4 Revenue Models & Examples for Small Businesses
One of the first things any new entrepreneur has to think about, is “how will I make money?”. In other words, your revenue model. So here is an easy guide to the top 4 revenue models, and revenue model examples, for your new bud of a business:
Recurring revenue models
The recurring revenue model. It is every entrepreneur’s dream, but few will achieve it. It is often the most desired revenue model by businesses of all shapes & sizes. What makes recurring revenue so special? Two words: profit margins and revenue stability. Basically you create something one time, and it sells over and over again.
Good recurring revenue model examples include: Software as a Service. Even your cable company has a recurring revenue model.
Watch out though, the recurring revenue models take a lot of capital and time commitment upfront, without revenue. In other words, if you’d like to see your life savings go from great to nothing, go ahead & pick this model. But if you’ve got the persistence, go ahead and give it a shot. If it is however your first time, you might want to spend some time getting your feet wet in other models first.
Transaction revenue models
Transaction based revenue models are based on predictable sales of goods. They are a step below recurring revenue as far as profitability goes, but none the less…still very scalable.
Basically you have to produce something new each time in order to make a sale. Good transaction revenue model examples include: your groceries. They make a profit based on the sale of each unit. However, you buy a jug of milk…that company has to replace it with another jug of milk.
Project revenue models
Any one-time project is called a project revenue model. They could also fall into the category of services, although instead of using per hour time, they use per project, or flat fee. Companies reliant on project revenue have limited opportunity to build scale, face sporadic income (one month may be high, the next may be low), and must expend resources to maintain the relationships that keep their company alive.
They also need to continuously prove themselves to clients and prepare bids for subsequent projects.
Services revenue models
The last revenue model is services. While least attractive in terms of long term company growth, it is the easiest to maintain and is attractive to the entrepreneur just getting their feet wet.
Unlike the top three business models that sell goods, possibly in combination with service, the services revenue model essentially sells time. Time is easy to compete on, easy to negotiate down and cannot be leveraged. By implementing a services-based revenue model, a company’s income stream will tend to be highly uneven, and may also remain low compared to other models.
If you start your new business based on this revenue model, maybe try to make a project revenue model your next goal.