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How are you going to actually make money from this whole business adventure? That’s the question we’ll be walking through in this article.
If you’re following along with the business model canvas, you’ve figured out who you’re helping, what value you’re going to be offering them, and what your relationships with your customers will look like.
Table of Contents
- What is Revenue in Business?
- What is a Revenue Stream?
- Why Are Revenue Streams Important?
- 7 Types of Revenue Streams
- Deciding on Your Perfect Revenue Streams
What is Revenue in Business?
I guess it makes sense to define revenue before we define a revenue stream, huh?
Revenue is basically the income that the company or business generates. This can also be called “gross sales” or “top line” because its all before taxes and expenses are counted.
So you might hear some e-commerce guru saying they brought in $3 million in revenue, but what they aren’t saying is they spent $4 million to make that, so their profit was negative 😉
What is a Revenue Stream?
“A revenue stream is a source of revenue of a company or organization.” – Thanks Wiki!
Essentially, it’s how you are going to make money from your business. And not how are you going to sell something, it’s more of the ways are you going to sell that thing.
Why Are Revenue Streams Important?
Without understanding the specific way(s) you are going to sell your widget, it’s going to be tough to market it.
In addition to that simple answer, maybe there are places you are leaving money on the table. Without knowing what other possible revenue streams there are, it’s going to be hard to know if that’s the case or not.
In short – how else can you make money?
7 Types of Revenue Streams
There are a ton of different ways you can bring in money for your business, but here are some of the broad categories that should help you start thinking about the path you’re looking to take.
1. Selling Assets (Asset Sale)
This is the most widely utilized in mainstream business. You sell something, and your customer buys it and can do with it what they please (use it, resell it, and even destroy it).
An Asset Sale also happens when someone sells their company, or forms a new one with another organization.
Examples of this are Amazon selling books and other physical products. Or an NFL store selling team jerseys. The people who buy them can then go ahead and wear them, resell them, or in the case of the Green Bay Packers, put them in the garbage. Go Bears! 😉
2. Fees for Usage (Usage Fees)
The Usage Fees revenue stream is when a company makes money by how often someone uses their service.
For example, a cell phone company will (generally) charge you based on how much data you use, how many phones are on your plan, etc.
3. Subscription Fees
This is the revenue stream that is generated by someone purchasing ongoing access to your product or service.
Good examples of this model are Netflix, gym memberships, and Spotify.
As the owner of the business, these are great revenue streams because generally the cost is low so people are thinking “it’s only $9 here or $7 there” so they keep paying.
However, as a consumer (and owner of a business who needs certain subscriptions), these can often play heavily into the margins you take home as profit.
These are the type of expenses that can really add up for a business owner because they seem so small. But when you have 5 of them you really don’t need, at $25 a month, that’s $1,500 a year you could be using elsewhere.
4. Renting, Leasing & Lending
This revenue stream is built by the temporary use of an asset by a customer for a fixed period of time.
Examples of this could be AirBnB, Turo, and Zipcar – all of which allow you to use something for a specific time period.
This is another type of revenue stream that works off of the benefit of recurring income. While you might not always have someone using your product, when they do you are typically able to make enough to more than cover expenses.
5. Licensing to 3rd Parties
This is when the owner of the content keeps the copyright, but allows third parties to use their content for a fee.
Examples of licensing can be found in photography and music, where people pay the owner a fee to use their work – often based on how many views or listens it will get.
6. Brokerage Fees
This stream makes money due to essentially “matchmaking” people with other people, or people with companies.
Good examples of this are real estate agents and real estate brokers.
7. Advertising Fees
Advertising is the revenue stream that makes you money by taking fees for showcasing a product, service, or even brand on your online or offline property.
Examples of this could be placing Google Adsense on your website, selling sponsorships on your podcast, etc.
Deciding on Your Perfect Revenue Streams
Now that you know the different types of revenue streams, let’s figure out how you’re going to make money based off what we know so far.
So let’s take your customer segments, and match them with the value propositions you have.
For example, here are 2 customer segments I’ve helped in my career:
- Online course creators
- Conference and event planners
And here are my value propositions for them:
- Help them sell more courses and bring leads into their funnel
- Help them raise brand awareness through a more cohesive online presence and make sure they are being found when people in the community search for their event.
So for the conference planners, it would be more of an ongoing relationship, but that also has a finite scope (when the event ends).
For the online course creators, this is generally going to be an ongoing project helping them drive more leads and sales.
However, for both of these I think they fall into the subscription fees category, because they’re essentially paying for me to provide them a service that is ongoing.
What kind of revenue streams are you using in your business?