Revenue streams


What are Revenue Streams?

There are numerous ways through which a company receives money. This is referred to as revenue streams.

Revenue Streams

These streams can be seperated into two main groups: Operating and Non Operating revenue.

Operating Revenue

Operating Revenue streams is what most people assume is how a business makes its profit. For example: sale of goods, subscription fees or service fees fall under operating revenue.

Non Operating Revenue

Non Operating Revenue streams is the portion of an organization’s income that is derived from activities not related to its core business. Examples would be dividends, rental, interest revenue from investments, or gains incurred by foreign currency exchanges. You might see non-operating revenue referred to as incidental or peripheral income.

Why (and how) revenue streams are important to your business model

Keeping your options open

In particular for startups, you want to have a plan for as many revenue streams as possible. While you may not decide to use all streams, it shows that at least you have considered your options. This will also assist in staying one step in front of your competitors.

Matching your forecasting against the different revenue models

Take for example a toy retailer. Their business model is incredibly seasonal, where they can do half their annual revenue in the 8 weeks before Christmas.

For a project-based revenue stream, analysts keep track of the latest project opportunities and continuously modify their forecasting models to produce an accurate forecast. The financial modeling might look very different each month, due to the constant renewal of projects taking place and the inclusion of various risk factors.

What are the 7 most common types of revenue streams?

Product / Services sold

The most common method to generate revenue is to sell something.

A common method to generate additional revenue for product based business is to sell a service. And vice-versa.

For example, say your a retailer selling a physical product – a florist. An additional service could be to deliver and arrange their flower arrangements in their business or home.

If you’re have a consulting business model, you could sell a workbook or manual to further reinforce your training. A physiotherapist, chiropractor or personal trainer could sell a video course on the stretches or movements recommended to their clients

Usage fees

Usage fees might be considered non operating revenue, and is where a person or business is charged to “use” or take advantage of a product or service for a fixed period. An example could be a farmer who with power lines through their property. Those power lines would require some sort of safety inspection. By charging a usage fee, both parties can come to a commercial agreement – how often can the power lines be inspected, what time (hour or day) are they permitted to make their inspections and what equipment can they bring with them to make those inspections.

usage fee

Subscription fee

Subscription fees are when a business charges a customers for continued access to their products or services.

Streaming services such as Netflix, Disney+ or Apple+ have a recurring revenue model. Real estate agents can charge their customers an ongoing fee for property rental.

The main benefit of subscriptions is that they are a reliable revenue source that are relatively easy.

Rent revenue

Rental revenue involves lending assets to your customer temporarily. AirBnb, car rentals or suit / formal wear are examples of rental business models.

The challenge with rentals is that after the time period, they are worthless. For example, take a hotel room. At 8:00am, the room is worth say $500 for the evening. At 5:00pm, if the room is still available, is it worth $500? What about at 10:00pm?

Licensing content

Licensing content allows you to profit from your asset with minimal effort. The classic example is the Ewoks in Starwars. Did you know, in Return of the Jedi, the term “Ewok” is never mentioned?

Brokerage fees

This one can be tricky, but highly profitable if you can pull it off. Brokerage fees are charged when you bring two sides to a commercial transaction. Examples are real estate agents selling a property, online marketplaces such as Fiverr or EBay or credit card providers such as Stripe.

Advertising

If you have an existing audience, advertising can be highly profitable way to showcase a product or service.

At its core, the profit from an affiliate marketing business model is made by advertising. You know your audience, who they are, their needs & pain points. You charge a fee to showcase a product or service.

When we think of advertising, we think large, full scale, expensive promotions that target a product or service to an audience that isn’t interested.

Nothing could be further from the truth.

Take for example a podcast or Youtube channel on say remote controlled drones. Even a small audience of a few thousand people that is engaged and enthuastic is incredibly valuable to a business that sells drones and drone equipment.

How do you choose a revenue model?

  • Identify the your timeframe: short, medium and long term. Which is your goal?
  • Set yourself a target. What are realistic expections for these?
  • Are you primarily a transaction based revenue or subscription fee?

Additional thoughts:

Painkillers, not vitamins

This can be particular difficult for founders to grasp, but people want to stop hurting! (While perhaps your the exception) most people visit their doctor when something is wrong.

Same for your business. What is the specific problem you solve for your customer?

The beauty of selling, marketing and promoting yourself this way, is that once you have them as a client, an upsell / cross is so much easier.

Rinse and Repeat

This isn’t a once off exercise. Reviewing your different revenue streams should be an ongoing exercise. As your business grows, so should your income streams. The opportunities for your company this month will (hopefully!) be very different next month / next quarter / next year. Don’t forget to review!

The best business model is the one that aligns with your business idea & values

Its easy to get distracted. Financial statements, daily sales transaction and ways for generating revenue can take us off course.

Remember, why you’re here. You got this!

Christian

Christian Payne is a technologist and entrepreneur with a passion for innovation. He has over 20 years of experience in engineering and product development across enterprise and consumer sectors. He has experience at both small start-ups and enterprise level generating +$2M per month. When he's not hard at work on his latest project, he spends his time involved in Men’s Support Groups, Leadership training and Mentoring.

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