Definition: What is a revenue model?
The revenue model describes the systematic way in which a company generates revenue. It answers the central question: “What do customers pay for—and how?” In the Business Model Canvas, it forms the financial dimension of the business model together with the cost structure.
A revenue model comprises several components: revenue streams (which products or services generate revenue), pricing mechanisms (fixed price, dynamic, auction-based), payment flows (one-time, recurring, usage-based), and payment terms.
An important distinction: The revenue model is one aspect of the overall business model. While the business model also describes value creation, customer relationships, and resources, the revenue model focuses exclusively on the revenue side.
The most important revenue model types
Every successful company is based on one or more of the following revenue model types:
Transaction-based models
- Direct sales: Classic sale of products or services for a one-time payment
- Trade / Reselling: Purchase and resale with margin
- Licensing: One-time or periodic fee for the use of IP, software, or technology
Recurring models
- Subscription: Regular payments for continuous access (e.g., SaaS, streaming)
- Membership: Membership fees for exclusive benefits and community access
- Retainer: Fixed monthly compensation for ongoing consulting or service delivery
Usage-based models
- Pay-per-use: Billing based on actual usage (e.g., cloud computing, car-sharing)
- Metered pricing: Tiered billing based on consumption volume
- Commission: Percentage participation in brokered transactions (e.g., platform business models)
Indirect models
- Freemium: Free basic version, upselling to premium version
- Advertising-funded: Free service, monetization through advertising (e.g., Google, social media)
- Data monetization: Value creation from collected and analyzed data
Revenue model vs. business model vs. pricing
These three terms are often confused, but they describe different levels:
- Business model: The overall system—value proposition, target customers, value creation AND revenue (→ business model patterns)
- Revenue model: The mechanism of revenue generation—HOW is money earned?
- Pricing strategy: The specific pricing—HOW MUCH is charged?
A company can implement the same revenue model (e.g., subscription) with different pricing strategies (flat rate, tiered pricing, value-based pricing).
Revenue models in the digital economy
Digital transformation has enabled entirely new revenue models and radically changed existing ones:
- SaaS (Software as a Service): Combination of subscription and cloud delivery—the dominant model in the software industry
- Platform commissions: Platforms like Airbnb or Uber earn from every brokered transaction
- API monetization: Technical interfaces as independent revenue sources (e.g., Stripe, Twilio)
- Tokenization / Web3: Decentralized revenue models via blockchain-based tokens and smart contracts
- Data-driven models: Revenue through data analysis, insights, and AI-powered services
A significant trend: the shift from one-time to recurring revenue. Companies with recurring revenue are valued significantly higher on the stock market than those with one-time transactions.
The right revenue model for SMEs
For small and medium-sized enterprises, choosing the right revenue model is particularly critical:
- Diversification: Combine multiple revenue streams to reduce dependencies
- Recurring revenue: Build recurring income—this stabilizes cash flow and planning
- Scalability: Check whether your revenue model can grow without proportional resource investment
- Industry fit: Not every model suits every industry—analyze the willingness to pay of your target audience
- Digital enhancement: Examine whether digital business models can complement your existing revenue model
Developing a revenue model: Step by step
- Understand customer problem: What value do you deliver? What would customers pay for? (Jobs-to-be-Done)
- Test willingness to pay: Validate with Lean Startup methods whether customers would actually pay
- Review revenue model types: Which mechanism best fits your value proposition?
- Define pricing: Establish the specific pricing strategy
- Calculate unit economics: Do Customer Acquisition Cost (CAC), Customer Lifetime Value (CLV), and margins align?
- Test and iterate: Start with an MVP and optimize based on real data
Optimize your revenue model?
We help you find and implement the right revenue model for your company—for sustainable growth.
Frequently Asked Questions
What is the difference between revenue model and business model?
The revenue model is one aspect of the business model. It specifically describes how a company generates income (e.g., subscription, licensing, pay-per-use). The business model also encompasses the value proposition, target customers, value chain, and cost structure.
Which revenue model is best suited for digital products?
For digital products, SaaS subscription models, freemium approaches, and usage-based models (pay-per-use) have proven particularly effective. The advantage: virtually zero marginal costs per additional user, high scalability, and predictable recurring revenue.
Can a company use multiple revenue models simultaneously?
Yes, combining multiple revenue models is even recommended. Many successful companies use hybrid approaches—such as freemium plus subscription (Spotify), direct sales plus service retainer (mechanical engineering), or platform commission plus advertising (Amazon).
How do I find the right revenue model for my SME?
Start with three questions: (1) What are your customers willing to pay for? (2) What payment frequency fits your offering? (3) How scalable should your model be? Then test 2-3 revenue model variants with small customer groups before committing.