What do you mean by Revenue Model? Describe its types .

 Revenue Models:-

• The revenue model describes how the firm will earn revenue, generate profits, and produce a superior return on invested capital.

• The terms revenue model and financial model are used interchangeably. The function of business organizations is both to generate profits and to produce returns on invested capital that exceed alternative investments. Profits alone are not sufficient to make a company “successful”.

• So, to be considered successful, a firm must produce returns greater than alternative investments. Firms that fail this test go out of existence.

 Different Revenue Models:

• Although many different e-commerce revenue models have been developed, most companies rely on one, or some combination, of the following major revenue models:

- the advertising model,

 - the subscription model,

-  the transaction fee model,

- the sales model, and, 

- the affiliate model.

 1) Advertising revenue model

• a Web site that offers its users content, services, and/or products also provides a forum for advertisements and receives fees from advertisers.

•  Those Web sites that can attract the greatest viewership or have a highly specialized, differentiated viewership and can retain user attention (“stickiness”) can charge higher advertising rates.

• Example: Yahoo.com

2)  Subscription revenue model, 

•  In the subscription revenue model,  a Web site that offers its users content or services charges a subscription fee for access to some or all of its offerings.

• Experience with the subscription revenue model indicates that to successfully overcome the disinclination of users to pay for content on the Web, the content offered must be perceived as a high-value-added, premium offering that is not readily available elsewhere nor easily replicated.

• Examples: Consumer Reports Online, Yahoo! Platinum

  3) Transaction fee revenue model,

• In the Transaction fee revenue model, a company receives a fee for enabling or executing a transaction.

•  For example, eBay provides an online auction marketplace and receives a small transaction fee from a seller if the seller is successful in selling the item.

4) Sales revenue model

•  In the Sales revenue model, companies derive revenue by selling goods, information, or services to customers. 

• Companies such as Amazon (which sells books, music, and other products), LLBean.com, and Gap.com, all have sales revenue models.

5)  Affiliate revenue model, 

• In the Affiliate revenue model, sites that steer business to an “affiliate” receive a referral fee or percentage of the revenue from any resulting sales.

•  For example, MyPoints makes money by connecting companies with potential customers by offering special deals to its members. When they take advantage of an offer and make a purchase, members earn “points” they can redeem for freebies, and MyPoints receives a fee.

                                                 OR,

Revenue Model

• A revenue model is a part of the business model that explains different mechanisms of income generation and its sources. This is a high-level answer to the question that asks how we will generate revenue from the value we bring to a certain customer group.

• The simplest example of a revenue model is a high-traffic blog that places ads to earn profit. Web resources that generate content for the public, e.g. news (value), will make use of its traffic (audience), to place ads. The ads in turn will generate revenue that a website will use to cover its maintenance costs and staff salaries, leaving the profit.

Types of Revenue Model

1) Transactional Revenue Model

• Countless companies, both tech-oriented and otherwise, strive to rely on the transactional revenue model, and for good reason too. This method is one of the most direct ways of generating revenue, as it entails a company providing a service or product and customers paying them for it.

• Advantages: Consumers are more attracted to this experience because of its simplicity and the wider set of options.

• Disadvantages: Because of the directness of the transactional revenue model, many companies employ it themselves, which means more competition and price deterioration, and therefore, less money to make for everyone who uses this model.

                                                                          OR,

• A transaction-based model is a classic way a business can earn money. The revenue is generated by directly selling an item or a service to a customer. The customer can be another company (B2B) or a consumer (B2C). The price of the product or service constitutes the production costs and margin. By increasing the margin, the business can generate more income from sales.

• The pros: Full control over the pricing strategy.

• The cons: The cons will depend on the industry/product type and pricing tactics, as the model itself imposes constant generation of sales with the help of advertising and marketing strategies. The only con we might mention here is the financial burden connected with sales you will carry on your own.

• Examples: Nearly any company that produces and sells its products: Samsung, Rolls Royce, Nike, Microsoft, Apple, Boeing, McDonald’s.

2) Ad-Based Revenue Model

• Ad-based revenue models entail creating ads for a specific website, service, app, or other product, and placing them on strategic, high-traffic channels. If your company has a website or you have a web-based company, Google’s AdSense is one of the most common tools to get ads. For most websites, AdSense will earn about $5-10 per 1,000 page views.

• Advantages: Making money from ads is one of the simplest and easiest ways to implement revenue models, which is why so many companies utilize ads as a source of revenue.

• Disadvantages: To generate sufficient revenue to withhold a business, you will need to attract millions of users. In addition, most people find ads annoying, which can lead to low clickthrough rates, and therefore, lower revenue.

                                                                  OR,

Advertisement-based model

• The advertisement-based revenue model is valid both for online and offline businesses. It’s often used by websites/applications/marketplaces or any other web resource that attracts huge amounts of traffic. Revenue is generated by selling ad space. This is one of the most standard methods of gaining revenue.

• The pros: Having a high-traffic resource allows you to monetize the ad space nearly instantly. Often, there is a high demand for advertising space, especially with organic traffic and platforms with the target audience.

• The cons: Running advertising campaigns to gain web visibility on social networks is a standard marketing activity with targeting instruments more precise than ever. However, advertisements are everywhere, so you might think twice about whether you want to distract a user by placing an ad in your app – even if it is a secondary revenue stream.

• Examples: YouTube, Instagram, Facebook, Forbes, Google.

                     

3) Subscription Revenue Model

• The subscription revenue model entails offering your customers a product or service that customers can pay for over a longer period of time, usually month to month, or even year to year.

• Advantages: If your company is far enough along in its development, this model can generate recurring revenue, and can even benefit from customers who are simply too lazy to cancel their subscription to your company (which is the dirty little secret of a subscription-based model).

• Disadvantages: Because this model depends so much on having a large consumer base, it’s critical to maintain a higher subscribe rate than an unsubscribe rate.

                                                    OR,

Subscription Revenue Model

• You must have heard of Netflix, Amazon Prime, YouTube Premium, etc who will let you enjoy their unlimited services. These eCommerce business models charge their users or rathers subscribers based on a certain interval of time (daily, monthly or annual) to avail their services.

• The service offerings of these companies generally include music, videos, TV channels, magazines, special services, etc. which are offered to the subscribers for a price to watch/listen or get the latest edition.

• Now, let me guide you through some examples of basic subscription business models.

Premium membership:  Many social media and business platforms like Xing, Linkedin, stayfriends, etc. offer subscriptions to avail of additional services that get the subscribers access to daily updates, newsletters, short notices, etc. This information and quick updates are delivered to them directly to their account.

Internet service providers: We all are familiar with the monthly and annual subscription of internet service providers or rather a broadband connection enabling the subscribers to enjoy unlimited internet service. 

publishers and content services: You are well acquainted with Netflix, New York Times, Spiegel Online, etc. These eCommerce business models ask for subscription fees based on monthly or annually to get access to their content.

Special services :- We all know that every eCommerce business has one thing in common and that is their payment gateway. These are companies like Paypal, VeriSign whose subscription fee depends upon the SSL certification and the period of service. 

4) Affiliate Revenue Model

• Another popular web-based revenue model is the affiliate revenue model, which works by promoting links to relevant products and collecting a commission on the sales of those products, and can even work in conjunction with ads or separately.

• Advantages: One of the most obvious benefits of employing an affiliate revenue model is that it generally makes more money than ad-based revenue models.

• Disadvantages: If you use an affiliate revenue model for your startup, remember that the amount of money you make is limited to the size of your industry, the types of products you sell, and your audience.

                                     OR,

Affiliate model

• The affiliate model is similar to the commission model The difference is that a business receives its commission from a seller, rather than a customer. An affiliate model is a contract between a supplier of a product/service and a promoter. A promoter can be another business/media resource/blogger that recommends a supplier’s product. The income will come as a percentage from sales or registrations done via a referral link.

• This category of business also includes meta-search engines as a unique example. Meta searches can be found almost everywhere. Their main difference with retailers is that they don’t sell products directly but offer comparison and search as a value. Advertising and affiliate programs are the main revenue models used to generate income in this case.

• The pros: Just like an advertisement, once you have a huge traffic resource, you might apply for an affiliate program to earn money. This will bring you income without any investments because you will basically generate traffic and leads for the affiliate program provider.

• The cons: Unfortunately, the percentage of affiliate programs promised to the promoter is quite low. Sometimes it fluctuates between 1-2 percent and requires a high volume of sales generated through your links.

• Examples: Blogging, event promoting platforms like Broadway.com or TheaterMania. Various examples of Amazon affiliate websites, e.g. Cloud Living and ThisIsWhyImBroke.

5) Sales Revenue Model

• This is the most commonly followed eCommerce business model where wholesalers and retailers sell their products over the internet intending to reach out to a larger target audience. Also, more importantly, this model brings inconvenience for the customer as well as saves them time. And the hassle to walk up to their physical store. There is an extra cost. 

• The prices are often competitive in comparison to the actual store price.  The business following the online sales model often comes with marketplaces as common entry points that allow them to deal with various product vendors allowing them to grow the marketplace and therefore earn more.

• In certain cases, the sales are directly injected into the business where the profit is shared with none. Based on the size of the business and the point of sales traffic, certain functionalities of the business are transferred to third-party vendors, generally done for the logistics and supply chain. 

• Examples can be cited in terms of all the single shop companies selling their brand products over the internet through their online platforms. This forms a dedicated way of doing sales and reaching out to a vast number of customers. Amazon, Otto, etc are examples of businesses following such a model for their web catalog-based business over the internet. Also. Buy.com, Etsy are examples of such marketplaces while iBood, woot! guut.de are examples of live shopping marketplaces.

                                      OR,

1) One of them is an advertising revenue model. Following this model, innovators put up a digital platform where advertisers could post their ads for a commission based on traffic density and other factors. With this model in place, the customers will come to a website to shop, see ads, and access the advertiser's website. Examples of companies using this model are Google Adwords, Adsense, Facebook, New York Times. To attract users, these platforms typically offer internal advertising tools. 

2) The next is a subscription revenue model. Companies like Netflix and Spotify usually come to mind when we think of a thriving subscription service. In this model, users are charged a recurrent fee (monthly or annual) for using their services. Typically, the services allow access to all kinds of digital content, including music, video, TV, and magazines. 

3) Now let's take a look at a transaction fee revenue model. This one drives revenue by charging a fee for a transaction made via their payment portal. The operator puts up a platform that enables or executes payment transactions to be completed. A good example here is E-Trade that charges a fee once it executes a stock transaction to a customer. Another example is PayPal that charges a fee to sellers. It can be a fixed amount as well as a percentage from a transaction. 

 4) There is also a sales revenue model, which is probably the most commonly used model. In this model, the profit comes from selling products or providing services where sellers try to reach a broader audience via the Internet as opposed to offline stores. An example can be any company that sells products online using a single platform like Amazon, Buy.com, Etsy. Such an approach creates a unique way of doing business based on web catalogs. 

5)  Finally, an affiliate revenue model where users are steered to an affiliated website. Here sellers collaborate with different eCommerce platforms to advertise and sell their products for a referral fee. Amazon is a good example here since it lets you add links to your products and bring traffic to your website. For each potential customer that comes to your website from Amazon, you will need to pay a fee.