Revenue Streams in Business Model Canvas
Published: 21 July, 2023
Table of Contents
Without a clear path for bringing money and resources into the enterprise, all businesses are doomed to fail. Every business model must clearly indicate which revenue streams will attract enough customers to keep the lights on. Businesses fail because, though the founders may have great ideas and motivation, their business models do not properly take into account how they will generate revenue. The success of any enterprise hinges on establishing viable revenue streams and resource acquisition strategies. Hence, it is imperative for every business model to thoroughly account for how it will generate income to avoid potential pitfalls.
What are Revenue Streams?
Revenue streams encompass diverse sources of income from which an organization generates revenue by either selling goods, providing services, or a combination of both. These revenue sources can vary in nature, being either recurring, transaction-based, project-based, or a mix of different types, depending on the specific nature of the organization’s business operations.
Think hard about the possible pricing mechanisms per Revenue Stream. Surprisingly, pricing can often be a source of differentiation! Pricing mechanisms can include auctioning, bargaining, fixed-list prices, market- or volume-dependent prices, or yield management.
A Business Model can also involve transactional revenues resulting from one-time customer payments (e.g., a sale) or recurring payments (e.g., a subscription). In the context of the Revenue Model, think also about any other benefits you may be getting. Not all value is monetary!
Importance of Revenue Streams
It’s a matter of good business to reflect upon how your company generates cash and other revenues, and the full leveraging of revenue streams is only possible when you take a full accounting of your entire business model.
Each customer segment that you develop provides one or more revenue streams, each of which needs to be considered. It’s a lot of work, analyzing each revenue stream to make sure that you’re being properly compensated for the value you provide. But without revenue, clearly, a business cannot succeed.
Revenue streams are crucial for the success and sustainability of any business. Here are the key reasons why revenue streams are important:
1. Financial Stability and Growth: Revenue streams serve as the lifeblood of a business, providing essential funds to cover operational expenses, invest in growth opportunities, and foster innovation. Diversified revenue streams can mitigate risks and create a more stable financial foundation.
2. Business Viability: A reliable source of revenue is critical for a business’s long-term survival. Revenue streams ensure that a company can sustain its operations, deliver value to customers, and remain competitive in the market.
3. Flexibility and Adaptability: Having multiple revenue streams equips a business to adapt to changes in the market, customer preferences, and economic conditions. If one revenue stream is affected negatively, others can continue to support the business.
4. Competitive Advantage: Unique and innovative revenue streams give a company a competitive edge by differentiating it from competitors. Attracting customers with distinct offerings can lead to increased market share.
5. Customer-Centric Approach: Diverse revenue streams enable businesses to cater to different customer segments. Understanding varied customer needs and preferences allows a company to tailor products or services, enhancing customer satisfaction.
6. Revenue Optimization: Understanding the performance of each revenue stream enables a business to identify opportunities for optimizing pricing, distribution, or marketing strategies. This leads to more efficient revenue generation and increased profitability.
7. Long-Term Sustainability: Businesses with strong and varied revenue streams are better positioned to thrive in the long term. A sustainable revenue model enables a company to weather challenges and maintain steady growth over time.
8. Investment and Stakeholder Confidence: Multiple revenue streams attract investors and stakeholders, showcasing a robust and resilient business model. Backing a company with a diversified revenue portfolio is more appealing to potential investors.
9. Innovation and Growth Opportunities: Exploring new revenue streams drives innovation within a business. Seeking untapped markets or developing complementary products/services unlocks new growth opportunities.
10. Funding for Research and Development: Revenue streams provide vital financial resources for research and development efforts. Continuous improvement of offerings helps a company stay ahead of the competition and meet evolving customer demands.
At Digital Leadership, we see companies struggle to turn great ideas in ongoing revenue generation. This is truly one of the most difficult facts that all business analysts face. An entrepreneur might have good ideas, customer demand may be robust, but these great services and products will cease to be available if a solid revenue stream cannot be developed. We provide Business Model Strategy and Marketing Strategy Consulting services which allows a company to identify and assess potential risks and develop appropriate mitigation strategies. By understanding its revenue streams, cost structures, and customer segments, a company can proactively identify vulnerabilities and develop contingency plans. We enable businesses to create targeted marketing campaigns, leverage digital channels, and maximize their marketing return on investment By leveraging Our expertise, businesses can develop effective business model strategies that align with their goals and target audience.
The Main Categories of Revenue Streams
We divide the key concepts here in two main categories of revenue streams: transaction revenue and recurring revenue. Strong businesses have many ways of generating income, and the business that relies on merely one revenue stream risks oblivion with that revenue stream dries up.
|Revenue Stream category||Description||Advantages||Drawbacks|
|Transaction-Based Revenue Streams||Involves one-time customer payments for goods or services.|
Typical and straightforward way of generating income.
|– Clean Sales Revenue: Easy tracking and recording of individual transactions.|
– Flexibility in Price Adjustments: Prices can be adjusted based on demand, optimizing profits.
– Personal Connection with Customers: Opportunities for building strong relationships.
|– Potential for Breakdowns: Each transaction requires active involvement from employees, increasing the risk of errors.|
– Price Deterioration: Fierce competition can lead to reduced profit margins as businesses try to attract customers.
|Recurring Revenue Streams||Involves ongoing charges that customers pay for continuing services or after-sale support.|
Can include subscription fees, service contracts, rental income, interest revenue, etc.
|– Low-Friction Collection: Revenue collected through subscriptions or contracts, reducing effort for payments.|
– Predictability: Revenue predictions become more reliable with contractual terms, aiding in better financial planning.
– Stable Income: Provides consistent and predictable earnings, offering financial stability to the business.
|– Customer Relationship Impact: Relying solely on recurring charges may reduce customer engagement compared to one-time transactions.|
– Competition: Competing businesses may try to attract customers away from existing arrangements, leading to customer churn.
|Balancing Revenue Streams:||Successful businesses diversify revenue streams with both transaction-based and recurring models.|
This diversification mitigates risks and provides stability during market fluctuations.
|– Capture Immediate Sales Opportunities: Transaction-based revenue secures immediate sales.|
– Build Long-Term Customer Loyalty: Recurring revenue models foster lasting relationships with customers.
|– Achieve Long-Term Customer Loyalty: Recurring revenue builds loyalty and steady cash flow.|
– Ensure Stability During Market Fluctuations: A diversified approach provides stability during uncertain market conditions.
Types of Revenue Streams
Revenue is a key performance indicator for nearly every business model. Understanding the different revenue streams and the way a business earns money is important as the business prepares for or considers the implementation of innovation.
Successful businesses rarely have a single revenue stream. Employing multiple revenue streams hedges your bets in case part of your operation fails or the business environment changes.
We identify six different revenue streams you might be able to leverage in your business. Again, having the chance to draw revenue from multiple revenue models will always provide your strongest chance of success. Revenue models and other important concepts behind business transformation strategy are further discussed in our new book, How to Create Innovation, which you can download through the Digital Leadership website.
Revenue streams are the various sources of income through which a business generates revenue. They can be classified into different types based on the nature of the income source. Here are the main types of revenue streams:
Main Types of Revenue Streams
|Asset Sale||Customers pay for a one-time purchase of a good or service. It provides a straightforward revenue source, but may not be sustainable in the long term.|
|Usage Fees||Customers pay for access to a service, leveraging existing infrastructure for ongoing revenue generation. Commonly used in industries like hotels, package delivery, and coworking spaces.|
|Renting, Leasing & Lending||Customers pay for temporary use of an asset for a fixed period. Companies generate revenue while customers incur limited charges. This model is used by car rental companies and other businesses offering temporary access to assets.|
|Subscription Fees||Customers pay a recurring fee for continuous access to a service. Offers a reliable and predictable revenue stream, with examples like gym memberships and streaming services.|
|Brokerage Fees||Customers pay for services provided by a mediator who facilitates transactions on their behalf. Brokers earn a fee based on the transaction value. This model is common in real estate and credit card merchant services.|
|Advertising Fees||Clients pay for marketing products and services. Marketing agencies create advertisements and messaging that reach potential customers through various channels.|
Other Types of Revenue Streams
|Licensing or Franchising||Revenue earned by allowing others to use your brand, technology, or business model through licensing or franchising agreements.|
|Data Sales||Income derived from selling valuable data or analytics insights to other businesses or researchers.|
|Affiliate Marketing||Earnings through commissions for promoting and referring customers to other products or services.|
|Royalties||Income generated by licensing the use of intellectual property, such as patents, trademarks, or copyrighted content.|
|Rental or Leasing||Revenue obtained by renting or leasing out assets, such as property, equipment, or vehicles.|
|Crowdfunding||Funds raised from a large number of individuals or investors who contribute to a project or business idea.|
|Consulting or Professional Services||Income earned by providing expert advice or specialized services to clients.|
|Freemium Model||Offering a basic version of a product or service for free and charging for premium features or upgrades.|
|One-time Purchase||Revenue from one-time sales of products or services without ongoing commitments.|
|Commission-based||Earnings from a percentage of sales made as a mediator or intermediary between buyers and sellers.|
|Sponsorship or Partnerships||Revenue obtained by partnering with other businesses or sponsors to promote their products or services.|
|Licensing Content||Earnings from licensing content, such as articles, videos, or images, to third parties for use on their platforms.|
|Events or Ticket Sales||Revenue from hosting events or selling tickets for conferences, shows, or workshops.|
|Donations||Income received through voluntary contributions from individuals or organizations supporting a cause or project.|
Revenue Stream Examples
1- Transaction-based revenue:
This stream is generated from one-time customer payments resulting from the sales of goods or services.
- E-commerce sales: Revenue generated from online sales of products to individual customers.
- Retail store sales: Proceeds from in-store purchases made by customers.
- Ticket sales: Revenue obtained from selling tickets for events, concerts, or shows.
- App purchases: Income from customers buying mobile applications from app stores.
2- Service revenue:
Revenues are earned by providing services to customers, typically calculated based on the time spent, such as hourly consulting fees.
- Consulting services: Earnings from providing expert advice and guidance to clients.
- Legal services: Revenue generated by offering legal advice and representation to individuals or businesses.
- Accounting services: Income earned from providing accounting and financial services to clients.
- Personal training sessions: Fees charged for offering one-on-one fitness training to clients.
3- Project revenue:
Earnings are derived from one-time projects with both existing and new customers, where the revenue is linked to the successful completion of the project.
- Construction projects: Earnings from one-time construction projects, such as building a house or office.
- Website development: Revenue from developing websites for clients.
- Event planning: Income earned by planning and organizing one-time events for businesses or individuals.
- Marketing campaigns: Fees charged for executing marketing campaigns on behalf of clients.
4- Recurring revenue:
This is a vital revenue model frequently adopted by businesses as it offers predictability and a consistent income source. It encompasses ongoing payments from customers for continued services or after-sale support.
- Software as a Service (SaaS) subscriptions: Earnings from ongoing monthly or yearly fees for access to software applications.
- Membership fees: Revenue from monthly or annual membership fees for exclusive access to services or benefits.
- Property rental: Income obtained from renting out properties to tenants on a regular basis.
- Maintenance contracts: Fees charged for providing ongoing maintenance and support services to customers.
How to choose your Revenue Streams
Choosing the right revenue streams is vital for the success of your business. Here’s more information about each step:
- Define your unique value proposition: Clearly articulate what sets your products or services apart from competitors. Understand how your offerings address customers’ pain points and fulfill their needs better than alternatives.
- Understand your target audience and their needs: Identify your ideal customers and thoroughly comprehend their preferences, behavior, and challenges. Tailor your revenue streams to align with their specific requirements.
- Research market opportunities and assess profitability: Analyze the market landscape to spot potential revenue streams. Evaluate the revenue-generating potential of each option and weigh it against associated costs to ensure profitability.
- Diversify revenue sources to mitigate risk: Relying on a single revenue stream can be risky. Implement multiple streams to create a balanced income portfolio, reducing vulnerability to market fluctuations or changes in customer behavior.
- Prioritize customer value and embrace technology: Place customers at the center of your revenue strategy. Continuously enhance the value you provide to them and leverage technology to optimize sales processes and customer interactions.
- Monitor competitors and be agile in adapting to change: Keep a close eye on your competitors’ revenue approaches. Stay flexible and adapt quickly to market shifts or emerging trends, ensuring your revenue model remains relevant and competitive.
Pricing Mechanism in Revenue Streams
Pricing mechanisms play a critical role in revenue streams within a business model. The pricing strategy directly impacts how much revenue a business can generate from its products or services. Different pricing mechanisms are closely linked to specific revenue streams and can influence the overall financial performance of a business. Here’s how pricing mechanisms relate to revenue streams in a business model:
|Pricing Mechanism||Description||Relation to Revenue Streams||Example|
|Fixed Pricing Mechanism||Involves setting predetermined and non-negotiable prices for products or services. Customers pay the same amount for a specific item regardless of external factors.||Commonly associated with one-time sales or transactions.||A retail store selling electronics at fixed prices earns revenue from each product sold at the listed price.|
|Dynamic Pricing Mechanism||Adjusts product prices in real-time based on factors such as demand, market conditions, or customer behavior. Prices can fluctuate to optimize revenue and adapt to changing circumstances.||Well-suited for revenue streams involving ongoing sales or services.||An airline using dynamic pricing can generate varying revenue from seat sales by adjusting prices according to demand and flight availability.|
|Product Feature Dependent||Offers different price points for variations of a product or service, each with unique features or capabilities. Customers choose the option that best suits their needs, preferences, and budget.||Associated with revenue streams where customers have choices and preferences.||A smartphone manufacturer offering different models with varying features at different prices generates revenue based on customers’ preferences.|
|Customer Segment Dependent||Involves setting different prices for various customer groups based on specific characteristics or demographics. Allows catering to diverse customer preferences and behaviors.||A software company offering discounts to students or non-profit organizations generates revenue based on sales to these targeted customer segments with tailored pricing.||In the competitive music streaming market, one company stands out with a customer segment-dependent pricing strategy. They offer tailored plans at different price points to cater to individual users, families, students, and audiophiles. This customer-centric approach attracts a diverse audience and drives sustainable revenue growth, making them a prominent player in the industry.|
|Volume Dependent||Adjusts prices based on the quantity or volume of items purchased. Customers are offered discounts or incentives for larger quantities.||Impacts revenue streams where customers are charged differently based on volume.||A wholesale supplier offering discounted prices for bulk purchases generates revenue based on the volume of goods sold to customers.|
Revenue Model Framework
Your capabilities are the processes, systems of knowledge, and specific skills that a firm possesses based on which it operates, earns revenue, and competes with other firms.
In Digital Leadership’s eXtended Business Model Canvas, Revenue streams and the Revenue Model play a significant role in business innovation. More information about this canvas, and many other business model canvas suggestions and work-throughs, are available on the Digital Leadership website, and in the book How to Create Innovation.
Final Thoughts: Questions for Reflection
In closing, understanding your various revenue streams, and developing multiple revenue streams, is vital in securing your company’s future. If there are types of revenue streams your company hasn’t considered, we urge you to consult with innovation experts so you can advance your current business model.
Some of the questions we’d explore are listed below. If you can’t answer all of them, there’s a chance you don’t completely understand how your company generates revenue.
We’d love to explore it with you.
- How do we earn money?
- What are our revenue streams?
- For what value are our customers really willing to pay?
- How much are our customers currently paying to satisfying this JTBD?
- What are the main substitutes for our product?
- How much does each revenue stream contribute to overall revenue?
- What other benefits are we getting?
Revenue streams are fundamental elements in a business model that determine how a company generates income. The diversity of revenue streams is crucial for business success, as it allows companies to mitigate risks and adapt to changing market conditions. Transaction-based revenue streams offer straightforward and adjustable income, while recurring revenue streams provide stable and predictable earnings. Businesses must carefully consider their revenue models and pricing mechanisms to ensure they attract enough customers and sustain long-term profitability. By understanding the various revenue streams and their connection to customer needs, companies can proactively develop effective strategies, optimize their revenue generation, and secure a prosperous future in today’s competitive landscape.
Frequently Asked Questions
1. What are the revenue streams business model canvas questions?
The revenue streams section of the Business Model Canvas addresses the ways a company generates income from its products or services. To identify and analyze revenue streams, consider the following questions:
- a. What is the main source of revenue for your business? Identify the primary way your business makes money.
- b. Who are your customers? Define your target audience and understand their needs.
- c. What value do you offer your customers? Identify the unique benefits your products or services provide.
- d. How do customers pay for your products or services? Determine the pricing strategy and payment methods.
- e. Are there different customer segments? Explore if you have different groups of customers and whether they generate revenue differently.
- f. Do you have multiple revenue streams? Investigate if your business generates income from various sources.
2. How do you calculate revenue stream?
To calculate revenue stream, multiply the number of units sold or services rendered by the price per unit. The formula for calculating revenue is:
Revenue = Number of Units Sold (or Services Rendered) × Price Per Unit
For example, if a company sells 100 units of a product at $50 each, the revenue from that particular revenue stream would be:
Revenue = 100 units × $50 per unit = $5,000
3. How do you create 4 revenue streams?
- Product and Service Diversification: Expand your offerings by developing a variety of products or services that target different customer needs. This approach allows you to reach a broader customer base and increases the chances of generating more revenue.
- Subscription Model: Implement a subscription-based revenue stream where customers pay a regular fee to access exclusive content, features, or ongoing services. This recurring income can provide stability and predictable cash flow.
- Licensing and Franchising: Explore opportunities to license your technology, brand, or business model to other companies. Alternatively, consider franchising your business to enable others to replicate your successful model under your brand.
- Affiliate Marketing and Partnerships: Generate additional revenue by collaborating with other businesses through affiliate marketing. By promoting their products or services and earning commissions for successful referrals, you can capitalize on complementary offerings without direct competition.
4. How do you write revenue stream in the business model canvas?
In the Business Model Canvas, the revenue stream is represented in the “Revenue Streams” block. When writing your revenue stream in the canvas, be clear and concise. Include the key components of your revenue generation strategy, such as:
- Main Revenue Source: Describe your primary source of income, whether it’s from product sales, service fees, subscriptions, licensing, etc.
- Customer Segments: Specify the customer groups that contribute to each revenue stream.
- Pricing Mechanism: Explain how you determine the price of your products or services.
- Value Proposition: Connect the revenue stream to the value your products or services provide to customers.
5. What is an example of revenue streams for a small business?
- Product Sales: Imagine a small business called “Artisan Treasures” that sells handmade crafts, such as unique pottery, handwoven textiles, and artisanal jewelry. They operate both a charming brick-and-mortar store in a local market and an online e-commerce platform, allowing customers from around the world to purchase their one-of-a-kind products.
- Service Fees: Consider a small graphic design agency named “Creative Solutions.” They offer a variety of services to clients, including logo design, branding packages, and marketing collateral. Clients pay the agency service fees based on the scope and complexity of the design projects they undertake.
- Subscription Model: “FitLife Fitness” is a small boutique gym that offers personalized workout plans, nutrition guidance, and exclusive fitness classes. They have a subscription-based revenue stream, where members pay a monthly fee to access premium content, participate in specialized classes, and receive personalized fitness coaching.
- Freemium Model: “TechMaster Software” is a small tech startup that develops a video editing software. They offer a free version of the software with basic editing features, attracting a large user base. To access advanced features like special effects and high-resolution exporting, users can opt for a paid upgrade, generating revenue for the company.
- Affiliate Marketing: Let’s take an example of a small lifestyle blog called “TrendyExplorer.” The blog features articles on fashion, travel, and beauty. They partner with fashion and travel companies as affiliates, promoting their products and services through the blog. When readers make purchases or bookings through the provided affiliate links, the blog earns commissions.
6. What are the revenue streams of Coca-Cola?
Coca-Cola has multiple revenue streams that contribute to its overall income. Some of its key revenue streams include:
- a. Beverage Sales: Revenue generated from selling Coca-Cola’s diverse range of beverages, including Coke, Diet Coke, Sprite, Fanta, and others.
- b. Bottling Partnerships: Coca-Cola licenses its products to bottling partners worldwide, earning revenue through royalties and supply agreements.
- c. Branding and Trademark Licensing: Coca-Cola licenses its brand and trademarks for use in various products, merchandise, and marketing campaigns.
- d. Fountain Sales: Revenue from selling beverages to restaurants, cinemas, and other establishments through fountain dispensers.
- e. Advertising and Sponsorships: Income generated from advertising its products and sponsoring events, sports, and entertainment.
7. What is the difference between revenue model and revenue stream?
The difference between a revenue model and a revenue stream lies in their scope and focus within a business’s overall revenue generation strategy
|Revenue Model||Revenue Stream|
|The overall approach a business takes to generate income||The specific source or channel through which revenue is earned|
|Describes the strategy for maximizing revenue generation||Represents the individual “how” of making money|
|Examples include subscription-based, pay-per-use, etc.||Examples include product sales, licensing fees, advertising, etc.|
|Typically outlined in the business plan or strategy||Part of the Business Model Canvas or revenue model section|
Connecting The Dots: The UNITE Business Model Framework
How to Create Innovation includes a number of canvases that focus on value creation and finding the right business model to meet your customer segment and customer needs. The framework is built to inspire drastic changes that help you find a competitive advantage. Our hope is that your company grows through business model innovation, and so we again encourage you to look deeper into our website and the book.
Here is a summary of the key ingredients of the framework:
The centerpiece is the Business Model Canvas, which covers the six main areas of a Business Model (the Operating, Value, Service, Experience, Cost, and Revenue Models).
A Business Model can be broken out into its numerous aspects. Depending on what challenges you face, you can zoom in on your area of interest using an appropriate tool or canvas:
- Your Business Intention and objectives as well as your Massive Transformative Purpose summarize your drivers and give direction to what you do.
- The Value Proposition Canvas details the central components of your offering (the product or service).
- To dig into your Customer Segments, work with data-driven Personas.
- The JTBD Customer Job Statement and Job Map frame the JTBD of your customers.
- The Business Model Environment puts your Business Model in a market context composed of emerging trends and disruptive forces.
- The Innovation Culture Canvas helps you understand and consciously shape a culture that supports innovation.
- The Innovation team structure enables you to draft a team structure for your innovation initiative.
- Using learning and growth metrics, you can measure progress at the initial stages of development. These metrics help you focus on what really matters instead of creating a detailed business plan that will not really help you. Later on, you can expand the financial aspect of the Revenue and Cost Models with a full business case.
- The Operating Model Canvas helps you think through the Operating Model.