Revenue Model: Explanation, Types, Example

Sohini Mazumder October 10, 2020January 16, 2023 0 Comments

What is Revenue model?

Revenue model helps the organization or an institute to give proper and articulate ways and methods regarding sources of financing. This also aids in properly recognizing which product or service will bring more revenue and how will it happen, accordingly production will be made. It helps in bringing the balance between the cost and sustenance of the business. It also helps the business in targeting marketing and also to achieve their goals properly. Helpful in understanding the condition of the business both in the future and also at present for the long term.

Choice of effective Revenue Model:

It is always an important factor to understand which revenue model will be helpful and bring a positive effect on the business without causing any type of harm to the business. This also includes understanding the business and also to make strategies for the business.

While choosing a proper revenue model, few steps given below should be considered:

Understanding the products. A clear understanding on which product will bring more revenue and which product will fail to bring enough return to the business is also important. How will the product fulfill the demand and requirement of the targeted customers should be considered. The future of the product should also be kept in mind. Accordingly, products should be produced, updated.
Understanding how consumers prefer buying these goods. Do they like to buy it online or offline and accordingly steps shall be taken to sell their products and services. So, they don’t have to waste their resources where consumers are not interested.
Understanding what steps, the rivals are taking for selling their products. Accordingly, the business unit will sell, it is because the steps of the rivals also affect the business also. This will also help in understanding the competition and the existing and future situation of the business.

Types of Revenue Model:

The revenue model can be segregated into various types. Firms can choose their respective revenue model depending on the business size, goals of the business, and also on the types of activity the business organization performs.

Few of the most important revenue models are:

1. Ad-based Revenue Model

this includes creating advertisements for specific sources- websites, applications and etc. It is helpful in making money from those advertisements, and this is considered as a source of revenue for the business. On the contrary, this needs a lot of users.

2. Affiliate Revenue Model

It collects commission on the sale of those products which were promoted. The merit of this type of revenue model is that it brings more return than the Ad-based revenue model and its demerit is that the return is limited to size of the business.

3. Subscription Revenue Model

It works by pursuing the customers to choose the products which will include payment for a long time period. This model is helpful in getting a recurring income.

4. Transactional Revenue Model

it helps in providing the goods which the customers are willing to pay for. This is considered to be an important method.

Also Read: Zomato Business Model [How Zomato Earn Money]

5. Web Sales

This includes transactions through the internet. Here consumers are expected to approach the organization and also pay them directly.

6. Direct Sales

This includes 2 types of sales, on where there is a face-to-face transaction known as Outside sales and the other one is, inside sales, here physical presence is not a factor, order can be placed through calling or by some agents. One factor which undermines the glory of direct sales is that it requires hiring people.

7. Indirect Sales

This is also known as Channel sales, where the sellers can resell the product of the organization.

8. Freemium Model

This is found when the companies provide the free product at the initial level, but the premium products are saved for the people who are willing to pay for the extra features and services for the product.

9. Retail Sales

It includes setting up retail stores so which includes physically being there and purchasing the product or services. This can give the sellers an opportunity to expand their business by giving additional discount or free goods to the customers.

This can not be helpful for the business which focusses on selling software and products or services that are intangible.

Also Read: Jio Mart Business Model [How JioMart Earn Money]

10. Only Free product, not service

Allowing the customers to have the access to that product or service for zero cost, and only pay the cost for things like installation, or other types of additional cost. This is a good method for increasing brand awareness among the customers, which also increases the customer’s trust, but it at times has a disadvantageous effect, as in the long run, it will not be beneficial enough for the smooth running of the business.

Thus, this is what the Revenue model is all about and also few of its popular types have been mentioned. These types can be chosen after considering the entire situation of the business.