Revenue Streams are the sources by which cash is generated from each Customer Segment.
If the business is considered as a lake, then Revenue Stream is its tributaries.
You should try to find out, for what value a customer segment is ready to pay?
Finding out the answer to this question helps you generate Revenue streams from each Customer Segment.
Some questions that help a business fill out the revenue stream building block:
- What value are customers currently paying for?
- What value will encourage customers to pay more for?
- How are they paying for the value right now?
- What does the percentage of each Revenue Stream represent?
- Which payment mode would be preferable to them?
Pricing mechanisms are considered as the effect of product pricing on its expected demand and supply.
Each Revenue Stream may have different pricing mechanisms, such as fixed list prices, bargaining, auctioning, market dependent, volume dependent, or yield management.
There are two types of pricing mechanisms:
1. Fixed Pricing
Fixed pricing refers to the price being fixed because of the fixed inputs that go into the product.
Fixed list pricing
Product feature dependent
Customer segment dependent
2. Dynamic Pricing
Dynamic pricing refers to the price being variable because of the variables that go into the product.
Types of Revenue Streams
A business model consists of different revenues, mainly transactional revenue generated from one-time customer payments (e.g. revenue from the sale of goods), or recurring revenues generated from regular payment (e.g. revenue from subscription).
1. Recurring revenue
Recurring revenue consists of revenues generated on a regular or frequent basis. This revenue occurs for a significant period, often on a monthly or annual basis. Recurring revenue which occurs every month is termed as Monthly Recurring revenue and those on annual basis, termed as Annual Recurring revenue.
It is mainly used by companies or organisations that sell services or subscriptions or in the commercial contracts or a lease or provision of license.
To make it more clear, let’s take an example of phone bills. These bills are to be paid monthly. So, there’s a contract between a consumer and the phone company.
Here, receive a monthly bill by the company is considered as the recurring revenue, occurring regularly.
2. Transactional revenue
Transactional revenue is revenue which is generated from the sale of goods. This revenue occurs through a transaction from a customer from a one-time transaction.
Let’s take an example of a customer who purchases a product like a television or a washing machine, etc. Here, revenue generated from the sale of goods to the customer results in transactional revenue.
Examples of Revenue Streams
There are many ways from which the Revenue Streams are built:
When the seller transfers his/her ownership rights of an asset to the buyer, then it is regarded as an asset sale. This type of revenue generation is considered a Transactional revenue model.
For example, if a shopkeeper sells his mobile phone to the buyer, then this involves the transfer of ownership right to the buyer and so the buyer is with full freedom over what he/she wants to do with that mobile phone.
When a seller sells the continuous access to a service on a periodic subscription, then it is regarded as a subscription fee. This type of revenue generation is considered a Recurring revenue model.
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.
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.
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.
For example, Zipcar.com is a good example. This company let customers use their cars and earn revenue on an hourly basis. This facility has helped people in North American cities to decide to rent rather than purchase cars.
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.
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.
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.