On 8 revenue models

Here is what Fastcodesign thinks.

An oft-overlooked way for a company to reinvent its business can be found buried deep in its business plan–the revenue model. A company’s revenue model, very simply, is the way it makes money.

There may be an infinite number of variations a company can use to make money, but they really all boil down into eight types.

Professor Andy Hargadon at UC-Davis has come up with a useful framework for revenue models:

1. Unit sales: Sell a product or service to customers. GE uses this method when they sell microwaves.

2. Advertising fees: Sell others the opportunities to distribute their message on your space. Google uses this method with its search product.

3. Franchise fees: Sell the right for someone else to invest in, grow, and manage a version of your business. McDonald’s uses this method with its stores that are independently owned and operated as franchises.

4. Utility fees: Sell goods and services on a per-use or as-consumed basis. Most electric companies use this model when they charge customers only for the electricity they use.

5. Subscription fees: Charge a fixed price for access to services for a set period of time. Gold’s Gym charges a monthly or yearly subscription fee for people to access their gym.

6. Transaction fees: Charge a fee for referring, enabling, or executing a transaction between parties. Visa charges a transaction fee to retailers each time a customer purchases a product in their store.

7. Professional fees: Provide professional services on a time-and-materials contract. H&R Block makes money by charging customers for the time it takes to prepare their taxes.

8. License fees: Sell the rights to use intellectual property. Every time a customer buys a T-shirt or a hat with the logo of their favorite sports team on it, that team makes money from license fees.

 

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