The Revenue Model

The revenue model is a component of the business model. In the Business Model Canvas, this building block is called Revenue Streams. Here you record where your revenue comes from. Not only now, but also in the future. How many customers do you need to break even, how much revenue do you need to make a profit, how much profit do you make on your products and services?

Not thinking through the revenue model properly is one of the pitfalls of starting social entrepreneurs. Because people are often still mainly concerned with the (social) impact they want to create, and do not sufficiently consider that money is also important to be able to continue offering the activities.

In a revenue model you write down how you can make enough profit:

  • What will be the price of your products/services?
  • How many customers do you need?
  • How much turnover you need?
  • What profit margin you will take?

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Regardless of which revenue model you will choose, it is recommended that you go through the questions below so that you have an overview of your cost drivers and revenue streams.

Cost drivers

What are the principal costs in your business model?
What are the financial risks? How do you address them?

Revenue streams

What are your sources of revenue?
What is the customer willing to pay for?
How do customers pay at present? How should hey pay in the future?
How much does each revenue stream contribute to the overall turnover?

In the video below you get a very good overview of what’s a revenue model, why is it important, and different types of profit mechanisms.

We summarize some of the most known revenue models below.

1. The sale of goods
The best known and most common way to make money is selling goods. Think of cars, clothing, food items or electronic equipment.

2. Hourly billing
For many entrepreneurs, it’s a tried-and-true recipe: you get paid according to the number of hours worked. Think of an accountant who prepares financial statements for a freelancer, a lawyer who assists a suspect, a plumber who repairs a toilet or a copywriter who writes a story or press release. In this model you are usually working at a standard hourly rate and therefore there is a maximum income attached. Can you work a maximum of thirty hours per week? Then you know what your maximum revenue per week/month or year will be. And don’t forget that in addition, you will need time to make acquisitions, hours you cannot bill.   

3. Subscription model
Customers access your service or product through a periodic payment. A subscription gives the customer not only a certain convenience, but also the security of a service. In turn, the entrepreneur has guaranteed revenue. You know exactly how much revenue to expect and have the revenue in before you have even delivered anything. These can be traditional subscriptions such as a magazine or newspaper, but also internet, insurance and electricity.

4. Advertising model
Websites often make their content available to visitors for free. They do not use a pay wall, but earn their money through advertisements. Other parties then pay money for ads to reach your readers or visitors. As the product gets a wider reach, you can charge a higher amount for the ad space.

5. Service model
A pretty lucrative model is the service model. You sell something for not too high an amount and turn over your actual revenue with the maintenance or a service contract. For example, an IT company builds a website relatively cheaply, but turns over actual revenue by expanding the system, solving malfunctions and acting as a help desk.

6. Bait model
Also interesting is the so-called bait model, but this requires you to develop a unique product. A good example of this type of revenue model is Nespresso. This manufacturer sells relatively cheap coffee machines, but mainly makes money by selling the cups that obviously only fit in their machines.

Other examples include: electric toothbrushes (brushes), razors (blades) and printers (ink cartridges)