Your startup’s revenue model should be able to tell potential investors and lenders that your business is feasible and worth standing behind. Startups are strapped for cash, and certain revenue models can help them earn more than others. Given the weight of this decision, it helps to look at the revenue models currently making successful startups into successful companies. Here are the top five revenue models shown to maximize earning potential for startups.
1. Ad-Based Revenue Model
An ad-based revenue model is the best choice for tech startups providing a free service on a website or mobile app. While this model requires driving a lot of traffic to acquire a large user base, it has a high earning potential with the right marketing strategies in place. Also, if you provide entertainment or news content, whether written or video, ads are a great way to monetize your content.
2. Transactional Model
The most basic and traditional format for business, a transactional revenue model entails making a sales transaction for a product or service. It could be a face-to-face sales transaction at a brick-and-mortar business. Or, it could be an online transaction for a product sent in the mail or information delivered digitally.
3. Commission-Based Revenue Model
A commission-based revenue model lowers overhead costs for brand new startups. Instead of hiring in-house employees to push sales, they can give sales reps a commission on the sales they make.
This also benefits the entrepreneurs who want the freedom and flexibility of running their own business, but need support getting started. For example, with its direct selling model, Amway’s Independent Business Owners sell Amway products directly to customers without having to worry about manufacturing, packaging, etc. Sometimes accused of being a scam, Amway is not a pyramid scheme and neither is this tested revenue model.
4. Subscription Model
A subscription model, in which customers pay to receive products or a service month after month, helps startups establish stability by leveraging customer loyalty. However, it can be tricky, since staying afloat depends on keeping your subscribe rate higher than your unsubscribe rate month after month.
Subscription revenue models can work whether you sell a physical product, digital product or service. For example, the Atlas Coffee Club is an online subscription box company that brings customers hand-picked coffee from destinations around the world. Subscription models also work well for Software as a Service (SaaS) companies because they can bill their users a monthly rate for using their software.
5. Freemium Model
The freemium model is great for apps, SaaS companies and other tech startups with limited marketing budgets. Create a free version of your platform or software that gives users enough access to truly benefit from it. Market the free version of your software to targeted customers and incentivize them to share it with others. Collect user feedback and reviews from the free version, and then convert as many free users as possible to the paid users of a premium version that offers more features.
The Choice is Yours
As a brand new company, you have to determine how you want to cash in on your consumer base. Take a look at the revenue models the most successful competitors in your industry are using. Then, assess which would be the best fit for your startup considering the target customer and the product or service you’re offering. The best revenue model for your startup is ultimately one that keeps you afloat but also appeals to your target customer.
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