Business Models 101: Revenue Streams

In this part we will discuss the Revenue Stream, where will your income come from.

I have to repeat it on every page but starting something on your own, creating value for you, your family and the world is a totally recommendable thing to do. You want to create your company. This is GREAT. The world has been made by people like you. Entrepreneurs. Self-Made Men, Creators, Builders people that believed an obstacle is just another great challenge to overcome, to solve and put behind them as an achievement. 

 

The Revenue Stream

It would seem obvious that revenue or income is coming from your customers. This is nowadays an incorrect assumption. As mentioned before, you might have customers or visitors or users that do not pay anything for the services you provide.

Your revenues can come different sources like advertisement, and sponsoring. But this is of course not true for all the businesses far from it. This applies to Internet site, online services for example.

If you sell cupcakes, your main revenue stream will be from the sales of cupcake or from your franchise business which has become a huge success. The important here is to list properly all the revenue streams in order to be able later to define actions related to them. Here we have direct sales, indirect sales from restaurants and bakeries, online sales and franchising commissions. This is already quite a lot for such a small business.

 

revenue streams

Here are the questions you have to ask yourself about the Revenue Stream:

  • What value are our customers willing to pay?

  • How do they pay?

  • Do we know the repartition of our revenues?

Also what type of revenue will it mainly be. It is quite often a mix but there is always a clear main stream for a type of product.

  • piece price: for material or immaterial products

  • usage fee: for exemple ATM machine charge you every time you withdraw money. So you could provide some apparatus for free to your customers and they would be charged only when using it.

  • licensing: if you have a patent on something and people want to use it. Then you get some income every time they use your invention

  • commission: if you sell stuff that is produced by someone else, then getting him a customer will bring you a percentage of what he will be earning.

  • advertising: if you rent a space on your land, house to put advertising, or if you put ads on your website (Google Adsense for example)

  • lending: if you rent stuff for exemple a lawnmower, car, ....

  • subscription fee: if you publish a newspaper for exemple or if you are a super successful blogger then you could let your reader pay to read your daily blogs.

Setting your pricing right is of utmost importance: how do you set your price? Will you be deciding the price to pay (lets say because you are the only one on the market) or are there similar products on the market that define the general pricing range.

  • volume dependent: is your price decreasing with volume, if I buy 1,10, 100 pieces will it be the same price or staying constant.

  • segment dependent: if you sell to rich people will you charge more (;-) than if you sell to the "normal" folk...

  • negotiation: are you selling your product to a big chain or other company? Then surely they will try to reduce and negotiate the price. DO NOT FORGET: price is not the only component of your product offering (you can negotiate warranty, service, delivery, quality, packaging, ....)

  • market price: is your product competing against other products on the market, then probably you cannot play so much on the price (except if you offer other services with it)

  • fix price: if you can set your price independently of the market, your customers, etc... then you are a LUCKY Piece of person...

There are out there some interesting price fixing scenarios too. Like the one letting the customer decide what he will pay for your product. This could be interesting because it has been shown that if you let the customer decide the price, it will quite often be more than what you would have asked for... of course this might not last for ever...

Previous: Channels

Next: the Key Activities

 

Download the template from here.

 

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