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Planning a Business Startup? Choose the best Revenue Model

The Bureau of Labor Statistics data says that around 20% of small businesses fail during their first year. 30% of startups fail within the second year. And by the end of the fifth year, half of them fail. One of the most typical blunders made by startups is a flawed revenue model or monetization plan. Choosing the finest revenue models for startups, among other things, is an absolute must when running a business!

“What is the monetization plan?” – is one of the essential questions on which investors base their decisions. The stability of a startup’s revenue model is critical to its long-term viability. This article covers top revenue models for startups and how to pick the right one for your company.

Transactional Revenue Model

Transactional Revenue Model is one of the numerous revenue models for startups generally used by organizations that provide a transactional service. For startups, the Transactional Revenue Model is pretty straightforward. To earn money, you must sell services and products. 

The issue with this concept is that it is dependent on the branding of your company. The number of users that buy or consume your services determines the long-term viability of your business or startup. 

E-commerce enterprises like eBay and crowdfunding organizations like Kickstarter are examples of transactional revenue models.

Affiliate Revenue Model

Startups that rely on the Affiliate Business Revenue Model make money by promoting links to other businesses’ products and services. It entails providing a service/product distribution solution online in exchange for a commission – either a percentage or a predetermined amount. Affiliate Revenue Model companies function as middlemen among the several revenue models for businesses, facilitating a common platform for merchants (or service providers) and customers (or clients).

The good news is that if your firm is exclusively built on the Affiliate Revenue Model, you won’t need to have your services or products. One of the disadvantages of the Affiliate Revenue Model for startups is that it will not sustain itself in the long term unless the service or product you are recommending has a significant number of customers. 

Awin.com is an example of an affiliate revenue model. 

Sales Revenue Model – Direct, Indirect, and Web

Among the various forms of revenue models for startups, the sales business revenue model is the most frequent. It entails your customer or clients purchasing your goods or services – whether directly, indirectly, or via the internet. Like when a customer visits your website and purchases your merchandise. 

Direct Sales: Your customer places an order for your products or services over the phone or in person. Alternatively, your customer may purchase your product or subscribe to your service through a face-to-face transaction with your representative.

Indirect Sales: Resellers selling your products/services are known as indirect sales. 

One of the most significant benefits of the Sales Revenue Model for startups is how easy it is to present to investors. It’s a well-proven revenue model. 

The disadvantage of this paradigm is that it needs the support of a highly experienced workforce. A team of highly talented web and mobile app developers is required for web sales. For selling your product/services directly to your customers/clients, you’ll also require a team of well-trained sales experts. 

Examples of Direct Sales Revenue Models are Buy.com, Amazon, and Etsy are just a few examples.

Subscription-Based Revenue Model

One of the greatest forms of revenue models for startups is the subscription-based business revenue model, which companies adopt worldwide. In exchange for your services or products, your customers are required to pay a recurring cost. It could be for a week, a month, a year, or even a lifetime.

The advantage of a subscription-based revenue model is that it allows for ongoing revenue. Once you have a good number of seed subscribers, your firm will develop faster if your products/services are good enough. However, the long-term viability of this revenue model is contingent on the number of members you have and their rate of increase over time.

Publishing organizations like Fortune.com and Medium.com use subscription-based revenue models, as do OTT apps like Netflix and CRM software like eWay CRM.

Ad-Based Revenue Model

The Ad-based Business Revenue Model is, in many ways, a subset of the Affiliate Revenue Model. It essentially asks you to place advertisements for other companies services and products on your website. You earn money each time a user completes a goal after clicking on an ad on our website. The goal could be as simple as clicking (Pay-Per-Click), subscribing to a channel/publication, making a purchase, and so on. 

The aim behind this approach, which is similar to other income models for businesses, is to strategically place adverts on your website that are more likely to be clicked by visitors without interfering with their user experience.

The Advertising Business Revenue Model has the virtue of being simple. To make money with your startup, you don’t necessarily have to sell your product.  However, for this income model to be viable for your company, you must increase visitors/users. 

Advertising Revenue Models Examples are Google, Youtube, and other search engines; Facebook, Instagram, and other social media platforms.

Freemium Revenue Model

You must have come across services/tools that offer a free basic version yet charge a fee for the premium version. On the other hand, these enterprises rely on a different best revenue model for startups: the freemium company revenue model.

The Freemium Revenue Model’s central premise is to get enough customers hooked on your services/tools to pay for the premium version. It allows businesses to grow their user base and market penetration while also earning money.

One of the benefits of this strategy is that it allows you to promote your services/tools while also expanding your startup’s user base. The Freemium Revenue Model necessitates a financial investment and still leaves you in the dark. 

Social Networking Channels – LinkedIn Tools – Flicker, MozBar, Evernote, Semrush are all examples of freemium revenue models.

Peer-to-Peer Revenue Model

A Peer-to-Peer model is one of the best revenue models for companies since it provides a platform that benefits both customers on opposite sides. Upwork is a well-known example of the peer-to-peer revenue model. This site essentially acts as a marketplace for entrepreneurs to find and hire freelancers and freelancers to find customers.

Upwork is a platform that allows startups and clients to engage with freelancers. On the other side, the website allows freelancers to take talent tests to demonstrate their competence and attract additional work. For this revenue model to operate, your firm must serve both end-users of the platform and clients and freelancers, just as Upwork does. 

Airbnb and Upwork are two examples of peer-to-peer revenue models.

As a result, selecting the suitable revenue model for a startup is critical when designing a company. Instead of relying on a single revenue model, many companies nowadays use various revenue models for their startups.

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Himanwita Mazumdar
Himanwita Mazumdar
Assistant Editor at Business Review Live. Currently pursuing Masters in Media and Communication Studies (MSc) from Savitribai Phule Pune University, India, with a Bachelors degree in English Literature. She specializes in Feature writing.