A revenue model is a framework for generating revenues. It identifies which revenue source to pursue, what value to offer, how to price the value, and who pays for the value during the lifetime duration of the business.
The revenue model is a key component of a company's business model (see article on the topic here). A revenue model can include one or more revenue streams, that is, the amount of money coming into a business or organisation from a particular source.
The revenue model is easier to define than the entire business model and for that, partial information about revenue models can be found not only in the SME instrument proposals but also in Fast Track to Innovation and Innovation Actions proposals within H2020.
There are many ways to classify the revenue models, a common way you can classify revenue model depends on how the cash enters into the business; that is:
1. One-off revenue models, where the business generates a cash entry every time it generates a sale.
2. Double one-off revenue models, where the business generates a cash entry every time it generates a sale in any of the two complementary products/ services it commercialises. This is the typical case of products that needs a consumable. Sales are separate in time and logic, but are coupled somehow.
3. Recurrent revenue models, where the business generates a cash entry periodically per client until the period expires or the client decides not to continue. This is the typical case of any periodic subscription fee.
4. Combined revenue models, where the business generates a cash entry periodically per client and every time a sale is produced. As businesses get more elaborated, different revenue streams coexist. This option allows modelling most of these combinations.
Seeing the business as a black box, the revenue model allows calculating the financial projection of the business by looking at the inputs and the outputs to the “box” to see if/when it is profitable or not along the time. However, the goal of such an early financial projection is not to demonstrate how great the opportunity is, but, on the other hand, show investors (or evaluators in this case) that you truly understand what drives the growth of your business.
Here a table to help you assess the revenue model and relevant KPIs:
| Revenue model | KPI 1 | KPI 2 | KPI 3 | KPI 4 | KPI 5 |
| One-off | Average transaction amount | % increase of new transactions | |||
| Double one-off | Average consumable price | % increase of new consumable transactions | Average initial purchase price | % increase of new initial purchase transactions | |
| Recurrent | Average fee | % increase of new customers | % stops subscription | ||
| Combined (one-off + recurrent) | Average transation amount | % increase of new transations | Average fee | % increase of new customers | % stops subscriptions |
A very detailed excel modelling tool to find out what product or service will be created in order to generate revenues and the ways in which the product or service will be sold can be found here.
Source: Access 4 SMEs Toolbox set for SMEs