The current rate of startup failure stands at around 20%, with most companies barely making it to their fifth year in business. Success is not just about attracting a target audience, it is about identifying the best startup revenue models, an aspect that also plays a role in hyper-growth.
The right model implemented correctly can set you up for immense growth, on par with any unicorn. If you are looking to expand your business and enjoy the benefits of massive growth, here are examples of revenue models that will propel you to success.
Subscription-Based Revenue Model
The subscription revenue model is by far, one of the most profitable models used by businesses that have registered successive scalability. A subscription model, also known as a recurring revenue business model, focuses on delivering a product to customers at a fee. Subscriptions are made on a monthly or an annual basis, thereby utilizing aspects of the on-demand model. In short, users access the product at their time of convenience, leading to recurring subscriptions. If you operate a SaaS startup, like Office 365 or Mailchimp, then such startup revenue models will come in hand.
One of the merits of using a subscription-based model lies in its customized packaging. Periodic subscriptions allow companies to track user behavior, which means you can target your audience based on their preferences. In addition to this, customers prefer lower subscription fees to traditional fixed packages, allowing you to get increased revenue.
The downside to the subscription model lies in the risk of churn. If your competitors introduce new products with better quality or at low costs, you risk losing your revenue.
Advertising Based Revenue Model
The ad-based model is a revenue-generating medium that relies on ad placements on company sites. Facebook is one of the benefactors of this model, where numerous businesses pay to test products on the platform. The expansive growth in such a revenue model may have you looking for multiple advertisers, which is a common error for startups.
To benefit from an ad-based model, start small and use a few adverts. Establish the kind of users that you want to attract and promote personalized ads based on your target customers. Such examples are perfect if you have a web-based company or one that utilizes mobile apps.
The main advantage of using advertisement revenue models and growth hacking is the simplicity. All you need to do is display the ad on your site. Its disadvantage, however, lies in the fact that you need a large-scale platform to benefit from increased revenue.
Licenses Revenue Model
Licenses also fall under types of revenue models that propel businesses to hyper-growth, with companies like Shutterstock and Adobe taking the lead. Under this, companies permit other companies to use their products at a fee while still retaining their product copyright. Such models work best for startups dealing with inventions and intellectual property such as software producers.
The main advantage of the licensing model is the fixed income generated for companies for the set period of the license agreement. The disadvantage of such models, however, comes about where the sole responsibility of updates falls on the developer; hence high maintenance costs.
Freemium Revenue Model
Freemium is the fourth most used revenue model, given its simplicity and direct usage. Companies provide users with essential features of services while luring them to upgrade to a paid plan with more features. Examples of companies that started with this model include Skype and Dropbox. If you have a software or web-based app, freemium revenue models will work well.
Given the simplicity in usage, freemium’s main merit includes the absence of hidden costs. This means that your users will not incur any charge while using basic features. The downside of the freemium revenue model is that users can get too accustomed to free products and lack value in the upgraded product.
Pay per Use Revenue Model
Pay per use revenue models works by providing users with an array of products but only charges for the services used. If you are interested in a cloud-based startup or have users who are likely to purchase a single product without any future use, then this model is perfect for you. Companies dealing with software services, such as SaaS startups, can also benefit from it.
The pay per use models are cheap for customers, given their single-use. The ability to switch from one feature to another also benefits clients, resulting in the model’s success. Its inadequacy, however, is it can only be used by companies with multiple features or have a one-time product.
Bundle Pricing Revenue Model
The bundle pricing model uses two revenue models allowing users to benefit from lower-priced features. An example is where you can incorporate pay per use and subscription models to benefit from both new and recurring customers. The combination model works best for software startup companies, an example being Microsoft, which began offering PowerPoint, Publisher, Access and other products at a single cost.
The combination pricing model mainly benefits users who get to use two or more services at a reduced price. Its shortcoming though is that the discounted rates of multiple products may impact revenue or profitability in the short term.
Membership Revenue Model
Under the membership revenue model, users pay a membership fee to get premium advantages for products. YouTube premium utilizes this model, with users getting an ad-free service. Such models work by reducing costs on various product features while providing customers with superior services. If you are looking to employ the membership model, a niche industry such as web-based platforms, will work well.
Companies benefit the most from this model, given that they are guaranteed a fixed income from loyal customers in need of better products. The inadequacy, however, results where costs are high, turning away the clients.
Customer knowledge is vital. Startup revenue models are always changing, and as such, research and patience will come in handy. Ensure that you also keep up to date with the latest industry innovations and network with other startup companies to stay in the know. Contact us to learn about the latest business needs to accelerate your company further.