• Revenue Streams in Business Model Canvas

business model generation revenue streams

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business model generation revenue streams

© Entrepreneurial Insights based on the concept of Alex Osterwalder

One of the building blocks of Business Model Canvas is Revenue Streams. In this building block, we explore what revenue streams represent for the entrepreneur and how to ensure that this building block is adequately addressed. We will explore the two types of revenue streams available which are either transaction based or recurring revenues. We will look at 1) revenue streams , 2) developing your revenue model , 3) types of revenue streams , 4) pricing mechanism , 5) ways to generate revenue stream , 6) key revenue model and market questions , and 7) two case studies .

REVENUE STREAMS

This building block elaborates the earnings a business gets by subtracting the costs from the revenue generated from each customer segment. Where customers are generally considered the heart of the business, revenues are automatically likened to the arteries. Organizations must evaluate the worth of the value they provide to each customer segment. An accurate evaluation of this worth will result in multiple revenue streams being gained from a single customer segment.

It isn’t just enough for a business to cite ‘keeping customers happy’ as their business mandate. Most businesses focus just on their customer policy, resulting in incomplete canvases where revenue streams are entirely ignored. It is important to differentiate that this building block represents the cash, not the profit, that the business has flowed in, at present.

Revenue streams need to be as clearly defined as possible. Hence, it is not just enough to list the sources for your various revenue streams but equally important to specify their pricing and projected lifecycles too. The reason for listing these details is to evaluate whether it is profitable for your business even to opt for a revenue stream or not. If the cost of designing and producing a product is more than what the customer is willing to pay for it or greater than the revenues the product will rake in before its lifecycle ends, then it does not make business sense to go ahead with the product.

Many businesses hesitate to conduct a full analysis of their revenue streams because they feel unable to price it right without creating a complete prototype of the solution. However, a smarter more effective way to price a product is to understand how big a role the problem plays in the customer’s life and what they are willing to pay to solve the problem.

Revenue streams are differentiated by differences in pricing mechanisms; fixed list prices, bargaining, auctioning, market dependent, volume dependent or yield management.

DEVELOPING YOUR REVENUE MODEL

The most important aspect of understanding the revenue streams of your business is through forecasting. This is an exercise carried out throughout the life of your business because as the business climate and industry evolve, so does your forecast. Typically there are two types of forecasts being carried out by organizations; top down and bottom up. Listed below are the most important factors to consider when deciding on the revenue model your organization will follow:

Choose the Closest Fit

Select a revenue model that is the closest fit to your organization and its context. Your revenue model should essentially help set the direction of your development efforts. Hence, if your organization is characterized by a heavy presence of engineers, it may be prudent to invest in a technology model where research and development take the lion’s share of the organizational effort and focus. You can also choose between having linear projections or exponential ones.

Magnify Your Value

The revenue model you pick must magnify the value your organization has to offer. Your revenue model should highlight what sets your organization apart and how you are unique in providing value to your target consumer.

Attract the Right Investors

The revenue model you select is also key to attracting the right kind of investors to your business. When you pick development areas, it helps to know which of these areas are close to your target investors’ hearts and develop pitches around these areas. This helps cement the legitimacy of your business in the investors’ eyes. Fundamental to being successful in finding a good potential investor is to ensure that the investor takes a holistic view of the business and is in it for the long haul as opposed to the typically myopic investor looking to make a quick buck.

It is an undeniable reality that all investors are looking for when their investment will yield returns and it is just as important for the entrepreneur to know when the business will really start making money and become self-sustaining. Despite this, entrepreneurs should set a time limit on their forecasts. Any predictions that go beyond 1 to 2 years are unrealistic and represent data that cannot be depend on.

Be Flexible

Flexibility is a key characteristic of new businesses, and this extends to the revenue model. Your entire business structure may not change, but one must constantly be looking at whether the revenue model is working for the business or not, and if not, what the necessary adjustment should be done. Hence, an entrepreneur needs to spend a great deal of time forecasting and re-forecasting and looking at which permutation of the revenue model will support his business in the most lucrative way.

Your business hinges on a lot of variables and it is essential to know how these variables impact the bottom-line, and what factors have the most effect on these variables. Variables are dependent on a number of things such as your processes and lifecycle. Each variable must be looked at separately, and one way to do this is through a sensitivity graph, which will help show where the revenue improves or worsens when manipulating the variables.

It would be silly to have your head in the sand about your variables and their possible impact on your business. They are a risk and being aware of risk is key to having a successful business. Hence, as an entrepreneur your aim should be to mitigate for the variables. Mitigating for variables lends a degree of transparency to your business. This transparency is not just important for you as a business owner but is also of great interest to your investors.

TYPE OF REVENUE STREAMS

Revenue streams can be divided into two categories;

1. Transaction Revenue

These revenues are earned from the customer making a one-time payment for the product or a rendering of a service.

2. Recurring Revenue

The recurring revenues are earned from consistent ongoing payments rendered to the company for either the delivery of the value proposition of after sales care for the customer.

PRICING MECHANISM

Pricing mechanisms refer to the effect of the pricing of a product on its expected demand and supply. This is essentially a tool to match buyers to the sellers of a product. Each revenue stream in a business can have its individual pricing mechanism. The pricing mechanism selected has a significant impact on the revenues generated by the revenue stream in question. Pricing mechanisms can be divided into two types; a) fixed pricing and b) dynamic pricing.

1. Fixed Pricing

This kind of pricing, as the name suggests, remains uniform due to the lack of variability in the inputs that go into the product.

Fixed List Pricing

Fixed list pricing is the pricing mentioned by the manufacturer for a product, service or value proposition of an organization.

Product feature dependent

When a product has a number of value propositions important to the customer, it may be priced according to the amount of such features.

Customer segment dependent

This kind of pricing takes the target customer segment and their various traits into account.

Volume dependent

As the name suggests, the more quantity a customer purchases, typically the lower the price will be.

2. Dynamic Pricing

This type of pricing changes according to the variables that go into the product as well as the conditions prevalent in the market.

This refers to when a price is negotiated between two or more parties. The outcome of the negotiation is dependent on who holds the power at the negotiation table as well as the relative skills of the parties involved.

In this kind of dynamic pricing, the final price is dependent on the customers and their perception of the worth of the value the product or service holds. Usually, the product or service, goes through a process called bidding where target customers share what they are willing to pay for the product or service. The customer proposing the highest price gets the product or service.

Yield Management

In yield management , the price is completely dependent on inventory and the time of purchase. It is a kind of variable pricing where the product or service has a time limit on it, and companies use customer intelligence to create revenues. Airlines and hotels are the most common adopters of this pricing model.

Real-time market

In this kind of pricing, the onus of responsibility goes to the supply and demand for a particular product. The price keeps fluctuating depending on how much customers want the product and how much is available to sell.

WAYS TO GENERATE REVENUE STREAM

1. asset sale.

This kind of sale refers to the transfer of ownership rights of a physical product from the seller to the buyer. At Amazon.com ownership rights of a myriad of products such as books, music and electronics are sold to the buyers. Similarly, Honda sells the ownership rights of the cars it manufactures to the buyers after which the buyer has complete freedom to rent out, use or even total the car.

2. Usage fee

This kind of fee is usually charged by service providers to customers for the use of the service. Hence, an internet provider will probably charge a customer for using their line for a certain number of minutes during the day or month. A beautician may charge her customer according to the number and nature of treatments the customer undergoes while under her care.

3. Subscription fees

When a user requires long-term or continuous access to the products of a company, they pay a subscription fee. Hence, a gym may sell a yearly membership subscription to its customer. Cable providers may charge a subscription fee to its users based on the time for which they will pay upfront.

4. Lending/ renting/ leasing

Some organizations provide their customers with exclusive rights to their product for a limited amount of time for a set fee. Upon the end of this period, the organization regains ownership of the product. This kind of revenue model represents a number of advantages both for the company and the customer. The company enjoys recurring revenue from the customer for the mentioned period. On the other end of the coin, the customer has exclusive access to the product for the time he/ she require it without having to make a hefty investment. Hence, zipcar.com a popular car renting service in North America allows customers to rent their cars for a specified time period. This has become a very popular service in the cities it is available because it provides customers with the advantage of a car, without having to invest in buying one.

5. Licensing

Licensing is generally used when we are talking about products, services or ideas that fall under the parameter of intellectual property . This opens up a revenue stream for rights holders, who would otherwise have had to invest in manufacturing as well. It is common in the Technology industry for patent holders to license the use of patents to other companies and to charge a licensing fee for it.

6. Brokerage fee

When a company acts as an intermediary to ease the communication and transaction between two or more parties, they charge a brokerage fee. An example of this is when a headhunting firm matches a candidate to an organization looking for a particular skill set. The firm usually charges a percentage of the gross salary from the organization, the candidate or both.

7. Advertising

Companies that earn a fee through promoting another organization, product or service, charge an advertising fee for their service. Traditionally this kind of revenue was common only in the advertising industry. However, in recent times, with the boom of the internet and e-commerce, many websites are also using this as a main revenue stream.

KEY REVENUE MODEL AND MARKET QUESTIONS

Following are some key questions that can help an entrepreneur fill out the revenue stream building block more effectively:

  • What benefits will encourage customers to pay more for?
  • What benefits are customers currently paying for?
  • How are they paying for these benefits right now?
  • What mode of payment would be preferable to them?
  • What percentage of the total revenue does each revenue stream represent?

Google is one of the leading internet names in the world. For the purpose of this post, we will conduct an analysis of Google’s revenue streams.

As we all know, Google’s services are provided for free for the individual user. So Google’s revenues are derived from advertising that companies pay to have done to reach its bulk of online users. Google helps advertisers create advertisements through its auction-based program – Google Adwords . Advertisers then pay Google based on when customers click on the advertisements available. Google also provides advertisers with access to its network members through its Google Adsense program. Another option available to advertisers is Google’s DoubleClick technology through which audio and video advertisements are made available on Google Network member sites.

Google has generated 96% of its revenues from advertising for the past several years as opposed to Apple, that has earned 70% of its revenues through the sale of its products. Google has been experimenting with other possible revenue streams by evolving its search offerings, extending into Mobile space and attempting its hand at a Google-based operating system. It has even expanded into Enterprise based solutions. However, none of these avenues have resulted in major revenue streams for the company.

Gore Fabrics

Gore-Tex is a waterproof breathable fabric membrane that is trademarked by Gore, the company.

Gore generates revenue through the sale of laminated fabrics. Additional revenue generators for Gore is the seam sealing materials and machinery it owns. Hence, Gore sells the fabric but there is some hardware associated with the fabric that also results in sales and profitability for the company.

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Business Model Canvas: Revenue Streams Explained

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This article is an excerpt from the Shortform book guide to "Business Model Generation" by Alexander Osterwalder and Yves Pigneur. Shortform has the world's best summaries and analyses of books you should be reading.

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What is a revenue stream? What are the two types of revenue streams?

A revenue stream is simply a source of profit for a business—where the money comes from. Defining your revenue streams is one of the key elements of designing a business model for your company. There are two types of revenue streams in Business Model Canvas: 1) profits from single transactions, and 2) profits from ongoing payments such as subscriptions.

We’ll discuss both of these elements below.

Defining Your Profit Sources

According to Osterwalder and Pigneur, the creators of the Business Model Canvas, revenue streams are two-fold: 1) revenue from single transactions , and 2) revenue from ongoing payments such as subscriptions . You may have multiple income streams for each of your customer groups. Further, each of these income streams may involve different pricing mechanisms depending on whether you choose to set a fixed or variable price for your products and services.

The authors include the following ways to generate profits:

  • Selling physical products
  • Charging a usage fee for a product or service
  • Supplying services for subscription
  • Leasing products and assets
  • Licensing intellectual property 
  • Providing an intermediation or brokerage service

Defining Your Expenses

After defining your revenue streams, Business Model Canvas’s next step is to define the expenses of operating your business. Osterwalder and Pigneur refer to this element as “Cost Structure.”

Your expenses will vary depending on whether you choose to minimize costs and offer an inexpensive product or service, or if you choose to create premium-priced products and services. The authors state that your costs structures will include at least one of the following characteristics:

  • Fixed costs: salaries, rents
  • Variable costs: costs vary in proportion to the volume of goods or services produced
  • Economies of Scale: bulk purchase rates lessen cost per unit rates
  • Economies of Scope: a single resource or activity supports multiple operations or services

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  • Different ways you can combine these elements to create business model patterns
  • Techniques you can use to generate innovative ideas
  • ← What Is the Long-Tail Business Model?
  • Why Are You Poor? Because of Negative Conditioning →

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Darya’s love for reading started with fantasy novels (The LOTR trilogy is still her all-time-favorite). Growing up, however, she found herself transitioning to non-fiction, psychological, and self-help books. She has a degree in Psychology and a deep passion for the subject. She likes reading research-informed books that distill the workings of the human brain/mind/consciousness and thinking of ways to apply the insights to her own life. Some of her favorites include Thinking, Fast and Slow, How We Decide, and The Wisdom of the Enneagram.

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The Leading Source of Insights On Business Model Strategy & Tech Business Models

revenue-modeling

Revenue Models: The Advanced Guide To Revenue Modeling

Revenue modeling is a process of incorporating a sustainable financial model for revenue generation within a business model design. Revenue modeling can help to understand what options make more sense in creating a digital business from scratch; alternatively, it can help in analyzing existing digital businesses and reverse engineer them.

Table of Contents

Myth: A revenue model is a business model

I noticed over the years of research I’ve put into business modeling how pervasive the confusion between revenue and business model is.

In the startup world, those are often used as synonyms.

Which is fine as long as it doesn’t limit the understanding of what you can do within a business model.

Indeed, a revenue model actually does inform the business model, and it often influences it from the foundation.

However, those are not the same. In fact, in many cases, a revenue model and stream are the only building blocks of an overall business model.

Take the case of Netflix, which for years has been running with a subscription business model, and that much much later on (only in 2021), Netflix started to roll out an ad-based revenue model.

Changing a revenue model is not just about changing the way you make money, but it implies changing a set of assumptions within a business model.

Going back to the case of Netflix, adding the ad-supported tier within its business model, requires an understanding of the implications that might carry on the overall business model.

Thus, Netflix is not just about running ads on top of its platform. It’s about understanding how the streaming ad ecosystem works, how to integrate it within its business model, and what consequences that might have on a current subscription model.

That is why, if you’re on Netflix when you start running ads, it’s not just about how and how much money you can make from it; it’s about asking a few fundamental questions about the overall business model, such as:

  • What’s the impact of advertising on the overall business model?
  • How is advertising different from subscriptions?
  • What scalability advertising has vs. subscriptions?
  • What margins do we have with advertising vs. subscriptions?
  • Is advertising helping us build a better acquisition funnel?
  • Who are the key players within the advertising ecosystem?
  • How do we build a scalable advertising platform?

In other words, my argument here is if you plug in a new revenue stream, that is not a business model.

And it’s not just about how you make money; that is also about how that stream integrates within the overall business model and how it changes its distribution , marketing , and financial model.

With this holistic understanding, you are not constrained by a narrowed definition.

Revenue modeling as the avenue into the business model

Once you take into account the above, then, of course, you know that revenue modeling can be an avenue into a business model.

Thus, an understanding of the revenue model will help you:

  • Reverse engineering any business (by starting the analysis by simply following the money).
  • Speed up the experimentation process by plugging in new revenue models for your business.
  • Start building or scaling a business model!

What is a business model?

business-model

What is a revenue model?

revenue-stream

For the sake of this guide, we’ll look at a key distinction: symmetrical vs. asymmetrical in several contexts.

Remember that all classification methods have flaws and we can only take them into account as long as they help us better tune an existing business model .

I decided to use this classification, but any alternative classification works as long as we are able to grasp and understand the possibilities we have in terms of business model design.

Symmetrical vs. Asymmetrical business models

asymmetric-business-models

Business models can be of various types.

For that matter, there might be as many business models as the companies we have in the marketplace.

In this guide, we’ll use as reference symmetry vs. asymmetry to distinguish across two main business models categories.

In this particular case, we’ll look at revenue modeling by keeping a key distinction between symmetry and asymmetry from three different perspectives.

Cash: who pays the bill?

In many cases, platform business models success depends upon two key players:

  • Users : who don’t pay for some or all the services offered by a platform (on the user-side), but they help the platform build it’s a core asset
  • Customers : who pay for the services offered (on the customer-side) to take advantage of the core asset of the platform

In such a business model, the platform assembles the anonymized data of its users who get a free service in exchange.

The assembled data gets processed (by the platform AI and algorithms) and it’s used to scale the platform, build a valuable core asset that can be financed by a set of customers willing to pay for it.

Asymmetrical: users ≠ customers

The asymmetry here stands in the fact that users and customers are two separate entities (asymmetrical cash model: users ≠ customers).

Think of how Google sells ads to companies, while its core products are all free to users.

Symmetrical: users = customers

Thus, in a symmetrical revenue model, users and customers are the same entity (symmetrical cash model: users = customers).

Think of how Netflix’s users are also its customers.

However, it’s worth highlighting how Netflix has now launched an ad-supported version, which starts at $6.99 and is an ad-supported tier.

This is an interesting business model transition. Indeed, for all its life, Netflix has relied on a linear and symmetrical revenue model, where users were also customers.

As of now, that is still true. In fact, in the ad-supported tier, users are still paying customers. However, it’s worth emphasizing that users are now advertisers’ target.

Thus, by October 2022, as Netflix started to roll out its ad-supported plan, the company also started to move into an asymmetrical business model type.

Why is Netflix moving toward an asymmetric business model? The answer is simple: Scale!

To reach a subsequent stage of scale, where the company can successfully reach a billion users, an ad-supported business model can help with that.

Information: does the user know how the platform makes money?

If there is information asymmetry, it means there is one of the parties knows more than the other side.

Asymmetrical: hidden revenue generation

google-business-model

In a hidden revenue generation model , the users of the platform ignore how it makes money while the platform knows a lot about its users.

Symmetrical: revealed revenue generation

netflix-business-model

In a symmetrical model, revenue generation is revealed, thus enabling the customers to know what they get for the service paid.

Scale: does the platform retain its margins as it scales?

Scale is the ability of a company to grow exponentially while keeping its margins growing with the platform’s revenues.

Symmetrical and Linear: margins tighten as the platform scales

In a linear symmetrical revenue model as the platform scales its margins tighten up, thus reducing the profitability of the platform.

Asymmetrical and Non-linear: margins keep growing as the platform scales

In a non-linear asymmetrical revenue model as the platform scales margins keep growing, thus keeping the platform highly profitable.

Revenue model examples

In this chapter, we’ll see some revenue model examples you can use or borrow to build your business model .

Ad-supported

spotify-business-model

Subscription-based

is-netflix-profitable

Consumption-based

aws-revenues

Commission-based

airbnb-business-model

Hidden Revenue

how-does-google-make-money

Razor and blade

razor-blade-business-model

Hybrid revenue models

amazon-case-study

A good example of a business model that has different revenue models is Amazon. Based on each side of its business, Amazon has different revenue streams and models:

Within the Amazon core consumer e-commerce platform, there are two main types of revenue streams:

  • Amazon-branded products : on those products which are labeled and sourced by Amazon, the company sells them directly to consumers. Therefore, this is part of the revenue model, where Amazon has the highest margins and more control.
  • Amazon’s third-parties   products : those are products that  Amazon  hosts on its own e-commerce platform. Those products benefit from Amazon’s e-commerce visibility and sustained traffic. At the same time, Amazon will have the advantage of increasing the variety of products available in its stores, thus making them more appealing to consumers. However, compared to the branded product, Amazon will have less control and reduced margins. Indeed, Amazon will split the revenues with third-party sellers.

To enable more capabilities to third-party e-commerce stores, and at the same time, guarantee a better experience on its e-commerce (and we can argue also to have more control and margins) Amazon introduced over the years the third-party seller services:

  • Amazon third-party seller services:  fulfilled by  Amazon , perhaps enables sellers to host their inventories, and deliver with  Amazon , thus collecting a royalty as a result of the sales made on the platform. Here, the revenue model is flipped. Indeed, Amazon will collect most of the revenues coming from the product sales (remember that Amazon also takes care of storing the inventory and fulfilling it to customers) and the seller will collect a royalty, thus a % of the sale.

Other revenue streams comprise:

  • Product advertising:  Amazon  is the most popular product search engine. Over the years it gave the options to e-commerce built on top of Amazon, to gain more visibility both on an impression or on a click-through rate basis. This means that Amazon sells advertising with a bidding model (similar to Google Ads) .
  • Amazon Prime:  born as an attempt by  Amazon  to increase the repeat business on the e-commerce platform, Prime turned into a real streaming entertaining business, competing with other companies, like Netflix. This revenue stream follows a subscription-based model .
  • Amazon AWS:  Amazon  AWS turned into a cloud infrastructure able to support many small, medium, and enterprise customers. The revenue model here runs primarily based on a consumption basis. Therefore, with a logic of pay-as-you-go.

Revenue model vs. cost structure

To complete the picture, it’s critical to trace the difference between the revenue model and cost structure.

And from there, how the two elements come together to help build a viable business model.

The cost structure is tightly connected to the revenue model. Each revenue stream might carry

Remove model and distribution

In many cases, having a more holistic view of how the revenue model and cost structure interact is critical also to assess when a revenue model goes beyond making money alone.

Don’t get me wrong; a revenue model does focus primarily on how to make money for a business.

However, in some cases, a revenue model might bring in the money as a side-effect of building distribution for the business.

Let’s take a few examples.

When you look at Spotify’s business model , there is no doubt that the premium members’ revenue stream (for now) is the one that most contributes to the business.

spotify-revenue-breakdown

Above, you can see how the premium membership revenue is many times over that of the ad-supported tier.

And there is more to it.

Even if we look at it from a cost structure standpoint, the premium membership revenue has a much lower cost compared to the ad business.

Indeed, Spotify, in 2021, generated €8.46 billion in revenues from the premium members’ revenue stream.

And of that, an almost 30% gross profit margin.

On the other hand, in the same period, Spotify generated €1.2 billion in revenue from the ad-supported stream at a 20% gross profit margin.

spotify-cost-structure

Does that mean the ad-supported revenue stream is not as good as the premium members?

If you look at it from a revenue generation standpoint alone. That is what you can imply.

However, you do understand that the ad-supported side of the business also represents the marketing funnel, which helps Spotify get recognized by hundred of millions of users across the world.

And that many of these free, ad-supported members become, over time, paid subscribers.

You can get a more comprehensive picture.

As the ad-supported side of the business is not only a revenue stream but it’s also a marketing and distribution channel.

In addition, the ad-supported side of the business, if scaled up, can also enable Spotify to generate much more revenues, in the future, at much wider margins.

Indeed, advertising networks, compared to membership networks, work better as they are scaled up!

That is why it’s critical to develop a holistic mindset to grasp the complete picture of how companies’ business models work.

This is the essence of business engineering .

Breaking down the wall between product and distribution

The lesson we learned from the Internet playbook and way of doing business is the aspiration, over time, to break the walls between product and distribution .

In short, the product becomes both a revenue generator and a marketing /distribution channel.

When you combine the two, that is when you’re able to build an incredible growth engine that will enable a company to establish a scalable business model built on solid moats!

Key Highlights:

  • Revenue Modeling Defined : Revenue modeling involves creating a sustainable financial plan for generating income within a business model. It aids in analyzing existing digital businesses, reverse engineering them, and designing new digital ventures.
  • Distinguishing Revenue Model and Business Model : While often used interchangeably, a revenue model and a business model are not the same. A revenue model is a foundational element within a business model that informs and influences various aspects of the business.
  • Netflix Case Study : The example of Netflix demonstrates how changing a revenue model (adding an ad-based tier) impacts the entire business model. This shift requires considerations about the impact on the overall model, differences from subscriptions, scalability, margins, acquisition funnel, ecosystem players, and platform scalability.
  • Holistic Approach to Revenue Modeling : Revenue modeling goes beyond just making money; it involves understanding how a new revenue stream integrates with the business model, impacting distribution, marketing , and financial aspects.
  • Importance of Asking Fundamental Questions : When introducing a new revenue stream, it’s crucial to address fundamental questions about its effects on the overall business model, differences from existing streams, scalability, margins, and more.
  • Avenue into Business Model Design : Revenue modeling serves as an entry point to designing a business model. It helps in reverse engineering businesses, accelerating experimentation with new revenue models, and facilitating the process of building or scaling a business.
  • Business Model Defined : A business model is a comprehensive framework that systematically creates long-term value for an organization by delivering value to customers and capturing value through monetization strategies. It guides understanding, design, and testing of business assumptions.
  • Revenue Model Defined : A revenue stream is a foundational component of a business model, representing the economic value customers pay for products and services. It influences how a business model functions and delivers value.
  • Symmetrical vs. Asymmetrical Business Models : Asymmetrical models don’t directly monetize users but leverage user data and technology, often having a key customer pay to sustain the core asset. Google’s data-driven ad monetization is an example of an asymmetrical model.
  • Various Business Model Types : Business models come in different types, such as scalability, incubator, pivot, freemium, open source, seed funding, cash flow, accessibility, blue ocean, churn, evangelist, growth hacking, MVP, leaner MVP, product-market fit, business engineering, and more.
  • Transitional Business Models : Transitional models are used to enter markets, gain traction, and shape long-term scalability visions.
  • Revenue Streams Matrix : Classification of revenue streams based on customer interactions and ownership of those interactions aids in revenue modeling.
  • Pricing Strategies : Developing pricing models that align with customer needs and financial sustainability is an integral aspect of revenue modeling.
  • Considerations in Designing Business Models : A holistic understanding of revenue modeling is crucial, as it influences distribution, marketing , financial models, and other key aspects of a business model.
  • Applying Holistic Approach to Business Growth : Utilizing revenue modeling for designing innovative revenue strategies contributes to business growth and sustainability.

Other Case Studies

What is revenue and business model.

Most business people tend to confuse the revenue model with the business model . While the revenue model informs a business model, those are two separate things. The revenue model is one of the building blocks of a business model. Yet a business model comprises many other aspects such as distribution, cost structure, financial structure, and more.

What is revenue model example?

Examples of revenue models that work on the Internet are ad-supported, subscription-based, consumption-based, and SaaS. Those revenue models help web companies to grow and scale their business models .

What is the best revenue model?

In the Inernet era, a revenue model that proved quite effective is the ad-supported business model, where companies like Google provide free tools to billions of people across the web. Those free tools are paid for by companies who advertise on Google. Google opened the way for many other companies to use a similar model to finance the web.

Other Key Components of a Business Model

Value Proposition

unique-value-proposition

Cost Structure

cost-structure-business-model

Pricing Strategies

pricing-strategies

Financial Structure

financial-structure

Technological Modeling

technological-modeling

Distribution Channels

distribution-channels

Marketing Channels

marketing-channels

Other Revenue Model Case Studies

BuzzFeed Business Model

how-does-buzzfeed-make-money

Farfetch Business Model

farfetch-business-model

How Does Revolut Make Money

how-does-revolut-make-money

eToro Business Model

how-does-etoro-make-money

Oracle Business Model

how-does-oracle-make-money

Zalando Business Model

zalando-business-model

How Does E-Trade Make Money

how-does-e-trade-make-money

Tinder Business Model

how-does-tinder-make-money

ClassPass Business Model

classpass-business-model

Reddit Business Model

how-does-reddit-make-money

Read Also: Amazon Business Model , Google Business Model , Netflix Business Model , Airbnb Business Model , Spotify Business Model , Dropbox Business Model .

Other business resources:

  • What Is Business Model Innovation
  • What Is a Business Model
  • What Is A Heuristic
  • What Is Bounded Rationality
  • What Is Business Development
  • What Is Business Strategy
  • What is Blitzscaling
  • What Is a Value Proposition
  • What Is a Lean Startup Canvas
  • What Is Market Segmentation
  • What Is a Marketing Strategy
  • What is Growth Hacking

More Resources

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Strategic Management Insight

Business Model Canvas (BMC)

Business Model Canvas

What is the Business Model Canvas

Business Model Canvas (BMC) is a framework that helps determine how a business creates, delivers, and captures values. It is a visual representation of the important aspects or parts to consider when designing a Business Model.

BMC aids in constructing a shared understanding of a business by condensing it into a simple, relevant, and intuitively understandable one-page visual while not oversimplifying the complexities of how enterprises function.

This concept has been applied and tested around the world and is used in organizations such as GE, P&G, Nestlé, IBM, Ericsson, and Deloitte, including Government Services of Canada and many more [1],[2] .

The Nine Building Blocks

BMC describes a business through nine basic building blocks that show the logic of how a business intends to make money. These nine blocks cover the four main areas of a business: Customers, Offer, Infrastructure, and Financial Viability.

BMC acts as a shared language for describing, visualizing, assessing, and changing business models. It is like a blueprint for a strategy to be implemented through organizational structures, processes, and systems.

Nine building blocks of a business

Each of these blocks is explained in more detail as follows:

1. Customer Segments (CS)

These are the groups of people or organizations that a business aims to reach and serve. Customers are the heart of a business model, and without (profitable) customers, a business cannot survive.

Customers are grouped into distinct segments with common needs, common behaviors, or other attributes. Customer groups represent separate segments if:

  • Their needs require and justify a distinct offer.
  • They are reached through different Distribution Channels.
  • They require different types of relationships.
  • They have substantially different profitability.
  • They are willing to pay for different aspects of the offer.

An organization must make a conscious decision about which segment(s) to serve and which segments to ignore. Once this decision is made, a business model can be carefully designed around a strong understanding of specific customer needs.

The following two questions, if answered with clarity, help a business identify its CS.

  • For whom are we creating value?
  • Who are our most important customers?
  • What are the customer archetypes?

Examples of some of the Customer Segments are shown in the figure:

Examples of Customer Segments

2. Value proposition (VP)

Value Proposition describes the bundle of products and services that create value for a specific Customer Segment chosen by a business.

A VP is the reason why customers turn to one company over another. VP must solve a customer’s problem or satisfy a need. A business can have more than one VP, but each must consist of a selected bundle of products and/or services that caters to the requirements of a specific Customer Segment.

While some VPs may be innovative and represent a new or disruptive offer, others may be similar to existing market offers but with added features and attributes.

An organization’s VP must answer the following questions with clarity:

  • What value do we deliver to the customer?
  • Which one of our customer’s problems are we helping to solve?
  • Which customer needs are we satisfying?
  • What bundles of products and services are we offering to each CS?

Elements from some of the following can contribute to customer value creation:

Examples of Customer Value Propositions.

3. Channels (CH)

Channels describe how a company communicates with and reaches its Customer Segments to deliver a Value Proposition.

Channels are customer touch points that play an important role in the customer experience and serve several functions, including:

  • Raising awareness about a company’s products and services
  • Helping customers evaluate a company’s Value Proposition
  • Allowing customers to purchase specific products and services
  • Delivering a Value Proposition to customers
  • Providing post-purchase customer support

To establish an effective channel, a company must first answer the following:

  • Through which Channels do our Customer Segments want to be reached?
  • How are we reaching them now?
  • How are our Channels integrated?
  • Which ones work best?
  • Which ones are most cost-efficient?
  • How are we integrating them with customer routines?

There are five distinct phases (figure below) through which a channel passes, and it could cover more than one of these phases at a time.

Different phases of channels

Channels can be either direct, indirect or hybrid, as shown:

Different types of channels

Finding the right mix of Channels to satisfy how customers want to be reached is crucial in bringing a Value Proposition to market and can create a great customer experience.

4. Customer Relationships (CR)

Customer Relationships describe the types of relationships a company establishes with specific Customer Segments. Relationships can range from personal to automated. An organization’s CR strategy may be driven by one of the following motivators:

  • Customer acquisition
  • Customer retention
  • Boosting sales (upselling)

A business can arrive at the optimum CR by asking the following questions:

  • What type of relationship does each of our Customer Segments expect us to establish and maintain with them?
  • Which ones have we established?
  • How costly are they?
  • How are they integrated with the rest of our business model?

Several categories of Customer Relationships may co-exist in a company’s relationship with a particular Customer Segment. Some of which are:

Types of Customer Relationships

5. Revenue Streams (RS)

Revenue Streams represent the company’s cash (earnings) from each Customer Segment and are like the arteries of any business.

Revenue streams

There are two distinct categories of Revenue Streams:

  • Transaction Revenues which are one-time customer payments
  • Recurring Revenues that are ongoing payments to either deliver a Value Proposition to customers or provide post-purchase customer support

A business can arrive at its ideal revenue stream by asking the following questions:

  • For what value are our customers willing to pay?
  • For what do they currently pay?
  • How are they currently paying?
  • How would they prefer to pay?
  • How much does each Revenue Stream contribute to overall revenues?

There are several ways a business can generate revenue, such as:

Types of Revenue streams

A business may have one or more Revenue Streams, each with different pricing mechanisms. The choice of pricing mechanism greatly influences the revenues generated.

There are two main types of pricing mechanisms, Fixed and Dynamic, as follows:

Types of Pricing Mechanisms

6. Key Resources (KR)

The Key Resources describe the most important assets required to make a business model work.

These resources allow an enterprise to create and offer a Value Proposition, reach markets, maintain relationships with Customer Segments, and earn revenues. Different Key Resources are needed depending on the type of business model.

For example, a chip fabrication business like TSMC [9] requires capital-intensive facilities worth billions of dollars, while a chip designer like NVIDIA [10] would need skilled manpower as its Key Resource.

Key Resources can be owned or leased by a business or acquired from its key partners. They can be identified by answering the following questions:

  • What Key Resources do our Value Propositions require?
  • What resources are required to sustain our Distribution Channels, Customer Relationships and Revenue Streams?

Key Resources can be categorized as follows:

Key Resources

7. Key Activities (KA)

Key Activities describe the most important things a company must do to make its business model work. They are required to create and offer a Value Proposition, reach markets, maintain Customer Relationships, and earn revenues.

Key Activities differ depending on the business model type. For example, Microsoft’s Key Activity is software development, while for Dell, it is Supply Chain Management. For a consultancy firm like McKinsey, Key Activity is problem-solving.

A business can identify its Key Activities by answering the following questions:

  • What Key Activities do our Value Propositions require?
  • What activities directly contribute to maintaining our Distribution Channels, Customer Relationships and Revenue Streams?

Key Activities can be categorized as follows:

Key Activities

8. Key Partnerships (KP)

The Key Partnerships describe the network of suppliers and partners that make the business model. There are four types of partnerships:

Four types of partnerships

A business must ask the following questions before forming partnerships:

  • Who are our key partners?
  • Who are our key suppliers?
  • Which Key Resources are we acquiring from partners?
  • Which Key Activities do partners perform?

Primarily, there are three motivations for a business when creating partnerships, as shown:

Three motivators to creating partnerships

9. Cost Structure (CS)

Cost Structure describes all costs incurred to operate a business model. A business incurs costs in creating and delivering value, maintaining customer relationships, and generating revenue. Costs are business-specific, where some are more cost-driven than others.

A business must answer the following questions to arrive at an optimum cost structure:

  • What are the most important costs inherent in our business model?
  • Which Key Resources are most expensive?
  • Which Key Activities are most expensive?

While costs should be minimized in every business model, it is useful to distinguish between two broad classes of business model Cost Structures:

  • Cost Driven : This model focuses on minimizing costs wherever possible. This approach aims at creating and maintaining the leanest possible Cost Structure, using low-price Value Propositions, maximum automation, and extensive outsourcing. Examples: No frills airlines like Southwest & easyJet, Fast food joints such as McDonald’s & KFC.
  • Value Driven: Premium Value Propositions and a high degree of personalized service usually characterize value-driven business models. Examples: Luxury hotels, Expensive Cars like Rolls-Royce

Cost Structures can have the following characteristics:

characteristics of cost structures

Putting-it-all together

The nine business model Building Blocks form the basis for a handy tool, which is called the Business Model Canvas (figure below). This tool resembles a painter’s canvas preformatted with nine blocks that allow painting pictures of new or existing business models. It is a hands-on tool that fosters understanding, discussion, creativity, and analysis.

Template for The Business Model Canvas

BMC works best when printed out on a large surface such that groups of people can jointly note, sketch, and discuss business model elements.

Example of Business Model Canvas

Nespresso [17] , a fully owned daughter company of Nestlé, changed the dynamics of the coffee industry by turning a transactional business (selling coffee through retail) into one with recurring revenues (selling proprietary pods through direct channels).

The two-part strategy involved selling their patented coffee machine to retail customers first to lock them into the brand. This generated a recurring demand for coffee refills (pods) that led to constant revenues. These pods were sold directly through mail/website/own stores, thereby eliminating middlemen/dealers, which further increased profits [1] .

Nespresso’s strategy plotted on a Business Model Canvas looks as follows:

Example of business model canvas

Business Model Canvas helped Nespresso establish a solid and enduring foundation by engaging consumers directly and bringing a barista-like experience within the reach of a home or an office.

Advantages & Limitations

  • Encourages Collaboration – collaborative framework, which helps put different business stakeholders in sync. This improves the likelihood of generating new ideas and their quality.
  • Facilitates testing of ideas before launch – allows business owners, strategists, and managers to think through business ideas as well as test concepts that would otherwise get tested with potential customers where the stakes are higher.
  • Customer-centered approach – Key customer segments, relationships, activities, and value propositions are all elements that focus on creating, delivering, and capturing value for customers.
  • Clarity – Analyzing the business through the lens of nine blocks brings better clarity and structure to the business model.

Limitations

  • Lacks a section for defining the start-up’s mission statement, which is crucial to understanding the goals and objectives of any business.
  • Overlooks the importance of a profit mechanism beyond costs and revenues, including decisions on how to use potential profits.
  • The order of the canvas is not intuitive, making it difficult to read and understand the strategic decisions in a logical sequence.
  • Does not depict interconnections between different elements, which can have a significant impact on the overall business model.
  • Fails to acknowledge the company’s role within its ecosystem, including its impact on the environment and local communities.
  • External factors such as competition, history, and other industry-specific factors are absent from the canvas, which can greatly influence the success of a business model.

1. “A Better Way to Think About Your Business Model”. Harvard Business Review, https://hbr.org/2013/05/a-better-way-to-think-about-yo . Accessed 01 Aug 2023

2. “Business Model Generation”. Alexander Osterwalder, https://www.strategyzer.com/books/business-model-generation . Accessed 28 Jul 2023

3. “The Apple M1 is a revolution that is changing the computing world”. Citymagazine, https://citymagazine.si/en/apple-m1-is-a-revolution-that-changes-the-computer-world/ . Accessed 29 Jul 2023

4. “Mass Customization”. Corporate Finance Institute, https://corporatefinanceinstitute.com/resources/management/mass-customization/ . Accessed 29 Jul 2023

5. “Moka Pot”. Wikipedia, https://en.wikipedia.org/wiki/Moka_pot . Accessed 29 Jul 2023

6. “NetJets Homepage”. NetJets, https://www.netjets.com/en-us/ . Accessed 01 Aug 2023

7. “Distribution Channels – Definition, Types, & Functions”. Feedough, https://www.feedough.com/distribution-channels-definition-types-functions/ . Accessed 30 Jul 2023

8. “Lease from Hertz”. Hertz, https://www.hertz.com/rentacar/rental-car/car-lease . Accessed 30 Jul 2023

9. “TSMC”. Wikipedia, https://en.wikipedia.org/wiki/TSMC . Accessed 30 Jul 2023

10. “NVIDIA”. Wikipedia, https://en.wikipedia.org/wiki/Nvidia . Accessed 30 Jul 2023

11. “BMW, Daimler, Ford and Volkswagen team up on high-power charging network”. Techcrunch, https://techcrunch.com/2017/11/03/bmw-daimler-ford-and-volkswagen-team-up-on-high-power-charging-network/ . Accessed 31 Jul 2023

12. “Honda And Sony Combine Talents To Build Electric Vehicles”. Forbes, https://www.forbes.com/sites/peterlyon/2022/06/26/honda-and-sony-announce-joint-venture-to-build-electric-vehicles/ . Accessed 31 Jul 2023

13. “Uber and Spotify launch car music playlist partnership”. BBC, https://www.bbc.com/news/technology-30080974 . Accessed 31 Jul 2023

14. “Walmart Has the Scale and Infrastructure to Generate Positive Gains”. Yahoo Finance, https://finance.yahoo.com/news/walmart-scale-infrastructure-generate-positive-201822628.html . Accessed 31 Jul 2023

15. “Demand-Side Economies of Scope in Big Tech Business Modelling and Strategy”. MDPI, https://www.mdpi.com/2079-8954/10/6/246 . Accessed 31 Jul 2023

16. “The Business Model Canvas”. Strategyzer, https://www.strategyzer.com/canvas/business-model-canvas . Accessed 31 Jul 2023

17. “HomePage”. Nespresso, https://www.nespresso.com/us/en/ . Accessed 01 Aug 2023

18. “Business Model Canvas of Nespresso”. Alex Osterwalder, https://www.youtube.com/watch?v=dhQh-tryXOg . Accessed 01 Aug 2023

19. “Nespresso Capsule”. Electromall, https://electromall.net/product/nespresso-capsule/ . Accessed 01 Aug 2023

20. “The Best Nespresso Machine (But It’s Not for Everyone)”. Newyork Times, https://www.nytimes.com/wirecutter/reviews/best-nespresso-machine/ . Accessed 01 Aug 2023

21. “Business Model Canvas”. Think Design, https://think.design/user-design-research/business-model-canvas/ . Accessed 01 Aug 2023

22. “6 Problems with the Business Model Canvas”. The Pourquoi Pas, https://www.thepourquoipas.com/post/problems-with-the-business-model-canvas . Accessed 01 Aug 2023

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  • 11.2 Designing the Business Model
  • Introduction
  • 1.1 Entrepreneurship Today
  • 1.2 Entrepreneurial Vision and Goals
  • 1.3 The Entrepreneurial Mindset
  • Review Questions
  • Discussion Questions
  • Case Questions
  • Suggested Resources
  • 2.1 Overview of the Entrepreneurial Journey
  • 2.2 The Process of Becoming an Entrepreneur
  • 2.3 Entrepreneurial Pathways
  • 2.4 Frameworks to Inform Your Entrepreneurial Path
  • 3.1 Ethical and Legal Issues in Entrepreneurship
  • 3.2 Corporate Social Responsibility and Social Entrepreneurship
  • 3.3 Developing a Workplace Culture of Ethical Excellence and Accountability
  • 4.1 Tools for Creativity and Innovation
  • 4.2 Creativity, Innovation, and Invention: How They Differ
  • 4.3 Developing Ideas, Innovations, and Inventions
  • 5.1 Entrepreneurial Opportunity
  • 5.2 Researching Potential Business Opportunities
  • 5.3 Competitive Analysis
  • 6.1 Problem Solving to Find Entrepreneurial Solutions
  • 6.2 Creative Problem-Solving Process
  • 6.3 Design Thinking
  • 6.4 Lean Processes
  • 7.1 Clarifying Your Vision, Mission, and Goals
  • 7.2 Sharing Your Entrepreneurial Story
  • 7.3 Developing Pitches for Various Audiences and Goals
  • 7.4 Protecting Your Idea and Polishing the Pitch through Feedback
  • 7.5 Reality Check: Contests and Competitions
  • 8.1 Entrepreneurial Marketing and the Marketing Mix
  • 8.2 Market Research, Market Opportunity Recognition, and Target Market
  • 8.3 Marketing Techniques and Tools for Entrepreneurs
  • 8.4 Entrepreneurial Branding
  • 8.5 Marketing Strategy and the Marketing Plan
  • 8.6 Sales and Customer Service
  • 9.1 Overview of Entrepreneurial Finance and Accounting Strategies
  • 9.2 Special Funding Strategies
  • 9.3 Accounting Basics for Entrepreneurs
  • 9.4 Developing Startup Financial Statements and Projections
  • 10.1 Launching the Imperfect Business: Lean Startup
  • 10.2 Why Early Failure Can Lead to Success Later
  • 10.3 The Challenging Truth about Business Ownership
  • 10.4 Managing, Following, and Adjusting the Initial Plan
  • 10.5 Growth: Signs, Pains, and Cautions
  • 11.1 Avoiding the “Field of Dreams” Approach
  • 11.3 Conducting a Feasibility Analysis
  • 11.4 The Business Plan
  • 12.1 Building and Connecting to Networks
  • 12.2 Building the Entrepreneurial Dream Team
  • 12.3 Designing a Startup Operational Plan
  • 13.1 Business Structures: Overview of Legal and Tax Considerations
  • 13.2 Corporations
  • 13.3 Partnerships and Joint Ventures
  • 13.4 Limited Liability Companies
  • 13.5 Sole Proprietorships
  • 13.6 Additional Considerations: Capital Acquisition, Business Domicile, and Technology
  • 13.7 Mitigating and Managing Risks
  • 14.1 Types of Resources
  • 14.2 Using the PEST Framework to Assess Resource Needs
  • 14.3 Managing Resources over the Venture Life Cycle
  • 15.1 Launching Your Venture
  • 15.2 Making Difficult Business Decisions in Response to Challenges
  • 15.3 Seeking Help or Support
  • 15.4 Now What? Serving as a Mentor, Consultant, or Champion
  • 15.5 Reflections: Documenting the Journey
  • A | Suggested Resources

Portions of the material in this section are based on original work by Geoffrey Graybeal and produced with support from the Rebus Community. The original is freely available under the terms of the CC BY 4.0 license at https://press.rebus.community/media-innovation-and-entrepreneurship/.

Learning Objectives

By the end of this section, you will be able to:

  • Define a business model and its purpose
  • Describe a business model canvas
  • Describe a lean model canvas
  • Describe a social business model canvas

According to Alexander Osterwalder and Yves Pigneur , the authors of Business Model Generation , a business model “describes the rationale of how an organization creates, delivers and captures value.” Nevertheless, there is no single definition of this term, and usage varies widely. 29

In standard business usage, a business model is a plan for how venture will be funded; how the venture creates value for its stakeholders, including customers; how the venture’s offerings are made and distributed to the end users; and the how income will be generated through this process. The business model refers more to the design of the business, whereas a business plan is a planning document used for operations.

Each business model is unique to the company it describes. A typical business model addresses the desirability, feasibility, and viability of a company, product, or service. At a bare minimum, a business model needs to address revenue streams (e.g., a revenue model), a value proposition, and customer segments. In non-jargon English, this means you want to address what your idea is, who will use it, why they will use it, and how you will make money off it.

A canvas is a display that would-be entrepreneurs commonly use to map out and plan different components of their business models. There are several different types of canvases, with the business model canvas and the lean canvas being the most commonly used. There are hard-copy canvases modeled after an art canvas as well as digital versions. The original physical canvases are meant to serve as visual tools, used with sticky notes and sketches.

As developed by Osterwalder and Pigneur, the business model canvas has nine components, as shown in Figure 11.6 .

Link to Learning

Visit this site to see examples of completed Business Model Canvases for a variety of industries for a deeper understanding of how the different categories are filled in.

Osterwalder and Pigneur wrote Value Proposition Design as a sequel to Business Model Generation . Their value proposition canvas is a plug-in that complements the business model canvas, going in depth on activities such as encouraging entrepreneurs to address and tackle customer pains, gains, and jobs-to-be-done trigger questions, and designing pain relievers and gains. The complementary and accompanying activities and resources can be useful for a deeper dive into and understanding of customer value creation in the form of value proposition, although there are other approaches to conceptualizing your value proposition. For Christensen, the originator of the disruptive innovation and jobs-to-be-done theories, a value proposition is a product that helps customers do a job they’ve been trying to do more effectively, conveniently, and affordably.

Finding the intersection of your customers’ problems and your solutions is how you create a unique value proposition, according to the entrepreneur Ash Maurya , the author of Scaling Lean and Running Lean . In Running Lean , Maurya offers the following formula for creating an initial value proposition in the canvas, as shown in Figure 11.7 .

Maurya deviated from the standard business model canvas to create the lean canvas. It overlaps the business model canvas in five of the nine components: customer segments, value proposition, revenue streams, channels, and cost structure ( Figure 11.8 ]. Rather than addressing key partners, key activities, and key resources, the lean canvas helps you tackle problems, solutions, and key metrics instead.

Visit this site to see examples of completed Lean Model Canvases from some major companies for a deeper understanding of how the canvas can be applied.

While the business model canvas and the lean canvas are similar in format, there are differences in how they are used. It is generally accepted that the lean canvas model is a better fit for startups, whereas the business model canvas works well for already established businesses. The lean canvas is simpler; the business model canvas provides a more complete picture of a mature business.

Watch this Railsware video that demonstrates how the lean canvas model might be applied to startups to learn more. In the case example in the video, the lean canvas model is applied to the successful P2P ride-sharing app Uber, as if it were a startup.

Both the business model canvas and the lean canvas are designed for constant iterations, allowing for multiple versions and changes throughout the entrepreneurial process. Part of that process involves customer discovery; thus, the canvases invoke customer-focused design. The target customer is integrated into the canvas from the start through the use of a customer empathy map and a number of design-thinking ideation activities. 30 The customer empathy map is a portrayal of a target customer —the most promising candidate from a business’s customer segments—that explores the understanding of that person’s problems and needs ( Figure 11.9 ). Osterwalder and Pigneur used a customer empathy map as part of the design ideation phase of developing a business model canvas. There are differing versions of customer empathy maps, but most seek to answer common questions pertaining to the customer, such as:

  • With whom are we empathizing?
  • What do they need to do?
  • What do they see?
  • What do they say?
  • What do they do?
  • What do they hear?
  • What do they think?

Phillips, Proctor & Gamble, Microsoft, and Yeti are examples of well-known companies that make use of customer empathy mapping because, according to the journal Entrepreneur , every transaction can be turned into a meaningful and valuable customer interaction. 31 Once a company analyzes the results of customer mapping exercises, it may very well lead to new products that serve customer needs and/or wants.

For example, Philips used empathy mapping to detect a high level of fear in young patients immediately before an MRI medical procedure, so it invented a miniature version of the CAT scan equipment used in the procedure called the “kitten scanner” along with toy animal characters that were used to dispel the fear of MRIs among children. Proctor & Gamble created a new advertisement that was released for the 2012 Olympics visualizing the trials and tribulations of mothers raising young athletes, demonstrating Proctor and Gamble’s awareness that some of its customers wanted or needed empathy for the sacrifices they had made to help their children succeed. Likewise, Microsoft has attempted to demonstrate empathy with customers’ privacy concerns by developing an interactive website that explains not only how data is stolen but also how we can better protect our own data. 32

On their company website, the now-famous Yeti cooler company publicly extols the value of empathy mapping, explaining that it leads to better products. Yeti doesn’t just create one on its own, it actually asks its clients to work with the company to create an empathy map. 33 Thus, empathy mapping for Yeti is part of its product development process.

Customer empathy maps also strive to address customer pains (in this case, fears, frustrations, and anxieties) and gains (wants, needs, hopes, and dreams). 34

Strategyzer offers six videos outlining the business model canvas that total about 12 minutes; specifically they cover the prototyping journey from ideation to visualization of conceptualization.

Business Model Canvas 35

As Osterwalder and Pigneur describe it, according to Media Innovation and Entrepreneurship , their business model canvas blocks include revenue streams, customer segments, value propositions, cost structures, channels, key activities, key partners, key resources, and customer relationships.

Early on, your greatest focus should be on the right side of the canvas because:

  • These are, in many ways, the most critical aspects of starting a new venture (customer segments, value propositions, channels, and revenue streams).
  • The most fluid (revenue streams, channels, and value propositions will likely differ for the differing customer segments and, as you iterate and adapt throughout the customer discovery process, could likely change).
  • These follow a logical temporal order (there’s no need to focus on the costs of building a company if you won’t have customers).

In a follow-up to business model generation, the Strategyzer team created a second canvas, the value proposition canvas: https://www.strategyzer.com/canvas/value-proposition-canvas. The value proposition canvas is a new tool that pulls out the customer segment and value proposition blocks of the business model canvas, and encourages more in-depth exploration of those blocks to achieve a good fit between the two. The value proposition canvas tool looks at customer pains, gains and jobs to be done on the customer side and painkillers, gain creators, and products and services on the value proposition side. 36

Read this blog that provides a walk-through of how to fill in a value proposition canvas to learn more.

When you peel away the language used to describe business models, the early startup planning stages come down to a series of questions. When it comes to formulating a business model for a startup concept, another popular framework used in entrepreneurial circles is that of desirability-feasibility-viability Figure 11.10 ). This framework forces the entrepreneur to address broad questions about the startup concept:

  • Desirability: How desirable is the product? Who will use it and why?
  • Feasibility: How feasible is this idea? What are the costs of making it? How practical is the concept?
  • Viability: Will this idea remain viable? How will it make money? How will it be sustained over time?

These questions then begin to connect to form a narrative about where the startup concept came from, whom it serves, why it’s needed, how it will make money, and how it will be sustained in the future.

The value propositions, customer relationships, customer segments, and channels address the assumptions that will create customer value (desirability). The cost structure and revenue stream blocks are aimed at viability, or overcoming flawed business models. The key partners, key activities, and key resources are about execution and address feasibility. The risk of poor execution can undermine your assumptions that you chose the right infrastructure to execute your business model (feasibility). The risk of solving an irrelevant customer job (sometimes derisively labeled “a solution in search of a problem”) undercuts desirability in your business. The risk of a flawed business model would hamper the financial assumption that your business will earn more money than you spend (viability). Adaptability is about the assumption that you chose the right business model within the context of external factors such as technology change, competition, and regulation.

The business model canvas is not an exhaustive planning tool by any means. 37 , 38 The risk of such external threats is not specifically addressed on the canvas blocks. The external threats not specifically covered by the canvas blocks can be designed for adaptability, that is, the business model canvas is a necessary but insufficient component of determining the viability of the business idea/concept. There are many elements not included in the canvas that entrepreneurs must address. Industry analysis, including a competitive analysis, for example, falls “off canvas” but is important nonetheless.

The Lean Model Canvas

The lean model canvas is Ash Maurya ’s adaptation of the original business model canvas. As we noted earlier, gone are the customer relationships, key activities, key partners, and key resources blocks. Instead, a problem block is added, because as Maurya explains, “Most startups fail, not because they fail to build what they set out to build, but because they waste time, money and effort building the wrong product. I attribute a significant contributor to this failure to a lack of proper ‘problem understanding’ from the start.” Maurya next added a solution block to the lean model canvas, which corresponds well with features on a minimum viable product (MVP), which you will recall was covered in depth in Launch for Growth to Success . The lean model canvas also adds an “Unfair Advantage” block, similar to the block for competitive advantages or barriers to entry found in a business plan. 39

Social Business Model Canvas

As you’ve noticed by now, the core canvas components are common throughout the various versions. Many of the blocks of the social business model canvas are similar to those used in the business model canvas and the lean model canvas. 40 A few differences, as developed by Tandemic , focus on areas unique to social entrepreneurship ventures. For example, the new areas added include measures of what kind of social impact you are creating or developing, measures of surplus to address what happens with profits and where you intend to reinvest them, and measures of beneficiary segments, and social and customer value propositions. 41 These could be measures such as the number of trees planted, number of refugees housed and fed, jobs created, or investments made—depending on the venture. Social impact looks at an organization’s social mission beyond the bottom line. Measurement can differ among social entrepreneurs, but in terms of the canvas, impact measures are an effort to establish quantifiable metrics.

Social impact can be hard to measure, but nonetheless, many social entrepreneurs aim for long-lasting impact. 42 A 2014 report by the think tank, consultancy, and member network SustainAbility lists cooperative ownership, inclusive sourcing, and the “buy one, give one” model as three forms of social impact. 43 In addition to the Tandemic social business model canvas, there are other versions of similar canvases used for social entrepreneurship. For instance, Osterwalder adapted the business model canvas for mission-driven organizations into a mission model canvas. 44 There’s also a social lean canvas that adds purpose (explaining your reason for creating the venture in terms of social or environmental problems) and impact sections (describing the intended social or environmental impact). 45

This completed social business model canvas for the popular peer-to-peer lending platform Kiva illustrates how the business model canvas can and perhaps should be adapted for social entrepreneurship ventures.

What Can You Do?

Toms Shoes is perhaps one of the best-known companies for adopting a social entrepreneurship purpose into its business model. Part of its early success hinged on the fact that for every pair of shoes a customer bought, the company donated a pair of shoes to someone in need. The company won a prize in 2006 for its innovative solution to poverty. This “ 1-for-1 business model ,” sometimes commonly called the “Toms model” after the shoe company that popularized it, gained traction among other companies that followed suit in similar fashion, seeing both the social and the financial successes in the Toms model. Warby Parker is another example of a company that does essentially the same: A customer purchases a pair of eyeglasses, and the company donates a pair (although Warby Parker pays a third party to procure the glasses, as eyeglasses require an individual prescription, whereas shoes do not).

  • Can you think of an innovative social entrepreneurship business model?

The Birthday Party Project

Paige Chenault wanted homeless children in Dallas to feel special on their birthdays. Many have never experienced a birthday party. So this professional event planner sprang into action in January 2012. She launched the Birthday Party Project (https://www.thebirthdaypartyproject.org/), a nonprofit group whose mission is to celebrate the lives of homeless children (ages one to twenty-two). The group organizes monthly birthday parties with partner shelters. Since its inception, the concept has spread beyond Texas to cities across the United States, including Atlanta, Chicago, Los Angeles, New York, and San Francisco. In six years, the Birthday Party Project has celebrated 4,800 birthdays with 30,000 kids in attendance, eaten 40,000 cupcakes, cracked 30,000 glow sticks, and performed 1,100 renditions of “Happy Birthday.”

  • Identify a need in your community that could become a social entrepreneurship business, as Paige discovered with an initial passion project.
  • 29 Alexander Osterwalder and Yves Pigneur. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. Hoboken, NJ: Wiley, 2010.
  • 30 Charlene Perrin. “Create A Customer Empathy Map in 6 Easy Steps!” Conceptboard . March 28, 2019. https://conceptboard.com/blog/create-a-customer-empathy-map-in-6-easy-steps/
  • 31 Vineet Arya. “How to Infuse Empathy in Your Marketing?” Entrepreneur . June 28, 2019. https://www.entrepreneur.com/article/335987
  • 32 Vineet Arya. “How to Infuse Empathy in Your Marketing?” Entrepreneur . June 28, 2019. https://www.entrepreneur.com/article/335987
  • 33 Mike Godlewski. “The Secret to Knowing What a Client Is Thinking? Empathy Maps.” Yeti. February 8, 2016. https://yeti.co/blog/the-secret-to-knowing-what-your-client-is-thinking-empathy-maps/
  • 34 Germán Coppola. “What Is an Empathy Map, and Why Is It Valuable for Your Business?” Medium . November 28, 2017. https://medium.com/swlh/what-is-an-empathy-map-and-why-is-it-valuable-for-your-business-14236be4fdf4
  • 35 This material is based on original work by Geoffrey Graybeal and produced with support from the Rebus Community. The original is freely available under the terms of the CC BY 4.0 license at https://press.rebus.community/media-innovation-and-entrepreneurship/.
  • 36 Michelle Ferrier and Elizabeth Mays. Media Innovation and Entrepreneurship . The Rebus Foundation, 2017. https://press.rebus.community/media-innovation-and-entrepreneurship/.
  • 37 Jennifer van der Meer. "Do You Suffer from Value Proposition Confusion?" Linkedin . October 19, 2016. https://www.linkedin.com/pulse/do-you-suffer-from-value-proposition-confusion-jennifer-van-der-meer/
  • 38 “The Value Proposition Canvas.” Strategyzer . n.d. https://strategyzer.com/canvas/value-proposition-canvas
  • 39 Ash Maurya. “Why Lean Canvas vs Business Model Canvas?” Medium . February 27, 2012. https://blog.leanstack.com/why-lean-canvas-vs-business-model-canvas-af62c0f250f0
  • 40 "Social Business Model Canvas.” Business Model Toolbox . 2013. https://bmtoolbox.net/tools/social-business-model-canvas/
  • 41 “The Business Model Canvas Reinvented for Social Business.” Tandemic . n.d. http://www.socialbusinessmodelcanvas.com
  • 42 Ayse Guclu, J. Gregory Dees, and Beth Battle Anderson. “The Process of Social Entrepreneurship: Creating Opportunities Worthy of Serious Pursuit.” Duke/Fuqua case . 2002. https://centers.fuqua.duke.edu/case/knowledge_items/the-process-of-social-entrepreneurship-creating-opportunities-worthy-of-serious-pursuit/
  • 43 Lindsay Clinton and Ryan Whisnant. “Model Behavior: 20 Business Model Innovations for Sustainability.” SustainAbility . February 2014. https://sustainability.com/wp-content/uploads/2016/07/model_behavior_20_business_model_innovations_for_sustainability.pdf
  • 44 Alexander Osterwalder. “The Mission Model Canvas: An Adapted Business Model Canvas for Mission-Driven Organizations.” Strategyzer . February 25, 2016. https://blog.strategyzer.com/posts/2016/2/24/the-mission-model-canvas-an-adapted-business-model-canvas-for-mission-driven-organizations
  • 45 Social Lean Canvas. n.d. https://socialleancanvas.com/

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  • Authors: Michael Laverty, Chris Littel
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  • Book title: Entrepreneurship
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business model generation revenue streams

8 revenue stream examples for your business

revenue stream examples

The coronavirus pandemic has emphasized the need to diversify revenue streams. Having all your eggs in one basket and depending on one single revenue stream can be risky, especially in the current climate. While you already have your revenue stream, there are ways to identify new opportunities and diversify your income. 

If you can tap into different ways to generate revenue, you can keep your income flowing and put your business in a more secure position going forward. By understanding the revenue streams available, you can dive deep into your business to identify opportunities to make money.

In this article, we’re going to look at how you can target new customers, create new revenue streams and stay ahead of the competition. 

  • What is a revenue stream? 
  • The importance of revenue streams 
  • How to choose the right type of revenue stream for your business 
  • 8 revenue stream examples

What is a revenue stream? 

​​Revenue streams are sources where your business generates money. The sources of income vary depending on your type of business. A revenue stream is not a business model, but it does influence your business model and decisions. Here’s a breakdown of the difference between a business model, revenue stream, and revenue model: 

  • Revenue stream – the source of your company’s income 
  • Revenue model – the strategy of managing the revenue streams 
  • Business models – the structure of the company including your revenue model and streams and how everything works together 

Often, when talking about revenue streams, these three terms are used a lot and it’s easy to confuse them. A business can have a single or multiple revenue streams, depending on the business model. When you’re looking at your revenue model, you’re diving deeper into elements like price and your value offering. Your business model takes everything into account, including your revenue streams and model. It’s a way of optimizing your business so that all elements work together to maximize profits. 

An example of a company that has multiple revenue streams is the apparel brand, Lululmeon. First, they have eCommerce and digital sales. But, they also sell wholesale products to health clubs, gyms, and fitness centers to increase brand image. Other streams of revenue include sales from temporary shop locations and showrooms. The brand has also branched out into the home fitness world with the Lululemon Mirror, after buying the fitness startup Mirror last year for $500 million.  

The importance of revenue streams 

Naturally, revenue streams are important because you need an income. It’s no surprise that revenue streams are essential, but they do more than just generate money for your business. You can use revenue streams as a way to evaluate performance across different areas of the business. For any business, revenue is a key performance indicator (KPI). 

By having a clear understanding of your revenue streams, you can track patterns and generate revenue projections across the business. If you can spot changes, trends, or dips in income, you can identify the cause and find out where you need to spend more time. Through a good understanding of the different types of revenue streams, you can identify opportunities to make more money. 

There is a clear need to diversify revenue streams to help reduce risk in an economic downturn. Advances in technology and a shift to digital transformation across most industries mean that there are new ways to diversify your current products and portfolio. From adding a subscription service to offering online workshops and training for customers, you can diversify revenue streams to target new customer segments.

How to choose the right type of revenue stream for your business 

As a startup, you may have to rely on one single source of revenue. But, the quicker you can diversify your revenue streams, the safer your business will be in the long run. Because if your one revenue stream dries up, your business could be in trouble. One of the biggest examples of a company that uses multiple revenue streams to drive growth is Amazon. The online retailer has eCommerce sales, Prime subscription, Amazon Music, AWS, and audible memberships. Of course, you don’t have to be a massive company like Amazon to develop multiple revenue streams. 

The best revenue streams for your business depend on your assets, who your customers are, and your current main source of income. With various types of revenue models and streams available, the right revenue streams can differ. At a high level, a company can generate revenue from transactional revenue from a one-off payment like sales or through recurring revenue like a subscription. 

Here are three factors to consider when choosing your revenue stream: 

  • Value proposition – your revenue stream should connect with your value proposition. The value that your product or service delivers should align with your revenue streams. 
  • The market – your customer base and market fit will determine your revenue streams. If you target individual customers, a subscription service would make sense. But if you’re a software company, then licensing your service could be more suitable. 
  • Competitors – analyze how your competition generates revenue. You can study their strategies, mistakes, and wins to help you determine your own revenue streams. 

A useful tool to help you understand your business model is the Business Model Canvas (BMC). It helps you to visualize and assess your business model and capture value. A BMC includes elements like value proposition, revenue streams, customer segments, and channels to connect the building blocks of your business. Every value proposition should connect with a revenue stream and customer segment. By evaluating your business model as a whole, you can determine the most suitable revenue streams for your business. 

8 revenue stream examples 

There are several ways businesses can make money. Typically, there are pros and cons to each type of revenue stream. Depending on your value proposition and customers, one revenue stream may be more suitable for you than another. Here are eight examples of revenue streams that represent broad categories of ways your business can make money. 

1. Asset sale 

Asset sale or selling assets is one of the most mainstream ways that businesses make money across multiple industries. Your business sells something and then your customers own it. An asset sale also occurs when a business owner sells their company. Usually, it’s a one-off transaction sale. Once the sale is complete, typically, a customer can use the product, resell or even destroy it as they own the asset. The sale of a physical product generates revenue for the business. 

The Customer Engagement Playbook for Your Fitness Business

2. usage fees .

Usage fees are how much a company charges to use its service. The customer pays you based on the amount they use the service. For example, a phone company charges customers for a certain number of minutes and data. Typically, customers pay a monthly fee to access phone service. Another good example is a car rental. The customer pays a car rental company to rent a car for how many miles they travel. A postal carrier charges you to deliver a parcel from one location to another. Essentially, with usage fees, the more customers use a service, the more they pay. 

3. Leasing and renting 

This revenue stream is built around customers using a temporary item for a fixed amount of time. For this, you’re giving customers exclusive use of an asset for a specific amount of time. Examples of businesses that use this revenue stream are Airbnb or car rental companies. 

Another example of this revenue stream is Rent the Runway, which allows members to rent designer clothes for a specific period of time. The designer rental brand offers both a monthly subscription membership and one-off rentals to customers. Memberships start at $135/month and give users access to up to eight items per month. You can see how they are tapping into multiple revenue streams to develop both recurring revenue and transaction revenue from one-off rental purchases. 

4. Advertising fees 

Advertising fees are a revenue stream where you make money by charging to showcase a product, service, or brand on your online or offline company assets. Essentially anywhere you charge a fee to advertise and promote another business. An advertising-based revenue stream is often used by businesses that have websites that attract a lot of traffic. You generate revenue by selling ad space. 

The benefit of this is that if you have a high-traffic space, online or offline, you can monetize it relatively instantly. The downside is that adverts are everywhere nowadays and you want to consider if you want to distract your customers with an advert. Examples of advertising revenue include incorporating Google Adsense on your website or adverts on your podcast or YouTube channel. 

5. Subscription fees 

Many businesses utilize a subscription-based revenue stream. Revenue is generated through customers paying for ongoing access to a service. Examples of companies that use subscription fees are Netflix, Shopify, Adobe as well as gym memberships, and fitness studios.

 In general, these types of revenue streams tend to be lower monthly amounts so customers continue to pay as it’s something you can easily forget about. As a subscription, customers pay a recurring fee to access a service. Other businesses that use this revenue stream are subscription boxes and some eCommerce companies. 

6. Licensing 

Licensing usually involves one-time customer payments that give a single user or group of users access to a software product. While the owner keeps the copyright, the third party can use the content for free. In the last few years, we’ve seen some major players move away from the licensing model to a subscription-based format. 

Companies like Adobe and Microsoft have moved a lot of products to subscription services. But licensing is still a popular option in photography, music, and video games where customers pay to use and access content, while the owner still retains the ownership rights. 

7. Brokerage fees 

When companies match people with a certain service, they can receive a brokerage fee. In a traditional sense, real estate agents and real estate brokers match people with property and receive a brokerage fee. Other examples of businesses that take brokerage fees are Uber, Booking.com, and Airbnb. They all take a fee matching customers to service. 

The benefit of this revenue stream is that you don’t have to deliver the product or service, you simply match the customer with the right business or service. The downside is that this sort of revenue stream really only applies to certain businesses and it takes a lot of time and effort to set up. Any business that acts as an intermediary takes a percentage fee for its services. 

8. Consulting or services 

The people on your team are also an asset. An asset doesn’t have to be a physical item. You can leverage your team in the form of consulting or services. Examples of this include financial advisors and marketing agencies or consultants. These types of businesses can include both retainer and project work. 

Retainer work is similar to a subscription setup where customers would pay a certain amount each month for a specific service. Offering services or consulting is a good way to create a revenue stream without creating brand new assets or developing a new product. 

In summary 

The right revenue stream for your business depends on your value proposition, customers, and your main source of income. While some revenue streams may not be relevant for your business, others could be opportunities to diversify your income and increase future stability. 

A great additional revenue stream is one that doesn’t add too much complexity to your current business model. By evaluating your current assets and surveying your existing customers, you can look to identify a new business revenue stream to expand your company. 

Cover-The-Customer-Engagement-Playbook-For-Your-Fitness-Business-1

Eamonn Curley

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Revenue Streams: Overview, Types, and Examples

  • 14 Sep, 2023
  • No comments Share

What are revenue streams?

  • a business model is a broader concept describing how a company creates, delivers, and captures value, while
  • a revenue model, being part of the business model, is a plan that shows how the company is going to generate income. A revenue model defines revenue streams.

How to choose a revenue model for a software product

Revenue models in the software business

Okay, let’s get back to revenue streams. A diversified mixture of income sources makes a company more stable and resilient, especially when the market, customer preferences, and economic conditions are changing. Even if one revenue stream suffers a negative impact, chances are that the others can still generate income. And although multiple revenue streams require more management effort, diversification always presents additional opportunities. A well-known example from the world of big tech is Microsoft, whose revenue comes from a variety of sources, including Office products and services, Azure and other cloud services, gaming, search advertising, and more. Another shining example of diversifying revenue streams is Amazon, which earns from online stores, third-party seller services, AWS, advertising, etc. We’ll talk more about diversification in one of the next sections, so bear with us a bit. So let’s see the main types of revenue streams that you can implement in your business.

Revenue stream types and examples

Revenue stream types

Revenue stream types

Recurring revenue streams

The main revenue streams for: Netflix, Google Ads, Amazon Web Services, PayPal As the name suggests, the payments within a recurring revenue stream are ongoing or coming in on a regular basis. Those are typically fees for some continuing services, including the following. Subscriptions and memberships – charging a recurring fee for access to a product or service. Some examples are regular merchandise delivery (e.g., magazines, beauty products, meals, etc.), gym passes, streaming video services, online storage space, and so on. Renting, leasing, or lending – allowing customers to temporarily use your assets for a fee, e.g., renting out apartments or leasing vehicles. Brokerage – getting a commission from transactions settled with you as an intermediary, as freight brokers or payment gateway providers do. Advertising – selling advertising space on either online platforms or offline media resources. Affiliate marketing – promoting other products or resources or referring customers to them for a fee or commission. Even though any of these revenue types can be single-payment or canceled at any time, they mostly imply generating a fairly consistent income flow. That’s why recurring revenue streams are usually the most stable, predictable, and manageable.

Transaction revenue streams

The main revenue stream for: Walmart, Ford, American Airlines, Starbucks, Uber This type is considered the most common one as this revenue stream is generated by sales operations. If you sell any goods or services on a single-time basis, that’s a transaction revenue stream. Most retail, wholesale, and eCommerce businesses rely on this type of revenue stream. This group also includes companies that provide single-time services (from haircuts to plumbing to flights to software licenses).

Service-based revenue streams

The main revenue stream for: Accenture, PwC, Deloitte, McKinsey In this case, the fee for services rendered is calculated on an hourly basis. All advisory and consulting firms (in such areas as finance, law, taxes, etc.) fall under this category. So do virtual assistants, therapists, coaches, and other specialists who basically sell their time. Note that often, such services are provided on a regular basis. If a defined amount of work for a fixed fee is charged on an ongoing basis, then such revenue can be considered recurring.

Project-based revenue streams

The main revenue stream for: Bechtel, Epam, Gartner Here, revenue is generated upon successful completion of the entire project. If the project is lengthy, there can be several transactions, which are usually connected to specific milestones. Industries that mainly operate on project-based revenue streams are construction, website or software development, event planning , interior/exterior design, marketing, research, and so on.

Revenue stream diversification examples

As we said above, diversification is the key to stability, so now we’ll look at how some of the world’s biggest companies expanded their revenue stream portfolios to increase customer reach and drive profit.

Walmart revenue streams: not only retail

The well-known retail giant we started this post about turns out to have a variety of revenue streams. The company itself divides its operations into three major reportable segments: Walmart US, Walmart International, and Sam's Club. However, in terms of revenue models and streams, we can single out the following. Transaction-based revenue includes

  • in-store sales – Walmart operates 10,500+ stores and clubs in 20+ countries, serving 230 million customers annually;
  • eCommerce sales – Walmart sells merchandise online from both retail brands and Sam’s Club; and
  • fulfillment fees – Walmart offers storage and fulfillment services to merchants who sell on the Walmart Marketplace platform.

Recurring revenue includes

  • membership fees – Walmart Plus membership provides benefits like unlimited free delivery, fuel discounts, early access to product deals, and more for $98/year, while Sam’s Club is a membership-only warehouse club with two plans of either $50 or $110 annually; and
  • advertising – Walmart Connect is a platform that brands can use to promote their products through various channels, including online, in-store, and sponsored media across the web.

Walmart still makes more than half of its money from selling groceries, but it doesn’t rely only on retail sales as it did before. It managed to build an entire ecosystem of various services around such a simple thing as selling cheap, everyday merchandise to lower-income shoppers.

Apple revenue streams: not only iPhones

Of course, we can’t bypass the largest company in the world in terms of market capitalization (as of today, Apple is worth around $3 trillion). What started off as a small personal computer manufacturer in the late 1970s has now become a multinational giant generating revenue from

  • sales of devices, including iPhones, iPads, AirPods, wearables, accessories, etc.;
  • advertising in the App Store and Apple News app;
  • commissions on paid apps and in-app purchases;
  • subscriptions to its numerous services such as iCloud+, Apple TV, Apple Music, etc.; and
  • payment service fees through the Apple Card credit card and the Apple Pay processing platform.

Apple’s 12-month revenue as of June 2023 is $383.933 billion , and even though iPhone sales account for more than 50 percent of the company’s revenue, the share of other segments keeps growing.

Tesla revenue streams: not only cars

Tesla is the world’s biggest electric vehicle producer, having grown to a compound 12-month revenue of $ 94.02 billion . It has sold over 4.5 billion vehicles since its founding in 2008, and EV sales (together with charging accessories and related software) are still its main source of income. But not the only one. Tesla also develops other business directions, namely

  • energy generation and storage,
  • auto leasing,
  • regulatory credits, and
  • other services (parts, paid Supercharging, vehicle insurance, etc.).

In addition, Tesla heavily invests in R&D and is now earning its place as a player in the AI and tech market. It currently develops its own autonomous robots, chips, supercomputers, neural networks, and so on – all of which have the potential to become other significant revenue streams for the company.

TripAdvisor revenue streams: not only advertising

If we look closely at the biggest free travel review website in the world, we’ll see that it has multiple revenue streams that together have already generated $ 1.67 billion in 2023:

  • advertising and Sponsored Placement fees,
  • subscription fees from the TripAdvisor Plus membership program, and
  • commission and booking fees from host listings.

And it’s not only TripAdvisor itself that makes a profit but also its diverse portfolio of subsidiaries that operate on various business models, including Bokun.io, Viator, Cruise Critic, FlipKey, TheFork, and others.

How to manage revenue streams?

Depending on your stage of business development, you probably either need to plan on your revenue streams, create them, or monitor their performance.

Defining revenue streams

Business Model Canvas

Classic Business Model Canvas

To start identifying revenue streams, you have to define your target customer groups, their needs, and the value proposition for each of them – since each customer segment typically generates a separate revenue flow. Based on that understanding, you can ascertain the main revenue-related factors. Revenue model . Which revenue model type to implement? Pricing strategy . How to approach pricing? Should it be fixed or dynamic ? Should you set prices based on demand , value, or competition ? Can you afford to offer discounts, free trials, buy now pay later programs, delayed payments, or other incentivizing methods that will impact your bottom line? Willingness to pay . Will your customers pay the price you set? What’s the maximum price your customers will pay for your product or service? What can encourage them to pay more? Payment channels . Online or offline? Cash, card, bank transfers, digital wallets, or other payment methods? To answer all these questions, you’ll have to conduct thorough, in-depth market research and find out what your competitors offer, at what price, and what your target customers think about the current state of things. Only after detailing your revenue streams will you understand what revenues to expect, their certainty and potential cyclicality, as well as possible ways to maximize them.

Creating revenue streams

There’s no one scenario that will work perfectly for every business in any industry. But the general algorithm for creating revenue streams coincides with the BMC in many aspects:

  • Identify your target customers and their needs.
  • Develop a value proposition for your products or services that addresses the needs of the specific customer segment you defined.
  • Research your competition and their offerings to evaluate market opportunities and potential profitability.
  • Calculate your costs and define pricing for your products or services.
  • Launch new products or services.
  • Monitor performance and market conditions closely and adjust as needed.

Diversifying your revenue streams will increase stability, so once you’ve established your main workflows, think about expanding your income portfolio.

Monitoring revenue streams

Revenue management suggests a number of KPIs that you can monitor in any industry to understand how your revenue streams are performing. Here are some of them:

  • Gross revenue,
  • Net revenue,
  • Revenue growth rate,
  • Average revenue per customer/user,
  • Average transaction value,
  • Customer lifetime value (CLTV),
  • Churn rate,
  • Customer acquisition cost (CAC),
  • Sales Conversion Rate, etc.

Obviously, any industry also has its own metrics to monitor cash flows. For example, the main revenue-related KPIs in hospitality include Revenue per available room (RevPAR), Total revenue per available room (TRevPAR), Revenue per available customer (RevPAC), and so on. Read about these and other hotel KPIs in our dedicated post. Analyzing your revenue streams will help you better understand your business, evaluate its financial health, define weaknesses and opportunities, and make more accurate forecasts.

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business model generation revenue streams

Revenue models: 11 types and how to pick the right one

Finding the right revenue model for your company and products is an incredibly important part of starting and expanding your business. It's a key part of building a brand. Explore popular revenue models and how to choose the right one.

What is a revenue model?

  • 11 different types of revenue models

Costs associated with revenue models 

  • How to choose your revenue model

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In one of the most famous lines from the 1941 classic Citizen Kane , Mr. Bernstein proclaims: “ It's no trick to make an awful lot of money... if what you want is to do is make a lot of money .” If only that statement were as true as it seemed. It's probably more accurate to say, “There are a lot of ways to make a lot of money.”

That’s particularly true for software businesses, with the rise of the mobile internet stimulating an explosion in the number of viable revenue models. Choosing which revenue model works best for your SaaS business, though, is not easy (even if that's all you want to do is choose a revenue model for your SaaS business). Your choice will help determine your sales strategy , and from there the growth rates, the amount of money you’ll need to invest initially, and the kind of relationship you’re likely to build with your customers. More than that — the choice determines the future of your business. Let’s take a look at some of the most popular revenue models used today — why they’re popular, why they work, and why they will (or won’t) work for you.

A revenue model is the income generating framework that is part of a company’s business model. Common revenue models include subscription, licensing and markup. The revenue model helps businesses determine their revenue generation strategies such as: which revenue source to prioritize, understanding target customers, and how to price their products.

Revenue models often get conflated with revenue streams, probably because each is a single revenue generation source. They are also confused with business models, of which revenue models are a part. Revenue models help business owners determine how to manage their revenue streams and are required to complete a business model.

Without a considered revenue model, your business will incur costs it cannot sustain. With a revenue model, you can set, track, and forecast business growth based on specific customer segments.

11 different types of revenue models 

There is no such thing as a perfect revenue model, but the popularity of some of the methods below suggests that many of them are well-tailored for the current state of the market. Here we’ll walk through each type of revenue model and when they may be most beneficial and applicable.

1. Subscription

The  subscription model  is the “vanilla” SaaS revenue model, not that there’s anything boring about a well-worked subscription plan. Businesses charge a customer every month or year for use of a product or service. All revenue is deferred and then fulfilled in installments. The subscription model is perhaps the most popular among SaaS companies because of its versatility, promise of  recurring revenue , and high value:customer lifetime balance.  Done right it's a one-way-ticket to sustainable growth .

business model generation revenue streams

Companies working with recurring revenue models, such as  subscription or licensing , see more value from a customer across a given customer lifetime. Being able to offer a variety of value options means your company can respond to more than one set of customer needs, expanding your appeal. Hubstaff’s subscription plan, seen below, is a classic of the genre:

business model generation revenue streams

Hubstaff’s various plans are distinct from one another in price and feature. This flexibility in the subscription model means that tentative or lower-budgeted customers can still get what they need, all the while maintaining visibility of what extra they could get for a few dollars more a month.

The freemium model is often described as a subscription revenue model, but in fact it’s an acquisition model, not a revenue model. Freemium involves giving users free access to an app and then selling subscriptions for a premium tier that includes more features.

Markup is a very common revenue model for buyer companies (i.e., companies that buy the products they sell). It’s as simple as can be: Take the cost of goods you just bought, mark it up X%, and make a profit margin on the original purchase. There are various subgenres of the markup model, including the following:

  • Wholesale: Sale of goods or merchandise to retailers, business users, or other wholesalers
  • Retail: Identification of demand, and satisfaction of it through a supply chain via a number of possible outlets, including physical and ecommercial ones

Markup is particularly used by mediators like ecommerce marketplaces — Amazon, for example. On average, Amazon charges a seller who uses their site 15% of the sale, plus  FBA fees  (including storage, pick & pack, shipping).

5. Pay-Per-User

One of the most enduring legacies of SaaS in the world of business is the introduction of pay-per-user (PPU). It involves giving a customer potentially unlimited to access to a range of features while charging them only for the services they use. At the dawn of SaaS, as the software required no physical delivery and deployed so quickly and cheaply, PPU appeared to be the most sensible revenue model. However, as natural as it seemed back in the day,  pay-per-user is not popular  anymore. Ascribing value to your product is one of the key considerations of your revenue model, and that includes demonstrating why it’s worth your target customers’ valuable dollars, not just making everything so cheap and easy that they can’t refuse. The issue with PPU, then, is that it’s rarely where value is ascribed to your product. Moreover, PPU kills your Monthly Active User metric. The per-user metric is not the most useful to customers in terms of deriving value — its take-it-or-leave-it approach actively works against your Daily Active Users number, and thus contributes to your churn rate.

6. Donation

As evidenced by the rise and rise of  Kickstarter - and  Patreon -based ventures, altruism is, if unpredictable, a pretty effective revenue model by itself. Relying on the donations of regular users is a common revenue model for nonprofits, online media (i.e., YouTubers) and independent news outlets.

business model generation revenue streams

7. Affiliate

What is  affiliate marketing ? This new, popular model works by promoting referral links to relevant products and collecting commission on any subsequent sales of those products. Leverage your product’s synergy with another product in an adjacent space and you both stand to gain. The affiliate model can be as simple as including in an article an outlink to a book or other product mentioned or offering your customers specialized recommendations relative to purchase history (again, Amazon is a master of this art). Some companies, such as Etsy, even have a  specific program  for their affiliates, where other companies can earn a commission on qualifying sales that result from featuring links to Etsy products and services. The affiliate revenue model is increasingly popular, owing to the way it dovetails effectively with other revenue models, particularly ad-based models.

8. Arbitrage

Applicable mainly to sellers or marketplace-oriented companies, the arbitrage revenue model uses the price difference in two different markets of the same good/service to make a profit. You buy in one market (a security/currency/commodity) and simultaneously sell in another market, at a higher price, what you just bought, pocketing the temporary price difference. Arbitrage is popular with  affiliate marketers , as well as with many cryptocurrency firms, SFOX being a prime example.

business model generation revenue streams

9. Commission

This transactional revenue model involves a middleman charging commission for each transaction it handles between two parties or for any lead it provides to the other party. It’s particularly popular with online marketplaces and aggregators, as well as businesses like independent music distributors. It’s particularly easy to get up and running with a commission-based business model because you’re working off of existing products. However, unless your field is well-conditioned for a monopoly, and unless your company is (or can become) that monopoly, you’ll find the commission model  very tough to scale .

10. Data Sales

Ever heard the phrase, “If you can’t see how the money’s made, you’re the product”? That’s data-selling in action. Many companies  selling digital goods  and services could not exist without core underlying data assets. In the data sale revenue model, this data is sold directly to a consumer or business customer. While certain companies will use data sale as their primary revenue model, the use of  data sales  to augment another revenue model is virtually ubiquitous. While some are using it as an  entrepreneurial venture , it is also the subject of considerable justified  public concern  and should be handled with care in the event you decide to go with it as your revenue model.

11. Web/Direct Sales

The old-fashioned revenue model made new, web sales and direct sales involve payment for goods or services through a digital medium. Web sales involve a customer finding your product via outbound marketing (or a web search) and can used for software, hardware, and subscription-based offerings. Direct sales revolve around inbound marketing and is good for handling multiple buyers and influencers in big-ticket markets.

A good revenue model is not just about squeezing as much revenue possible out of a sales cycle; it’s also about balancing your ambitions in the market with your resourcing requirements. A startup revenue model may be significantly different than one for an established business because their resources are vastly different. When choosing your model, factoring in costs is paramount to ensure profitability.

Cost of revenue

The first cost you’ll be likely to factor in is your cost of goods — how much it costs to produce the goods or service that you then sell. For hardware, this can comprise testing and manufacture; for software, it’ll include the whole development cycle. Regardless of what you produce, administrative overheads will also apply. You will find cost of goods a considerably less comprehensive metric than cost of revenue, which is the total cost of manufacturing and delivering a product or service to consumers. That includes everything we’ve just covered, plus distribution and marketing costs. Cost of revenue is more often used in SaaS and other service-oriented industries because it makes the many costs incurred outside of production in SaaS easier to track.

Prototyping costs

Prototyping is a fundamental aspect of any production cycle and, unfortunately, is one of the most expensive. While testing prototypes or beta versions of your new product, even the smallest revisions can necessitate costly changes to your production/development process. This usually comprises a base-level cost, plus iteration costs on top of that. When forecasting prototyping costs, it’s wise to plan for several iterations; it’s highly unlikely you’ll get everything right the first time around, especially if your product is innovative or is composed of a number of features.

Equipment costs

One of the beautiful things about being a SaaS company is that there are no production lines to run. Nevertheless, equipment costs still factor into the bottom line. Firmware,  app development tools , server rental, plus any other administrative services bought on subscription (e.g. Slack or Hubstaff) will play a part in your equipment costs, but, generally, equipment costs should be the easiest of all to forecast.

Labor costs

An underpaid workforce is an unhappy workforce (if it’s a workforce at all); wage costs come out of your bottom line. Based on the interaction of salary and commission in your  compensation plan , as well as the type of commission you offer (entirely open-ended or capped? Will there be accelerators/decelerators involved?), you will have to plan for your expenditure on labor costs differently.

Advertising & marketing costs

Your advertising and marketing costs will be determined by the following:

  • The size of your respective advertising and marketing teams
  • The scale of exposure you’re shooting for
  • Your method of approach to advertising and marketing: undefinedundefinedundefined

business model generation revenue streams

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Your revenue model is unique

So many revenue sources, so many revenue models, so little time. There are some fundamental differences between revenue models. For instance, if you’re a SaaS company producing your own software product, you’re unlikely to get all that far with an arbitrage model. Likewise, if your product is a medium or if you’re a seller, a subscription-based revenue model won’t do the trick. A product with a high ceiling for potential revenue is not best served by a donation model. Nevertheless, the choice of a main revenue model out of the batch that do work for your product, and how you then combine them with appropriate aspects of other models, is yours, and yours only. Your product and the market should be in mind at all times while you’re settling on, adding to, and refining your model. After that, bringing in the revenue itself should be as easy as  Citizen Kane  said.

Related reading

business model generation revenue streams

Digital Enterprise

Revenue Streams on Business Model Canvas

Without an understanding of how the business will bring in money and what exactly revenue streams (RS) will be used, the chances of it succeeding are negligible. That’s exactly why so many startups, even those that have great and innovative ideas, don’t make it to success.

But what are revenue streams? And how to define them correctly?

These are the questions that this article will address.

What Are Revenue Streams?

Importance of revenue streams, transactional-based revenue streams, recurring revenue streams, 7 types of revenue streams, pricing mechanisms, the impact of revenue streams on the other business processes.

Revenue streams are one of the nine building blocks of a famous management template Business Model Canvas (BMC). It is placed in the lower right corner and is used by companies to describe their plans to earn money, as well as the resources they will need to achieve them.

Depending on the customer segments, the number of streams can vary for different businesses. Regardless, one thing is for sure – it’s necessary to identify them all at an early stage so that nothing important slips through the cracks later on.

In addition to defining revenue streams, it’s essential to take the time and consider pricing mechanisms that would be best suited for each stream. For example, they could be:

  • Fixed-list prices;
  • Seasonal offers.

This list, of course, can be expanded, but we’ll get there in a minute.

Creating a business model is not only the right thing to do; it is the only correct way to run a business and leverage its potential by allocating budgets wisely.

Without a clear understanding of their financial situation, organizations can encounter a number of challenges, including:

  • Investing in products or services that are not profitable;
  • Missing opportunities to optimize revenue potential;
  • Failing to diversify income sources and entering new markets.

The worst-case scenario would be a complete loss of control over revenue streams, leading to the collapse of the entire business.

So, though not placed at the top, revenue streams are the key elements of the BMC that tie everything together and give meaning to the business strategy as a whole.

Two Main Categories of Revenue Streams

In general, there exist two primary types of revenue streams, but quite often, they are used together. These are:

  • Transactional;
  • Recurring. 

Let’s elaborate on each of them.

TB streams refer to a business model in which the company’s income is earned from one-time customer payments. In this model, the more transactions people make, the more revenue companies generate. The TB model is most commonly used by e-commerce companies, but it’s equally common in the financial service industry.

One of the biggest benefits of the TB revenue stream is the ease with which the income can be tracked. Everything here is simple. The money comes in every time buyers make a purchase and comes out when the company pays wages or orders new goods.

This simplicity brings another advantage. Because sales revenue is so easy to track, it can also be easily adjusted to increase profits. For example, a company can analyze which products are generating the most revenue and increase or decrease the amount of inventory.

In addition, TB revenue streams provide insights into customer behavior, allowing businesses to identify trends and tailor their offerings to meet the specific needs of their clients. Customers, in turn, also prefer this model because of its straightforwardness.

Disadvantages

However, this model is not without flaws. One of them is that in order for transactions to happen, a company must always be involved in the process, which takes time and resources.

Another one is the popularity of transactional-based streams themselves, leading to fierce price competition and forcing businesses to lower their prices to remain competitive. As a result, profit margins may not be as high as desired.

In terms of recurring revenue streams, these refer to ongoing payments that occur whenever customers renew their rights to use the product. Some examples of the RRS are subscription fees, rent pay, and advertisement payments, to name a few.

This model’s strength lies in its ability to generate a steady flow of income with minimal ongoing involvement on the company side. Once customers sign up for a subscription, revenue continues to come in regularly until they decide to cancel. 

This creates a predictable revenue stream that can be relied upon, without requiring constant efforts and investment in customer acquisition and retention. As a result, companies can better forecast future earnings and plan for growth initiatives, whether it be expanding product offerings or entering new markets.

Perhaps, the biggest drawback of this model is that some customers may not prefer subscription-based services or products, which can put customer relationships at risk.

This is particularly true for businesses that fail to provide value to their clients and/or offer inflexible subscription plans that do not quite align with customer needs.

To mitigate this risk, companies should strive to offer flexible subscription plans that allow people to adjust their plans based on their needs or circumstances and provide excellent customer service support.

Speaking of the popular options used for earning money, most often, companies stick with the following 7 revenue streams:

Perhaps, this is one of the most popular types of revenue streams. The basic idea behind it is that a company creates a physical product and then sells the ownership to somebody else, thus making a profit.

As you can guess from the name, this stream is primarily based on the estimation of the frequency of use of a product or service. The more customers use the product (or service), the more income businesses generate. Mobile phone providers are a case in point.

  • Subscription Fee 

Another way to make a profit is to sell customers access to a service or product that they can renew every certain period of time. This model can be used for both services and physical products. 

  • Lending, Renting, and Leasing

Unlike a subscription fee, this type of stream assumes that customers can get temporary access to a service or product for the desired length of time, whether it be a few hours, a few months, or a few years. 

This stream is mostly used in the areas of intellectual property and technology where customers get the right to use it by paying a certain fee.

  • Brokerage Fee

Unlike the streams mentioned above, the brokerage type of stream relies on the percentage paid for the cost of a product or service and is mostly used by intermediary services.

  • Advertising

Finally, businesses that have the means to advertise, whether it be through their websites or other platforms, can use this stream as a source of income.

Surely, this is not a complete list of all revenue streams possible, but it should certainly give you an idea of what to look for when devising your own business strategy.

Now that we’ve covered what a revenue stream is and what types of revenue streams exist, we can move on to the next step – understanding pricing mechanisms. In general, there are two types of pricing mechanisms that businesses can use:

However, each of them further branches into several subdivisions.  

As far as the fixed pricing mechanisms are concerned, there are several strategies that businesses can employ to generate revenue, including:

  • List price . These prices are most often used in physical stores and on the Internet. They are fixed and cannot be negotiated;
  • Based on product features . Depending on the version of a product or some of its features like size, color, and print, the price may vary a bit;
  • Based on customer segments . In this case, the pricing is done based on the perceived value of the product or service to the customer;
  • Based on volumes . If customers often buy certain products in bulk, companies may offer them discounts or bulk pricing to encourage them to purchase more.

When it comes to dynamic mechanisms, pricing can be formed based on the following factors: 

  • Yield management . Prices can change based on inventory levels, with lower prices offered to clear out excess inventory and higher prices charged for in-demand products;
  • Auction . A product can be determined by means of bidding for a certain period of time;
  • Negotiation . This form of pricing is mostly used for large purchases, like cars, for example, or houses, where buyers and sellers can negotiate the end price;
  • Real-time . Sellers of products whose prices can fluctuate every hour or even minute (like oil, for example) are better off targeting their pricing in real-time;
  • Based on timing . Businesses may offer lower prices during a limited period of time or during off-peak seasons. When the time’s up, the price goes back to its original value. 

The main reason the BMC is so popular is that it provides a clear and concise framework for business owners and managers to visualize and analyze their business models. All the elements on the canvas are related to one another and interconnected. The same goes for revenue streams.

You need to know who are targeting to be able to define the lower and higher limits of the product or service value. The value itself should be clear and relevant to the target market.

You will also need to have a clear idea of how you’ll communicate the value of the product or service to customers, as well as how you’ll build and maintain relationships with them – all of which are the factors that need to be considered when deciding on the revenue streams.

To bring it to an end, revenue streams are an important element on the Business Model Canvas that ties everything together, allowing companies to optimize their revenue potential, diversify income sources, and enter new markets. Therefore, it’s important to approach them strategically from the beginning.

Hopefully, with our tips, you’ll have no difficulty identifying the revenue streams that best align with your business goals, no matter whether you’re starting an online store selling physical goods or creating a new car rental platform.

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Revenue Streams in Business Model Canvas

Published: 31 December, 2023

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Stefan F.Dieffenbacher

Business Models

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Table of Contents

Without a clear path for bringing money and resources into the enterprise, all businesses are doomed to fail. Every business model must clearly indicate which revenue streams will attract enough customers to keep the lights on. Businesses fail because, though the founders may have great ideas and motivation, the crucial element of effective idea generation but their business models do not properly take into account how they will generate revenue. The success of any enterprise hinges on establishing viable revenue streams and resource acquisition strategies. Hence, it is imperative for every business model to thoroughly account for how it will generate income to avoid potential pitfalls.

At Digital Leadership, we see companies struggle to turn great ideas into ongoing revenue generation. We provide Business Model Strategy and Marketing Strategy Consulting services which allows a company to identify and assess potential risks and develop appropriate mitigation strategies. By understanding its revenue streams , cost structures , and customer segments , a company can proactively identify vulnerabilities and develop contingency plans.

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What are Revenue Streams

Revenue streams encompass diverse sources of income from which an organization generates revenue by either selling goods, providing services, or a combination of both. These revenue sources can vary in nature, being either recurring, transaction-based, project-based, or a mix of different types, depending on the specific nature of the organization’s business operations.

It outlines how you earn money, and what price is each of your customer segments truly willing to pay. Identify each possible revenue stream per customer segment.

Think hard about the possible pricing mechanisms per Revenue Stream. Surprisingly, pricing can often be a source of differentiation! Pricing mechanisms can include auctioning, bargaining, fixed-list prices, market- or volume-dependent prices, or yield management.

Revenue Streams - Revenue Model Building Block in Business Model Canvas

A Business Model can also involve transactional revenues resulting from one-time customer payments (e.g., a sale) or recurring payments (e.g., a subscription). In the context of the Revenue Model, think also about any other benefits you may be getting. Not all value is monetary!

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Revenue stream examples, 1- transaction-based revenue:.

This stream is generated from one-time customer payments resulting from the sales of goods or services.

  • E-commerce sales: Revenue generated from online sales of products to individual customers such as Amazon revenue streams
  • Retail store sales: Proceeds from in-store purchases made by customers.
  • Ticket sales: Revenue obtained from selling tickets for events, concerts, or shows.
  • App purchases: Income from customers buying mobile applications from app stores.

2- Service revenue:

Revenues are earned by providing services to customers, typically calculated based on the time spent, such as hourly consulting fees.

  • Consulting services: Earnings from providing expert advice and guidance to clients.
  • Legal services: Revenue generated by offering legal advice and representation to individuals or businesses.
  • Accounting services: Income earned from providing accounting and financial services to clients.
  • Personal training sessions: Fees charged for offering one-on-one fitness training to clients.

3- Project revenue:

Earnings are derived from one-time projects with both existing and new customers, where the revenue is linked to the successful completion of the project.

  • Construction projects: Earnings from one-time construction projects, such as building a house or office.
  • Website development: Revenue from developing websites for clients.
  • Event planning: Income earned by planning and organizing one-time events for businesses or individuals.
  • Marketing campaigns: Fees charged for executing marketing campaigns on behalf of clients.

4- Recurring revenue:

This is a vital revenue model frequently adopted by businesses as it offers predictability and a consistent income source. It encompasses ongoing payments from customers for continued services or after-sale support.

  • Software as a Service (SaaS) subscriptions: Earnings from ongoing monthly or yearly fees for access to software applications.
  • Membership fees: Revenue from monthly or annual membership fees for exclusive access to services or benefits.
  • Property rental: Income obtained from renting out properties to tenants on a regular basis.
  • Maintenance contracts: Fees charged for providing ongoing maintenance and support services to customers.

Real-Life Revenue Examples

1- amazon revenue streams:.

  • E-Commerce Sales: Amazon’s primary revenue source is the sale of a wide range of products through its e-commerce platform.
  • Amazon Web Services (AWS): A significant portion of Amazon’s revenue comes from AWS, providing cloud computing services to businesses and individuals.
  • Subscription Services: Revenue is generated through subscription-based services like Amazon Prime, offering benefits such as free shipping, streaming, and exclusive deals.

2- Google Revenue Streams:

  • Advertising: Google’s main revenue stream is digital advertising through its platforms like Google Search, YouTube, and the Google Display Network.
  • Google Cloud: Revenue is generated by providing cloud computing services to businesses.
  • Apps and Digital Content: Sales of apps, movies, books, and other digital content through Google Play contribute to revenue.

3- Apple Revenue Streams:

  • iPhone Sales: Apple’s flagship product, the iPhone, contributes significantly to its revenue.
  • Services: Revenue is generated through services like the App Store, Apple Music, Apple TV+, iCloud, and more.
  • Mac, iPad, and Wearables: Sales of Mac computers, iPads, and wearables (Apple Watch, AirPods) contribute to revenue.

4- Microsoft Revenue Streams:

  • Productivity and Business Processes: Revenue is generated from products like Microsoft Office, LinkedIn, and Dynamics.
  • Intelligent Cloud: Revenue comes from cloud services, including Azure and server products.
  • More Personal Computing: Revenue sources include Windows licenses, gaming, and Surface devices.

5- Netflix Revenue Streams:

  • Subscription Fees: Netflix’s primary revenue stream is subscription-based, with users paying for access to its streaming service.
  • Original Content Production: Investment in creating original content contributes to attracting and retaining subscribers.

6- Disney Revenue Streams:

  • Media Networks: Revenue is generated through cable and broadcasting operations, including ESPN and Disney Channel.
  • Parks, Experiences, and Products: Revenue comes from Disney’s theme parks, resorts, and merchandise.
  • Studio Entertainment: Revenue is generated from the production and distribution of films.

Types of Revenue Streams

Revenue is a key performance indicator for nearly every business model. Understanding the different revenue streams and the way a business earns money is important as the business prepares for or considers the implementation of innovation.

Successful businesses rarely have a single revenue stream. Employing multiple revenue streams hedges your bets in case part of your operation fails or the business environment changes.

Types of Revenue Streams - Revenue Streams Types

We identify six different revenue streams you might be able to leverage in your business. Again, having the chance to draw revenue from multiple revenue models will always provide your strongest chance of success. Revenue models and other important concepts behind business digital transformation strategy are further discussed in our new book, How to Create Innovation , which you can download through the Digital Leadership website.

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Revenue streams are the various sources of income through which a business generates revenue. They can be classified into different types based on the nature of the income source. Here are the main types of revenue streams:

Main Types of Revenue Streams

Other types of revenue streams, importance of revenue streams.

It’s a matter of good business to reflect upon how your company generates cash and other revenues, and the full leveraging of revenue streams is only possible when you take a full accounting of your entire business model.

Each customer segment that you develop provides one or more revenue streams, each of which needs to be considered. It’s a lot of work, analyzing each revenue stream to make sure that you’re being properly compensated for the value you provide. But without revenue, clearly, a business cannot succeed.

Revenue streams are crucial for the success and sustainability of any business. Here are the key reasons why revenue streams are important:

  • Financial Stability and Growth: Revenue streams serve as the lifeblood of a business, providing essential funds to cover operational expenses, invest in growth opportunities, and foster innovation. Diversified revenue streams can mitigate risks and create a more stable financial foundation.
  • Business Viability: A reliable source of revenue is critical for a business’s long-term survival. Revenue streams ensure that a company can sustain its operations, deliver value to customers, and remain competitive in the market.
  • Flexibility and Adaptability: Having multiple revenue streams equips a business to adapt to changes in the market, customer preferences, and economic conditions. If one revenue stream is affected negatively, others can continue to support the business.
  • Competitive Advantage : Unique and innovative revenue streams give a company a competitive edge by differentiating it from competitors. Attracting customers with distinct offerings can lead to increased market share.
  • Customer-Centric Approach: Diverse revenue streams enable businesses to cater to different customer segments. Understanding varied customer needs and preferences allows a company to tailor products or services, enhancing customer satisfaction.
  • Revenue Optimization: Understanding the performance of each revenue stream enables a business to identify opportunities for optimizing pricing, distribution, or marketing strategies. This leads to more efficient revenue generation and increased profitability.
  • Long-Term Sustainability: Businesses with strong and varied revenue streams are better positioned to thrive in the long term. A sustainable revenue model enables a company to weather challenges and maintain steady growth over time.
  • Investment and Stakeholder Confidence: Multiple revenue streams attract investors and stakeholders, showcasing a robust and resilient business model. Backing a company with a diversified revenue portfolio is more appealing to potential investors.
  • Innovation and Growth Opportunities: Exploring new revenue streams drives innovation within a business. Seeking untapped markets or developing complementary products/services unlocks new growth opportunities.
  • Funding for Research and Development: Revenue streams provide vital financial resources for research and development efforts. Continuous improvement of offerings helps a company stay ahead of the competition and meet evolving customer demands.

The Main Categories of Revenue Streams

We divide the key concepts here into two main categories of revenue streams: transaction revenue and recurring revenue. Strong businesses have many ways of generating income, and a business that relies on merely one revenue stream risks oblivion with that revenue stream dries up.

How to Choose Your Revenue Streams

Choosing the right revenue streams is vital for the success of your business. Here’s more information about each step:

  • Define your unique value proposition : Clearly articulate what sets your products or services apart from competitors. Understand how your offerings address customers’ pain points and fulfill their needs better than alternatives.
  • Understand your target audience and their needs: Identify your ideal customers and thoroughly comprehend their preferences, behavior, and challenges. Tailor your revenue streams to align with their specific requirements.
  • Research market opportunities and assess profitability: Analyze the market landscape to spot potential revenue streams. Evaluate the revenue-generating potential of each option and weigh it against associated costs to ensure profitability.
  • Diversify revenue sources to mitigate risk: Relying on a single revenue stream can be risky. Implement multiple streams to create a balanced income portfolio, reducing vulnerability to market fluctuations or changes in customer behavior.
  • Prioritize customer value and embrace technology: Place customers at the center of your revenue strategy. Continuously enhance the value you provide to them and leverage technology to optimize sales processes and customer interactions.
  • Monitor competitors and be agile in adapting to change: Keep a close eye on your competitors’ revenue approaches. Stay flexible and adapt quickly to market shifts or emerging trends, ensuring your revenue model remains relevant and competitive.

Pricing Mechanism in Revenue Streams

Pricing mechanisms play a critical role in revenue streams within a business model . The pricing strategy directly impacts how much revenue a business can generate from its products or services. Different pricing mechanisms are closely linked to specific revenue streams and can influence the overall financial performance of a business. Here’s how pricing mechanisms relate to revenue streams in a business model:

Revenue Model Framework

Your capabilities are the processes, systems of knowledge, and specific skills that a firm possesses based on which it operates, earns revenue, and competes with other firms.

In Digital Leadership’s eXtended Business Model Canvas , Revenue streams and the Revenue Model play a significant role in business innovation. More information about this canvas, and many other business model canvas suggestions and work-throughs, are available on the Digital Leadership website, and in the book How to Create Innovation .

eXtended Business Model Canvas

Download the Complete eXtended Business Model package, including instructions for putting it to work for you today.

Final Thoughts: Questions for Reflection

In closing, understanding your various revenue streams, and developing multiple revenue streams, is vital in securing your company’s future. If there are types of revenue streams your company hasn’t considered, we urge you to consult with innovation experts so you can advance your current business model.

Some of the questions we’d explore are listed below. If you can’t answer all of them, there’s a chance you don’t completely understand how your company generates revenue.

We’d love to explore it with you.

  • How do we earn money?
  • What are our revenue streams?
  • For what value are our customers really willing to pay?
  • How much are our customers currently paying to satisfy this Jobs to be done?
  • What are the main substitutes for our product?
  • How much does each revenue stream contribute to overall revenue?
  • What other benefits are we getting?

Revenue streams are fundamental elements in a business model that determine how a company generates income. The diversity of revenue streams is crucial for business success, as it allows companies to mitigate risks and adapt to changing market conditions. Transaction-based revenue streams offer straightforward and adjustable income while recurring revenue streams provide stable and predictable earnings. Businesses must carefully consider their revenue models and pricing mechanisms to ensure they attract enough customers and sustain long-term profitability. By understanding the various revenue streams and their connection to customer needs, companies can proactively develop effective strategies, optimize their revenue generation, and secure a prosperous future in today’s competitive landscape.

Frequently Asked Questions

1. what are the revenue streams business model canvas questions.

The revenue streams section of the Business Model Canvas addresses the ways a company generates income from its products or services. To identify and analyze revenue streams , consider the following questions:

  • a. What is the main source of revenue for your business? Identify the primary way your business makes money.
  • b. Who are your customers? Define your target audience and understand their needs.
  • c. What value do you offer your customers? Identify the unique benefits your products or services provide.
  • d. How do customers pay for your products or services? Determine the pricing strategy and payment methods.
  • e. Are there different customer segments? Explore if you have different groups of customers and whether they generate revenue differently.
  • f. Do you have multiple revenue streams? Investigate if your business generates income from various sources.

2. How do you calculate revenue stream?

To calculate revenue stream, multiply the number of units sold or services rendered by the price per unit. The formula for calculating revenue is:

Revenue = Number of Units Sold (or Services Rendered) × Price Per Unit

For example, if a company sells 100 units of a product at $50 each, the revenue from that particular revenue stream would be:

Revenue = 100 units × $50 per unit = $5,000

3. How do you create 4 revenue streams?

  • Product and Service Diversification : Expand your offerings by developing a variety of products or services that target different customer needs. This approach allows you to reach a broader customer base and increases the chances of generating more revenue.
  • Subscription Model : Implement a subscription-based revenue stream where customers pay a regular fee to access exclusive content, features, or ongoing services. This recurring income can provide stability and predictable cash flow.
  • Licensing and Franchising : Explore opportunities to license your technology, brand, or business model to other companies. Alternatively, consider franchising your business to enable others to replicate your successful model under your brand.
  • Affiliate Marketing and Partnerships : Generate additional revenue by collaborating with other businesses through affiliate marketing. By promoting their products or services and earning commissions for successful referrals, you can capitalize on complementary offerings without direct competition.

4. How do you write revenue stream in the business model canvas?

In the Business Model Canvas, the revenue stream is represented in the “Revenue Streams” block. When writing your revenue stream in the canvas, be clear and concise. Include the key components of your revenue generation strategy, such as:

  • Main Revenue Source : Describe your primary source of income, whether it’s from product sales, service fees, subscriptions, licensing, etc.
  • Customer Segments : Specify the customer groups that contribute to each revenue stream.
  • Pricing Mechanism : Explain how you determine the price of your products or services.
  • Value Proposition : Connect the revenue stream to the value your products or services provide to customers.

5. What is an example of revenue streams for a small business?

  • Product Sales : Imagine a small business called “Artisan Treasures” that sells handmade crafts, such as unique pottery, handwoven textiles, and artisanal jewelry. They operate both a charming brick-and-mortar store in a local market and an online e-commerce platform, allowing customers from around the world to purchase their one-of-a-kind products.
  • Service Fees : Consider a small graphic design agency named “Creative Solutions.” They offer a variety of services to clients, including logo design, branding packages, and marketing collateral. Clients pay the agency service fees based on the scope and complexity of the design projects they undertake.
  • Subscription Model : “FitLife Fitness” is a small boutique gym that offers personalized workout plans, nutrition guidance, and exclusive fitness classes. They have a subscription-based revenue stream, where members pay a monthly fee to access premium content, participate in specialized classes, and receive personalized fitness coaching.
  • Freemium Model : “TechMaster Software” is a small tech startup that develops a video editing software. They offer a free version of the software with basic editing features, attracting a large user base. To access advanced features like special effects and high-resolution exporting, users can opt for a paid upgrade, generating revenue for the company.
  • Affiliate Marketing : Let’s take an example of a small lifestyle blog called “TrendyExplorer.” The blog features articles on fashion, travel, and beauty. They partner with fashion and travel companies as affiliates, promoting their products and services through the blog. When readers make purchases or bookings through the provided affiliate links, the blog earns commissions.

6. What are the revenue streams of Coca-Cola?

Coca-Cola has multiple revenue streams that contribute to its overall income. Some of its key revenue streams include:

  • a. Beverage Sales : Revenue generated from selling Coca-Cola’s diverse range of beverages, including Coke, Diet Coke, Sprite, Fanta, and others.
  • b. Bottling Partnerships : Coca-Cola licenses its products to bottling partners worldwide, earning revenue through royalties and supply agreements.
  • c. Branding and Trademark Licensing : Coca-Cola licenses its brand and trademarks for use in various products, merchandise, and marketing campaigns.
  • d. Fountain Sales : Revenue from selling beverages to restaurants, cinemas, and other establishments through fountain dispensers.
  • e. Advertising and Sponsorships : Income generated from advertising its products and sponsoring events, sports, and entertainment.

7. What is the difference between a revenue model and a revenue stream?

The difference between a revenue model and a revenue stream lies in their scope and focus within a business’s overall revenue generation strategy

Connecting The Dots: The UNITE Business Model Framework

How to Create Innovation  includes a number of canvases that focus on value creation and finding the right business model to meet your   customer segment and customer needs.  The framework is built to inspire drastic changes that help you  find a competitive advantage.  Our hope is that your company grows through business model innovation , and so we again encourage you to look deeper into our website and the book.

Here is a summary of the key ingredients of the framework:

The UNITE Business Model Framework

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Revenue Streams Overview

Revenue is the income you generate from providing your digital service or product to customers. It can come from numerous sources, such as grants, contracts, subscriptions, and donations.

Relevant Principles

Revenue is one of the key building blocks for a sustainable business model. When completing this part of the business model, you will need to not only capture the expected revenue in terms of a financial amount but also what the revenue models are that you’re looking to develop. For many organizations, a sustainable business model will rely on more than one revenue stream, both for resilience and to ensure that there is at least some surplus to reinvest in the ongoing development of the digital solution and your organization.

First, you will need to discuss your revenue aspirations with all of the relevant stakeholders for your organization. Do you just want to cover the deployment of your digital solution, or do you also need to cover ongoing development? Are you seeking enough funds to scale your solution, or do you want to create a surplus for investment elsewhere?

Depending on your organization or network, there are some revenue streams and uses that will be preferable. There may also be certain parameters for what funding you will or won’t accept. For example, there might be an investor or customer you don’t want to work with or a type of public fund you may not want to accept. You will need to make a clear decision with all the key stakeholders on what your aspirations and parameters are and then discuss the potential revenue models that would enable you to achieve those aspirations.

Case Study: Funding/Revenue Decision

On the Aid, Evolved podcast , Sebastian Manhart talks of how Simprints turned down four out of five opportunities due to cost/benefit or ethical issues. For example, an INGO in Ethiopia wanted to distribute condoms from a truck in villages and record the biometrics of each person who received the condoms. Simprints quickly told them that it was a completely disproportionate use of biometrics and turned down the project.

To complete the revenue model building block in your Business Model Sustainability Canvas, you and others in your organization will need to determine what your revenue aspirations are and which revenue models and streams seem most applicable to your organization and digital solution. Section 5.1 will provide guidance on the various revenue models.

Section 5.1: Revenue Models in the Aid Sector ​

This section helps outline the many revenue models and revenue streams that can be used for ICT4D solutions. To create a resilient and sustainable business model, you may need to combine a number of these revenue models together.

Key discussion areas:

  • Explore key revenue models that may fall into these five types: project-based revenue models, product- or service-based revenue streams, indirect revenue models, fundraising models, and investment streams. See Section 9.2: Cost Reduction Strategies
  • Identify revenue streams within each of these models that seem most appropriate for your organization and solution

Key Takeaways ​

Ensure that all stakeholders have agreed what the revenue aspiration is and document it.

Agree on any parameters for investment and revenue and document them.

Identify potential revenue models to experiment with.

Aim to achieve a diversity in revenue streams to increase resilience and sustainability of the business model.

Complete the following in your Business Model Sustainability Canvas :

  • Identify the revenue model/s with any key metrics (e.g. price point) where possible.
  • Section 5.1: Revenue Models in the Aid Sector
  • Key Takeaways

Business Model Canvas: Explained with Examples

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Got a new business idea, but don’t know how to put it to work? Want to improve your existing business model? Overwhelmed by writing your business plan? There is a one-page technique that can provide you the solution you are looking for, and that’s the business model canvas.

In this guide, you’ll have the Business Model Canvas explained, along with steps on how to create one. All business model canvas examples in the post can be edited online.

What is a Business Model Canvas

A business model is simply a plan describing how a business intends to make money. It explains who your customer base is and how you deliver value to them and the related details of financing. And the business model canvas lets you define these different components on a single page.   

The Business Model Canvas is a strategic management tool that lets you visualize and assess your business idea or concept. It’s a one-page document containing nine boxes that represent different fundamental elements of a business.  

The business model canvas beats the traditional business plan that spans across several pages, by offering a much easier way to understand the different core elements of a business.

The right side of the canvas focuses on the customer or the market (external factors that are not under your control) while the left side of the canvas focuses on the business (internal factors that are mostly under your control). In the middle, you get the value propositions that represent the exchange of value between your business and your customers.

The business model canvas was originally developed by Alex Osterwalder and Yves Pigneur and introduced in their book ‘ Business Model Generation ’ as a visual framework for planning, developing and testing the business model(s) of an organization.

Business Model Canvas Explained

What Are the Benefits of Using a Business Model Canvas

Why do you need a business model canvas? The answer is simple. The business model canvas offers several benefits for businesses and entrepreneurs. It is a valuable tool and provides a visual and structured approach to designing, analyzing, optimizing, and communicating your business model.

  • The business model canvas provides a comprehensive overview of a business model’s essential aspects. The BMC provides a quick outline of the business model and is devoid of unnecessary details compared to the traditional business plan.
  • The comprehensive overview also ensures that the team considers all required components of their business model and can identify gaps or areas for improvement.
  • The BMC allows the team to have a holistic and shared understanding of the business model while enabling them to align and collaborate effectively.
  • The visual nature of the business model canvas makes it easier to refer to and understand by anyone. The business model canvas combines all vital business model elements in a single, easy-to-understand canvas.
  • The BMC can be considered a strategic analysis tool as it enables you to examine a business model’s strengths, weaknesses, opportunities, and challenges.
  • It’s easier to edit and can be easily shared with employees and stakeholders.
  • The BMC is a flexible and adaptable tool that can be updated and revised as the business evolves. Keep your business agile and responsive to market changes and customer needs.
  • The business model canvas can be used by large corporations and startups with just a few employees.
  • The business model canvas effectively facilitates discussions among team members, investors, partners, customers, and other stakeholders. It clarifies how different aspects of the business are related and ensures a shared understanding of the business model.
  • You can use a BMC template to facilitate discussions and guide brainstorming brainstorming sessions to generate insights and ideas to refine the business model and make strategic decisions.
  • The BMC is action-oriented, encouraging businesses to identify activities and initiatives to improve their business model to drive business growth.
  • A business model canvas provides a structured approach for businesses to explore possibilities and experiment with new ideas. This encourages creativity and innovation, which in turn encourages team members to think outside the box.

How to Make a Business Model Canvas

Here’s a step-by-step guide on how to create a business canvas model.

Step 1: Gather your team and the required material Bring a team or a group of people from your company together to collaborate. It is better to bring in a diverse group to cover all aspects.

While you can create a business model canvas with whiteboards, sticky notes, and markers, using an online platform like Creately will ensure that your work can be accessed from anywhere, anytime. Create a workspace in Creately and provide editing/reviewing permission to start.

Step 2: Set the context Clearly define the purpose and the scope of what you want to map out and visualize in the business model canvas. Narrow down the business or idea you want to analyze with the team and its context.

Step 3: Draw the canvas Divide the workspace into nine equal sections to represent the nine building blocks of the business model canvas.

Step 4: Identify the key building blocks Label each section as customer segment, value proposition, channels, customer relationships, revenue streams, key resources, key activities, and cost structure.

Step 5: Fill in the canvas Work with your team to fill in each section of the canvas with relevant information. You can use data, keywords, diagrams, and more to represent ideas and concepts.

Step 6: Analyze and iterate Once your team has filled in the business model canvas, analyze the relationships to identify strengths, weaknesses, opportunities, and challenges. Discuss improvements and make adjustments as necessary.

Step 7: Finalize Finalize and use the model as a visual reference to communicate and align your business model with stakeholders. You can also use the model to make informed and strategic decisions and guide your business.

What are the Key Building Blocks of the Business Model Canvas?

There are nine building blocks in the business model canvas and they are:

Customer Segments

Customer relationships, revenue streams, key activities, key resources, key partners, cost structure.

  • Value Proposition

When filling out a Business Model Canvas, you will brainstorm and conduct research on each of these elements. The data you collect can be placed in each relevant section of the canvas. So have a business model canvas ready when you start the exercise.  

Business Model Canvas Template

Let’s look into what the 9 components of the BMC are in more detail.

These are the groups of people or companies that you are trying to target and sell your product or service to.

Segmenting your customers based on similarities such as geographical area, gender, age, behaviors, interests, etc. gives you the opportunity to better serve their needs, specifically by customizing the solution you are providing them.

After a thorough analysis of your customer segments, you can determine who you should serve and ignore. Then create customer personas for each of the selected customer segments.

Customer Persona Template for Business Model Canvas Explained

There are different customer segments a business model can target and they are;

  • Mass market: A business model that focuses on mass markets doesn’t group its customers into segments. Instead, it focuses on the general population or a large group of people with similar needs. For example, a product like a phone.  
  • Niche market: Here the focus is centered on a specific group of people with unique needs and traits. Here the value propositions, distribution channels, and customer relationships should be customized to meet their specific requirements. An example would be buyers of sports shoes.
  • Segmented: Based on slightly different needs, there could be different groups within the main customer segment. Accordingly, you can create different value propositions, distribution channels, etc. to meet the different needs of these segments.
  • Diversified: A diversified market segment includes customers with very different needs.
  • Multi-sided markets: this includes interdependent customer segments. For example, a credit card company caters to both their credit card holders as well as merchants who accept those cards.

Use STP Model templates for segmenting your market and developing ideal marketing campaigns

Visualize, assess, and update your business model. Collaborate on brainstorming with your team on your next business model innovation.

In this section, you need to establish the type of relationship you will have with each of your customer segments or how you will interact with them throughout their journey with your company.

There are several types of customer relationships

  • Personal assistance: you interact with the customer in person or by email, through phone call or other means.
  • Dedicated personal assistance: you assign a dedicated customer representative to an individual customer.  
  • Self-service: here you maintain no relationship with the customer, but provides what the customer needs to help themselves.
  • Automated services: this includes automated processes or machinery that helps customers perform services themselves.
  • Communities: these include online communities where customers can help each other solve their own problems with regard to the product or service.
  • Co-creation: here the company allows the customer to get involved in the designing or development of the product. For example, YouTube has given its users the opportunity to create content for its audience.

You can understand the kind of relationship your customer has with your company through a customer journey map . It will help you identify the different stages your customers go through when interacting with your company. And it will help you make sense of how to acquire, retain and grow your customers.

Customer Journey Map

This block is to describe how your company will communicate with and reach out to your customers. Channels are the touchpoints that let your customers connect with your company.

Channels play a role in raising awareness of your product or service among customers and delivering your value propositions to them. Channels can also be used to allow customers the avenue to buy products or services and offer post-purchase support.

There are two types of channels

  • Owned channels: company website, social media sites, in-house sales, etc.
  • Partner channels: partner-owned websites, wholesale distribution, retail, etc.

Revenues streams are the sources from which a company generates money by selling their product or service to the customers. And in this block, you should describe how you will earn revenue from your value propositions.  

A revenue stream can belong to one of the following revenue models,

  • Transaction-based revenue: made from customers who make a one-time payment
  • Recurring revenue: made from ongoing payments for continuing services or post-sale services

There are several ways you can generate revenue from

  • Asset sales: by selling the rights of ownership for a product to a buyer
  • Usage fee: by charging the customer for the use of its product or service
  • Subscription fee: by charging the customer for using its product regularly and consistently
  • Lending/ leasing/ renting: the customer pays to get exclusive rights to use an asset for a fixed period of time
  • Licensing: customer pays to get permission to use the company’s intellectual property
  • Brokerage fees: revenue generated by acting as an intermediary between two or more parties
  • Advertising: by charging the customer to advertise a product, service or brand using company platforms

What are the activities/ tasks that need to be completed to fulfill your business purpose? In this section, you should list down all the key activities you need to do to make your business model work.

These key activities should focus on fulfilling its value proposition, reaching customer segments and maintaining customer relationships, and generating revenue.

There are 3 categories of key activities;

  • Production: designing, manufacturing and delivering a product in significant quantities and/ or of superior quality.
  • Problem-solving: finding new solutions to individual problems faced by customers.
  • Platform/ network: Creating and maintaining platforms. For example, Microsoft provides a reliable operating system to support third-party software products.

This is where you list down which key resources or the main inputs you need to carry out your key activities in order to create your value proposition.

There are several types of key resources and they are

  • Human (employees)
  • Financial (cash, lines of credit, etc.)
  • Intellectual (brand, patents, IP, copyright)
  • Physical (equipment, inventory, buildings)

Key partners are the external companies or suppliers that will help you carry out your key activities. These partnerships are forged in oder to reduce risks and acquire resources.

Types of partnerships are

  • Strategic alliance: partnership between non-competitors
  • Coopetition: strategic partnership between partners
  • Joint ventures: partners developing a new business
  • Buyer-supplier relationships: ensure reliable supplies

In this block, you identify all the costs associated with operating your business model.

You’ll need to focus on evaluating the cost of creating and delivering your value propositions, creating revenue streams, and maintaining customer relationships. And this will be easier to do so once you have defined your key resources, activities, and partners.  

Businesses can either be cost-driven (focuses on minimizing costs whenever possible) and value-driven (focuses on providing maximum value to the customer).

Value Propositions

This is the building block that is at the heart of the business model canvas. And it represents your unique solution (product or service) for a problem faced by a customer segment, or that creates value for the customer segment.

A value proposition should be unique or should be different from that of your competitors. If you are offering a new product, it should be innovative and disruptive. And if you are offering a product that already exists in the market, it should stand out with new features and attributes.

Value propositions can be either quantitative (price and speed of service) or qualitative (customer experience or design).

Value Proposition Canvas

What to Avoid When Creating a Business Model Canvas

One thing to remember when creating a business model canvas is that it is a concise and focused document. It is designed to capture key elements of a business model and, as such, should not include detailed information. Some of the items to avoid include,

  • Detailed financial projections such as revenue forecasts, cost breakdowns, and financial ratios. Revenue streams and cost structure should be represented at a high level, providing an overview rather than detailed projections.
  • Detailed operational processes such as standard operating procedures of a business. The BMC focuses on the strategic and conceptual aspects.
  • Comprehensive marketing or sales strategies. The business model canvas does not provide space for comprehensive marketing or sales strategies. These should be included in marketing or sales plans, which allow you to expand into more details.
  • Legal or regulatory details such as intellectual property, licensing agreements, or compliance requirements. As these require more detailed and specialized attention, they are better suited to be addressed in separate legal or regulatory documents.
  • Long-term strategic goals or vision statements. While the canvas helps to align the business model with the overall strategy, it should focus on the immediate and tangible aspects.
  • Irrelevant or unnecessary information that does not directly relate to the business model. Including extra or unnecessary information can clutter the BMC and make it less effective in communicating the core elements.

What Are Your Thoughts on the Business Model Canvas?

Once you have completed your business model canvas, you can share it with your organization and stakeholders and get their feedback as well. The business model canvas is a living document, therefore after completing it you need to revisit and ensure that it is relevant, updated and accurate.

What best practices do you follow when creating a business model canvas? Do share your tips with us in the comments section below.

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FAQs About the Business Model Canvas

  • Use clear and concise language
  • Use visual-aids
  • Customize for your audience
  • Highlight key insights
  • Be open to feedback and discussion

More Related Articles

What is an Action Plan? Learn with Templates and Examples

Amanda Athuraliya is the communication specialist/content writer at Creately, online diagramming and collaboration tool. She is an avid reader, a budding writer and a passionate researcher who loves to write about all kinds of topics.

Learning Loop Playbooks

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Business Model Generation: Revenue streams

  • Hidden Revenue

A collection of business models that will help you understand the key drivers of business model success. The card deck will be ready for purchase in the end of 2023 and is now undergoing rigorous testing.

A Hidden Revenue business model is a pattern for generating revenues that does not involve users paying for the service or product offered.

The Hidden Revenue model departs from the traditional approach of relying solely on the sale of products or services for revenue. Instead, the primary source of income is derived from a third party, who cross-finances the attractive free or low-priced offerings made to customers.

One common application of this model is the integration of advertisements into the offering, thereby attracting customers to the advertisers who fund it.

The biggest advantage of the Hidden Revenue model is that it provides access to an alternative source of income, which can supplement or even wholly replace the revenues generated by the conventional sale of products. Additionally, obtaining financing through advertising may also have a positive impact on the original value proposition, as many customers may be willing to watch a few ads in exchange for a better deal on goods or services.

This business model is commonly employed by companies that offer free services on their platform. The goal is to remove the user from the revenue generation equation, while still making revenue through the users by charging third parties.

User Actions with potential revenue benefits - undisclosed to the customer

Customers are able to use the company’s services without paying, but any actions they take on the platform have the potential to generate revenue for the service provider. This means that the customers do not directly contribute revenue to the company.

Additionally, customers are unaware of whether third parties are paying for their actions on the platform. As a result, the revenue generation is not disclosed to the customers. They are able to use the platform for free, while the company uses their actions to generate income from third parties without disclosing this to the users.

Where did the Hidden Revenue business model pattern originate from?

While ancient civilizations such as the Egyptians utilized forms of advertising, the practice of using ad sales as a primary source of revenue is a relatively recent development.

The earliest instances of ad-based funding can likely be traced back to the bulletins distributed in the seventeenth century with the advent of the printing press. These bulletins often contained public announcements, court hearing schedules, obituaries, and paid private and commercial classifieds. The classifieds business was so lucrative that many bulletins were financed almost entirely by it. The modern iteration of these bulletins can be seen in the ad flyers commonly received at homes today.

Applying the Hidden Revenue business model

The potential of the Hidden Revenue business model was often overvalued in the early years of the new economy, leading to numerous companies being valued highly despite their inability to generate significant revenues.

Assessing the viability of Hidden Revenue remains challenging to this day. One notable example is Facebook’s acquisition of the WhatsApp messaging service for a staggering $16 billion.

At the same time, customers have become increasingly wary of Hidden Revenue. In Germany, for instance, where consumer concerns about the misuse of sensitive data are particularly pronounced, every third WhatsApp user considered leaving the service following the deal with Facebook. Despite these challenges, Hidden Revenue remains popular in advertising and customer data trading.

The three parties of the Hidden Revenue business model

The Hidden Revenue business model involves three parties:

  • The Company . The company creates a product or service that customers can use to achieve a certain goal, but does not charge the customers any fee for using it. However, the company generates revenue through these products and services from other sources.
  • The User or Customer . The user or customer uses the product or service for free and interacts with it, performing desired actions without incurring any cost.
  • The Third Party or Publishers . The third party or publishers cater to the costs and pay the company to access its customers. These parties need access to the platform’s audience to promote their products and services, and are willing to pay the platform owner in order to gain access to its users’ interactions.

The main objective of the Hidden Revenue business model is to separate revenue generation from the customers. This allows the company to make the platform user-friendly and effective while the third party pays more for the growing audience.

Benefits and challenges of the Hidden Revenue model

The Hidden Revenue business model is a strategy that can offer benefits to all parties involved. However, it is not a perfect model and has its own set of drawbacks. Before deciding to utilize this model, it is important to consider both the pros and cons.

Benefits of the Hidden Revenue business model

  • Enhanced Revenue Generation . The Hidden Revenue model can increase revenue generation for a company, as it does not rely on customers to earn income. Instead, it focuses on offering free products and services to attract third parties who are willing to pay to access the customer base.
  • Opportunity for Sustainable Income . Implementing the Hidden Revenue model can increase a company’s chances of achieving sustainability, as the number of customers will continue to grow as long as the company offers free services. This means that more publishers will be seeking access to the customer base, providing a source of sustainable income for the company.
  • Chance to Offer High-Quality Products and Services . By separating revenue generation from the customer base, the Hidden Revenue model allows a company to focus on improving its products and services in order to attract more customers and increase revenue from third parties.

Challenges of the Hidden Revenue business model

  • Heavy Reliance on Third Parties . While the Hidden Revenue model can be a useful strategy, it also puts a company at risk by relying heavily on third parties rather than customers. Even though third parties are paying for access to the customer base, the company must maintain high-quality products and services to retain customers. This can be a heavy burden for the company.
  • Risk of Compromising Customer Privacy . Despite offering free products and services, the Hidden Revenue model carries the risk of compromising customer privacy. The company may be tempted to share private information with third parties without the customers’ consent in order to maximize its earnings. This can damage the company’s reputation.

Trigger Questions

  • Can you commercialize your assets in a way that separates customers from the revenue stream?
  • Can the trustworthiness of your customer relationship be influenced by Hidden Revenue streams?
  • Is it possible to disconnect customers from revenue streams?
  • Is it feasible to monetize our assets through alternative methods?
  • Will we be able to retain our existing business relations and customers even if we exploit additional Hidden Revenue streams?

While remaining free to use, revenue comes from allowing companies to create targeted advertising.

Its range of free services is cross-financed through ads and harvesting data for optimizing return on advertisement spend.

This company provides innovative advertising systems for public “street furniture,” such as bus shelters and Self-Service bicycles, in exchange for exclusive advertising rights. Advertisers pay for prime locations and transit media opportunities, while cities benefit from the free or discounted public services. JCDecaux generates annual revenues of over €2 billion through this model, making it the largest outdoor advertising corporation in the world.

Free Daily Newspapers

These newspapers are funded entirely through advertising and typically achieve high circulation, which in turn boosts advertising rates. Media company Metro International is a pioneer in this field, with its eponymous free daily newspaper being one of the most frequently read papers in the world.

This company provides ad-funded Internet television through its website and mobile apps. Customers sign up on the website to access a variety of television channels via web streaming, with Zattoo selling advertising space to cover operating costs. Zattoo is now Europe’s largest live-web TV provider.

Targeted Advertising

This is a special version of the Hidden Revenue model that is adapted for the Internet. Ads are tailored to specific target groups to increase efficiency and avoid waste coverage. Google has successfully implemented this model through its AdWords program, which allows companies to purchase targeted ads that appear in search listings based on the user’s search terms. Google generates billions of dollars in revenue every year and maintains a market share of over 60% in the online advertising business.

Related plays

  • Multi-Sided Market
  • Business Model Navigator by Karolin Frankenberger and Oliver Gassmann
  • What Is a Hidden Revenue Business Model? Google's Business Model Explained by Gennaro Cuofano
  • Hidden Revenue Business Model: What Is It And How Does It Work? by Business Strategy Insights
  • Google Business Model – A Hidden Revenue Model by Gary Fox

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Validation Patterns

Validate the problem.

Is your problem worth solving?

  • Closed-Ended Surveys
  • Cold Calling
  • Comprehension Test
  • Contextual Inquiry
  • Crowdfunding
  • Crowdsourcing
  • Customer Service Logs
  • Fake door testing
  • Family Tree
  • Find the Watering Hole
  • Five People Who Are In
  • Five Second Test
  • Focus Group
  • Industry Forums
  • Move in With the Customer
  • Read App Reviews
  • Remote User Testing
  • Sell the Future
  • Write Down Your Concept

Validate the market

Don't build something that nobody wants

  • Classified Posting
  • Collect Pre-orders
  • Conjoint Analysis
  • Data Mining
  • Feature Stub
  • High Hurdle
  • Offer a Sample
  • One Night Stand
  • Physical Before Digital
  • Product-Market Fit Survey
  • Sales Pitch
  • Single-Feature Product
  • Spoof Landing Pages
  • Wizard of Oz
  • Run Test Ads
  • Trends and Keyword Analysis

Validate the product

Does your product solve the problem?

  • A/B Testing
  • Beta Launch
  • Clickable Prototype
  • First Click Testing
  • Guerilla User Testing
  • Impersonator
  • LEGO prototype
  • Micro Surveys
  • Minimum Marketable Product
  • Multivariate Testing
  • Net Promoter Score (NPS)
  • Paper Prototype
  • Pretend to Own
  • Takeaway Test
  • Try it Yourself
  • Working Prototype

Validate willingness to pay

Are people willing to reach into their wallets?

Business Model Patterns

Customer segment.

Meeting the unique needs of each and every customer

  • Bottom of the Pyramid
  • Ultimate Luxury
  • Customer Loyalty Program

Pricing Model

Innovative pricing strategies for sustainable growth

  • Access over Ownership
  • Bait and Hook
  • Dynamic Pricing
  • Pay What You Want
  • Reversed Bait and Hook
  • Cash Machine

Revenue Streams

Explore different revenue streams to maximize potential

  • Fractional Ownership
  • Franchising
  • Microfinance
  • Pay Per Use
  • Performance-Based Contracting
  • Subscription
  • Virtual Economy

Value Network

Sharing resources and risks for mutual benefit in the network

  • Layer Player
  • No Middle Man
  • Omnichannel
  • Orchestrator
  • Peer-to-Peer
  • Platform as a Service
  • Revenue Sharing
  • Self-Service
  • Shop in Shop
  • Virtualization
  • Affiliation
  • Brands Consortium
  • Joint Venture

Value Proposition

Value proposition strategies for long-term success

  • Blended Value
  • Cross Selling
  • Experience Selling
  • Guaranteed Availability
  • Mass Customization
  • One-stop-Shop
  • Product as Point of Sale
  • Product Self-Service
  • Solution Provider
  • White Label
  • Ingredient Branding
  • Make More of It
  • Reverse Innovation
  • Sensor as a Service

Value Proposition Development

Unlocking growth through value proposition design

  • Digitization
  • From Push to Pull
  • Leverage Customer Data
  • Open Business Model
  • Open Source
  • Reverse Engineering
  • Trash-to-Cash
  • User Designed

Workshop Patterns

Convert empathy to clarity by refining insights into problem definitions

  • Dependency Mapping
  • Future-Back Planning
  • Future Press Release
  • Objectives and Key Results

Uncover insights and drive problem-solving through deep analysis

  • Assumptions Collection
  • Business Model Mapping
  • Circles of Influence
  • Empathy Mapping
  • Fishbone Diagram
  • Force Field Analysis
  • Force Field Network
  • Hopes and Fears
  • Impact Mapping
  • Journey Mapping
  • Market of Skills
  • Opportunity Solution Tree Mapping
  • Prototype Persona
  • Service Blueprint
  • Six Thinking Hats
  • Skills Star Mapping
  • Stakeholder Mapping
  • Starbursting
  • Touchpoint Mapping
  • User Story Mapping
  • Value Proposition Mapping
  • Why-How Laddering
  • 20-Year Brand Roadmap
  • Competitive Landscape
  • Design Principles
  • Golden Circle
  • Golden Path
  • Personality Sliders
  • Product Box
  • Top Audiences
  • Top Brand Values

Clarify the problem or experiment to facilitate discussion and collaboration

  • Figure Storming
  • Forced Analogy
  • How Might We
  • Hypothesis Statement
  • Job Stories
  • Powers of Ten
  • Problem Statement
  • Storyboarding
  • The Anti-Problem
  • Value Proposition Statement

Unleash creativity to collaboratively discover fresh solutions

  • 3-12-3 Brainstorm
  • Bad Idea Brainstorming
  • Competitor Demos
  • Crazy Eights
  • Design Charrette
  • Mind Mapping
  • Perfection Game
  • Plus / Delta
  • Reverse Brainstorming
  • Round Robin
  • Yes, And! Brainstorm
  • Head / Heart / Hand
  • PEST Analysis
  • Rose / Thorn / Bud
  • Start / Stop / Continue
  • SWOT Analysis

Prioritize ideas or challenges to determine where to direct your attention and efforts

  • Assumptions Mapping
  • Blind Voting
  • Decider Vote
  • Fist to Five
  • Five-Fingered Consensus
  • Heatmap Voting
  • Letter to Myself
  • Note and Vote
  • Priority Mapping
  • Project Plan
  • Prune the Product Tree
  • RACI Matrix Mapping
  • Red:Green Cards
  • Roles and Responsibilities
  • Roman Voting
  • Stack Ranking
  • Trade-off Sliders
  • Who / What / When Matrix

Build a shared understanding to reach your goals together

  • Fishbowl Discussion
  • Lean Coffee
  • Mad / Sad / Glad
  • Three Little Pigs

Core techniques used to plan and lead effective workshops

  • Affinity Mapping
  • Card Sorting
  • Parking Lot
  • Poster Session
  • Return on Time Invested
  • Safety Check
  • Silent Storming
  • Talking stick

Ice Breakers

Relieve initial group awkwardness and establish a safe space

  • Personal Histories

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More From Forbes

How nexon revitalized maplestory for a new generation.

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Two Nexon Game Cards displaying MapleStory characters at Best Buy in Mountain View, Calif., ... [+] Wednesday, Aug. 20, 2008. (AP Photo/Paul Sakuma)

Nostalgia, a potent force among adults, evokes deep emotions and memories that transcend time. In the world of video games, this sentiment is not just a feeling but a powerful driver of growth. Legacy games, those that have endured through the years, are experiencing a renaissance through modernization. But how are these classic titles adapting to captivate a new generation of consumers?

The Nostalgic Appeal Of MapleStory

MapleStory, a massively multiplayer online role-playing game (MMORPG) released in 2003, holds a special place in the hearts of many who grew up in the early 2000s, particularly in South Korea. It provided an escape from the rigors of school life and the pressures of a highly competitive education system. In this virtual world, players could transform into pixelated avatars, embark on adventures, and forge friendships, all while battling against the forces of evil. The game's appeal lay not just in its engaging content but also in the social status it conferred among peers, with powerful characters gaining admiration and respect in real life.

Business Model Evolution, Revenue Growth And Decline

MapleStory's journey over the past two decades is a testament to its adaptability and the shrewdness of its developer, Nexon. The game underwent several transformations, simplifying its mechanics and shifting towards a Pay-To-Win (P2W) model. This change allowed players to purchase in-game items with real money, significantly boosting the game's revenue and contributing to Nexon's impressive earnings. Since its inception in 2003, MapleStory has over 190 million registered users, with life to date franchise revenue exceeding over 5 billion dollars according to Nexon [1] . To paint a picture, MapleStory is now one of the most profitable gaming IPs, contributing at least 20% or more [2] of Nexon’s staggering $2.5 billion of revenue in 2022 [3] according to Aju Business Daily and ZDNet Korea.

However, this strategy was not without its pitfalls, as demonstrated by the legal challenges and consumer backlash against the lack of transparency in the game's monetization methods. This issue became ever more evident when the South Korean government fined Nexon $86 million [3] for failing to provide transparent information about the probability of obtaining in-game items purchased with real money according to Aju Business Daily.

Though legal or regulatory actions might seem expected, as evidenced by EA’s class-action lawsuit in a “bid to brand games as gambling [4] ,” the real issue stemmed from a sudden surge of attrition [5] within the platform according to Eurogamer and Todayeconomic. Angry consumers, amplified by YouTubers and Twitch streamers, led to an identity crisis for Nexon.

Russian Troops Left Their Warehouse Doors Open. Ukrainian Drones Flew Right Inside—And Blew Up A Bunch Of Armored Vehicles.

10 fantastic series returning to netflix with new seasons in 2024, ‘shadow of the erdtree’ trailer release time and where to watch — ‘elden ring’ dlc reveal incoming.

When all hopes seemed lost as demonstrated by Nexon’s immediate responses to their gaming community by taking drastic measures such as eliminating extremely profitable product lines [6] according to Tech M, the turning point came in October 2023 from the most unexpected place when MapleLand, a digital replica of the 2007 game before the 2010 implementation of the in-game Pay-To-Win mechanic, was launched.

MapleLand: A Return To Roots

MapleLand, launched in October 2023, is a community-driven digital clone of the game's 2007 version before the implementation of the P2W mechanics. This move was a direct response to the growing discontent among the game's community and a strategic attempt to rekindle the original spirit of MapleStory. The launch of MapleLand not only placated the disgruntled fanbase but also tapped into their nostalgia, drawing back lapsed players and attracting new ones.

The Impact Of Content Creators

The resurgence of MapleStory through MapleLand was further fueled by content creators on platforms like YouTube and Twitch. My research into the content statistics of top MapleStory YouTubers revealed a significant increase in views and engagement when covering MapleLand. Within the 50 most recent videos (excluding YouTube shorts), topics related to MapleLand comprised an average of 62%. Additionally, creators experienced an average increase of 57% in view counts. It appears that despite MapleStory's PR mishaps, consumers continue to enjoy content that triggers their nostalgia, as evidenced by the increased volume of uploads, which correlates to the target audience's preferences.

You can view the research methodology and dataset here [7] .

This trend underscores the crucial role of content creators in driving interest and engagement in gaming communities, acting as catalysts for reactivating dormant users and amplifying the game's reach.

Economic And User Engagement Metrics

MapleLand's success is not just anecdotal; it's quantifiable. Within just three months of its launch, the game achieved remarkable milestones in terms of user count and revenue, drawing parallels with the early stages of a successful early-stage consumer startup. To paint a very clear picture, MapleLand’s growth is equivalent to that of a seed-stage startup, as defined by Goodwater Capital [8] according to TechCrunch, reaching "tens of thousands of users and dollars" as MapleLand's concurrent user count exceeded 55,000 [9] within three months of its launch on October 31, 2023 [10] according to MapleLand. MapleLand's business model was also unique as all of its core users knew how the in-game economics would evolve over time. This knowledge streamlined the buying and selling of Pay-To-Win (P2W) in-game items, fostering a smoother integration of P2W elements, quicker consensus building, and a stronger in-game economy from a revenue perspective.

Strategic Comparisons And The Network Effect

MapleLand's growth trajectory can be likened to that of global phenomena like BTS, where a focus on content and community-driven network effects [11] spurred exponential growth according to Hwajung Kim, Research Professor at Ewha Womans University. In MapleStory's case, a community that spans decades was re-energized around a product that not only evoked nostalgia but also offered a familiar yet fresh experience. This approach facilitated organic growth, with creators playing a pivotal role in reactivating users and enhancing the game's liquidity in a marketplace rife with information asymmetry.

The resurgence of MapleStory through MapleLand illustrates the power of nostalgia and community in the gaming industry. By reverting to a beloved version of the game and leveraging the influence of content creators, Nexon has not only revitalized a classic IP but also set a precedent for how legacy games can be successfully reintroduced to a new generation of consumers. The case of MapleStory serves as a valuable lesson in the dynamic interplay of consumer sentiment, business strategy, and technological evolution, offering insights into the potential of revitalizing classic IPs in the digital age for gaming enterprises.

For further insights into the world of modernizing legacy systems, feel free to explore my Medium post [12] on the subject. Thank you for joining me on this journey through the evolution of modernizing a legacy gaming icon and its impact on the industry and its consumers.

[1] Nexon Q4 2023 Investor Presentation

[2] 넥슨, 2022년 매출 3조3946억...전년비 29%↑

[3] '메이플스토리' 신뢰 회복 나서는 넥슨…이용자 마음 돌릴까

[4] EA loot box lawsuit fails in bid to brand games as gambling

[5] ‘확률 논란'에 정 뗀 메이플스토리 유저, ‘로스트아크’로 달려가는 이유는?

[6] '환골탈태 넥슨' 신뢰 회복 총력전...메이플 '큐브' 판매 중단하고 신작 차별화로 K게임 '선도'

[7] MapleStory Youtube Analysis

[8] Exclusive: Goodwater Capital snags $1B across two new funds, despite cooling interest in consumer tech

[9] Ruliweb

[10] MapleLand

[11] THE EXPONENTIAL POWER OF NETWORKS: LESSONS LEARNED FROM BTS FANDOM

[12] Old Code, New Tricks: Breathing Digital Life into Legacy Systems.

David Moon (Junseo Moon)

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business model generation revenue streams

Understanding the YouTube Business Model and Revenue Streams

Delve into the intricate world of YouTube's business model and discover the various revenue streams that drive its success.

business model generation revenue streams

The Genesis of YouTube: A Brief History

Before we delve into the inner workings of YouTube's business model, let's first take a trip down memory lane and explore its humble beginnings. YouTube was founded in February 2005 by three former PayPal employees - Chad Hurley, Steve Chen, and Jawed Karim.

These visionary entrepreneurs set out to create a platform that would make it easy for people to upload, share, and watch videos online. Little did they know that their creation would soon become a global phenomenon and a game-changer in the entertainment industry.

The Founders and Their Vision

Chad Hurley, Steve Chen, and Jawed Karim envisioned a platform where anyone could express themselves creatively through video. They believed in the power of user-generated content and sought to provide individuals with the tools and technology to share their stories and talents with the world.

Driven by their passion for innovation, the founders worked tirelessly to develop a user-friendly interface that would revolutionize the way people interacted with video content. They understood the importance of simplicity and accessibility , ensuring that even those with limited technical knowledge could easily navigate and utilize the platform.

Furthermore, the founders recognized the need for a supportive and inclusive community. They implemented features that allowed users to engage with one another through comments, likes, and shares, fostering a sense of connection and collaboration.

The Evolution of YouTube Over the Years

Since its inception, YouTube has evolved significantly to meet the ever-changing demands of its users. It started as a simple website where people could upload and share videos, but it quickly gained traction and attracted millions of users.

As the platform grew in popularity, YouTube faced numerous challenges, including copyright infringement issues and the need to monetize its services . The founders, along with their dedicated team, worked diligently to address these concerns and find innovative solutions.

In 2006, YouTube was acquired by Google for a staggering $1.65 billion. This strategic move allowed YouTube to tap into Google's vast resources and expertise, propelling it to new heights. With Google's support, YouTube was able to enhance its infrastructure , improve video quality, and expand its reach to a global audience.

Over the years, YouTube has introduced numerous features and enhancements, such as live streaming, 360-degree videos, and virtual reality content. These innovations have not only kept the platform relevant but also further cemented its position as the go-to destination for video sharing.

Moreover, YouTube has become a platform for diverse content creators to showcase their talents and build communities around their passions. From beauty gurus and gamers to musicians and comedians, YouTube has provided a stage for individuals from all walks of life to express themselves and connect with like-minded individuals.

Today, YouTube continues to evolve and adapt to the ever-changing digital landscape. With the rise of mobile devices and the increasing demand for on-the-go entertainment, YouTube has optimized its platform for mobile viewing, ensuring that users can access their favorite content anytime, anywhere.

As we explore the inner workings of YouTube's business model, it is essential to acknowledge the remarkable journey that has brought us to this point. From its humble beginnings to its status as a global powerhouse, YouTube has revolutionized the way we consume and interact with video content, forever changing the entertainment industry.

Delving into YouTube's Business Model

Now that we have explored YouTube's origins, let's shift our focus to its business model. At its core, YouTube relies on two primary revenue streams: advertisements and subscription-based model s.

The Role of Advertisements

Advertisements play a crucial role in YouTube's revenue generation. The platform offers various ad formats, including bumper ads, skippable ads, and display ads, to cater to advertisers' diverse needs.

Advertisers can leverage YouTube's wide reach and targeting capabilities to connect with their target audience. These ads are displayed before, during, or after videos, providing advertisers with valuable exposure and driving revenue for YouTube.

YouTube's ad revenue is not solely dependent on traditional advertisements. The platform also offers sponsored content, where creators collaborate with brands to promote their products or services within their videos. This form of advertising allows creators to monetize their content while providing value to their audience.

Moreover, YouTube has introduced YouTube Shorts, a feature that enables users to create and share short videos. This format presents new opportunities for advertisers to engage with viewers through short-form ads, further expanding YouTube's advertising revenue potential.

YouTube Premium: A Subscription-Based Model

In addition to ad revenue, YouTube has also introduced a subscription-based model called YouTube Premium. For a monthly fee, subscribers gain access to an ad-free viewing experience, exclusive content, and offline playback.

This premium offering not only provides an additional revenue stream for YouTube but also allows creators to earn money through the YouTube Partner Program, which rewards them for creating engaging and high-quality content.

YouTube Premium has evolved to offer additional benefits beyond ad-free viewing. Subscribers can enjoy YouTube Originals, exclusive shows and movies produced by YouTube, further enhancing the platform's appeal to its audience.

Furthermore, YouTube Premium offers a feature called YouTube Music Premium, which provides subscribers with access to a vast library of music, ad-free listening, and offline playback. This expansion into the music streaming market has allowed YouTube to compete with other popular music streaming platforms.

YouTube Music and YouTube TV

Recognizing the immense potential in the music and live TV streaming markets, YouTube launched YouTube Music and YouTube TV. These subscription-based services provide users with access to a vast library of music and live TV channels respectively.

YouTube Music offers users a personalized music streaming experience, with features such as curated playlists, recommendations based on listening habits, and the ability to discover new artists. This service not only generates revenue through subscriptions but also through advertising within the free version of the app.

On the other hand, YouTube TV provides users with access to live TV channels, including sports, news, and entertainment. Subscribers can stream their favorite shows and events on various devices, offering convenience and flexibility. YouTube TV generates revenue through monthly subscriptions and partnerships with TV networks.

By expanding its product portfolio, YouTube has tapped into new revenue streams and diversified its offerings to cater to a wider audience base. This strategic move has allowed YouTube to remain a dominant player in the online video and streaming industry, constantly evolving to meet the changing needs and preferences of its users.

Understanding YouTube's Revenue Streams

Now that we have explored the various components of YouTube's business model, let's take a deeper look at its revenue streams.

YouTube, the world's largest video-sharing platform, has established multiple revenue streams to support its operations and incentivize content creators. These revenue streams not only contribute to YouTube's financial success but also empower creators to monetize their content and build sustainable careers.

Ad Revenue: The Primary Cash Cow

Ad revenue is the primary source of income for YouTube. With billions of users visiting the platform each month, YouTube attracts a significant number of advertisers who are willing to pay a premium to connect with their target audience.

YouTube's sophisticated ad targeting capabilities allow advertisers to reach specific demographics, interests, and viewing behaviors, ensuring their ads are displayed to the most relevant audience. This targeted approach increases the effectiveness of advertising campaigns and drives higher ad revenue for YouTube.

YouTube shares a portion of the ad revenue with creators, incentivizing them to produce quality content that attracts viewers and generates ad impressions. This revenue-sharing model has been instrumental in fostering a vibrant creator community and encouraging the production of diverse and engaging content.

Subscription Fees: A Growing Contributor

While ad revenue remains the cornerstone of YouTube's revenue model, subscription fees are steadily growing in importance. As more users opt for the ad-free experience and exclusive content offered by YouTube Premium, the subscription-based revenue continues to gain traction.

YouTube Premium provides subscribers with an ad-free viewing experience, offline playback, and access to YouTube Originals, exclusive content produced by YouTube. The subscription fees collected from YouTube Premium contribute significantly to YouTube's revenue diversification strategy.

YouTube shares a portion of the subscription fees with creators enrolled in the YouTube Partner Program, providing them with an additional source of income beyond ad revenue. This partnership between YouTube and creators fosters collaboration and ensures that creators are rewarded for their valuable contributions to the platform.

Other Revenue Streams: Merchandise Shelf, Super Chat, Channel Memberships

In addition to ad revenue and subscriptions, YouTube has also introduced several other revenue streams to empower creators and deepen their connection with their audience.

The merchandise shelf enables creators to showcase and sell their branded merchandise directly on their channel, allowing them to monetize their brand and engage with their fans. This feature not only generates revenue for creators but also strengthens their relationship with their audience by offering them a tangible way to support their favorite creators.

The Super Chat feature allows fans to pay to have their messages highlighted during live chat streams, providing creators with an interactive way to engage with their audience while generating income. This feature has become particularly popular during live events, Q&A sessions, and other interactive content, creating a sense of community and exclusivity for fans.

Channel memberships offer fans the opportunity to subscribe to a creator's channel for exclusive perks and benefits, such as badges, emojis, and behind-the-scenes content, while providing creators with a recurring revenue stream. This membership model not only provides creators with a stable income but also fosters a sense of loyalty and belonging among their most dedicated fans.

As YouTube continues to evolve and adapt to the changing landscape of online video consumption, it is likely that new revenue streams and monetization opportunities will be introduced. These revenue streams not only support YouTube's growth and innovation but also empower creators to pursue their passion and create content that resonates with their audience.

The Impact of YouTube's Business Model on Content Creators

YouTube's business model has had a profound impact on content creators around the world. On one hand, it has provided a platform for aspiring individuals to showcase their talent and reach a global audience.

However, YouTube's monetization policies and algorithms have also posed challenges for creators. Stricter guidelines and frequent changes in the algorithm have made it harder for some creators to earn a sustainable income solely from YouTube.

Nevertheless, the YouTube Partner Program and the various revenue streams it offers continue to incentivize creators to produce engaging and high-quality content, fostering a vibrant ecosystem of creativity and talent.

Monetization Policies and Their Implications

YouTube's monetization policies outline the guidelines creators must follow to be eligible for ad revenue and other monetization features. These policies aim to ensure that content on the platform is advertiser-friendly and meets community guidelines.

While these policies provide a level playing field for advertisers and creators, they have also faced criticism for being overly strict and inconsistent, leading to demonetization and revenue loss for some creators.

The Role of YouTube Partner Program

The YouTube Partner Program plays a vital role in supporting creators and incentivizing the production of quality content. By enrolling in this program, creators can monetize their videos through ad revenue, subscriptions, and other monetization features.

The program also provides creators with valuable resources, educational materials, and insights to help them grow their channels and maximize their earning potential.

The Future of YouTube's Business Model

As YouTube continues to evolve and adapt to changing trends and user preferences, the future of its business model holds both challenges and opportunities.

Emerging Trends and Their Potential Impact

Emerging trends, such as the rise of short-form video platforms and the increasing popularity of live streaming, will shape the future of YouTube's business model.

YouTube must stay at the forefront of these trends, leveraging its vast user base and existing infrastructure to capitalize on new opportunities and maintain its position as the leading video sharing platform.

Challenges and Opportunities Ahead

While YouTube's business model has proven to be successful thus far, it faces challenges in addressing creators' concerns about monetization policies and revenue sharing. Striking a balance between advertiser interests and creator needs will be crucial going forward.

Furthermore, YouTube has the opportunity to explore additional revenue streams, such as virtual reality experiences, augmented reality advertisements, or innovative partnerships, to further diversify its offerings and generate additional revenue.

As we conclude our exploration of YouTube's business model and revenue streams, it is evident that this platform has revolutionized the entertainment industry and provided countless opportunities for content creators and advertisers alike. YouTube's continued success lies in its ability to adapt to the ever-changing landscape of the digital world while nurturing the creativity and talent of its vast community of creators.

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COMMENTS

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