Revenue models for a successful business

A revenue model is the way you will make money from your product or service. You can choose one model or combine several.

There are different types of earning models:

• Direct earning models
• Earning models that ensure repeat customers
• Online revenue models
• Earning models where customers pay for use
• How do you choose an earning model?

Direct earning models

With direct earning models, you get paid immediately for your product or service. However, you have to find new customers all the time. Or ensure that customers come back to you.

1. Transaction model or product sales

The customer buys your product and pays you for it. For example, you are a baker and sell fresh bread and pastries to customers in your bakery every day.

2. Hourly rate

With hourly billing, you invoice the client for the hours you worked. Think of a graphic designer who bills clients for designing a logo. So you know exactly how much you earn for an hour's work. If you want to earn more, you have to increase your hourly rate, because you can only work a maximum number of hours in a day.

3. Consignment

Consignment means you sell products on behalf of another business for a fee. Second-hand shops and art dealers often use this model. They exhibit the works of an artist. If a work of art is sold, the gallery receives a percentage of the sales price, or a set amount per sale.

Earning models that ensure repeat customers

With recurring revenue models, you know that customers will come back to you for service, maintenance or additional purchases. So you can predict your turnover better than with a direct earning model.

4. Service model

You sell your product or service for a low price. The lion's share of your turnover comes from service activities, repairs, or maintenance. This model is popular in the manufacturing industry, the IT sector, and with construction and installation companies. Keep in mind that customers often have high expectations. If something is wrong, they want to be helped quickly.

5. Baiting model

When you use the baiting model, you sell your product for a low price. You make your money by selling accessories needed to use the product. Well-known examples are: coffeemakers and cups, razors, and razor blades. The bait model can work well if your product is of high quality. Are customers not satisfied? Then they will still switch to another provider.

6. Subscription model

Your customer pays a fixed price per week, month, or year. In return, they receive access to your product or service. Magazines, streaming services, and gyms use this revenue model. Other types of businesses have discovered it as well: think of underwear or recipe box suppliers. Make sure it is always clear what the added value of your product or service is. Otherwise, subscribers will cancel.

Online revenue models

There are more and more online revenue models. This involves selling a digital product or online service.

7. Free model or freemium

You provide a service without charging the users. Online search engines, social media, and apps are good examples of a freemium. You make money by charging users for a more extensive version or a version without advertising. You often easily attract many users with the freemium model, but usually only a small proportion of users want to pay for your product.

8. Premium

The user pays a one-time fee to gain access to your online product. Think of popular sotware licences and games. The threshold for buying a premium product is high, though. So you have to convince your customers that your product is worth the money.

9. Advertising model

You make money by selling advertising space. Usually you do not have a product or service, but others pay to advertise through you. For example, on a website or on social media. This model also includes affiliate marketing. You do need a lot of visitors or followers to make enough money with this model.

10. Mediation model

You bring supply and demand together. Think of platforms for odd jobs or second-hand clothes, but estate agents or recruiters also use this model. You receive an amount or a percentage for successful mediation.

Earning models where customers pay for use

In these revenue models, customers pay to use a product or service.

11. Product as a service (PAAS)

This revenue model is also called the rental model. You offer products that customers can rent. For example, cars, equipment, or tools. The items remain yours, allowing you to offer the same product over and over again. Do bear in mind costs for maintenance, insurance and storage.

12. Usage model

Customers only pay for what they use. For instance, with a shared car you pay per kilometre. Or with a cloud service per gigabyte of storage space. The step to becoming a customer is small because you do not have to pay a lot right away. With the usage model, it is often difficult to estimate how much a customer will use your product or service. Do you want predictable turnover? Then it is better to choose a different model.

13. Licencing model

In the licensing model, you rent out your intellectual property. You give others permission to use your product, service, know-how or brand in return for payment. Think of a design you created and what other entrepreneurs depict on products. Make sure you protect your design well against fakes, or breach of intellectual property.

How do you choose a revenue model?

You usually think about a revenue model when you write your business plan or complete business model canvas.

These questions can help you choose:

• What kind of product or service do you offer?
• What is the buying behaviour of your customers?
• How predictable should your turnover be?
• Do you want to be able to grow your business easily?
• How much money do you have to start your business?

Do you doubt which revenue model suits you best? Call the KVK Advice Team: 088 58522 22.