revenue-streams-business-model-canvas

Revenue Streams Business Model Canvas

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.

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:

  1. 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.
  2. 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.
  3. 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. 
  4. 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:

  1. 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.
  2. Negotiated pricing – where the buyer and seller negotiate a mutually beneficial price. Negotiation is often involved in the sale of a home or vehicle.
  3. 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.
  4. 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:

  1. Asset sales – where a company sells the rights to a physical product to consumers. Amazon and eBay are two examples.
  2. Subscription fees – which are paid by consumers for constant access to a product or service. Examples include Spotify and Netflix.
  3. 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.
  4. 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.
  5. 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.

Use Revenue Modeling Instead

revenue-model-patterns
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.
pricing-strategies
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.

Read: Revenue Model, Pricing Model.

Alternatives to the Business Model Canvas

FourWeekMBA Squared Triangle 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.

fourweekmba-business-model-framework
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.

FourWeekMBA VTDF Framework For Tech Business Models

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.

business-model-template
A tech business model is made of four main components: value model (value propositions, mission, vision), technological model (R&D management), distribution model (sales and marketing organizational structure), and financial model (revenue modeling, cost structure, profitability and cash generation/management). Those elements coming together can serve as the basis to build a solid tech business model.
Business Model Template - FourWeekMBA

Download The VTDF Framework Template Here

FourWeekMBA VBDE Framework For Blockchain Business Models

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.

vbde-framework
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.
VBDE Blockchain Business Model Template

Download The VBDE Framework Template Here

FourWeekMBA Business Toolbox

Business Engineering

business-engineering-manifesto

Tech Business Model Template

business-model-template
A tech business model is made of four main components: value model (value propositions, missionvision), technological model (R&D management), distribution model (sales and marketing organizational structure), and financial model (revenue modeling, cost structure, profitability and cash generation/management). Those elements coming together can serve as the basis to build a solid tech business model.

Web3 Business Model Template

vbde-framework
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.

Asymmetric Business Models

asymmetric-business-models
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.

Business Competition

business-competition
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

technological-modeling
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.

Transitional Business Models

transitional-business-models
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.

Minimum Viable Audience

minimum-viable-audience
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

business-scaling
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.

Market Expansion Theory

market-expansion
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.

Speed-Reversibility

decision-making-matrix

Asymmetric Betting

asymmetric-bets

Growth Matrix

growth-strategies
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).

Revenue Streams Matrix

revenue-streams-model-matrix
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 Modeling

revenue-model-patterns
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.

Pricing Strategies

pricing-strategies
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.

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