When it comes to generating revenue, businesses today have a plethora of options to choose from. While many organizations operate with a single revenue stream, it’s entirely possible to tap into multiple streams to drive cash flow. The revenue model you select will depend largely on your business model, but it’s crucial to consider what will resonate with your customers and market. Picking the wrong revenue model could hinder your ability to attract customers, even if you offer an exceptional product or service.
In this article, we will explore seven commonly adopted revenue streams that can be applied to various types of businesses. We’ll provide examples of these revenue streams in action and offer tips on how to choose the right revenue stream(s) for your company’s success.
Table of Contents:
Understanding Revenue Streams
Determining the Ideal Number of Revenue Streams
Exploring 7 Revenue Stream Examples
Choosing the Perfect Revenue Streams for Your Business
Ocenture specializes in providing private label solutions, software development, telehealth services, credit monitoring, and employee benefits to end-users through our client companies. By understanding the different revenue streams available and selecting the ones that align with your brand and target audience, you can drive financial success and deliver exceptional value to your customers.
Discover the revenue streams that best suit your business and unlock new opportunities for growth. Let us guide you through the process of selecting and implementing the right revenue streams to maximize your business’s potential.
What is a Revenue Stream?
A revenue stream is the lifeblood of any business, representing the source from which cash flows in. Before a revenue stream can exist, a company must possess assets. However, these assets can be utilized in various ways to generate revenue.
Consider this scenario: You own two cars, which serve as your assets, and you aim to generate revenue from them. There are several avenues available to you for generating income. You could choose to sell one of the cars, rent them out to individuals on an hourly or daily basis, provide a taxi service using the cars, or even offer advertising space on the vehicles. These four different approaches represent distinct revenue streams derived from just two assets.
It’s important to note that businesses can have multiple assets contributing to their revenue streams. For instance, a company may generate revenue primarily through a Software-as-a-Service (SaaS) offering, while also leveraging the talent within their team to provide additional services, as we will explore further in the following sections.
How Many Revenue Streams Should a Business Have?
While some businesses choose to rely on a single revenue stream throughout their existence, it is generally advisable to explore diversification.
During the early stages of a company, managing a single revenue stream may be more feasible. However, the sooner you diversify your business, the more resilient it becomes.
By having multiple revenue streams, you can mitigate the impact of a potential decline in one particular stream. If one stream dries up, having two or three others can help offset the loss in revenue and maintain a healthy cash flow.
Amazon serves as a prominent example of a company with numerous revenue streams. They derive income from various sources, including e-commerce sales, Amazon Web Services (AWS), Amazon Prime subscriptions, Amazon Music, Prime Video, and Audible memberships.
It’s worth noting that you don’t need to match Amazon’s scale to explore multiple revenue streams. Consider Icons8, a platform that offers clipart, illustrations, and music. They generate revenue through memberships, licensing their icons/illustrations, graphic design software subscriptions, and dataset sales.
HubSpot, Salesforce, and Shopify are additional examples of companies that have harnessed the power of multiple revenue streams to fuel their growth.
Remember, diversifying your revenue streams can enhance the stability and long-term success of your business.
7 Types of Revenue Streams You Can Implement For Your Business
Discover the various revenue streams you can leverage for your company and explore the advantages and disadvantages of each approach.
The subscription model is widely embraced in the software industry, with many companies offering Software as a Service (SaaS) subscriptions. Customers pay a recurring fee, whether monthly, quarterly, or annually, to access a product or service. This model is not limited to software, as businesses like magazines and gyms also utilize subscriptions.
Pros of the subscription model include:
Predictable revenue forecasting by analyzing customer churn rate and new monthly recurring revenue (MRR) using tools like Finmark from BILL.
Ongoing revenue generation from existing subscribers, even if marketing efforts slow down.
Lower risk for customers compared to upfront purchases, facilitating sales.
However, there are important considerations to keep in mind:
If the Customer Acquisition Cost (CAC) payback period exceeds the average customer lifespan, profitability may be challenging.
Investments are required to minimize high cancellation rates.
Revenue can be uncertain during the startup phase.
Examples of businesses successfully implementing subscriptions as a revenue stream include:
Streaming services like Netflix.
SaaS companies such as Finmark.
Membership-based organizations like country clubs.
Subscription box companies like BarkBox.
E-commerce companies like Dollar Shave Club.
By exploring and strategically implementing different revenue streams, you can enhance the financial stability and growth potential of your business.
Licensing is a versatile revenue stream that takes various forms. In the software industry, licensing was the dominant model before subscriptions gained popularity.
A notable example is Microsoft, which still offers perpetual licenses alongside subscription options for products like Microsoft Word. Licensing extends beyond software and can include granting the right to use trademarks or copyrighted materials.
Other businesses leveraging the licensing model include:
Walt Disney, licensing their trademarked characters to companies like McDonald’s for Happy Meal toys.
Music production companies granting licenses to film productions for specific songs in movies.
Software platforms like Clip Studio Paint.
Consider the pros of utilizing licensing as a revenue stream:
Long-term licensing deals reduce concerns about monthly churn.
Upfront purchases generate higher initial revenue.
However, it’s essential to keep in mind the cons:
Customers typically make a one-time purchase, unless you introduce new and improved products to encourage future sales.
Revenue may drop to zero in months with no sales.
By strategically implementing licensing arrangements, your business can capitalize on upfront revenue while exploring other revenue streams for sustained growth.
Product sales involve selling tangible goods directly to customers, with customers owning the purchased products outright.
This business model is commonly utilized by consumer-facing companies and serves as the primary means of monetization when physical products are involved.
E-commerce businesses exemplify this revenue stream, while brick-and-mortar retail companies operate in a similar manner. Notable examples include:
Some companies adopt a hybrid approach, combining product sales with other revenue streams. For instance, Google offers paid software like GSuite while also selling physical electronics such as Google Pixel phones, Google Chromecast, and Google Nest smart home products. Successful companies often leverage multiple revenue streams to diversify their offerings.
Consider the advantages of incorporating product sales into your revenue stream:
Lower-priced items are typically easier to sell.
Higher-priced items generate substantial revenue influxes.
However, it’s important to be aware of the following challenges:
Product sales tend to yield lower profit margins compared to software.
Manufacturing, storage, and shipping are essential processes for every product.
Scaling production may lead to cost efficiencies, but there are limits to cost reduction.
By carefully navigating the intricacies of product sales, businesses can leverage tangible goods to drive revenue while considering complementary revenue streams for sustained growth.
If your team possesses valuable skills and expertise, you can leverage them to offer services and consulting, creating an additional revenue stream for your business.
Certain companies are solely service-based, providing a range of services that serve as separate income streams. Local businesses like nail salons or landscaping companies exemplify this model.
Other examples include:
Marketing agencies and consultants
Some companies combine software offerings with services, such as Evolv.ai, which provides A/B testing software along with strategic consulting and implementation services.
Services present an opportunity to generate revenue without starting from scratch or investing in extensive research and development for new products. By understanding customer needs through surveys, you can utilize your existing in-house expertise to deliver valuable services.
Here are the benefits of incorporating services into your revenue streams:
One-to-one service delivery allows for higher pricing, requiring fewer clients to reach revenue goals. For instance, securing ten clients paying $8,000 each for high-value consulting services can achieve a monthly revenue increase of $80,000, compared to acquiring 8,000 clients paying $10 per month for a software subscription.
However, it’s important to consider the following challenges:
Scaling services is more complex than scaling software subscriptions, requiring additional marketing efforts and employee training.
Service-based offerings involve greater responsibility for client outcomes compared to product or subscription models.
By strategically integrating services and consulting into your business, you can capitalize on existing expertise, deliver personalized value to clients, and unlock new revenue opportunities while being mindful of the unique considerations associated with service-based models.
If you have a dedicated audience, you can leverage it by selling advertising space, creating an additional revenue stream for your business.
There are various avenues to explore when it comes to advertising. For instance, if you have a podcast alongside your existing products and services, you can include ad breaks and sell the space to relevant companies. This is a common monetization strategy for podcasts and radio stations.
Another approach is to partner with brands and advertise their products or services to your email subscribers if you have an email list. Similarly, if you have a high-traffic blog, you can incorporate ads within your posts.
Additionally, the freemium model is prevalent in the app industry. Offering a basic free version of your software allows you to generate revenue through advertisements displayed within the app interface, particularly in the B2C space. Duolingo serves as an example of a freemium app that leverages ad revenue.
Businesses that utilize the advertising model include large blogs like The Penny Hoarder, sports stadiums that sell advertising space within their arenas, and real estate owners who display banners on their buildings.
Let’s consider the pros and cons of selling advertising space:
No additional resources are required to activate this revenue stream.
Advertising can be highly lucrative when you have a sizable and engaged audience.
It is crucial to select advertising partners wisely, as your brand will be associated with them.
If your audience is small, the revenue generated from ads may be limited.
Ads have the potential to distract your audience from your own offers.
By incorporating advertising into your revenue streams, you can capitalize on your audience’s value and generate additional income. However, careful consideration should be given to maintaining brand integrity and ensuring the balance between ads and your core offerings.
Incorporating leasing and renting as a revenue stream entails granting exclusive usage rights of assets to buyers for a specific duration.
This revenue model relies on having assets available for rent. For instance, companies like Rent the Runway in the e-commerce industry allow members to rent designer clothing. These businesses often have additional revenue streams, such as subscription fees and product sales for customers who choose to purchase items as well.
Car rental companies and hotels operate on a similar principle.
Other examples of leasing and renting companies include:
Gear rental companies for moving or specialized equipment
Vacation rental providers
Real estate leasing companies
Furthermore, if your company has ample office space, you could even consider leasing unused areas to smaller businesses or freelancers.
Let’s examine the advantages of leasing and renting:
You can generate substantial revenue over time from a single asset.
Customers find it easier to justify short-term rentals compared to long-term purchases, potentially leading to increased sales.
However, there are a few drawbacks to consider:
It may take time to recoup your investment in the assets.
Depreciation of the assets should be factored into your financial considerations.
Over time, wear and tear on the assets is inevitable.
By exploring the potential of leasing and renting, businesses can unlock a revenue stream that maximizes the utilization of their assets. Careful financial planning and maintenance strategies are essential for long-term success in this model.
A brokerage fee is a revenue stream that companies earn by connecting individuals with specific businesses.
For instance, platforms like Upwork generate income by matching freelancers with clients who require their services. They charge a brokerage fee, typically around 20% of the total payment made by the client for freelance services.
This model benefits both freelancers and clients. Freelancers gain access to potential clients, while clients have access to a pool of talented professionals.
Other businesses that employ a brokerage model include:
Utilizing a brokerage model can offer advantages to your business, such as:
Once your company establishes a robust matching system, the brokerage revenue stream can require relatively low effort since it doesn’t involve delivering products or services directly.
Customers don’t need to make upfront payments; you can earn your revenue by taking a percentage from their transactions, reducing friction in the sales process.
However, there are certain considerations and challenges associated with brokerage fees:
Implementing a brokerage fee structure may require significant investment in terms of time and resources, particularly for businesses primarily dependent on other revenue streams.
Brokerage fees are more prevalent in specific industries and may not be applicable or feasible for all businesses.
By carefully assessing your business model and industry dynamics, you can determine if incorporating brokerage fees as a revenue stream aligns with your objectives and offers a viable path to monetization.
Choosing the Right Revenue Stream: Steps for Decision-Making
When it comes to selecting the most appropriate revenue stream for your organization, it primarily depends on the nature of your product or service. Certain revenue streams may not be suitable based on the type of offering you have. For instance, if your business revolves around a software platform, options like renting and leasing might not be viable.
However, you do have some flexibility in choosing the right revenue stream. For example, if you offer software, you can decide whether to sell it through perpetual licensing or subscriptions, or even provide it for free and generate revenue through advertisements.
To help you make an informed decision, here are a few steps to consider when determining the most suitable revenue stream for your business.
Analyzing Competitors: Key Step in Choosing the Right Revenue Stream
Analyzing your competitors is a crucial step in shaping your business strategy and selecting the most suitable revenue stream. It allows you to gain insights into how to position your offerings in the market.
However, it’s important to note that the purpose of this analysis is not to simply imitate your competitors. Instead, it provides valuable information about the payment models preferred by customers in your industry.
Furthermore, competitor analysis can be leveraged as a means of differentiation. For instance, if all your competitors are utilizing a subscription-based model, you might opt to stand out by offering your product for free and generating revenue through advertising.
By conducting a comprehensive examination of your competitors, you can make informed decisions about the revenue stream that aligns with your business goals and sets you apart in the marketplace.
Engage with Your Customers to Determine the Ideal Revenue Stream
Going beyond competitor analysis, directly seeking input from your customers is an invaluable approach to understanding their preferences and needs regarding revenue streams.
Conducting surveys provides a straightforward method of gathering quantitative data, allowing you to gauge customer willingness to pay for specific features or services. This information helps you make informed pricing decisions.
To complement the quantitative insights, engaging in customer interviews offers qualitative feedback. By discussing topics like the impact of advertisements on their in-app experience, you can gain a deeper understanding of their perspectives and preferences.
By actively involving your customers in the decision-making process, you can align your revenue stream with their expectations and create a business model that resonates with their needs.
Leverage Your Existing Skills to Expand Revenue Streams
It’s essential to recognize that your revenue potential is directly tied to the assets and capabilities within your organization.
Conducting an audit of your team’s skill sets is a crucial step in identifying opportunities for additional revenue streams. By assessing the expertise and knowledge of your internal staff, you can uncover untapped potential.
For instance, if your business offers a subscription-based API platform, examining your development team’s skill sets may reveal the possibility of providing a value-added service. Utilizing their relevant expertise, you could offer assistance to customers in setting up custom integrations using your platform, thereby diversifying your revenue streams.
By exploring the talents and capabilities of your team, you can discover innovative ways to generate revenue and maximize the potential of your existing resources.
Anticipate Future Trends to Shape Your Revenue Strategy
While it’s crucial to understand the current market landscape and cater to present customers, it’s equally important to consider the future trajectory of the market. Your aim is to ensure the longevity of your business in an ever-evolving landscape.
By keeping an eye on emerging trends and industry developments, you can proactively adapt your revenue strategy to align with future market demands. Let’s take the car industry as an example.
As consumer preferences shift towards subscription-based models, evident in the software realm and now expanding to physical products, a forward-thinking car dealership could explore the potential of offering vehicle rentals on a subscription basis instead of solely focusing on traditional sales.
By embracing these future trends and anticipating customer needs, you position your business to thrive in the long term, remaining relevant and agile within a rapidly changing marketplace.
Embrace Diversification for Optimal Revenue Generation
It’s important to break free from the notion that you must rely on a single revenue stream for your business. Instead, consider the power of diversification.
Many companies make the mistake of solely focusing on one option, overlooking the potential benefits that come from embracing multiple revenue streams. However, the most successful organizations understand the value of diversification. They utilize various income sources to safeguard against market fluctuations and maximize their ability to capture a larger share of the market.
By diversifying your revenue streams, you can mitigate risks, adapt to changing market conditions, and seize new opportunities. In the upcoming section, we will delve into examples of renowned organizations that have successfully leveraged multiple revenue streams for precisely these reasons.
Remember, by diversifying your revenue streams, you position your business for long-term growth and resilience in the face of a dynamic and competitive marketplace.
Thriving Businesses Harnessing Multiple Revenue Streams
While we’ve discussed how industry giants like Amazon leverage diverse income streams, it’s important to note that businesses of any size can benefit from this approach. Here are some inspiring examples of companies excelling today by capitalizing on multiple revenue sources:
Dollar Shave Club: Known for its subscription model, DSC also taps into the product sales model through its e-commerce store. By offering individual purchases alongside subscriptions, they expand their revenue streams and potentially convert more customers.
Zylo: As a SaaS buying and visibility platform, Zylo primarily operates on a subscription basis. However, they go a step further by providing managed services, creating an additional revenue stream through service offerings.
Duolingo: This language learning app ingeniously monetizes its free version with ad revenue. Simultaneously, they offer a paid subscription option, establishing a second revenue stream and catering to a wider audience.
These companies showcase the benefits of diversifying revenue streams, allowing them to navigate market challenges, seize opportunities, and drive sustained growth. Embracing multiple income sources enables businesses to build resilience and maximize their revenue potential, regardless of their scale or industry.
Enhance Your Company’s Resilience by Diversifying Revenue Streams
If your business relies on a single revenue stream, it’s worth considering the addition of one or two more to strengthen its resilience. By diversifying your income sources, you can better navigate unexpected market shifts or the potential drying up of a particular revenue stream, ensuring the sustainability of your business.
However, while pursuing multiple revenue streams, it’s essential to remain focused on your vision and purpose. Avoid getting carried away and adding unrelated income sources that may distract from your core objectives. The key is to strategically align new revenue streams with your overall business direction to maintain clarity and coherence.
By diversifying your company’s revenue streams, you can proactively safeguard against uncertainties, adapt to changing market dynamics, and create a more robust foundation for long-term success.
Discover the Power of Diversification with Ocenture – Your Trusted Partner for Over 25 Years
At Ocenture, we understand the importance of diversifying your company’s revenue streams to ensure long-term success. With our extensive experience in private label development and technical support, we offer customized solutions that can help your organization meet its financial initiatives and drive overall company revenue.
Through our turn-key, private label, and co-branded product offerings, Ocenture enables you to maximize your profit potential by capitalizing on additional monetization opportunities and boosting customer retention rates. We believe in the evolution of partnerships, and our proprietary approach to integration and data analytics provides you with a unique competitive edge in the market.
By partnering with Ocenture, you can tap into our expertise and leverage our comprehensive suite of services to diversify your revenue streams effectively. Whether you’re looking to explore subscription models, product sales, services and consulting, advertising, leasing and renting, brokerage fees, or a combination of these, we can help you navigate the landscape and make informed decisions.
Request a demo today to learn more about how Ocenture can empower your business and drive its growth through the strategic diversification of revenue streams. Together, let’s unlock the full potential of your organization and achieve greater financial resilience.