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 new social entrepreneurs – usually because people are often 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 their 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 do you need?
- What profit margin will you take?
Cost drivers | What are the principal costs in your business model? |
Revenue streams | What are your sources of revenue? |
In the video below you get a very good overview of what a revenue model is, of why it is important, and of the different types of profit mechanisms.
We summarised some of the most well 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-tested 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 client, 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 is bound to a maximum income. Is your maximum thirty hours per week? Then you know what your peak revenue per week/month or year will be. 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 get paid even before having delivered anything. These can be traditional subscriptions such as magazines or newspapers, but also internet services, insurance policies or electricity bills.
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 of an amount, and turn over your actual revenue with the maintenance or a service contract. For example, an IT company builds a website for relatively little, 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 only fit into their custom made machines.
Other examples include for example electric toothbrushes (brushes), razors (blades) and printers (ink cartridges).