Revenue Streams

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The most important element of this section is to show how the company makes money. All investors want to know what the opportunities are for revenue and if founders have considered all possible avenues. Revenue streams have to be feasible, realistic and make sense for the kind of product/service the company is selling.

Twitch’s subscription tiers

Subscription

Usually sold on a monthly, annual and sometimes lifetime basis, subscription models are attractive to investors because of their recurring, predictable nature. Users pay for ongoing access to something such as a gym membership, productivity tool or on-demand entertainment service. There are often multiple subscription tiers with features and cost increasing with each higher tier.

B2B examples: Hubspot, Salesforce, GSuite
B2C examples: Fitness First, Netflix, Lumosity

Product/Asset Sales

The traditional way to make money – sell something for more than you pay for it or it costs you to build. Customers pay to acquire a specific product permanently, such as an iPad, clothes, a car.

B2B examples: IBM, Drug Companies
B2C examples: ASOS, Boots, Costa

Service Sales

The selling of units of human time and skill. Customers pay a company to complete a specific job that they are skilled and specialise in such as graphic design, plumbing and legal services. This kind of revenue stream is rarely attractive to investors as human time is finite and while the cost per hour can go up, it’s still not profitable on the scale that investors need to realise a return on their investment.

B2B examples: Branding companies, catering companies
B2C examples: Interior design companies, boiler repairs

Commission

Also known as a brokerage fee, this is where a company acts as middleman between someone who has a thing and someone who wants a thing, whether that’s a physical asset, time, skills or anything else. The company connects the buyer and seller and takes a cut out of the total sale. Investor interest in this type of revenue stream will depend largely on other elements such as the market size and the rest of the business model.

B2B examples: Freelancer.com, recruitment companies
B2C examples: AirBNB, Uber, real estate agents

Licensing

Can also be described as lending or leasing, this is where a customer pays to gain access to a product for an agreed but fixed period of time, after which the product is returned to the company. These products can be physical, digital or even intellectual.

B2B examples: Intellectual Property, manufacturing equipment, office space
B2C examples: Car hire, residential property rental, wedding venue

Advertising

Ad-based Models rely on earning money from advertising – no big surprise there! A site either sells advertising space, sells its own advertising service based on the data of its users, or integrates an ad service into content such as Google AdSense. Here, the vast majority of the users and target market are usually consumers, but the customers who buy the advertising space are other businesses, making these kinds of companies technically B2B, but with all the problems and challenges of B2C as well.

Examples include: Facebook, The Guardian online, YouTube

Affiliate Sales

An extension of ‘Advertising’ and ‘Commission’, affiliate marketing is where sites embed affiliate links from relevant companies and earn a cut from click-throughs that result in a sale. Sites may manually select these links from various companies or create accounts with companies such as Amazon Associates or Shareasale. See below.

Examples include: MoneySavingExpert.com, Nerdwallet, and Wirecutter.

With both advertising and affiliate revenue streams, a site needs to achieve extremely high levels of traffic in order to generate enough revenue to survive, let alone scale. As such, the content needs to be top quality and very useful to its visitors. Investments into companies where advertising is the predominant revenue stream are very risky and very rare, especially in the UK.

Things to note…

  • Companies may have multiple revenue streams
  • There are hundreds more ways to make money, but we’ve included the ones we see the most