Finding the Right Revenue Model for Your Business

FInancial Revenue Models

• Investments: Invest in products or stocks then sell them at a higher price after a period of time.
• Rental and leasing: Invest in equipment that you rent out.
• Financing business: Customer pays for a product or service through a time-based payment plan which includes interest and a premium.
• Insurance sales: Sell insurance in collaboration with an insurance company.
• Franchising: Develop a store or service concept that others pay a franchise fee to open the store or use the service concept.
• Fundraising: Develop a project and cover costs by acquiring funding from public or private institutions.

Online Revenue Models

• Freemium: Offer a free product/service option as well as a premium product/service with more features, functionality, etc.
• Lead generation: Receive earnings for every lead you bring to another business.
• Online shop: Sell products online.
• Affiliate marketing: Receive earnings when you market another business and bring customers to them.
• Sale of advertising: Sell advertising space based on the number of impressions, the size, or another factor.

Service Revenue Models

• Licenses/member fees: Establish a network and resources of value so that customers pay a membership fee for access.
• Sale of events: Host an event and charge a per person fee.
• Sale of services: Invoice customers a set price for the service or resources used.
• Sale of hours: Invoice customers for the time spent rendering professional knowledge or a trade-related skill.

Trade Revenue Models

• Handling fee: Coordinate an order between the supplier and customer to receive a profit to cover your handling.
• Subscriptions: Coordinate repeated sales of a product and invoice the customer a set amount upon each delivery.
• Consignment: You sell products on commission with a vendor and receive commission when the products are sold.
• Retail: Start a physical store where you sell goods at a profit that covers your overhead, employees, marketing, etc.
• Agent representation: Make an agent agreement about the product that is delivered by a suppler and invoice the customer the cost of the product plus sales commission.
• Wholesale: Buy products from manufacturers in bulk then resell them to customers in small amounts.

Manufacturing Revenue Models

• Manufacturing: Manufacture and develop the product then invoice the customer for the product price and related expenses.
• Contract manufacturing: Manufacture custom ordered products and invoice the customer per customization.
• License manufacturing: Manufacture a product designed by another and invoice the customer the amount that covers the design and manufacturing.
• Outsourcing: Design a product then outsource manufacturing and invoice customers the production costs.
• Royalty: Design a product for others to manufacture and receive a supplier royalty based on the number of items sold or produced.

How to Raise Prices

All the revenue models are associated with a set price that is paid by the customer. How do you determine the price? When determining the price, you can either go with a mark-up price or the market price. For the mark-up price, you total your expenses for creating and delivering the product and add on the percentage you want to earn. For the market price, you determine what customers are willing to pay based on the current market. Market price focuses on the value creation for the customer. 

When it comes to good salesmanship, you’ll find that the price is not the same for all customers. It is the idea of a “special price for you.” You may offer products of different quality at different prices, or you may discount the price for certain types of clients. It can be beneficial to set prices high then offer a discount to make the price more competitive. There are a variety of different types of discounts including introductory discounts, seasonal discounts, bulk discounts, etc.

Over time, things change whether it’s the quality of the service, the extent of the knowledge or experience, the cost to create the product or render the service, etc. At the end of the day, you need to cover your costs and generate profit to reinvest in the business. There may come a time when you need to increase prices. It is always a good idea to give customers a heads-up and make them aware of upcoming price increases. It can also be helpful to have a reason for the price increase so that customers perceive it to be fair.

Most importantly, always make and deliver what you promise. Satisfied customers who see the value of your products or services are much more likely to pay higher prices and agree to price increases over time.