|14 April, 2019

Revenue models to sell and scale a start-up

Clearly defined goals, clearly defined routes and clearly defined revenue goals are ideas of past

A collective of UAE entrepreneurs has launched StartUpSchool.me, a free incubation initiative that gives back to the community by helping entrepreneurs fast-track new ideas into business success. The platform supports the UAE’s startup ecosystem by making it easier for people to tap into expertise, capital and mentorship to launch their own ventures. Image used for illustrative purpose.

A collective of UAE entrepreneurs has launched StartUpSchool.me, a free incubation initiative that gives back to the community by helping entrepreneurs fast-track new ideas into business success. The platform supports the UAE’s startup ecosystem by making it easier for people to tap into expertise, capital and mentorship to launch their own ventures. Image used for illustrative purpose.

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Startups are lucrative business models. Clearly defined goals, clearly defined routes and clearly defined revenue goals are ideas of past. Today's business is more about pivoting. Right from the idea stage to execution to growth, at every stage, today's business is designed to adapt to the ever-changing world around. Every second of our lives, someone is innovating something in some part of the world. Such a dynamic environment gives repeated opportunities to all business models to thrive and grow. Well the underlying idea is still the same. How do you make dough from your startup? Which revenue model to choose for your startup?

Regardless of how good your product, service, or app is, it's only useful when you can get it into the hands of your target customers. But once you've got a finalised offering, selling it becomes easy. There are countless factors that need to be considered when you set out to bring your product to market, like the industry you're in, whether you're selling a web-based product or physical hardware, the channels you use to attract your customers, etc.

Here are some of the most commonly used revenue models startups use to sell their offerings to help you pick the best revenue model for your company. There are numerous types of revenue models, so this list not exhaustive, especially since so many of them go by other names in the startup community. According to founder's Institute, below are ten of the most popular and effective revenue models employed by startups. 

Transactional revenue model

Countless companies, both tech-oriented and otherwise, strive to rely on the transactional revenue model, and for good reason. This method is one of the most direct ways of generating revenue, as it entails a company providing a service or product and customers paying them for it. Consumers are more attracted to this experience because of its simplicity and the wider set of options. Though the transactional revenue model means more competition and therefore, less money to made for everyone who uses this model. 

Ad-based revenue model

Ad-based revenue models entail creating ads for a specific website, service, app, or other product, and placing them on strategic, high-traffic channels. If your company has a website or you have a web-based company, Google's Ads is one of the most common tools get ads. Making money from ads is one of the simplest and easiest ways to implement revenue models, which is why so many companies utilise ads as a source of revenue. Whilst this is one of the revenue models but it cannot be the only revenue model in order to generate sufficient revenue to withhold a business. One may need to attract millions of users to generate revenue from ads only. In addition, most people find ads annoying, which can lead to low clickthrough rates, and therefore, lower revenue.

Affiliate revenue model

Another popular web-based revenue model is the affiliate revenue model, which works by promoting links to relevant products and collecting commission on the sales of those products. This model works in conjunction with ads or separately. One of the most obvious benefits of employing an affiliate revenue model is that it generally makes more money than ad-based revenue models. This revenue model is limited to the size of your industry, the types of products you sell, and your audience hence the reach of the model is limited. 

Subscription revenue model

The subscription revenue model is offering your customers a product or service that customers can pay for over a longer period of time, usually month to month, or even year to year. This model can generate recurring revenue. There are many products and services that we require on repeated basis. This method saves your customer from the hassle of ordering your product repeatedly.

Mostly this model ensures loyalty and repeated customers. Subscription sales is extremely popular among all products and services.Generally packed with free trials and promotional goodies, subscription is exponentially becoming a popular stream of revenue model.

Web sales

This is an offshoot of the transactional revenue model, in which a customer pays directly for a product or service, except that customers must first come to your company via a web search or outbound marketing and conduct transactions solely over the Internet. Web sales work with a wide variety of offerings, including software, hardware, and even subscription services. Subscription and web sales are though not effective on big ticket items, such as houses, appliances, and cars, you should consider employing a model that's more suited to your offering

Direct sales

Direct sales models work great with relationship sales cycles, enterprise sales cycles, or complex sales cycles that entail multiple buyers and influencers. The direct sales model often requires hiring a sales team, which means that it isn't optimal for small ticket price items. 

Channel sales (or indirect sales)

The channel sales model consists of agents or resellers selling your product for you and either you or the reseller delivering the product. The affiliate revenue model is a good companion model to this one, especially if your offering is a virtual product. The channel sales model is ideal for companies who have a product that's an incremental sale for their channel and can produce incremental profit.

Retail sales

Retail sales entails setting up a traditional department store or retail store in which you offer physical goods to your customers. Keep in mind that the retail sales model will require shelf space. Retail sales is a great way to offer deals and complimentary products to an existing customer base to help boost brand awareness, but it is not ideal for early stage companies, or companies that offer digital products like software or apps. 

Free product, but services aren't

This model is unique compared to others, in that you have to give your product away for free, yet require customers to pay for installation, customisation, training or other additional services. This model is great for building trust with your customer base and boosting brand awareness, as any company that offers anything for free will generate considerable buzz. Remember, employing this model means that you are basically running a services business with the product as a marketing cost. Also, a model like this isn't always the best for scaling your company in the long term, so keep your eye on additional revenue models to utilise later on. 

Freemium model

The freemium model is one in which a company's basic services are free, yet users must pay for additional premium features, extensions, functions, etc. One of the biggest companies to use this model is LinkedIn, the most popular business/social media platform. Similar to the previous model, the freemium model offers something free to users, which is a great way to give them a taste of your product   This model requires a considerable investment of time and money to reach out to your audience, and even more effort to convert free users into paying customers.

Commonly two or more business revenue models are chosen to ensure sales, scaling and sustainability of the business. Understanding where your company fits in at the start of business is vitally important.

The writer is an entrepreneur and financial planning consultant. Views expressed are her own and do not reflect the newspaper's policy. 

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