In the Business Model Canvas, the Revenue Streams building block details the way a business intends to solve customer problems for financial gain. Revenue streams represent the various ways a business generates cash from each customer segment.
Table of Contents
Understanding revenue streams in the Business Model Canvas
In determining revenue streams, the business must answer the following questions:
For what value are customers ultimately willing to pay? This is determined by how big a problem is in their life.
How much does each revenue stream contribute to overall revenue in terms of percentage contribution?
How do customers prefer to pay? In other words, how will these preferences influence the revenue stream(s) chosen?
There are two types of revenue streams. The first is a transaction-based stream, where customers make a one-time payment for a product or service. The second is a recurring stream, where customers make continuous payments to maintain access to the product or certain product features.
Note that this section of the Business Model Canvas represents the cash the company generates – not the profit.
Revenue stream pricing mechanisms
Pricing mechanisms refer to the impact of pricing on the expected supply and demand of a product. Each company revenue stream can have its own pricing mechanism, which can be divided into two types.
1 – Fixed pricing
Fixed pricing mechanisms have predefined prices based on a static set of variables. Examples include:
List price
Where prices are fixed and non-negotiable. The main courses on a restaurant menu are list price. Every diner pays the same amount for the same dish.
Product feature dependent
Here, the price depends on product quality or value proposition features. Organic foods tend to attract a higher price than their non-organic equivalents.
Customer segment dependent
Where the price is determined by a customer segment. Some businesses offer discounts to seniors or those with a qualifying membership card.
Volume dependent
Where the price is a function of the volume purchased. Costco shoppers who purchase in bulk tend to be charged less per item than customers who shop in traditional supermarkets.
2 – Dynamic pricing
Dynamic pricing mechanisms, on the other hand, change according to fluctuating market conditions.
There are also four types in this category:
Yield management
Product pricing is determined by inventory levels at the time of purchase.
Yield management is a feature of airline and hotel reservation systems, with prices fluctuating according to supply and demand.
Negotiated pricing
Where the buyer and seller negotiate a mutually beneficial price. Negotiation is often involved in the sale of a home or vehicle.
Real-time market
Prices are determined by broader supply and demand factors.
The stock market is perhaps the best example, with share prices based on the number of buyers and sellers at any given time.
Oil, iron, coal, uranium, and other commodity prices also fluctuate for the same reasons.
Auction
Where the price is determined by a competitive bidding process.
Revenue stream models
How are revenue streams generated? Let’s take a look at a few models below:
Asset sales
Where a company sells the rights to a physical product to consumers. Amazon and eBay are two examples.
Subscription fees
Which are paid by consumers for constant access to a product or service. Examples include Spotify and Netflix.
Usage fees
In this case, the company earns revenue based on how much a consumer uses its services. Pricing for smartphone contracts depends on how much data the customer desires.
Licensing
This involves a company charging customers access to copyrighted or patented intellectual property. Licensing is a common revenue stream in the music, sports, media, and technology industries.
Lending, renting, and leasing
As the names suggest, money is made by the company selling temporary access to its products or services for a set period.
Key takeaways
In the Business Model Canvas, the Revenue Streams building block details the way a business intends to solve customer problems for financial gain. These revenue streams may be transaction-based or recurring.
Revenue streams are based on fixed or dynamic pricing mechanisms, with both mechanisms influencing price via broad and sometimes more localized supply and demand factors.
Examples of revenue stream models include asset sales, usage fees, subscription fees, licensing, lending, renting, and leasing.
Key Highlights
Revenue Streams Definition: Revenue streams represent the different ways a business generates cash from its customers in exchange for the value it provides to them. It focuses on how the company plans to solve customer problems for financial gain.
Types of Revenue Streams: There are two main types of revenue streams: transaction-based and recurring. Transaction-based revenue streams involve one-time payments for products or services, while recurring streams involve continuous payments to maintain access to products or specific features.
Revenue Stream Pricing Mechanisms: Pricing mechanisms in revenue streams refer to how pricing affects the supply and demand of a product or service. Pricing can be fixed, with predefined prices based on static variables, or dynamic, changing according to fluctuating market conditions.
Fixed Pricing Mechanisms: Examples of fixed pricing mechanisms include list prices (non-negotiable prices), product feature-dependent prices, customer segment-dependent prices, and volume-dependent prices.
Dynamic Pricing Mechanisms: Dynamic pricing mechanisms change based on market conditions. Examples include yield management (pricing based on inventory levels), negotiated pricing (mutually beneficial price negotiation), real-time market pricing (based on broader supply and demand factors), and auction pricing (competitive bidding).
Revenue Stream Models: Revenue streams can be generated through various models, including:
Asset Sales: Selling physical products to consumers (e.g., Amazon, eBay).
Subscription Fees: Charging consumers for constant access to a product or service (e.g., Spotify, Netflix).
Usage Fees: Earning revenue based on consumer usage (e.g., smartphone contracts based on data usage).
Licensing: Charging customers for access to copyrighted or patented intellectual property (e.g., music, sports, media, technology).
Lending, Renting, and Leasing: Selling temporary access to products or services for a set period.
Case Studies
Company
Revenue Model
Case Study
Analysis
Netflix
Subscription-Based Model
Netflix’s subscription streaming service
Netflix relies on monthly subscription fees, providing access to a vast library of content with no ads.
Spotify
Freemium Model
Spotify’s free and premium music streaming
Spotify offers both free ad-supported and premium ad-free subscriptions, generating revenue from premium users and advertisers.
Amazon
E-commerce and Marketplace Model
Amazon’s online retail and third-party sellers
Amazon generates revenue through product sales, third-party seller fees, and Amazon Web Services (AWS).
Google
Advertising Model
Google’s online advertising, AdWords, and AdSense
Google earns revenue by displaying ads on its search results pages and partner websites.
Apple
Hardware and Ecosystem Model
Apple’s sale of hardware and services
Apple generates revenue from the sale of hardware (iPhone, Mac) and services (Apple Music, App Store).
Airbnb
Commission Model
Airbnb’s commission from host and guest bookings
Airbnb earns a percentage from hosts and guests for each booking facilitated on its platform.
Uber
Commission and Ride Fees Model
Uber’s commission from drivers and ride fees
Uber takes a commission from driver earnings and charges riders based on distance and time.
LinkedIn
Subscription and Recruitment Model
LinkedIn’s premium subscriptions and job postings
LinkedIn generates revenue from premium subscriptions, talent solutions, and marketing solutions.
Dropbox
Freemium and Subscription Model
Dropbox’s cloud storage and file-sharing
Dropbox offers free storage with premium subscriptions for additional features and space.
Facebook (Meta)
Advertising and Data Monetization Model
Facebook and Instagram’s advertising and user data
Meta earns revenue by displaying targeted ads to users and monetizing user data.
Etsy
Handmade and Artisanal Goods Marketplace
Etsy’s platform for artisans and crafters
Etsy provides a platform for artisans to sell their unique handmade products to a global audience.
Upwork
Freelance Talent Marketplace
Upwork’s platform for freelancers and clients
Upwork connects businesses with freelance talent for various projects, spanning from writing to programming.
eBay
Online Auction and Sales Marketplace
eBay’s platform for auctions and sales
eBay allows individuals and businesses to buy and sell a wide range of goods through auctions and direct sales.
Alibaba Group
B2B and B2C E-commerce Marketplace
Alibaba’s e-commerce and wholesale platforms
Alibaba connects global buyers and sellers, facilitating trade and e-commerce transactions on a massive scale.
Turo
Peer-to-Peer Car Rental
Turo’s platform for car owners and renters
Turo enables individuals to rent their vehicles to travelers, disrupting the traditional car rental industry.
Fiverr
Freelance Services Marketplace
Fiverr’s platform for freelance services
Fiverr offers a marketplace for freelancers to offer a wide range of services, from graphic design to content writing.
TaskRabbit
On-Demand Task and Service Marketplace
TaskRabbit’s platform for taskers and clients
TaskRabbit connects individuals with skilled taskers who can complete a variety of household and business tasks.
OpenTable
Restaurant Reservation Marketplace
OpenTable’s platform for restaurant reservations
OpenTable allows users to book restaurant reservations and helps restaurants manage their tables efficiently.
StockX
Sneaker and Collectibles Marketplace
StockX’s platform for sneakers and collectibles
StockX provides a marketplace for authenticated sneaker and collectible sales, ensuring transparency and trust.
Poshmark
Fashion Resale Marketplace
Poshmark’s platform for fashion resale
Poshmark connects fashion enthusiasts to buy and sell gently used clothing and accessories.
Thumbtack
Local Services Marketplace
Thumbtack’s platform for local service providers
Thumbtack helps users find and hire local service professionals, from plumbers to wedding photographers.
HomeAway (Vrbo)
Vacation Rental Marketplace
HomeAway’s platform for vacation rentals
HomeAway offers a marketplace for vacation rentals, connecting travelers with property owners.
Booking.com
Hotel and Accommodation Booking
Booking.com’s online travel agency platform
Booking.com enables travelers to book hotels and accommodations worldwide, serving as an intermediary between customers and hotels.
Zillow
Real Estate Marketplace
Zillow’s platform for buying and selling homes
Zillow provides tools for home buyers, sellers, and renters, simplifying the real estate process.
Freelancer.com
Freelance Job Marketplace
Freelancer.com’s platform for freelance jobs
Freelancer.com connects employers with freelancers to complete a wide range of projects, from software development to graphic design.
Rover
Pet Services Marketplace
Rover’s platform for pet care services
Rover connects pet owners with pet sitters and walkers, offering a range of pet care services.
99designs
Design Services Marketplace
99designs’ platform for design contests
99designs hosts design contests, allowing businesses to receive custom designs from a global community of designers.
WhatsApp
Subscription and In-App Purchases Model
WhatsApp’s subscription and in-app sticker purchases
WhatsApp offers a free messaging service with revenue generated from subscriptions and in-app purchases.
Patreon
Membership and Crowdfunding Model
Patreon’s support for content creators
Patreon allows creators to offer exclusive content to paying members, generating income through memberships.
Shopify
Subscription and E-commerce Model
Shopify’s e-commerce platform and subscription fees
Shopify offers e-commerce solutions and earns revenue through monthly subscription fees and transaction fees.
HubSpot
Inbound Marketing and SaaS Model
HubSpot’s inbound marketing and SaaS services
HubSpot provides inbound marketing and sales software on a subscription basis, generating recurring revenue.
Airbnb for Work
Corporate Travel and Service Fees Model
Airbnb for Work’s service fees for corporate travel
Airbnb for Work charges service fees for businesses booking accommodations and experiences.
Coursera
Online Education and Certification Model
Coursera’s online courses and specialization certificates
Coursera offers courses for free or as part of a subscription, with revenue generated from paid certificates.
Yelp
Advertising and Local Business Model
Yelp’s advertising and partnerships with local businesses
Yelp offers advertising and business solutions, generating revenue through partnerships.
LinkedIn Talent Solutions
Recruitment and Subscription Model
LinkedIn’s recruitment tools and premium subscriptions
LinkedIn Talent Solutions provides tools for talent recruitment and generates revenue through premium subscriptions.
Square
Payment Processing and Financial Services
Square’s payment processing and financial services
Square offers payment processing and financial services, earning revenue through transaction fees and subscriptions.
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.
This framework has been thought for any type of business model, be it digital or not. It’s a framework to start mind mapping the key components of your business or how it might look as it grows. Here, as usual, what matters is not the framework itself (let’s prevent to fall trap of the Maslow’s Hammer), what matters is to have a framework that enables you to hold the key components of your business in your mind, and execute fast to prevent running the business on too many untested assumptions, especially about what customers really want. Any framework that helps us test fast, it’s welcomed in our business strategy.
An effective business model has to focus on two dimensions: the people dimension and the financial dimension. The people dimension will allow you to build a product or service that is 10X better than existing ones and a solid brand. The financial dimension will help you develop proper distribution channels by identifying the people that are willing to pay for your product or service and make it financially sustainable in the long run.
This framework is well suited for all these cases where technology plays a key role in enhancing the value proposition for the users and customers. In short, when the company you’re building, analyzing, or looking at is a tech or platform business model, the template below is perfect for the job.
This framework is well suited to analyze and understand blockchain-based business models. Here, the underlying blockchain protocol, and the token economics behind it play a key role in aligning incentives and also in creating disincentives for the community of developers, individual contributors, entrepreneurs, and investors that enable the whole business model. The blockchain-based model is similar to a platform-based business model, but with an important twist, decentralization should be the key element enabling both decision-making and how incentives are distributed across the network.
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable business model.
The minimum viable audience (MVA) represents the smallest possible audience that can sustain your business as you get it started from a microniche (the smallest subset of a market). The main aspect of the MVA is to zoom into existing markets to find those people which needs are unmet by existing players.
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
The market expansion consists in providing a product or service to a broader portion of an existing market or perhaps expanding that market. Or yet, market expansions can be about creating a whole new market. At each step, as a result, a company scales together with the market covered.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
In the FourWeekMBA Revenue Streams Matrix, revenue streams are classified according to the kind of interactions the business has with its key customers. The first dimension is the “Frequency” of interaction with the key customer. As the second dimension, there is the “Ownership” of the interaction with the key customer.
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.
A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
