It is one of the key components of the business model. Existing businesses interested in expanding to new areas or adjusting to a new generation of competitors should carefully consider their revenue models. A strong revenue model is also most important for early stage startups; their investors are usually very conscious of monetization.
There are many models for revenue generation, and the accelerated development of the Internet, social networks and smartphones is expanding the possibilities.
Listed below are 26 common revenue model types and examples of their effective use. Our list does not contain all possible revenue model templates and there may be some overlaps, derivatives, and combinations; however, it’s a good place to start.
Finally, we must distinguish between decisions about types of revenue models (e.g., monthly subscription vs. pay per transaction) and pricing decisions (price of $10 vs. $50). Pricing is important; many methodologies have been developed and pricing books were written (e.g. The Strategy and Tactics of Pricing by Nagle and Pricing with Confidence by Holden). However, pricing is not the topic of this post.
I divided the revenue models to nine major catagories:
A. Commerce and retail
B. Subscriptions and usage fees
D. Auctions and bids
I. Revenue model types common in financial services industry
A. Commerce and retail
Physical goods have been sold as long as markets have existed; later, services were offered, too. In recent decades, digital products have also been developed.
The basics of selling to private clients (B2C) and business clients (B2B) are similar. Usually, major challenges may include:
- Turning a one-time sale into a repeat sale or into a pre-sale of future products (e.g. adding the customer to the firm’s loyalty club)
- Adding extra components to a basic product (e.g. insurance, financing, extended warranty, and premium accessories offered to car buyers)
- Selling a product that bonds the customers (classic examples: razors and blades; printers and ink cartridges)
- Finding a way to price with premium to market segments that are willing to pay for the additional value (e.g. first class on airlines)
1) Selling physical goods
The traditional retail world (high-street stores and malls) changed in the 90’s when companies like Amazon emerged and, due to savings on expensive real estate costs, offered through e-commerce lower prices than stores did.
2) Selling digital products
Digital goods can be downloaded and consumed instantly and usually have neither additional production, shipping or inventory costs nor major quantity limitations. Digital products include, for example, songs, eBooks, games and apps for smartphones and tablets.
3) A service sold per unit
The work-hour is common among lawyers, accountants, consultants, IT integrators, etc. This model also exists on platforms such as Get A Freelancer and Elance.
Other widespread units include distance (taxi rides), weight (parcel shipment), and bandwidth (internet service providers).
4) A service with fixed price
Movie tickets cost the same amount regardless of the movie’s length and quality or the seat’s location. Women’s hair salons sell different services for set prices: styling, coloring etc.
A current example: Fiverr, a marketplace where a wide range of small services (called ‘gigs’) – from translations and editing to grapfic design and marketing – are offered for $5 each.