Revenue

Model Types
Assist. Prof. Sia Tsolova, PhD
 What is the
difference?
 Business Model
 Revenue Model
 Revenue Stream
Revenue model vs revenue stream

 A revenue model is used to manage a company’s revenue streams, predict

income, and modify revenue strategy. The revenue itself is one of the main KPIs
for a business. Measuring it annually or quarterly, we are able to understand
how our business operates in general, and whether we should change the way
we sell the products or charge for them.
 A single source of revenue a business generates is called a revenue stream.
These are often divided by customer segments that bring revenue via a given
method. The two terms – revenue stream and revenue model – are often used
interchangeably, since from the business perspective, the subscription revenue
model will have a revenue stream coming from subscriptions. However, models
can name multiple streams divided into customer segments, while the principle
of revenue generation (subscription) will remain the same.
• A revenue stream is a company’s single source of revenue. A
company can have zero or many revenue streams,
depending on its size.
Business Model
• A revenue model is the strategy of managing a company’s vs Revenue
revenue streams and the resources required for each
revenue stream. Model vs
• A business model is the structure comprised of all aspects of
a company, including revenue model and revenue streams,
Revenue Stream
and describes how they all work together.
 Revenue Model

 What is a Revenue Model?

 What are the Revenue Model
Types?
Retail Revenue models

 The revenue is generated by directly selling an item or a service to a customer.

The customer can be another company (B2B) or a consumer (B2C). The price of
the product or service constitutes the production costs and margin. Increasing
the margin, the business is able to generate more income from sales.
Retail Revenue models

1. Licensing/one-time purchase. This entails selling a software product by license that can be
used by a single user or a group of users. The general idea is to offer a product that requires
making only one payment for it, e.g. Microsoft Windows, Apache Server, a majority of video
games.
2. Subscription/recurring payment. Unlike licensing, a user receives access to the software by
paying a subscription fee on a monthly/annual basis, e.g. Netflix, Spotify, Adobe products.
3. Pay-per-use. This pricing tactic is mostly used by different cloud-based products and services
that charge you for the computing powers/memory/resources/time used. Examples are Amazon
Web Services, and Google Cloud Platform.
4. Freemium/upselling. Freemium is a type of app monetization in which a user may access the
main product for free, but will be charged for additional functions, services, bonuses, plugins, or
extensions, e.g. Skype, Evernote, some video games.
5. Hybrid pricing. Sometimes pricing plans are a mixture of more than one. So that freemium
plan might morph into some form of pay-per-use tiered plan. After passing some limit in
computation or resources, a user can be forced or offered to use another type of pricing, for
example Mailchimp, Amazon Web Services, and SalesForce.
Retail Revenue models

 Various combinations of pricing tactics can be used simultaneously, which is

more often seen in cloud-based products that offer multiple pricing plans at
once. The revenue model in this case remains based around the transaction and
purchases made by the customers. The difference in pricing tactics will modify
how the revenue is generated and basically depends on the type of
product/service you sell.
Retail Revenue models

 The pros: Full control over the pricing strategy.

 The cons: The cons will depend on the industry/product type and pricing
tactics, as the model itself imposes constant generation of sales with the help of
advertising and marketing strategies. The only con we might mention here is
the financial burden connected with sales you will carry on your own.
 Examples: Nearly any company that produces and sells its products: Samsung,
Rolls Royce, Nike, Microsoft, Apple, Boeing, McDonald’s.
 Licensing/one-
time purchase
1. Licensing/one-time purchase.
This entails selling a software
product by license that can be
used by a single user or a group of
users. The general idea is to offer a
product that requires making only
one payment for it, e.g. Microsoft
Windows, Apache Server, a
majority of video games.
Subscription model

1. Subscription/recurring payment. Unlike licensing, a user receives access to the

software by paying a subscription fee on a monthly/annual basis, e.g. Netflix,
Spotify, Adobe products.
Subscription Revenue Model

 The subscription revenue model entails offering your customers a product or service
that customers can pay for over a longer period of time, usually month to month, or
even year to year.
• Advantages: If your company is far enough along in its development, this model can
generate recurring revenue, and can even benefit from customers who are simply too
lazy to cancel their subscription to your company (which is the dirty little secret of a
subscription-based model).
• Disadvantages: Because this model depends so much on having a large consumer
base, it’s critical to maintain a higher subscribe rate than an unsubscribe rate.
Pay-per-use

1. Pay-per-use. This pricing tactic is mostly used by different cloud-based

products and services that charge you for the computing
powers/memory/resources/time used. Examples are Amazon Web Services, and
Google Cloud Platform.
Freemium model

 Freemium model – This model is

famous for being used by
LinkedIn, currently the most
popular business/social platform.
With the Freemium Model your
basic services are not being
charged for, however, the
premium services are available if
the user pays for them through
additional fees. This model is a bit
tricky as it requires large
investments to reach your target
audience, and hard work and
heavy planning in order to
convert free users to paying
customers.

https://www.altexsoft.com/blog/revenue-model-types/
Freemium model

 The freemium model is one in which a company’s basic services are free, yet users
must pay for additional premium features, extensions, functions, etc. One of the
biggest companies to use this model is Linkedin, the most popular business/social
media platform.
• Advantages: Similar to the previous model, the freemium model offers something free
to users, which is a great way to give them a taste of your product or service while
simultaneously enticing them to pay for something later on.
• Disadvantages: This model requires a considerable investment of time and money to
reach out to your audience, and even more effort to convert free users into paying
customers.

https://fi.co/insight/the-10-most-popular-startup-revenue-models
 1. Hybrid pricing. Sometimes pricing plans are a
mixture of more than one. So that freemium plan
might morph into some form of pay-per-use
tiered plan. After passing some limit in
Hybrid pricing computation or resources, a user can be forced
or offered to use another type of pricing, for
example Mailchimp, Amazon Web Services, and
SalesForce.
Advertisement-based
model

 The advertisement-based revenue

model is valid both for online and
offline businesses. It’s often used by
websites/applications/marketplaces or
any other web resource that attracts
huge amounts of traffic. Revenue is
generated by selling ad space. This is
one of the most standard methods of
gaining revenue.
Advertisement-based model

 The pros: Having a high-traffic resource allows you to monetize the ad space
nearly instantly. Often, there is a high demand on advertising space, especially
with organic traffic and platforms with the target audience.
 The cons: Running advertising campaigns to gain web visibility on social
networks is a standard marketing activity with targeting instruments more
precise than ever. However, advertisements are everywhere, so you might think
twice whether you want to distract a user by placing an ad in your app – even if
it is a secondary revenue stream.
 Examples: YouTube, Instagram, Facebook, Forbes, Google.
Advertising / Ad-Based Revenue Model

 Ad-based revenue models entail creating ads for a specific website, service, app, or
other product, and placing them on strategic, high-traffic channels. If your company
has a website or you have a web-based company, Google’s AdSense is one of the most
common tools get ads. For most websites, AdSense will earn about $5-10 per 1,000
page views.
• Advantages: Making money from ads is one of the simplest and easiest ways to
implement revenue models, which is why so many companies utilize ads as a source of
revenue.
• Disadvantages: In order to generate sufficient revenue to withhold a business, you will
need to attract millions of users. In addition, most people find ads annoying, which can
lead to low clickthrough rates, and therefore, lower revenue.
 Commission-based models
 A commission revenue model is one of the most common ways businesses make
money today. A commission is a sum of money a retailer adds to the total cost of a
product or service. A commission can be assigned as a
• flat rate, a fixed sum of money for any type of transaction, e.g. a $450/300/1500
transaction is charged with a $20 commission;
• percent of transaction size, e.g. a $100 transaction is charged with a 10 percent
commission – $10; or
• tiered commission, a percent or flat rate that grows based on the transaction volume,
e.g. 50,000 transactions are charged with a 4 percent commission, 150,000 transactions
with a 7 percent commission.
Commission-based models

 Marketplaces utilize commissions the most. The commission may be charged

per marketplace or transaction. This category also includes businesses that
connect service providers/renters with consumers. Think of any ride-hailing
company, food delivery, or accommodation service.
 The pros: Revenue is easily predictable because of the sheer fee.
 The cons: There are many problems bound to the concept of a commission, but
the major one goes to the scalability of a business that’s attached to a
transaction size or volume. In general, dependency on the product supplier’s
sales makes generating revenue require upfront investments and competitive
superiority.
 Examples: Booking.com, Airbnb, Uber, Lyft, Ticketmaster, Priceline, or Upwork.
Commission-based Revenue Model

 Countless companies, both tech-oriented and otherwise, strive to rely on the

commission-based / transactional revenue model, and for good reason too. This
method is one of the most direct ways of generating revenue, as it entails a company
providing a service or product and customers paying them for it.
• Advantages: Consumers are more attracted to this experience because of its simplicity
and the wider set of options.
• Disadvantages: Because of the directness of the transactional revenue model, many
companies employ it themselves, which means more competition and price
deterioration, and therefore, less money to made for everyone who uses this model.
Affiliate model

 The affiliate model is similar to the commission model The difference is that a
business receives its commission from a seller, rather than a customer. The
affiliate model is a contract between a supplier of a product/service and a
promoter. A promoter can be another business/media resource/blogger that
recommends a supplier’s product. The income will come as a percentage from
sales or registrations done via referral link.
 This category of business also includes meta-search engines as a unique
example. Meta searches can be found almost everywhere. Their main difference
with retailers is that they don’t sell products directly but offer comparison and
search as a value. Advertising and affiliate programs are the main revenue
models used to generate income in this case.
 Affiliate model
 The pros: Just like advertisement, once
you have a huge traffic resource, you
might apply for an affiliate program to
earn money. This will bring you income
without any investments because you will
basically generate traffic and leads for the
affiliate program provider.
 The cons: Unfortunately, the percentage
of affiliate programs promised to the
promoter is quite low. Sometimes it
fluctuates between 1-2 percent and
requires a high volume of sales generated
through your links.
 Examples: Blogging, event promoting
platforms like Broadway.com or
TheaterMania. Various examples of
Amazon affiliate websites.
Affiliate Revenue Model

 Another popular web-based revenue model is the affiliate revenue model, which
works by promoting links to relevant products and collecting commission on the sales
of those products, and can even work in conjunction with ads or separately.
• Advantages: One of the most obvious benefits of employing an affiliate revenue model
is that it generally makes more money than ad-based revenue models.
• Disadvantages: If you use an affiliate revenue model for your startup, remember that
the amount of money you make is limited to the size of your industry, the types of
products you sell, and your audience.
Interest revenue model

 An interest or investment revenue model is any type of business that

generates revenue in the form of interest on their loans or deposit payments.
So, these are most often banking or electronic wallet companies that work with
the financial operations.
 The revenue is generated by making a loan to a customer or by a customer
depositing or investing money (or other resources) with the business. At the end
of a return period, a percentage of the loan sum will return as revenue.
Debit/credit money provided with the bank accounts also relate to this model.
That’s just one of the ways financial companies can make money, combining it
with transaction fees for using their e-wallet/bank account.
Interest revenue model

 The pros: The interest rate

provides a clear view on
what revenue a business will
generate, as the percent
stays unchanged until the
return period is over.
 The cons: The regulations
of an interest rate impact
both the customer and
business, and sometimes it
depends on the economic
environment. Think of
currency rate changes that
impact potential and
existing borrowers.
 Examples: PayPal, Paytm,
Square, Payoneer.
Donation-based models

 This is a revenue model based on investments made by businesses or customers

on a voluntary basis. The product or service itself is free to use by default, so
that’s the primary value a business brings to the customer. The revenue is
generated in a form of donations, or sometimes in the form “pay-what-you-
want.”
 It’s important to mention that there is a difference between a donation-based
business and a charity organization. A donation-based company is still required
to pay taxes.
Donation-based models

 The pros: Because of the free access to the product, some companies manage
to get increasingly popular, so that donations become a major part of their
revenue.
 The cons: As long as this model is never used on its own, the revenue
generated by it remains a secondary source because of its random/unstable
nature.
 Examples: AdBlock, Wikipedia.
Paid Services Model

 This model is unique compared to others, in that you have to give your product away
for free, yet require customers to pay for installation, customization, training or other
additional services.
• Advantages: This model is great for building trust with your customer base and
boosting brand awareness, as any company that offers anything for free will generate
considerable buzz.
• Disadvantages: Remember, employing this model means that you are basically running
a services business with the product as a marketing cost. Also, a model like this isn’t
always the best for scaling your company in the long term, so keep your eye on
additional revenue models to utilize later on.
Arbitrage revenue model
 Applicable mainly to sellers or marketplace-oriented companies, the arbitrage
revenue model uses the price difference in two different markets of the same
good/service to make a profit. You buy in one market (a
security/currency/commodity) and simultaneously sell in another market, at a
higher price, what you just bought, pocketing the temporary price difference.

Arbitrage is popular with affiliate marketers, as well as with many

cryptocurrency firms, SFOX being a prime example.
Arbitrage revenue model
 The high variability of cryptocurrencies makes arbitrage the natural revenue
model for the field - the aim with arbitrage is to buy low and sell high, and when
it comes to crypto the lows can be very low, and the highs equally stratospheric.

Arbitrage is, however, among the most unpredictable of our major revenue
models. It is almost certainly the highest risk (with certain risks unique to certain
sectors, like crypto itself) and, in industries where it fits naturally as potential
revenue model, requires the work of a uniquely skilled sales team to make
work.
Data Sales Revenue Model

 Ever heard the phrase, “If you can’t see how the money’s made, you’re the
product”? That’s data-selling in action.
 Many companies selling digital goods and services could not exist without core
underlying data assets. In the data sale revenue model, this data is sold directly
to a consumer or business customer. While certain companies will use data
sale as their primary revenue model, the use of data sales to augment another
revenue model is virtually everywhere.
 While some are using it as an entrepreneurial venture, it is also the subject of
considerable justified public concern and should be handled with care in the
event you decide to go with it as your revenue model.

https://www.profitwell.com/recur/all/11-popular-types-of-revenue-models-used-today
Revenue Model Combinations

 Freemium + Subscription
 Marketplace + Commission + Interest
 Hardware (IoT) + Software
 Subscription + Services
 Subscription + Commission / Transactional
 …
 What’s your winning Revenue Model Combination?

https://blog.getlatka.com/revenue-models/
Try to describe the Revenue Models of:

 Amazon
 Youtube
 eBay
 Hilti
 Scania
 Fiverr
 Maistorplus
 Avtoikonom
 Imagga
 Dropbox
 … Yout Startup Company ☺
Thank you!

 Q&A