With the growing era of digitalization, business model are shifting their way in order to fit in the new era. Few of startups in our country has implemented these models, but it is great for corporate to learn as innovation could be the core of future sustainabilty. Hereby a summarized new business model by HBR:
Regardless how unique a startup is, it will only bring impact if the company can reach its targeted customers. After a company finalized its product to be offered to the market, the company need to decide a lot of factors (e.g. what industry are the company in, which channel to use) so that the offered product exposed and reach targeted customers.
Business Model, Revenue Model and Revenue Stream
- A business model is the structure comprised of all aspects of a company, including revenue model and revenue streams, and describes how they all work together.
- A revenue stream is a company’s single source of revenue. A company can have zero or many revenue streams, depending on its size.
- A revenue model is the strategy of managing a company’s revenue streams and the resources required for each revenue stream.
Applying the right revenue model would then help startup companies to generate their sales. Here are the most common revenue models used by startup companies, summarized as below:
1.Ad-based revenue model: entail creating ads for a specific website, service, app, or other product, and placing them on strategic, high-traffic channels. example: Google’s Adsense.
- Advantages: Making money from ads is one of the simplest and easiest ways to implement revenue models, which is why so many companies utilize ads as a source of revenue.
- Disadvantages: In order to generate sufficient revenue to withhold a business, you will need to attract millions of users. In addition, most people find ads annoying, which can lead to low clickthrough rates, and therefore, lower revenue.
2. Transactional Revenue Model: one of the most direct ways of generating revenue, as it entails a company providing a service or product and customers paying them for it.
- Advantages: Consumers are more attracted to this experience because of its simplicity and the wider set of options.
- Disadvantages: Because of the directness of the transactional revenue model, many companies employ it themselves, which means more competition and price deterioration.
3. Subscription Revenue Model: entails offering customers a product or service that customers can pay for over a longer period of time, usually month to month, or even year to year.
- Advantages: If the company is far enough along in its development, this model can generate recurring revenue, and can even benefit from customers who are simply too lazy to cancel their subscription from the attached company company (which is actually the dirty little secret of a subscription-based model).
- Disadvantages: Because this model depends so much on having a large consumer base, it’s critical to maintain a higher subscribe rate than an unsubscribe rate.
4. Freemium revenue model: a company’s basic services are free, yet users must pay for additional premium features, extensions, functions, etc. example: Lindkedin with its free and premium feature.
- Advantages: this model offers something free to users, which is a great way to give them a taste of your product or service while simultaneously enticing them to pay for something later on.
- Disadvantages: This model requires a considerable investment of time and money to reach out to your audience, and even more effort to convert free users into paying customers.
5. Magic revenue model: company don’t actually create or even own any of the products that they sell to the customers. Instead, this business model revolves around representing a company/brand and turning a profit by promoting their offers to target audience. This could be known as one of the affiliate revenue model.
- Advantages: acting as a “platform”, the company have less tangible risk in doing the business.
- Disadvantages: This model could be easily replicated by competitors, remembering that the company will only represent a company/brand.
To sum it all…
For new startup company, they need do a research before deciding which model is the most ideal. Company can implement a single revenue model or combine few revenue models to boost their sales which will end up contributing to their sales figure.
For the ongoing startup company, innovation is the key to sustain the business and stay in the market. My previous post has discussed about business model innovation, which is one of the most crucial surviving move for the company. This post hasn’t cover every revenue model used by startups, but highlighted the most popular ones.
Founder Institute (2018) — The most popular startup models.
Johnson, Mark (2018), “Seizing the white space”, Harvard Business Review.
Getgist (2019) — How to choose the right business model for startup.