What Is a Revenue Model?

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Deciding how you’ll generate revenue is one of the most challenging decisions for a business to make, aside from coming up with what you’ll actually sell.

You want to ensure that you’re accounting for production costs, salaries for workers, what your consumers are willing to pay, and that you generate enough to continue business operations. You also want to make sure that your strategy fits with what you’re trying to sell.

Various revenue models will help you set your business on the right path. In this post, we’ll outline what they are and how to choose the right one for your company.

Revenue models are not to be confused with pricing models, which is when a business considers the products’ value and target audience to establish the best possible price for what they are selling to maximize profits. Once the pricing strategy is set, the revenue model will dictate how customers pay that price when they purchase.

RevOps teams also use pricing models to predict and forecast revenue for future business planning. Knowing where your money is coming from and how you’ll get it makes it easier to predict how often it will come in.

There are various revenue models that businesses use, and we’ll cover some below.

Types of Revenue Models

Recurring Revenue Model

Recurring revenue model, sometimes called the subscription revenue model, generates revenue by charging customers at specific intervals (monthly, quarterly, annually, etc.) for access to a product or service. Businesses using this model are guaranteed to receive payment at each interval so long as customers don’t cancel their plans.

Recurring Revenue Model Example

Businesses that benefit from recurring revenue models are service-based (like providing software), product-based (like subscription boxes), or content-based (like newspapers or streaming services). Businesses you may be familiar with that use this strategy are Spotify, Amazon, and Hello Fresh.

Affiliate Revenue Model

Businesses using affiliate revenue models generate revenue through commission, as they sell items from other retailers on their site or vice versa.

Sellers work with different businesses to advertise and sell their products, tracking transactions with an affiliate link. When someone makes a purchase, the unique link notes the responsible affiliate, and commission is paid.

Affiliate Revenue Model Example

Businesses you may be familiar with that use the affiliate revenue model include Amazon affiliate links and ticket promoting services. Influencers also use this model to advertise products from businesses and entice users to purchase them through custom links.

Advertising Revenue Model

The advertising revenue model involves selling advertising space to other businesses. This space is sought after because the advertiser (who is selling the space) has high traffic and large audiences that the buyer (who is purchasing the space) wants to benefit from to give their business, product, or service visibility.