11 different types of revenue models
There is no such thing as a perfect revenue model, but the popularity of some of the methods below suggests that many of them are well-tailored for the current state of the market. Here we’ll walk through each type of revenue model and when they may be most beneficial and applicable.
The subscription model is the “vanilla” SaaS revenue model, not that there’s anything boring about a well-worked subscription plan. Businesses charge a customer every month or year for use of a product or service. All revenue is deferred and then fulfilled in installments.
The subscription model is perhaps the most popular among SaaS companies because of its versatility, promise of recurring revenue, and high value:customer lifetime balance. Done right it's a one-way-ticket to sustainable growth.
Companies working with recurring revenue models, such as subscription or licensing, see more value from a customer across a given customer lifetime.
Being able to offer a variety of value options means your company can respond to more than one set of customer needs, expanding your appeal. Hubstaff’s subscription plan, seen below, is a classic of the genre:
Hubstaff’s various plans are distinct from one another in price and feature. This flexibility in the subscription model means that tentative or lower-budgeted customers can still get what they need, all the while maintaining visibility of what extra they could get for a few dollars more a month.
The freemium model is often described as a subscription revenue model, but in fact it’s an acquisition model, not a revenue model. Freemium involves giving users free access to an app and then selling subscriptions for a premium tier that includes more features.
Markup is a very common revenue model for buyer companies (i.e., companies that buy the products they sell). It’s as simple as can be: Take the cost of goods you just bought, mark it up X%, and make a profit margin on the original purchase.
There are various subgenres of the markup model, including the following:
- Wholesale: Sale of goods or merchandise to retailers, business users, or other wholesalers
- Retail: Identification of demand, and satisfaction of it through a supply chain via a number of possible outlets, including physical and ecommercial ones
Markup is particularly used by mediators like ecommerce marketplaces — Amazon, for example. On average, Amazon charges a seller who uses their site 15% of the sale, plus FBA fees (including storage, pick & pack, shipping).