A revenue model is how a business makes money. Customers pay for a solution to a problem. In a revenue model, as a business owner you are going to decide how you charge your products, solutions and services. The exchange of your products or solutions will be a revenue stream which will sustain the business. Your revenue is the lifeline of the business. Increasing revenue with reducing cost will increase your profit while decreasing revenue with increasing cost will lead to losses.
Recurring Revenue Model
This is based on a income generated in a business which comes in at regular interval and is relatively stable. With recurring revenue, business can predict what will the revenue be like for next month. For instance, selling a monthly subscription services such as Adobe’s Creative Suite which is a cloud subscription service (Software as a Service).
Transaction Revenue Model
Transaction Revenue Model is based on one-time sale of goods or services. This has low barrier for consumers to trial new products and services. The con is the need to continuously generate new sales. For example, transaction revenue such as retail players like Giordano and Bossini. They have to create and ship the product for every sales to be made.
Project Revenue Model
Project Revenue Model is one time project such as a construction company which bid and completed a building. The payout is usually huge and in milestone payments. However, there is project revenue model is usually associated with business which is not scalable, they have long sales cycle and require huge capital injection at the start of the project.
Service Revenue Model
Service Revenue Model compensates business owners for the services rendered and customers pay for time or expertise. This usually does not require large upfront investment. If the service is not unique or does not require high expertise, the time is easy to compete, the selling price will be easy to negotiate downwards and lack of leverage.
For revenue models, we should be required to think in terms of scalability and recurring. Scalability means to duplicate what you are providing and increase the sales in a larger markets and recurring will be for customers to love your services so much, they keep coming back to you.
Think of a business which will make money for you when you are sleeping and it can scale in the global market.