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"Understanding Business Revenue Model"

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The core of any businesses, after all, is how you make money. In business studies, how your business will get its revenue is called the revenue model.

A revenue model can determine a lot of things for your business, from your investment plan to your marketing plan to recruitment plan, and can cover all aspects of your business.

Having a clear revenue model can help you plan strategies for growth. By understanding multiple revenue models, you can explore your options when the need to adapt to a new market, or competitors, arise.

For those looking for a new business idea, deciding on a revenue model most suited to your capabilities can be a great way to start.

There are countless revenue model variations available, in fact, a new one can be invented each and every day. However, here are some of the most notable ones.

1. Retail

The most common, and arguably the oldest revenue model is to sell physical goods and services. In recent times, digital products such as your iTunes songs and Amazon e-books can also be included in this category.

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Common challenges you'll find in this revenue generation model are:

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- Maintaining competitive pricing strategy, and finding ways to price with premium for higher segments (i.e. higher-end products, business class on airlines).

- Promotion and marketing strategy, how to communicate your value to your target market, and how to stand out from competitors.

- Increasing product or service value (adding insurance, installment options, warranty, constant innovation with R&D, etc.).

- Maintaining customer loyalty to make repeat sales.

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2. Usage Fees

Common examples of this category are your newspaper subscription and gym membership. In this digital era, this revenue model also extends to digital products such as your Netflix subscription.

Rental (of equipment or other assets) can also be included in this category, as well as your utility bills.

3. Freemium

A fairly new revenue model made famous by the mobile games and apps industry. The fundamental of this revenue model is to offer a basic version of the product for free, and charging a premium price for a better version.

Common practices are giving additional features, removal of ads, and removing restrictions from the basic product.

4. Licensing and Certifications

This revenue model was a common practice for software. However, more and more of software businesses are moving to SAAS (Software as a Service) licensing model.

Selling certifications such as McAfee Securities, or technical certifications for individuals can also be included in this category.

Bottom Line: How it May Benefit You

There are still many revenue model options to choose from. However, they will all root back to these four as the building block. Having a clear idea of your revenue model can help you plan strategic growth, addressing and improving issues most necessary to generate more revenue based on your model.

If you have an existing business, is there another revenue model you can get more advantage in? Or can you choose a secondary model to add more revenue stream for your business?