What is a Revenue Model?
A revenue model is a concept-based structure that states the method or the strategy used to generate revenue for the business.
It helps identify the product/service that will be used to earn revenue and also the techniques used to sell them.
The revenue model is an essential part of a company’s business plan and business model.
It includes details on the product or service the business has to offer, their target customer, the techniques or the strategies of generating revenue, and revenue streams, etc.
Without a well-defined planning model, it will be difficult for start-ups to sustain the costs.
A revenue model answers how a business generates revenue.
It provides a complete overview of the company’s potential to earn future profits.
Therefore, it is regarded as their long-term business projections.
Types of Revenue Models
Nowadays, in the digital era, there is a huge number of ways to generate revenue.
Each one of the revenue models depends from firm to firm.
Some of them are mentioned as follows:
Renting or Leasing model
Some revenues are generated by granting others the right to use our asset for a certain period.
And then, an amount is charged by the lender in the form of a fee.
This benefits the lender with the revenue and on the other hand, the lessee does not have to spend the whole amount in purchasing the asset.
Instead, he/she incurs a little expense and use the asset for the duration they want.
Many physical assets can be rented or leased like land, buildings, furniture, vehicles, etc.
Some revenues are generated in the form of a license fee.
These license fees are charged from a customer for granting them the right to use the protected intellectual property.
For example, content owners sell their usage license to the third parties and in exchange charge license fees from them.
In this revenue model, businesses purchase a product or service and then, increase their prices before selling it to the consumers.
It is one of the oldest and popular models to generate revenue for the businesses especially for middlemen such as wholesalers, retailers, etc.
In this revenue model, an individual charges commission for every transaction or sale between the two parties.
It is common in the digital world where affiliates promote business products and on sale, charges a fixed percentage of commission on each product.
When a seller sells the continuous access to a service on a periodic subscription, then it is regarded as a subscription fee.
For example, a customer pays monthly or a yearly membership fee to the gym in exchange for access to its exercise facilities.
This generates revenue for the gym in the form of subscription fees.
Also, the daily newspaper or monthly magazines which are delivered to your house involves the subscription fees.
In this model, businesses charge consumers, the price worth of the product or service. It doesn’t involve any kind of extra charge.
For example, the phone companies charge a fixed rate of calling per minute from their customers.
The revenue generated by the advertisement of goods, brands and services, in the form of a fee is termed as advertising fees.
For example, the media industry and event organizers have heavily relied on advertising revenues from the traditional period.
Recently, software and service sectors are also following the same path.
This revenue model is common in banking organisations where bank charges interest on offerings (loans) provided to their customers.
Revenues generated from intermediary services, done on behalf of two or more parties involves the brokerage fees.
For example, stockbrokers and real estate agents are considered as intermediaries, who earn a commission for establishing a relation between the buyer and the seller.
Credit card providers are another example, where they earn revenue by taking a percentage of the value of each sales transaction executed between credit card merchants and customers.
Usage Fees Model
Revenue generated from the use of a particular service by a customer is regarded as the usage fees.
The revenue depends on the customer usage of the service, i.e., more the service is used, more the revenue is generated.
For example, a phone call from your phone. The more the duration of the call, the more the amount is charged from you.
This revenue model lets users use companies’ basic product for free.
However, they charge a price for the advanced features of their product.
For example, you might have seen many mobile apps offering advanced features after charging a certain amount from the customers.