of this revenue stream are

Car leasing companies where the customer leases a car for a fixed period and at the end of the decided time, the customer has to return the car to the company.

Other examples include Zipcar, and Turo – all of these allow you to use something for a specific period.

Advantages: 

This model is good as it gives you interest rates on monthly rental costs, enables you to forecast cash flow, spread the cost over a longer time, and match payments to your income.

 

3) Licensing content to third parties

In the business model, being the owner of the content, you keep its copyright while charging the third party to use your content for a fee.

Examples of Licensing models are:

Dolby Laboratories licensed its technology to consumer electronics manufacturers such as DVD player manufacturers.

Other businesses that use licensing revenues are the National Basketball Association, Major League Baseball, and other sports clubs which grant permission to third parties such as apparel vendors to use their team logos in video games, on clothes, and other merchandise.  

Advantages: 

It allows your business to generate income without taking on heavy overhead and make inroads into different markets, and stay alive in difficult times.

 4) Brokerage fees

An intermediary service provider plays a vital role in this business model. Here, companies match people for a certain service, and the revenue is generated by providing service to two different parties.

Popular examples include

Real estate agents, real estate brokers, and credit card brokers.

Advantages: 

It’s relatively a low-effort revenue stream where you do not require to deliver service to the customer directly, rather the agent will deal with it by himself. Also, you can easily take cuts from the customer’s transactions without being directly involved with the customer.

5) Advertising fees

This business model generates revenue through the sale of advertising and has become popular in the digital marketplace, where social media giants like Google and Facebook have built large-scale digital advertising machines. 

First, you have to establish an audience by creating interactive content and then generate revenue by selling access to that audience.

This model is famous in the media industry:

Radio, TV, podcasts, YouTube shows, and Websites to mention a few.

Advantages: 

The advertisers are interested and more than willing to pay a high amount for access to a highly targeted and engaged audience.

It increases your revenue without getting you in the hassle of reaching out to customers for selling a product or service.

5) Transactional Revenue

This revenue stream is considered to be less attractive than recurring revenue because it is based on predictable sales of goods and you earn money through an exchange of cash or credit for goods.

It’s a one-time sale of goods and services and is further classified into operating and non-operating revenue streams. 

Example:

Bookkeeping service, sale of real estate, machinery, vehicle, clothing brand, toothpaste, and many other retail services.

Advantages:

In this revenue stream, the customer pays you for the product or service and is then free to do whatever she or he wants with it.

 

6) Project Revenue

This revenue stream is project-based and you earn through the one-time assignment with existing or new customers.

Here, companies need to prove their worth to clients on a regular basis and develop bids for future projects. Companies with this model may have recurring clients, but they have no way of knowing when the next sale will be made.

 Example:

Construction of a flyover or roads for a government company on a contract basis.

Residential Interior Desiging.    

3D Projection Mapping.

Advantages:

You are free after the project is delivered and depending upon your performance you can be referred to others as well.

Customers are not interested in your hourly rate instead they want their work done.

7) Service Revenue

It is the type of revenue where you use your skills and generate income by providing service to the customers.

The services revenue model heavily relies on the organization’s human resources, i.e., their capabilities, and talents. Here, skill and time matter the most. 

Company’s operating on the service model is common in a broad range of industries including hospitals, software houses saloons, and consultancy.

 

Example:

• Omnicom Group Media Company
• Lather Salon Aspen
• Cleaveland Clinic Medical Center

 

Advantages: 

You get the chance to create loyal and sincere customers and build a long-term relationships through good customer service.

 

How to pick the right Revenue Stream?

 

If you have made up your mind to add a new revenue stream to your business model, then you have to get all the things needed to start it.

To generate a revenue stream other than your existing business, you need to identify the type and nature of your product. 

It’s better to look for ways to leverage existing resources and structure in your existing business model that will help you to maximize your profit margin and minimize logistic strain across your new revenue model.

To make the best out of your new business idea, you should clarify the pros and cons of other revenue models. You should know consumers’ behavior and needs using the experience of your already established business.

If you have a brilliant team, creating new offers and introducing unique products/solutions for the customers should not be a big challenge.

What to keep in mind?

A business can produce one or more revenue streams from each source or customer segment. However, with the right mindset and strategy, you can turn the table in your favor in the long run.

There are various ways you can create a new revenue stream: New product development, new market exploration, or upselling to existing customers. If COVID-19 has taught us one thing, it is not to rely on a single revenue source and brace of unpredictability.

All entrepreneurs should keep in mind that today’s success doesn’t guarantee tomorrow’s prosperity, so consider diversifying your revenue streams.  

At Numberly, we are committed to helping young entrepreneurs and founders with best-in-class financial advice and solutions. If you aren’t sure about the feasibility of your next business move or aim to build a new financial model, let our experts guide you all the way. 

Schedule a consultation session as per your convenience and availability – and we talk business during the chat.