10 Top Startup Revenue Models to Consider

Posted on April 30, 2020 by Tegan Sabatier, One of Thousands of Entrepreneurship Coaches on Noomii.

It may be that your startup is selling a web-based product, a tangible item or a service, but until the target customers can get their hands on it, it’s usefulness will still be in question. Selling the product/offering may not be an easy task, and it’s important to consider such factors as the industry your business belongs to and how you will attract your target customers. The startup company uses a variety of revenue models to sell their product or service. A revenue model can be defined as a strategy employed by a company, either large or small, to manage its revenue streams and their required resources. Continue reading to learn about 10 top startup revenue models to consider for your particular business venture.

1. Ad-Based Revenue Model

Ad-based revenue model is based on a company generating significant user traffic and leveraging that high-traffic by placing ads created by other companies on the website. Companies with a website or a web-based company with millions of views can use such tools as AdSense to run ads on your platform, be it a website or YouTube videos. AdSense earnings are contingent on factors like the amount of traffic to your site, content provided and user location, among others, and as such, it’s difficult to determine precisely the revenue that can be generated.

● Pros: When it comes to implementation, the ad-based revenue model is simple and easy to set up and maintain. This model is a common choice for many companies.

● Cons: To generate sufficient revenue, your website needs to get high traffic for high clickthrough rates. One of the biggest issues is that a lot of site visitors see ads as an annoyance they’d rather not deal with. Low clickthrough rates tend to lead to low revenue.

2. Affiliate Revenue Model

Another of the 10 top startup revenue models to consider is the affiliate revenue model. This widely used web-based revenue model is used to promote links, which when clicked on, takes the individual to a product on another site, which if purchased, allows your company to make a commission on the sale. It’s possible to use this model and ads together.

● Pros: An upside to adopting an affiliate revenue model is that, in general, when compared to ad-based revenue models, it tends to generate more revenue.

● Cons: With an affiliate revenue model, your industry size, product type and target audience are all major contributing factors when it comes to the amount of money you can generate.

3. Transactional Revenue Model

For a more direct method of generating revenue, many companies have employed the transactional revenue model. Using this model, your company would provide a particular service or product that customers pay for.

● Pros: Consumers have a variety of options and are more inclined to go for and stick with the experience provided by this model because of how simple it is.

● Cons: The transactional revenue model is popular and used by many companies because of the direct approach to generate revenue. However, it creates greater competition, which can often lead to price deterioration, meaning that this model may not produce the best revenue possible for the companies that employ its use.

4. Subscription Revenue Model

The subscription revenue model involves offering customers a particular product or service, with the requirement that the customers pay for this offering over an extended period of time, which is generally month by month, or on a yearly basis.

● Pros: A well-established company or one that is strongly developed, even if it’s new, can consistently generate revenue, and even profit from customers who forget to cancel their subscription.

● Cons: With a reliance on a large consumer base to generate revenue, maintaining a higher subscription rate is more important than limiting the unsubscribe rate.

5. Web Sales Revenue Model

Though similar to the transactional revenue model, in that a customer must pay directly for an offering (product or service), except that web sale revenue model requires that customers first access your company using a web search or outbound marketing, and the transaction with the customer is conducted entirely on the internet.

● Pros: Web sales allow you to sell a myriad of offerings, from products to subscriptions.

● Cons: If relationship sales is essential to the kinds of offering you are presenting to customers, keep in mind that it is not in sync with web sales. This revenue model is not ideal for big ticket items, like cars and houses, where you could benefit greatly from relationship sales to gain revenue.

6. Direct Sales Revenue Model

Direct sales can be categorized into two types, inside sales and outside sales. Inside sales entails and individual calling in to place an order directly or sales agents making calls to prospective customers; outside sale refers to the sales transaction being done face to face between the customer and sales agent.

● Pros: Direct sales models work great with relationship sales cycles, enterprise sales cycles, or complex sales cycles that entail multiple buyers and influencers.

● Cons: A sales team is typically needed to make the direct sales model effective and small-ticket price products make this model less optimal for generating enough revenue for a scalable and successful company.

7. Channel Sales (or Indirect Sales) Revenue Model

Channel sales revenue model is one in which resellers or agents sell your product instead of you, even a virtual one, with you or the reseller responsible for the delivery of the purchased product. This model shares similarities to the affiliate revenue model because of the indirect sales aspect.

● Pros: If your company is geared towards an incremental sale product and incremental profit then the channel sales model is a good option for you.

● Cons: This model can force your competing partner, who may have a similar product, to promote the sale of their product and ignore your product. If marketplace evangelism is central to your product then the channel sales model is not ideal for business success.

8. Retail Sales Revenue Model

Retail sales revenue model involves establishing a conventional department or retail store in which you offer tangible goods to customers. You have to factor in shelf space into your budget for the retail sales model. If your products necessitate logistics to get to customers, this revenue model is ideally suited.

● Pros: Retail sales is a great way to offer deals and complimentary products to an existing customer base to help boost brand awareness.

● Cons: The retail sales route is not ideal for early stage companies, or companies that offer digital products like software or apps.

9. Free Product, But Pay For Services Revenue Model

Compared to the aforementioned models, this revenue model embraces an entirely different approach. In reality, you give your product away to customers, free of cost, but customers must pay for services, like installation, shipping, training, among others.

● Pros: The “free product, but pay for services” revenue model is favorable for establishing trust with your customers and enhancing brand awareness, creating the kind of buzz that is essential for any business to get noticed. Offering products for free definitely helps to achieve that end.

● Cons: This model is essentially supporting a services business, where the free product is a marketing expense. It is not best-suited for long-term scalability of your company, which means it would serve you well to consider other revenue models that you could use in the future to generate more money.

10. Freemium Revenue Model

The freemium revenue model entails a company offering their basic services or features free of cost, but requires that users pay for premium features or enhanced functionality. LinkedIn, Dropbox and Match are examples of companies that employ this model.

● Pros: Free features to customers is a great way to market your product or service, without spending significantly on things like sales force or ads. At the same time, you entice customers to pay for upgrades if they want to experience richer features.

● Cons: This model doesn’t work for every product or service, which means that your offering’s value to users must increase the more users you get. You have the challenge of turning free users into paying customers if you are to be successful with this model.

Doing your due diligence and researching different revenue models is crucial for your business success. These 10 top startup revenue models to consider can give you an idea of what may work for your particular startup. You need to be thorough in your assessment and take your time in making the right decision for your business. You may decide on a model in the beginning and later realize that a different model is better suited. The revenue models mentioned are only some of the models out there, but these are popular.