Whether you are a young lady just starting a Poshmark business or the founder of a successful learning platform that sells subscriptions with PayPal, it is essential to create a business model that will help your business grow and, of course, your income.
You may have already figured out one way for yourself to market your product. But as practice shows, a business needs to develop at least two such methods. Therefore, in this article, we will overview various ideas for creating new sources of income and examples for each.
It will take a while until the proceeds from using a particular business model begin to cover production costs, distribution, promotion, and other costs until you finally start to receive revenue. In addition to the most simple “buy and sell” method, there are many ways to generate revenue and cover your expenses. Any digital solution has several ways to monetize. Think about licensed / freemium apps, service subscriptions, and others. They all represent a specific mechanism that determines how a business generates revenue. Its structure is called the revenue model.
Let’s make an overview of the revenue model definition and of the most popular its types, also we are going to outline the pros and cons of them and real examples. Finally, we will give you some tips on how to determine the right model for your business.
What is the revenue model?
The revenue model is the basis for generating revenue. It determines what sources of revenue are worth using, what value the business can offer, and who will pay for it. It is a core component of the company’s business model. Thanks to this component, there is an understanding of which product or service should be created to generate revenue and sales methods. Finally, we will give you some tips on how to determine the right model for your business.
Without a well-thought-out model revenue plan for how the digital solution will profit, the business will incur costs that can lead to bankruptcy. With a clear strategy, a company can focus on its target audience, development plans, etc.
Popular revenue models today
Whoever says, but the ideal model of income does not exist, below, we will talk about the most common and adapted models to the current state of the market. Well, let’s look at each type of income model and the cases they can be most effective.Transaction-based model
- A transactional model is an approach in which a business generates income from selling a product or service directly to a customer. The customer can be another company (B2B) or a consumer (B2C). The price for a product or service is made up of cost and margin. For the sale of goods and services, a business can use different pricing techniques; in some cases, these techniques can be separated into separate models.
а) Licensing / one-time purchase. It is the sale of a software product under a license that can be used by one user or a group of users. The point is to offer a product that only requires one payment, such as Microsoft Windows, Apache Server, most video games.
b) Subscription / recurring payment. Unlike licensing, the user gets access to the software regularly that can be paid monthly, such as video streaming or training platforms.
c) User fees. This pricing tactic is mainly used by various cloud products and services that charge you for the computing power/memory/resources/time used. Examples are Amazon Web Services and Google Cloud Platform.
d) Freemium / Upselling. Freemium is a type of app monetization in which the user can access the leading product for free, but will be charged for additional features, services, bonuses, plugins or extensions, for example. Skype or some video games.
Various combinations of multiple pricing approaches can be used simultaneously, most often seen in cloud products that offer numerous pricing plans simultaneously.
- Advertisement-based model
The ad-based model is great for many businesses, both as the primary and complementary models. It is often used by websites/apps/marketplaces or any other web resource that attracts vast amounts of traffic. It means that any space allocated for advertising can generate income. It is one of the most common methods of generating income. An excellent example of this type of user model is social networks, which are free in themselves but generate substantial revenues from advertising.
- Commission model
This approach is also quite common nowadays. The commission is the amount of money that the seller adds to the total cost of a product or service. Marketplaces like Shopify or Poshmark actively use this model. 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.
- Affiliate model
The affiliate model is similar to the commission model. The main difference is that the business receives a commission from the seller, not the buyer. An affiliate model is a contract between a product/service provider and a promoter. The promoter can be another business/media resource/blogger who recommends the supplier’s product. Income will be a percentage of sales or registrations made through the referral link.
How to choose an income model for your business?
First of all, think over and develop a business strategy, which will include a business model with key stages, and only then move on to choosing a revenue model. It is essential to find out for yourself 3 such factors as:
- Determine what value and benefit your product brings to the customer. Not all products can be sold: try to remember the last time you updated your player on your computer.
- Study the target market and customers. At this stage, the client should be spoiled and understand how he chooses products. Specific audiences tend to buy once or ignore updates. An excellent example in this area is the death of music selling platforms that have been wholly replaced by subscription-based streaming services such as YouTube Music, Apple Music, Spotify, and others.
- Analyze competitors and their products. Consider in detail the mechanisms they use to position themselves in the market, what kind of income model they use.
You now have ideas for generating revenue, and hopefully, you are ready to improve your business model to increase sales. Keep in mind that the easiest route is through subscription services or products. There is no substitute for in-depth marketing research to accurately understand your business opportunities and the needs of your customers.