The launch of a business is usually to solve a problem. However, parallel to starting a business is to make a profit. In this article, we will highlight the different types of revenue models applicable to a business.
A revenue model is a framework that determines how to price the value offered, which revenue source to implement, and who pays for the cost. In simpler terms, its a model infused with your business model on how products or services will be priced and paid for.
Without a revenue model, your business will incur costs it is unable to pay. On the flip side, a well-defined revenue model will help consolidate your target audience and help to strengthen your forecast for revenue growth.
What are the different types of revenue models
A perfect revenue model is difficult to come by, but some tried, and real models have been constant in the market.
This is very common with buyer businesses. It’s typically as simple as you buy a product for “X” and you mark it up by X% to cover your profit and any overhead costs. E-commerce websites also use this model. For example, Jumia charges sellers a certain percentage of sales as a markup for housing products on their sites.
In this model, businesses charge a customer every year, month or quarter for a product or service. This is popular with software companies. For example, a graphic design website, Canva charges a monthly subscription fee for its pro account. Same with MailChimp and even internet providers like Spectranet or Smile network, to name a few. Subscription models also help companies cater to different payment points and target audience niches.
A subscription helps to target a different audience based on price points and the needs of the consumer. So that way, they can target a broad range audience.
This model favours platforms with high traffic as it’s formulated to turn traffic directly into revenue. You’ve probably seen this on your favourite blog. Sometimes on the sides or top of the articles, ads are stacked on each other.
This also happens on sites such as YouTube. Depending on the content creator, they can embed ads in the created video. These ads have a specific budget allocated to their lifespan and are willing to pay creators for ad placements.
This is the most preferred model for non-profit organizations. Companies that are based on this type of model can incentivize donations by offering exclusive content for donors. Doing this would help control the flow of revenue attained purely by donations.
- Data sales:
Have you heard the saying “Data is king”? Well, useful data is a worthy possession that is worth monetizing. Communities that have access to a particular demographic can monetize the data to an organization that is seeking to sell or pitch to that specific demographic.
Choosing a revenue model is important in the planning of a business as it sits at the core of your business model, identifying the key avenues to get revenue helps you understand budgeting and how to raise more capital for your startup to scale.
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