Revenue stream

A revenue stream is a form of revenue. It is considered one of the building blocks of a business model canvas, that reveals the earning a business makes from all the methods by which money comes in.^[1] Revenue streams may be characterized. For example, a revenue stream has volatility, predictability, risk, and return. In sum, a revenue stream is a way of categorizing the earnings a company makes.

Business Model Canvas

Revenue Streams are one of nine building blocks an organisational business model canvas combines. The other eight being Customer Segments, Value Propositions, Channels, Customer Relationships, Key Resources, Key Activities, Key Partners and the Cost structure. These nine building blocks are commonly mapped out on a pre-structured canvas, called the business model canvas. This tool can help businesses map, discuss, design and invent new business models.^[2] The revenue streams clarify how and through what pricing mechanisms a business generates earnings.

Types of revenue streams

On a basic level, a revenue stream is generally made up of one of the following revenue models. Revenue models can be more or less desirable based on how much effort a business needs to invest.

Recurring

Recurring revenue is a more predictable type of revenue. This means, the business has reasonable assurance, the revenue will occur at regular intervals. An example of this are monthly phone plans. Unless the contract is broken or the customer does not pay, the phone business can count with the monthly revenue. Recurring revenue streams are initially harder to implement but are more economical in the long run.^[3]

Transaction Based

These revenues based on predictable sales of goods.^[4] Revenue is earned by a transaction from a customer. A customer in a clothing store, buying a new jacket, generates a transaction based revenue. This type of revenue is often considered less attractive than the recurring model because an action is required to attract customers.

Project Revenue

These are revenues generated through one time projects. Companies that rely entirely or largely need to invest a lot of effort into maintaining customer relationships. In this type of model, revenue is hard to predict, because it is hard for a business to know what lies further down the road.^[4]

Service Revenue

This is the least attractive revenue model, because while the other three models sell goods, this models essentially sells time.^[4] The service revenue model is often used in combination with one of the other models. An example of service based model are consulting firms. The offer their advice and commonly charge per hour.

Generating Revenue Streams

The following are methods by which revenue streams can be created by a business.

Asset Sale

An asset sale is completed, when the buyer acquires the assets dropped by a company.^[5] An example of an asset sale is when a shoe store sells a pair of shoes to a customer. By doing this, the shoe shop sells the ownership rights^[1] to the buyer, giving him complete freedom over what to do with the pair of shoes. This type of revenue belongs to the transaction based revenue.

Subscription fees

A company sells the repeated access to a product or a service.^[6] Mobile phone companies for example, generally sell their phone service through a monthly subscription plan. This model was pioneered by magazines and newspapers. This model is desirable because often a contract binds the customer to pay for the offered product or service. This means, a company can make a much more precise revenue forecast. This revenue stream belongs to the recurring revenue model.

Lending / Leasing / Renting

This sort of revenue is made by giving someone access to an asset, which can be a product or a service.^[7] The key difference to a subscription fee is that this asset still belongs to the company. Common examples include car rentals or hardware leasing. This revenue stream also belongs to the recurring revenue model.

The above-mentioned are only some of the most popular revenue streams. With the growth of the internet, companies are beginning to look for new internet based revenue streams.

Industry Example

An example of how businesses are managing to create new revenue streams without substantial capital investment,^[8] can be found in gastronomy. Restaurant managers and planners are beginning to offer multiple lines of service as apposed to opening new restaurants. One of these services is catering. Offering a catering service does not require the huge amount of investment, opening a new restaurant does. Also catering attracts an entirely new customer base. This allows restaurants to increase the number of revenue streams without needing large investments.^[9]

See also

• Pricing mechanism

References