7 Revenue Models that Startups Need to Know
One of the most important things to financially secure your business is to clearly define your revenue model. The revenue model will help you understand where and how revenue comes from. Here are 7 Revenue Models that you can refer to for a Startup:
Product or service is free, revenue comes from advertising for startups
This is a common model among technology startups today, such as Facebook’s model, where services are free and revenue comes from advertising through clicks. This brings many benefits to customers, but it is not easy for Startups, because you have to build a relatively large number of users, accept low profits in the short term, and have enough potential to grow. for a long time.
The product is free but a service fee is charged
In this model, the product is given away for free and the customer has to pay for the installation, customization, user training, and accompanying services…
A good example of this model is a game product: You can download the games you like for free, but if you want to pass the levels and get to the top quickly, you have to pay to buy items and outstanding features. … This is a good revenue model but you need to keep in mind that it is essentially a service business model in which the product is charged as part of the marketing costs.
This is a variant of the free model of products and services used by some startups like LinkedIn. In this model, the basic products and services are free, but if you want to use more advanced products and services, you have to pay an additional fee.
While Skype allows free voice service for users (with pretty good quality) and charges for Premium services (Voice over the Internet), Flickr offers free photo uploads for a large number of users. The maximum is 200 photos and the size is no more than 20 MB/month, and if you upgrade to Pro, users can upload unlimited photos.
This “Freemium” model also requires a large investment to get the required number of users, and must make customers realize their benefits when using premium services over basic services.
In this traditional product pricing model, the price is set at 2 to 5 times the cost of the product. If your product is a single item, the profit margin can be as high as 10%. The goal of this model is to reduce production costs to a minimum and compete by pricing strategy, to earn the highest profit. The advice is to use this model when you have technology that can keep production costs low, and ignore this model when there are too many competitors in the market.
You can read the previous article here: Starting a Business and How to Start a Successful Business
Value-added model for startups
This model emphasizes providing products and services to meet the needs of current and potential customers by creating useful products, and providing services that satisfy customers. . However, this model has the potential to increase costs and reduce profits if it fails to calculate the correct price commensurate with the value transferred to customers.
Category pricing model
Suitable if you have many products and services, each with different fees and utilities. With the diversification of products, and offering different prices, your revenue will come from more sources, and the risk ratio is also lower. Here, your goal is to make a profit with different product lines, some in the high-end market, some in the low-end market, depending on competitors, value delivered, customer loyal…
This model is understood to initially sell a product at a low price to generate revenue from the additional products it requires to be bundled. The term is derived from the classic example: selling cheap razors to get revenue from selling blades. Another example, in the printing industry, printers are sold at a low price to generate revenue mainly from selling ink cartridges in bulk.