business plan revenue model

Revenue models: 11 types and how to pick the right one

Finding the right revenue model for your company and products is an incredibly important part of starting and expanding your business. It's a key part of building a brand. Explore popular revenue models and how to choose the right one.

What is a revenue model?

• 11 different types of revenue models

Costs associated with revenue models 

• How to choose your revenue model

Join our newsletter for the latest in SaaS

By subscribing you agree to receive the Paddle newsletter. Unsubscribe at any time.

In one of the most famous lines from the 1941 classic Citizen Kane , Mr. Bernstein proclaims: “ It's no trick to make an awful lot of money... if what you want is to do is make a lot of money .” If only that statement were as true as it seemed. It's probably more accurate to say, “There are a lot of ways to make a lot of money.”

That’s particularly true for software businesses, with the rise of the mobile internet stimulating an explosion in the number of viable revenue models. Choosing which revenue model works best for your SaaS business, though, is not easy (even if that's all you want to do is choose a revenue model for your SaaS business). Your choice will help determine your sales strategy , and from there the growth rates, the amount of money you’ll need to invest initially, and the kind of relationship you’re likely to build with your customers. More than that — the choice determines the future of your business. Let’s take a look at some of the most popular revenue models used today — why they’re popular, why they work, and why they will (or won’t) work for you.

A revenue model is the income generating framework that is part of a company’s business model. Common revenue models include subscription, licensing and markup. The revenue model helps businesses determine their revenue generation strategies such as: which revenue source to prioritize, understanding target customers, and how to price their products.

Revenue models often get conflated with revenue streams, probably because each is a single revenue generation source. They are also confused with business models, of which revenue models are a part. Revenue models help business owners determine how to manage their revenue streams and are required to complete a business model.

Without a considered revenue model, your business will incur costs it cannot sustain. With a revenue model, you can set, track, and forecast business growth based on specific customer segments.

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.

1. Subscription

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).

5. Pay-Per-User

One of the most enduring legacies of SaaS in the world of business is the introduction of pay-per-user (PPU). It involves giving a customer potentially unlimited to access to a range of features while charging them only for the services they use. At the dawn of SaaS, as the software required no physical delivery and deployed so quickly and cheaply, PPU appeared to be the most sensible revenue model. However, as natural as it seemed back in the day,  pay-per-user is not popular  anymore. Ascribing value to your product is one of the key considerations of your revenue model, and that includes demonstrating why it’s worth your target customers’ valuable dollars, not just making everything so cheap and easy that they can’t refuse. The issue with PPU, then, is that it’s rarely where value is ascribed to your product. Moreover, PPU kills your Monthly Active User metric. The per-user metric is not the most useful to customers in terms of deriving value — its take-it-or-leave-it approach actively works against your Daily Active Users number, and thus contributes to your churn rate.

6. Donation

As evidenced by the rise and rise of  Kickstarter - and  Patreon -based ventures, altruism is, if unpredictable, a pretty effective revenue model by itself. Relying on the donations of regular users is a common revenue model for nonprofits, online media (i.e., YouTubers) and independent news outlets.

7. Affiliate

What is  affiliate marketing ? This new, popular model works by promoting referral links to relevant products and collecting commission on any subsequent sales of those products. Leverage your product’s synergy with another product in an adjacent space and you both stand to gain. The affiliate model can be as simple as including in an article an outlink to a book or other product mentioned or offering your customers specialized recommendations relative to purchase history (again, Amazon is a master of this art). Some companies, such as Etsy, even have a  specific program  for their affiliates, where other companies can earn a commission on qualifying sales that result from featuring links to Etsy products and services. The affiliate revenue model is increasingly popular, owing to the way it dovetails effectively with other revenue models, particularly ad-based models.

8. Arbitrage

Applicable mainly to sellers or marketplace-oriented companies, the arbitrage revenue model uses the price difference in two different markets of the same good/service to make a profit. You buy in one market (a security/currency/commodity) and simultaneously sell in another market, at a higher price, what you just bought, pocketing the temporary price difference. Arbitrage is popular with  affiliate marketers , as well as with many cryptocurrency firms, SFOX being a prime example.

9. Commission

This transactional revenue model involves a middleman charging commission for each transaction it handles between two parties or for any lead it provides to the other party. It’s particularly popular with online marketplaces and aggregators, as well as businesses like independent music distributors. It’s particularly easy to get up and running with a commission-based business model because you’re working off of existing products. However, unless your field is well-conditioned for a monopoly, and unless your company is (or can become) that monopoly, you’ll find the commission model  very tough to scale .

10. Data Sales

Ever heard the phrase, “If you can’t see how the money’s made, you’re the product”? That’s data-selling in action. Many companies  selling digital goods  and services could not exist without core underlying data assets. In the data sale revenue model, this data is sold directly to a consumer or business customer. While certain companies will use data sale as their primary revenue model, the use of  data sales  to augment another revenue model is virtually ubiquitous. While some are using it as an  entrepreneurial venture , it is also the subject of considerable justified  public concern  and should be handled with care in the event you decide to go with it as your revenue model.

11. Web/Direct Sales

The old-fashioned revenue model made new, web sales and direct sales involve payment for goods or services through a digital medium. Web sales involve a customer finding your product via outbound marketing (or a web search) and can used for software, hardware, and subscription-based offerings. Direct sales revolve around inbound marketing and is good for handling multiple buyers and influencers in big-ticket markets.

A good revenue model is not just about squeezing as much revenue possible out of a sales cycle; it’s also about balancing your ambitions in the market with your resourcing requirements. A startup revenue model may be significantly different than one for an established business because their resources are vastly different. When choosing your model, factoring in costs is paramount to ensure profitability.

Cost of revenue

The first cost you’ll be likely to factor in is your cost of goods — how much it costs to produce the goods or service that you then sell. For hardware, this can comprise testing and manufacture; for software, it’ll include the whole development cycle. Regardless of what you produce, administrative overheads will also apply. You will find cost of goods a considerably less comprehensive metric than cost of revenue, which is the total cost of manufacturing and delivering a product or service to consumers. That includes everything we’ve just covered, plus distribution and marketing costs. Cost of revenue is more often used in SaaS and other service-oriented industries because it makes the many costs incurred outside of production in SaaS easier to track.

Prototyping costs

Prototyping is a fundamental aspect of any production cycle and, unfortunately, is one of the most expensive. While testing prototypes or beta versions of your new product, even the smallest revisions can necessitate costly changes to your production/development process. This usually comprises a base-level cost, plus iteration costs on top of that. When forecasting prototyping costs, it’s wise to plan for several iterations; it’s highly unlikely you’ll get everything right the first time around, especially if your product is innovative or is composed of a number of features.

Equipment costs

One of the beautiful things about being a SaaS company is that there are no production lines to run. Nevertheless, equipment costs still factor into the bottom line. Firmware,  app development tools , server rental, plus any other administrative services bought on subscription (e.g. Slack or Hubstaff) will play a part in your equipment costs, but, generally, equipment costs should be the easiest of all to forecast.

Labor costs

An underpaid workforce is an unhappy workforce (if it’s a workforce at all); wage costs come out of your bottom line. Based on the interaction of salary and commission in your  compensation plan , as well as the type of commission you offer (entirely open-ended or capped? Will there be accelerators/decelerators involved?), you will have to plan for your expenditure on labor costs differently.

Advertising & marketing costs

Your advertising and marketing costs will be determined by the following:

• The size of your respective advertising and marketing teams
• The scale of exposure you’re shooting for
• Your method of approach to advertising and marketing: undefinedundefinedundefined

Take the headache out of growing your software business

We handle your payments, tax, subscription management and more, so you can focus on growing your software and subscription business.

Your revenue model is unique

So many revenue sources, so many revenue models, so little time. There are some fundamental differences between revenue models. For instance, if you’re a SaaS company producing your own software product, you’re unlikely to get all that far with an arbitrage model. Likewise, if your product is a medium or if you’re a seller, a subscription-based revenue model won’t do the trick. A product with a high ceiling for potential revenue is not best served by a donation model. Nevertheless, the choice of a main revenue model out of the batch that do work for your product, and how you then combine them with appropriate aspects of other models, is yours, and yours only. Your product and the market should be in mind at all times while you’re settling on, adding to, and refining your model. After that, bringing in the revenue itself should be as easy as  Citizen Kane  said.

Related reading

Revenue Models: 17 Types, Examples & Template [2023]

Revenue Models

How does (or will ) your business make money? It sounds almost too simple to ask, but having a clear understanding of your business' revenue model can be one of the most important ways to focus on key activities--and actually move the needles you care about most.

For indie businesses, settling on the right revenue model type rarely happens on first attempt. Instead, it's common to bounce around from subscriptions to digital products, membership communities and affiliate offerings until something finally *clicks* for you and your business.

This revenue models list component and template is intended to help you sort, consider and rank a list of common revenue models. In future, I'll be linking this table to related marketing channels, real data from other indie businesses and related templates--for now, let's take a quick look at the revenue models listed.

17 Common Revenue Model Examples

• Subscription
• Licensing (Digital Prod.)
• Advertising
• Affiliate Commission
• Project-Based Services
• Retainer-Based Services
• Tickets, Events, Workshops
• Manufacture (D2C)
• Library Access
• Community Access
• Marketplace

1. Subscription

The most common revenue model for SaaS and membership-based businesses. Customers pay a recurring fee, typically on a monthly or yearly basis, in exchange for access to your product or service.

Pros of subscription model

• Recurring revenue is more predictable and can be helpful in forecasting
• Can be a great way to build long-term relationships with customers
• Customers who are paying on a recurring basis are typically more engaged and have a higher lifetime value

Cons of subscription model:

• Can be difficult to acquire customers who are willing to pay a recurring fee
• Can be difficult to increase prices without losing customers
• There is always the risk of churn (customers cancelling their subscription)

The markup revenue model is most common in retail and ecommerce businesses, where goods are bought at wholesale prices and then sold to customers at a higher price.

Pros of markup model:

• Can be easier to get started since you don't need to develop a unique product or service
• There is less risk involved since you're not investing in developing or producing a good or service
• Can be easier to scale since you can simply buy more inventory as needed

Cons of markup model:

• Can be difficult to compete on price alone
• You may need to invest in marketing and branding to differentiate your business
• There can be slim margins if you're not careful with your pricing

3. Licensing (Digital Prod.)

The licensing revenue model is most common for digital products, where customers pay a one-time fee for access to your product.

Pros of licensing model:

• Can be a great way to generate one-time revenue from customers
• Customers who pays for a license typically have a higher perceived value of your product
• Can be easier to scale since you're not selling a physical good or service

Cons of licensing model:

• Can be difficult to acquire customers who are willing to pay a one-time fee
• There is always the risk of piracy (customers sharing your product without paying)
• Can be difficult to upsell customers or generate recurring revenue

4. Advertising

The advertising revenue model is most common for online businesses, where businesses sell advertising space on their website or in their email newsletter.

Pros of advertising model:

• Can be a great way to generate revenue from customers who are not ready to buy your product or service
• Advertising can be a complementary revenue stream to other revenue models

Cons of advertising model:

• Advertising can be disruptive to the user experience
• Advertising rates can fluctuate based on market conditions
• You may need to invest in marketing and branding to attract advertisers

5. Donation

The donation revenue model is most common for non-profit organizations, where customers donate money to support the cause or organization.

Pros of donation model:

• Can be a great way to generate revenue from customers who are passionate about your cause
• Donations are typically tax-deductible for the donor
• There is less pressure to generate revenue since donations are not expected to be recurring

Cons of donation model:

• Can be difficult to acquire customers who are willing to donate money
• May need to invest in marketing and branding to attract donors
• Donations can fluctuate based on economic conditions

6. Affiliate commission

The affiliate commission revenue model is another common for online businesses, where businesses pay a commission to affiliates for referring customers.

Pros of affiliate commission model:

• Can be a great way to generate revenue from customers who are already interested in your content
• Affiliates can provide valuable marketing and promotion for your business
• Can be easier to scale since you're not producing all the products you sell

Cons of affiliate commission model:

• Not always easy to find good affiliate programs
• You may need to invest in marketing and branding to attract affiliates, as well as readers
• Commissions can vary based on affiliate performance

7. Sponsors

The sponsorship revenue model is becoming increasingly common for online creators.

Pros of sponsorship model:

• Can be a great way to generate revenue from businesses or individuals who support your cause
• Sponsors typically have a high perceived value of your organization

Cons of sponsorship model:

• Can be difficult to acquire sponsors who are willing to pay
• May need to invest in marketing and branding to attract sponsors
• Sponsorship can fluctuate based on economic conditions

8. Data Sales

The data sales revenue model is most common for online businesses, where businesses sell data that they have collected.

Pros of data sales model:

• Scale advantages
• Data can be a valuable commodity for businesses

Cons of data sales model:

• Difficult to acquire unique data sets
• Longer sales cycle
• Data rates can fluctuate based on market conditions

9. Project-Based Services

The project-based services revenue model is most common for businesses that provide consulting or other services.

Pros of project-based services model:

• Can be a great way to generate revenue from customers who need your services
• Projects can be customized to the customer's needs

Cons of project-based services model:

• Very hands-on
• Need to keep your pipeline filled
• Projects can fluctuate based on economic conditions

10. Retainer-based services

The retainer-based services revenue model is most common recurring stream for businesses that provide consulting or other services.

Pros of retainer-based services model:

• Can be a good way to introduce recurring revenue to a services business
• Customers typically pay upfront for your services

Cons of retainer-based services model:

• Need to find a service that's profitable on retainer;
• Reducing churn;
• Pricing your retainer.

11. Tickets, Events, Workshops

The ticketing revenue model is most common for businesses that host events or workshops.

Pros of ticketing model:

• Can be a great way to generate revenue from customers who are interested in your event
• Tickets can be sold in advance of the event
• Virtual events and workshops can be easier to scale since you're not selling a physical good or service

Cons of ticketing model:

• Need to consistently market events
• Margins need to be high for it to be sustainable
• Often need to pay staff to help facilitate event

12. Royalties

The royalty revenue model is most common for businesses that sell digital content, such as books, music, or software.

Pros of royalty model:

• Royalties can be collected on a per-sale or per-use basis
• Highly asynchronous

Cons of royalty model:

• Can be difficult to track sales and commissions
• Typically low % commission
• Royalties can be volatile from year to year

13. Manufacture (D2C)

The manufacture model, going direct to customer, is probably the most familiar. You make a product and then sell it to the customer, whether that’s through your own store, a third-party retailer, or some other means.

Pros of Manufacture (D2C)

• You have complete control over your product
• You can build your own brand
• You can reach customers directly

Cons of Manufacture (D2C)

• It can be expensive to get started
• You have to invest in marketing and branding
• You have to manage inventory and shipping

14. Library Access

The library access model is common for businesses that offer digital content, such as books, music, or software. Customers can access your content through a subscription or pay-per-use basis.

Pros of Library Access

• Can reach a wide audience of potential customers
• Can generate revenue from customers who are interested in your content

Cons of Library Access

• Possibility of duplicating digital content without license
• Retaining users after they pay for first access
• Offering a unique library

15. Rent/Lease

The rent/lease revenue model is common for businesses that offer physical goods, such as equipment or vehicles. Customers can rent or lease your products on a short-term basis.

Pros of Rent/Lease

• Can generate revenue from customers who need your equipment
• Can be quite 'Passive' income
• Scalable if margins and demand are high enough

Cons of Rent/Lease

• High expenses upfront
• Potential damages costs

16. Community Access

The community access revenue model is common for businesses that offer physical goods or services. Customers can access your product or service through a subscription or pay-per-use basis.

Pros of Community Access

• Compounding as the community grows
• Plenty of online community software and tech popping up

Cons of Community Access

• Difficult to upgrade to a 'paid tier'
• Community moderation can be time-consuming
• Sustaining high community engagement

17. Marketplace

The marketplace revenue model is common for businesses that offer a platform for other businesses to sell their products or services. Customers can access the marketplace through a subscription or pay-per-use basis.

Pros of Marketplace

• Buyers will typically bring their own customers
• Can generate revenue from both sides of the market: buyers and sellers
• Don't need to produce your own products (beyond the marketplace itself)

Cons of Marketplace

• Quality control can be difficult
• Chicken-egg problem: getting your very first buyers and sellers
• Settling disputes and investing in customer support

Choosing A Revenue Model For Your Business

This Notion template database also includes some properties to help you understand more about the various revenue models listed, and how they compare with one another on a few important factors. These are:

• Volume needed;
• Typical Margins;
• Capital needed upfront;
• Relationship to customer (direct or indirect);
• Scalability;
• Revenue model examples; and

Volume Needed

The volume needed property gives an indication (on a scale from 'Very Low' to 'Very High') of how many customers are typically needed for this type of revenue model to work. For example, a subscription revenue model that charges $1.99/month will need a Very High volume of customers in order for the model to work; whereas a high-ticket services business may only need 1 or 2 big clients per year.

Typical Margins

The typical margins property is there to help you understand how profitable this revenue model can be, given the right circumstances, per sale or customer. For example, a business selling digital products will typically have very high margins (if they are priced correctly), whereas a business that relies on advertising as its primary revenue source may have lower margins.

Capital Needed Upfront

The capital needed upfront column describes (loosely) of how much money you will need to spend in order to get the business up-and-running. For example, a subscription business can be started with very little capital as there are no inventory or product development costs; whereas a manufacturing business may need a lot of money to get started as there are significant inventory and product development costs.

Relationship to Customer (Direct or Indirect)

The relationship to customer property gives an indication of whether the revenue model is direct, indirect or two-sided (e.g. marketplaces). A direct revenue model is one where you have a direct relationship with the customer; whereas an indirect revenue model is one where you do not have a direct relationship with the customer.

For example, a subscription business has a direct relationship with the customer as they are paying the business directly for a product/service; whereas an advertising-based revenue model has an indirect relationship with the customer as they are paying the advertiser, not the business.

Scalability

The scalability property gives an indication of how easy it is to scale this type of revenue model. A scalable revenue model is one that can grow without a significant increase in costs; whereas a non-scalable business is one that has fixed costs which limit its growth.

For example, a subscription business is usually more scalable than a manufacturing business as there are no inventory or product development costs; whereas a business that relies on a small number of high-value clients is usually less scalable as it is difficult for you to service more such clients with the same number of hours in a day.

Revenue Model Examples

This column provides an example of a real business that is deploying this revenue model. I've tried to select primarily indie businesses, however this isn't the case for all of the businesses listed (where I couldn't find an indie business, I chose something that may be relevant or a company that I just generally like).

It's also worth noting that many of the businesses listed under a certain revenue model type employ multiple revenue models, alongside the stream that they're listed under. This is quite common for indie businesses (to have multiple revenue streams) and can be a good hedge against any single revenue stream going dry.

As you look through the list of possible revenue models, you can give each a ranking and sort the list based on those that are best suited.  

Getting Started

Duplicate this template into your own Notion workspace, and start ranking the various revenue models as they suit your own business, today.

Level up your Notion workspace, today⚡

"By far the most comprehensive Notion for business templates I've come across."

Components Library

Landmark All Access

All Access: Annual

Landmark Lifetime Access

Maximizing Profitability: Explore Effective Revenue Models for Your Business

Choosing the right revenue model can help you earn more and create an effective pricing strategy. Explore the different types of revenue models here.

Imagine you're walking down the street on a hot summer day and see the neighborhood kids setting up a lemonade stand. Nothing sounds better on a day like this than an ice-cold lemonade. You approach their stand and find the price is $2 for a cup. While you know it wouldn't cost $2 to make just a glass of lemonade at home, you are willing to pay this price because you are thirsty and also want to support the kids.

From a business perspective, these kids are making a good amount of profit from their lemonade stand. They're actually using a markup revenue model where they increase the price of a cup of lemonade to account for their operating costs. It seems like the perfect model for making money. However, this might not be the case in every business situation. Depending on the scale and complexity of your business model , you need to consider different methods of developing revenue streams.

There are various revenue models implemented by businesses across the board. Many business models are far more complex than a simple lemonade stand and thus require a different revenue model strategy. There are subscription-based, advertising, and commission-based models, to name a few—but what is a revenue model, and how do you choose one?

If you're considering which revenue model to incorporate into your business strategy, keep reading to learn more.

What is a revenue model?

A revenue model is a blueprint for how a company produces income from its services or products. Simply put, it outlines the methods through which a business makes money. There are several components within a revenue model, including how you price your products and which sales channels you choose. A revenue model is established to answer how a company plans to financially optimize its business model.

Revenue models can be seen as roadmaps for understanding how your business will operate financially. They define how a company generates revenue, covers costs, and eventually turns a profit. A revenue model should outline the various sources of income to help guide decision-making related to the overall business strategy.

Benefits of implementing revenue models

Developing a revenue model is an essential step for growing your business. Here are some of the main benefits of implementing revenue models:

Financial sustainability

An effective revenue model establishes consistent income streams, providing financial security and sustainability. Your revenue model should help you understand how much revenue to expect so you can properly plan expenses, growth, and investments.

Pricing strategy

Factors such as market demand, competition, and product costs are considered within a revenue model. Each of these factors can inform your pricing strategy. Based on the revenue model, you can determine which prices maximize revenue while remaining appealing to customers.

Profitability analysis

Revenue models show how your business generates revenue. Understanding the costs incurred by creating your products or services, along with the generated revenue, allows you to analyze the profit margin of your business. Subsequently, you can make informed decisions to improve your resource allocation and pricing strategy.

Scalability

Growth is key to your business revenue model thriving. Implementing a revenue model provides insight into the scalability potential of your business. You can easily assess potential revenue growth by attracting more customers and introducing new products or services. Knowledge is power—the more information you have about how your business operates, the better you can plan for the future and make smarter investments.

Decision-making

A sound revenue model produces meaningful insights to influence strategic decision-making. Your revenue model indicates which products or services generate the highest income, enabling you to better allocate resources and focus on areas with the highest profitability potential.

Investor confidence

A smart revenue model will inspire investor and stakeholder confidence. Potential investors will be impressed by a well-defined revenue model that demonstrates a clear plan for generating multiple revenue streams.

Types of revenue models

There are various revenue models that can be implemented based on your specific business operations and needs. Understanding when and how to choose different types of revenue models will help you better calculate revenue growth rates.

Here are just a few revenue model examples:

Advertisement-based

An advertising revenue model is a popular type of revenue model. The main source of income is generated by displaying advertisements. In this model, your company sells advertising space to other businesses or brands who want to advertise with your customer base and users. How your business earns revenue is by charging advertisers for ad placements.

Pros of advertising-based revenue models

• Successful advertisement-based revenue models typically generate significant income.
• An advertising model can greatly boost revenue streams if you have a large user base or a popular platform.
• There's a low barrier to entry, meaning it's relatively easy to set up and requires minimal investment upfront.
• This revenue model also offers flexibility and opportunities for diversification since you can provide many ad types and have a full roster of advertisers.

Cons of advertising-based revenue models

• Advertisers aren't guaranteed.
• You need to attract advertisers who are willing to pay for placements on your platform.
• The advertising market constantly fluctuates, meaning your revenue may fluctuate whenever advertisers reduce their budgets and don't buy ad space.
• You must also consider user experience and how incorporating display ads will impact your engagement.

YouTube is well-known for using an advertising model. Content creators on the platform can monetize their content by displaying ads on their videos. YouTube earns revenue by selling advertising space to companies that want to reach a vast audience. In this case, content creators can also receive a share of the ad revenue based on several metrics, including clicks, view time, and impressions.

The affiliate model is a more common type of revenue model. It's where a company or person makes a profit by promoting and selling products on behalf of another business. In the affiliate revenue model, an affiliate acts as the middleman between potential customers and the products or services.

Pros of affiliate revenue models

• Affiliate models are generally low-risk and cost-effective.
• As an affiliate, you don't need to create your own products, nor do you handle inventory or customer segments.
• It offers the potential for passive income by earning commissions without active involvement.
• You can also generate income from various affiliate partners, making this model great for diversification and scalability.

Cons of affiliate revenue models

• As an affiliate, you have little to no control over the products or services you promote. This means that negative customer experiences may harm your reputation.
• This type of model also creates revenue dependence on partners.
• Generating a profit with affiliate marketing may be easy, but intense competition and market saturation can make it difficult to generate significant income.

Affiliate marketing is a common revenue model. Amazon Associates is an example of an affiliate revenue model that allows individuals or businesses to make money through commissions on Amazon products they promote. Amazon provides unique affiliate links that lead to participants earning a percentage of the sales on products they advertise.

Commission-based

Similar to the affiliate model, commission-based revenue models allow companies to generate revenue by receiving a commission from each transaction it facilitates. Again, the company acts as a mediator between sellers and buyers.

Pros of commission-based revenue models

• The commission-based revenue model can be extremely scalable.
• The more users you gain, the more transactions will occur, leading to an increase in revenue growth.
• Another benefit of this model type is risk-sharing between the company and the sellers.

Cons of commission-based revenue models

• One of the major downsides to this model is dependency on transaction volume. If there are few transactions happening, the opportunities for generating revenue significantly decrease.
• You'll also experience limited control over pricing, which can lead to price competition among sellers and lower commission rates.

Airbnb uses a commission-based model. The platform makes money by connecting individuals with accommodation. Airbnb earns a commission on every booking made on the platform, making the company reliant on users securing lodging through their platform in order to generate revenue.

Another popular revenue model is donation-based. This strategy is implemented by soliciting and accepting voluntary donations instead of selling services or products.

Pros of donation revenue models

• One of the main benefits of a donation revenue model is the flexibility of revenue generation.
• Organizations can receive revenue streams from diverse donors.
• It's one of the most common revenue models implemented by charitable organizations and comes with tax benefits.

Cons of donation revenue models

• The downside of relying on donations is having an unsteady and uncertain revenue stream.
• Organizations are dependent on donors and are also required to spend money and time on fundraising.
• There are certain stipulations associated with receiving donations and how that money can be used

The Red Cross uses a donation revenue model. As a global humanitarian organization, the Red Cross relies on voluntary contributions to fund its services and programs. The Red Cross doesn't sell products, but they provide services for the community. The donation model is used to support the execution of these services.

The markup model entails a pricing strategy of marking up the cost or adding a margin on top to ensure financial viability. This strategy is used to cover expenses and generate profit despite external factors.

Pros of markup revenue models

• A markup revenue model is simple in practice.
• It doesn't require complex calculations and ensures the profit calculation is straightforward and transparent.
• The markup model also offers flexibility in pricing, meaning businesses can adjust the markup percentage depending on market conditions, supply, competition, and more.

Cons of markup revenue models

• The markup model can be difficult to implement in competitive markets.
• Competing while maintaining profit margins can be challenging when competitors implement aggressive pricing.

The retail industry generally relies on the markup model. There are specific production costs associated with making a pair of shoes. Retailers typically purchase the shoes from wholesalers at a fixed price. Then, they add a markup percentage to determine the selling price so it covers operating expenses and allows the retailer to earn money.

An interest revenue model refers to businesses generating income by earning interest. In this case, companies are making money by leveraging interest rates rather than making direct sales.

Pros of interest revenue models

• Interest models allow companies to earn passive income and diversify their revenue streams.
• This revenue model is also highly scalable and can benefit from changes in interest rates, leading to enhanced earning potential.

Cons of interest revenue models

• There's a level of risk associated with the interest revenue model. Risks include borrowers defaulting on loans, interest rate fluctuations, regulatory and compliance laws, and intense market competition.

Credit card companies use the interest operating model. They lend money to borrowers and earn interest back based on interest rates. These companies manage credit and loan portfolios while taking advantage of interest rates to increase profitability.

Subscription

A subscription revenue model relies on customers who subscribe and pay for your products or services. Customers pay fees to access the company's collection of products or services, allowing for steady revenue sources. The subscription-based revenue model allows a company to generate revenue by offering long-term subscriptions, resulting in consistent income such as monthly recurring revenue .

Pros of subscription revenue models

• The subscription model provides a reliable and predictable revenue stream.
• Customers pay in regular installments, allowing businesses to easily forecast finances.
• This revenue model also promotes customer retention and loyalty while lending itself to upselling and cross-selling opportunities.

Cons of subscription revenue models

• Acquiring customers with the subscription model can be challenging, meaning you may need to spend more time and money on marketing and sales.
• Customers can also cancel their subscriptions, leading to an increase in customer turnover.

Netflix is one of the most popular subscription revenue model examples. Users pay a monthly fee to access the streaming platform. Revenue generation results from monthly subscriptions. Not all subscription models are successful, but Netflix is the best example of how a subscription model can succeed in making money.

Which revenue model is right for you?

Choosing which revenue model is right for your business will depend on a variety of factors, such as your target audience, operating costs, and overall business model.

The first step for choosing a revenue model is to understand your market and the needs of your target audience. For example, media organizations will have different audiences than healthcare companies. Conduct market research to understand your customers and their needs, preferences, and pain points. These findings will inform your business strategy and how you decide to conduct business operations.

The next step is to specify your value proposition by clearly defining the unique value of your product or service. Identify key benefits and determine what sets your business apart from the competition. Consider how your business performs in terms of innovation, convenience, and quality. Communicating these benefits clearly and concisely enables your target customers to connect with your company.

Know your product or service inside-out. Understanding how your product functions, what it offers to target customers, and what your mission is will help you determine your company's business model. The ultimate goal is to generate revenue, so the more you understand your product or service, the better you can make sound business decisions.

There are several common revenue models to choose from. Online businesses, such as an e-commerce platform, might consider an advertising revenue model to diversify income streams. A local bakery may opt for other revenue models more suitable for their needs and production model. Select a revenue model after thorough research and consideration to ensure a steady and effective revenue stream.

Grow your profits with the right revenue model

Business models rely on generating income. The best way to grow your profits is to choose a revenue model that fits your company's unique needs. A company's revenue streams are dependent on more than just direct sales. Make sure to consider all different revenue model types when developing your strategy. A smart strategy is essential for a scalable business .

Whether you're just getting started or considering a switch in your revenue model, you can land more sales by leveraging market insights . Unlock your full earning potential by exploring the different tools and resources available for choosing a revenue model and growing your business. Rely on actionable data to make informed business decisions and hit your targets.

Revenue Model Types in Software Business: Examples and Model Choice

• 12 min read
• Last updated: 28 Dec, 2022
• No comments Share

Here's our video breakdown of revenue models

For those exploring the world of business strategy planning, we’ll elaborate on the definition of the revenue model, and the correlation between business models and revenue streams. We’ll also analyze different types of revenue models and look at some examples to scrutinize the pros and cons of each approach. Finally, we’ll reflect on how to choose or develop a model for your business.

What is a revenue model?

A revenue model is a plan for earning revenue from a business or project. It explains different mechanisms of revenue generation and its sources. Since selling software products is an online business, a plan for making money from it is also called an eCommerce revenue model. The simplest example of a revenue model is a high-traffic blog that places ads to make money. Web resources that present content, e.g., news (value), to the public will make use of its traffic (audience) to place ads. The ads in turn will generate revenue that a website will use to cover its maintenance costs and staff salaries, leaving the profit. Revenue models are often confused with business models and revenue streams. To avoid any misinterpretations, let’s quickly define these three terms that form a business strategy.

Revenue model vs business model

A business model (BM) is a broad term outlining everything concerning the main aspects of the business, all of which are contained in the answers to the following questions.

• What value will we create?
• How will we deliver it?
• How will we bring in revenue?
• How will we earn profit?

Numerous forms of business models can’t be classified in a single list because each part is highly individual to the industry, type of product/service, audience, or profitability. Business models are often depicted strategically on a business model canvas . This is a compound representation of all the key elements of a BM.

A  business model canvas template by AltexSoft

So the BM describes how a business will work from the standpoint of value generation. Revenue models, on the other hand, are a part of the business model used to describe how the company gets gross sales.

Revenue model vs revenue stream

A revenue model is used to manage a company’s revenue streams, predict income, and modify revenue strategy. The revenue itself is one of the main KPIs for a business. Measuring it annually or quarterly allows you to understand how your business operates in general and whether you should change the way you sell the products or charge for them. But what are revenue streams ? A revenue stream is a single source of revenue that a business has. There can be many of them. Streams are often divided by customer segments that bring revenue via a given method. The two terms – revenue stream and revenue model – are often used interchangeably, since, from a business perspective, the subscription revenue model will have a revenue stream coming from subscriptions. However, models can name multiple streams divided into customer segments, while the principle of revenue generation (subscription) will remain the same.

Revenue model types

Any start-up, tech company, or digital business may combine different revenue models. The revenue model will look different depending on the industry and the product/service type. Here we will pay more attention to the most common revenue models used in the software industry and online business.

Transaction-based revenue model

A transaction-based model is a classic way a business can earn money. The revenue is generated by directly selling an item or a service to a customer. The customer can be another company (B2B) or a consumer (B2C). The price of the product or service constitutes the production costs and margin. By increasing the margin, the business can generate more income from sales. Selling products or services entails using different pricing tactics. While some of them may be considered separate revenue models, these tactics are often used in pairs. Because pricing tactics can be seen as pricing plans in a software business, we can clearly define the following types. Licensing/one-time purchase. This entails selling a software product by license that can be used by a single user or a group of users. The general idea is to offer a product that requires making only one payment for it, e.g., Microsoft Windows, Apache Server, and some video games. Subscription/recurring payment. Unlike licensing, a user receives access to the software by paying a subscription fee on a monthly/annual basis, e.g., Netflix, Spotify, and Adobe products. Pay-per-use. This pricing tactic is mostly used by different cloud-based products and services that charge you for the computing powers/memory/resources/time used. Examples are Amazon Web Services and Google Cloud Platform. Freemium/upselling. Freemium is a type of app monetization in which a user may access the main product for free, but will be charged for additional functions, services, bonuses, plugins, or extensions, e.g., Skype, Evernote, LinkedIn, and many video games. Hybrid pricing. Sometimes pricing plans are a mixture of more than one. So that freemium plan might morph into some form of pay-per-use tiered plan. After passing some limit in computation or resources, a user can be forced to use or offered another type of pricing. Examples are Mailchimp, Amazon Web Services, and SalesForce. Various combinations of pricing tactics can be used simultaneously, which is more often seen in cloud-based products that offer multiple payment options at once. The revenue model in this case remains based on the transaction and purchases made by the customers. The difference in pricing tactics will modify how the revenue is generated and basically depends on the type of product/service you sell. The pros. You have full control over the pricing strategy. The cons. The cons will depend on the industry/product type and pricing tactics, as the model itself imposes a constant generation of sales with the help of advertising and marketing strategies. The only con we might mention here is the financial burden connected with sales you will carry on your own. Transaction-based revenue model examples. Nearly any company that produces and sells its products uses this type of revenue model. Examples are Samsung, Rolls Royce, Nike, Microsoft, Apple, Boeing, and McDonald’s, to name a few.

Advertisement-based revenue model

The advertisement-based revenue model is a plan with which businesses make money by selling ad spaces. It is one of the most standard methods of producing top-line growth, and it’s valid both for online and offline businesses. It’s often used by websites/applications/marketplaces or any other web resource that attracts huge amounts of traffic. The pros. Having a high-traffic resource allows you to monetize the ad space nearly instantly. Often, there is a strong demand for advertising space, especially with organic traffic and platforms with the target audience. The cons. Running advertising campaigns to gain web visibility on various platforms like social networks is a standard marketing activity with targeting instruments more precise than ever. However, advertisements are everywhere, so you might think twice about whether you want to distract a user by placing an ad in your app – even if it is a secondary revenue stream. Ad-based revenue model examples. YouTube, Instagram, Facebook, and Google are just a few prominent examples. All these platforms generate revenue by displaying advertisements to users and charging businesses for exposure. In addition to promotion, these platforms may also generate revenue through other sources, such as premium subscriptions or licensing agreements.

Commission-based revenue models

A commission-based revenue model is one of the most common ways businesses make money today. A commission is a sum of money a retailer adds to the total cost of a product or service. A commission may be charged per marketplace or transaction and can be assigned as a

• flat rate, a fixed sum of money for any type of transaction, e.g., a $450/300/1500 transaction is charged with a $20 commission;
• percent of transaction size, e.g., a $100 transaction is charged with a 10 percent commission – $10; or
• tiered commission, a percent or flat rate that grows based on the transaction volume, e.g., 50,000 transactions are charged a 4 percent commission, 150,000 transactions a 7 percent commission.

Marketplaces and eCommerce platforms, in particular, utilize commissions the most. Another large category includes businesses that connect service providers/renters with consumers. Think of any ride-hailing company, food delivery, online travel agency (OTA) , or alternative accommodation services. The pros. Revenue is easily predictable because of the sheer fee. The cons. There are many problems bound to the concept of a commission, but the major one goes to the scalability of a business that’s attached to a transaction size or volume. In general, dependency on the product supplier’s sales makes generating revenue require upfront investments and competitive superiority. Commission-based revenue model examples. Airbnb is a platform that allows individuals to list and rent their homes or apartments as short-term rentals . It generates revenue by charging a commission on each booking made through its platform. The commission is typically a percentage of the total booking cost and is paid by the host (property owner). Other examples are Booking.com, Uber, Lyft, Ticketmaster, Priceline, and Upwork.

Markup revenue model

Markup is the type of revenue model with which you buy a product at a certain cost and then sell it for a higher price: The difference between the two is your profit margin. This model is often used by wholesale, retail, and service-based businesses. For example, a wholesaler may be a bed bank — a B2B company that purchases rooms from accommodation providers in bulk at a discounted, static price for specific dates, and sells them to OTAs , travel agents, destination management companies, airlines, or tour operators. Pros. Markup revenue models are straightforward, allowing businesses to easily calculate their profit margins on each sale. With this approach, businesses can be flexible with their pricing by adjusting the markup to reflect changes in the cost of goods or changes in market conditions. Cons. While markups provide a great deal of flexibility, some organizations may not have enough resources to manage revenue and apply changes to their markup strategy based on the market state. So they set a uniform markup for all of their products or services. This may lead to prices being too low or too high and businesses may not be able to fully capitalize on the value of certain products. Markup revenue model examples. In addition to bed banks, airline consolidators leverage a markup model to earn revenue: They are brokers that book flight seats in bulk at discount rates and then resell them to travel agencies. Examples are Mondee, Picasso Travel, and Centrav.

Affiliate revenue model

The affiliate model is similar to the commission-based model. The main difference is that, with the affiliate model, you do not sell the product or service on your own platform, but rather redirect the customer to the original provider's platform to make the purchase and earn a commission on any resulting sales. An affiliate model is a contract between a supplier of a product/service and a promoter. A promoter can be another business/media resource/blogger that recommends a supplier’s product. The earnings will come as a percentage of sales or fees for the number of registrations done via referral links. Businesses utilizing the affiliate model include metasearch engines as a unique example. Metasearch tools can be found almost everywhere. Their main difference with retailers is that they don’t sell products directly but offer comparison and search as a value. Advertising and affiliate programs are the main revenue models used to get earnings in this case. The pros. Just like the advertisement-based revenue model, once you have a huge traffic resource, you might apply for an affiliate program to earn money. This will bring you income without any investments because you will basically generate traffic and leads for the affiliate program provider. The cons. Unfortunately, the percentage of affiliate programs promised to the promoter is quite low. Sometimes it fluctuates between 1-2 percent and requires a high volume of sales generated through your links. Affiliate revenue model examples. Blogging and event-promoting platforms like Broadway.com or TheaterMania generate revenue using this model. Among other examples are Amazon affiliate websites, e.g., Cloud Living and ThisIsWhyImBroke.

Interest revenue model

An interest or investment revenue model relates to any type of business that generates revenue in the form of interest on their loans or deposit payments. These are most often banking or electronic wallet companies that work with financial operations. The revenue is generated by making a loan to a customer or by a customer depositing or investing money (or other resources) into the business. At the end of a return period, a percentage of the loan sum will return as revenue. Debit/credit money provided with the bank accounts also relates to this model. That’s just one of the ways financial companies can make money, combining it with transaction fees for using their e-wallet/bank account. The pros. The interest rate provides a clear view of what revenue a business will generate, as the percentage stays unchanged until the return period is over. The cons. The regulations of an interest rate impact both the customer and the business. Sometimes it depends on the economic environment. Think of currency rate changes that influence potential and existing borrowers. Interest revenue model examples. Many banks, credit card companies, and other financial institutions use the interest revenue model. For example, peer-to-peer lending platforms, such as LendingClub and Prosper, generate revenue by charging interest on loans funded by investors.

Donation-based or pay-what-you-want revenue models

This is a revenue model based on investments made by businesses or customers on a voluntary basis. The product or service itself is free to use by default, so that’s the primary value a company brings to the customer. The revenue is generated in the form of donations, or sometimes in the form of “pay-what-you-want.” It’s important to mention that there is a difference between a donation-based business and a charity organization. A donation-based company is still required to pay taxes. The pros. Because of the free access to the product, some companies manage to get increasingly popular, resulting in donations becoming a major part of their revenue. The cons. The model is never used on its own and the revenue generated by it remains a secondary source because of its random/unstable nature. Donation-based revenue model examples. AdBlock generates revenue through donations from users who support the development and maintenance of the software. At the same time, AdBlock offers a premium version of the software for a fee, which includes additional features and support. Among other examples is Wikipedia which relies on donations as a significant source of revenue. Additionally, the platform makes money through grants and partnerships. There are many other revenue models, and a business or project may use more than one revenue model. It is important for businesses and projects to carefully consider their revenue model as it can have a significant impact on the overall success of the venture.

How to choose a revenue model for your business?

Before choosing a revenue model, you need a fully developed business strategy that will include a prepared business model with all its key instances. That means you must take a few steps prior to selecting the revenue model. Define your value proposition. Map out your product strategy by describing what the product is and what value it brings to the customer. Not all products can be sold: Can you recall the last time you upgraded your WinRAR to a full license? Also, you can analyze the future traffic for your app to understand if you can use ads in it. Explore the market state and customer groups. This step is to define your user persona and understand how these users usually buy things. Some markets are inclined to purchase just one product, some are inclined to ignore upgrades or in-app purchases. A good example in this field is the death of music-selling platforms that were totally replaced by subscription-based streaming services like YouTube Music, Apple Music, Spotify, and others. You may also explore the techniques on how to market your product in our dedicated article. Analyze competitors and their products. You’ll need to learn what mechanisms and revenue streams your competitors use and how they manage their costs. This information will probably show you the market’s pitfalls and dead ends. Looking at this simple matrix below, we can analyze the capabilities and needs of your company to help you decide the type of revenue model to use.

How to choose a revenue model framewor k

Depending on your business model, the product or service you’re presenting to the user is a subject of exchange. This is your value proposition on the market, so you are in charge of choosing what you want to get back based on the market factors, target audience, etc. Paid value proposition. In most cases, your value proposition costs money to use. Whether it’s a service or a software product, a customer will need to pay in some form to gain access to your value. Your revenue model in this case will be based on transactions. So develop pricing tactics that will depend on the nature of the product, the type of audience you’re trying to reach, the type of deployment, specifics of product usage, etc. Free-to-use value proposition. If the value proposition doesn’t require money to use or you choose it to be free, then you need a third party to generate revenue for you. This could be anything based on the previously mentioned types, whether it’s ad space, donations, affiliate programs, or reselling. The combination of the two will basically present you with the revenue streams that will focus on each of the customer segments. In the case of the paid value proposition, each pricing plan will be a separate revenue stream.

8 Most Popular Startup Revenue Models Explained

• October 1, 2022
• Forecast your business

There have different ways to earn revenue. A business’ revenue model is very important as it is a component of its business model: which product/services it sells to whom and how.

You might haven’t yet decided which revenue model to opt for. Or you might simply be wondering which is one is best for your business. In this article we explain you what are the 8 revenue models and their pros and cons. Read on.

What is a revenue model?

A revenue model defines how a business generates revenue. For instance, a clothing shop sells clothes to its customers for a one-time fixed payment. Instead, Netflix charges its customers a recurring fee, every month, so they can continue watching content on their platform. Both companies make money, yet differently.

Revenue model vs. revenue stream

You might have heard of revenue stream (instead of revenue model). Whilst both terms are similar, they don’t exactly mean the same thing:

• Revenue model : how a business generates revenue
• Revenue stream : a business’ source of revenue

For instance, while a business might have a subscription revenue model, it might have 2 different revenue streams: subscription “Premium” and “Corporate”.

Instead, the clothing store above has a transaction-based revenue model. Yet, it might have 3 revenue streams: shirts, trousers and accessories.

Can a business have different revenue models?

The short answer is yes. For instance, a software company (e.g. Enterprise SaaS) might offer subscriptions to all its customers. In addition it can also provide on-demand consulting services to some of its customers: its sales team might offer onboarding and training paid services for instance. Therefore, the software company is combining 2 revenue models: a subscription and a service-based revenue model.

Why a business might have different revenue models?

Multiplying the sources of revenue a business has can make it more resilient. Indeed, revenue models have different characteristics which make them more or less prone to risks and, ultimately, impact growth.

Combining different revenue models can also bring other benefits, among others:

• It broadens the types of products and services a company might offer, expanding revenue
• It might increase profitability, as some revenue models may be more profitable than others

1. Subscription revenue model

Subscription businesses have become quite popular over the past 10 years. Originally a new form of licensing (see below) created by the first software companies, subscription revenue business now spans virtually all industries globally. Whether sold to businesses (B2B) or consumers, subscription businesses are everywhere: gym memberships, phone subscriptions, SaaS, ecommerce subscription, etc.

• Scalable : once you have created a product (e.g. software) for one customer, you can sell it to another without any additional production costs
• Predictable : because customers are paying a fee periodically, revenue is easier to forecast
• High customers acquisition cost : due to competition from other players, the costs to acquire one customers are usually quite high. See our article on CAC and LTV for SaaS businesses for more information
• High retention costs : because customers keep paying until they churn, subscription businesses typically as much (if not more) in customer retention than customer acquisition.

Expert-built financial model templates for tech startups

2. Transaction revenue

Transaction revenue is the oldest, and most common source of revenue model. Typically, a business that uses transaction-based revenue falls into one of the 3 following categories:

• Companies which produces and sells the products to a reseller
• Direct-to-consumer (DTC) businesses which produces the products and sell them straight to the end consumer
• Companies who buy products / services from a company to sell it to another, or to an end-consumer instead. These businesses do not manufacture nor produce anything, they simply make money from the spread between the supply cost and the sale price.
• Low customer acquisition cost
• Simple sales process
• Difficult to scale
• Margins might be low for some businesses (e.g. retail, airlines) and profitability requires a very large volume of orders
• Can be subject to cyclicality and/or seasonality

3. Ads revenue

• Can be very profitable in the long term . Indeed, the costs to produce content (videos, articles) and maintain a website or a blog for instance can be limited. As such, the running costs are very low: once content is produced, maintenance is limited
• Scalable : the larger the audience, the more revenues you generate. If your blog, website or youtube channel starts to benefit from network effects , growth can be exponential
• Low startup costs : building a targeted audience doesn’t necessarily need substantial investment upfront. Instead, you will have to invest in curated, targeted content for your audience which you will need to publish periodically. As such, ad revenue businesses can be one people businesses (e.g. Youtube channels)
• Audience needs to be targeted , else publishers will not agree to pay attractive price for your ad space. Remember: publishers are buying ad space to generate revenues for themselves, or their clients. If publishers do not see a minimum ROI on their investment, they will go somewhere else
• Large volume is required to start generating meaningful revenues . Average eCPM varies between channels (videos, rewarded videos, articles, etc.) yet is in average $4-$10 : you will need 1,000 ad impressions to generate only $4-$10 in revenue
• Building an audience typically takes time .

4. Commission (affiliate) revenue

The transaction can be done either on your website (e.g. marketplace) or processed on another merchant’s platform (e.g. affiliation).

The commission can either be variable (a percentage of the value of the product or service) or fixed (fixed fee per transaction).

Like ads, commission and affiliate revenue business models are often not the primary source of revenue for a business. Instead, it can be a very attractive additional source of revenue. For instance, a IT consulting firm selling advisory services might resell some of its leads (the newsletter signups for example) to a software company it partnered with. By doing so, the IT advisory company may earn a 20% revenue share with the software company.

• Similar to ad revenue, it can be very profitable in the long term . Indeed, you need to build an audience first to acquire leads. Yet, maintenance costs can be quite low and therefore commission revenue highly profitable (note this is especially true for affiliation businesses)
• No inventory costs : because you act as intermediary between a supplier and a buyer, you do not hold any inventory. This significantly reduces your risks
• Commissions rates can vary significantly . They can be as high as 20-30% for marketplaces, and lower than 5% for some affiliation businesses. The level of commission you manage to negotiate with the seller depends on your bargaining power which itself is a function of your audience: the larger and more targeted your audience is, the higher the commission rate

5. Service-based revenue

• Virtually no startup costs . Starting your own advisory services firm needs very little upfront investment. Usually, a website and, if any, some digital ads costs are enough to acquire customers. Some freelancers on marketplaces such as Upwork or Fiverr do not even have any website, for them startup costs are close to zero
• Highly profitable . Because you are selling your expertise (your time), typically you do not have any ongoing expenses nor production costs: a significant part of revenues are profits (usually >90% profit margin)
• Origination can be costly . Because service-based businesses typically provide customised solutions, each new customers requires time to assess workload, define the job scope and draft a contract. All of this time spent originating transactions cannot be spent elsewhere, and therefore is a cost to take into account
• It is not scalable . Because revenue is a function of the time spent, more revenues mean more manpower. By definition it isn’t scalable at all.
• After-sale customer requests can be tricky to manage . Customers might ask for follow-up questions, discuss potential amendments or even tweak the original job scope. Often, a service contract might generate more work than expected, and therefore be less profitable.

6. Interest revenue model

• Interest revenue business models often have very little variable costs . Because you’re charging an interest for lending capital (to an individual or a business), the only variable costs are processing, clearing and currency conversion fees.
• Whilst you typically have very low variable costs, interest revenue business models typically have high fixed costs instead . These fixed costs mostly are salaries. Think about banks: they need substantial manpower to review business opportunities (e.g. loan applications for example) and run the business.
• This business model is only viable at scale : you typically need a lot of volume (for example you would need to process many loans) to be profitable. This is due to 3 factors: low interest rates, high fixed costs and credit risk
• Credit risk : when you run an interest revenue business model, you need to factor in that a certain percentage of your customers will default

7. Leasing model

The most common businesses that use a leasing model include: real estate companies, equipment or car rental businesses , etc.

• Little variable costs (see interest revenue model above)
• Lower risk of default : because you’re leasing a physical asset, this asset has a value. Therefore, unlike interest revenue, if your customer isn’t able to pay interest, you can always get back the asset and sell it at salvage value
• Unlike interest revenue model, there are some variable costs related to the assets you lease (installation, maintenance, etc.)

8. Licensing

For instance, Microsoft has historically sold access to its most common softwares (e.g. Word, Powerpoint, Excel) as licenses (vs. subscriptions)

• Like subscriptions, it’s very scalable . You can sell as many licenses as you want without increasing production costs.
• Unlike subscription revenue, you earn a fixed time fee. As such, there is no retention and limited upsell opportunities
• Because you need to charge a higher upfront fee vs. the subscription fee you would typically charge for the same product, you may lose customers to your subscription competitors . Indeed, some customers may not be able to afford to pay a high upfront fee and/or may be reluctant vs. a smaller annual/monthly fee

Related Posts

Pro One Janitorial Franchise Costs $9K – $76K (2024 Fees & Profits)

• July 5, 2024

Dance Studio Business Plan PDF Example

• June 17, 2024
• Business Plan

Carpet and Upholstery Cleaning Business Plan PDF Example

Privacy overview.

Revenue model: Business Model Canvas Explained

The revenue model is a crucial component of the Business Model Canvas, a strategic management and entrepreneurial tool that allows businesses to describe, design, challenge, invent, and pivot their business model. The revenue model, specifically, is the strategy that a company uses to generate income from its operations. It is a key aspect of a company's overall business model and is integral to its success.

The revenue model is not a one-size-fits-all concept. Different businesses will have different revenue models depending on their industry, target market, and the value they offer. It is a complex concept that encompasses various elements such as revenue streams, pricing mechanisms, and sales and distribution channels . Understanding the revenue model in the context of the Business Model Canvas requires a deep dive into these elements and how they interrelate.

Understanding the Revenue Model

The revenue model is essentially the answer to the question: "How does the business make money?" It outlines the specific ways in which a company generates revenue, detailing the revenue streams and the pricing strategies employed. The revenue model is a reflection of the company's value proposition, customer relationships, and distribution channels.

For a business to be successful, its revenue model must be sustainable and scalable . This means that it should be able to generate income consistently over time and should have the potential for growth. The revenue model is thus a critical aspect of a company's overall business strategy and plays a significant role in its long-term viability and success.

Components of the Revenue Model

The revenue model is made up of several components, each of which plays a crucial role in the generation of income. These components include the revenue streams, the pricing mechanism, and the sales and distribution channels. Each of these components is interconnected and influences the others.

Revenue streams refer to the specific ways in which a company makes money. These can include sales of products or services, subscription fees, licensing fees, and advertising revenue, among others. The pricing mechanism, on the other hand, is the strategy that a company uses to set the prices for its products or services. This can be based on various factors such as the cost of production, market demand, and competition. Lastly, the sales and distribution channels are the means through which a company delivers its products or services to its customers.

Types of Revenue Models

There are several types of revenue models that a company can adopt, depending on its business operations and the industry it operates in. These include the product or service sales model , the subscription model, the advertising model, the freemium model, and the licensing model, among others.

The product or service sales model is the most common type of revenue model. It involves selling a product or service directly to customers. The subscription model, on the other hand, involves charging customers a recurring fee for access to a product or service. The advertising model involves generating revenue through advertising, while the freemium model involves offering a basic product or service for free and charging for premium features. Lastly, the licensing model involves granting permission to use a company's intellectual property in exchange for a fee.

Revenue Model in the Business Model Canvas

The Business Model Canvas is a visual chart with nine elements describing a firm's value proposition, infrastructure, customers, and finances. The revenue model is a critical part of this canvas, specifically falling under the 'Revenue Streams' block.

The 'Revenue Streams' block in the Business Model Canvas represents the cash a company generates from each customer segment. It is the lifeblood of the business and is directly linked to the delivery of the value proposition. The revenue model, therefore, is a reflection of the value that a company offers to its customers and how it monetizes that value.

Linking Revenue Model with Other Elements

The revenue model is not an isolated element in the Business Model Canvas. It is closely linked to other elements such as the value proposition, customer segments, channels, and customer relationships. The value proposition, for instance, is what creates value for a specific customer segment, and the revenue model is how this value is monetized.

Similarly, the channels and customer relationships also influence the revenue model. The channels are the means through which a company delivers its value proposition to its customers, and the customer relationships describe the types of relationships a company establishes with specific customer segments. Both of these elements can influence the revenue streams and the pricing mechanism.

Importance of Revenue Model in Business Model Canvas

The revenue model is a critical element in the Business Model Canvas as it directly impacts a company's profitability and sustainability. A well-defined and effective revenue model can help a company generate consistent income, achieve financial stability, and drive growth.

Moreover, the revenue model can also serve as a competitive advantage for a company. By adopting a unique and innovative revenue model, a company can differentiate itself from its competitors and create a unique value proposition for its customers. Therefore, understanding and optimizing the revenue model is crucial for any business.

Revenue Growth and Innovation

Revenue growth and innovation are closely linked . A company can drive revenue growth by innovating its revenue model. This could involve adopting new revenue streams, experimenting with different pricing mechanisms, or exploring new sales and distribution channels.

Innovation in the revenue model can also help a company stay competitive in a rapidly changing business environment. By continuously evolving and adapting its revenue model, a company can stay ahead of market trends, meet changing customer needs, and seize new business opportunities.

Strategies for Revenue Growth

There are several strategies that a company can adopt to drive revenue growth. These include diversifying revenue streams, adopting value-based pricing, leveraging technology to improve sales and distribution channels, and building strong customer relationships.

Diversifying revenue streams involves exploring new ways to generate income. This could involve introducing new products or services, targeting new customer segments, or entering new markets. Adopting value-based pricing involves setting prices based on the perceived value of a product or service to the customer, rather than the cost of production. This can help a company capture more value and increase its revenue.

Innovation in Revenue Model

Innovation in the revenue model involves adopting new and creative ways to generate income. This could involve adopting new business models, experimenting with different pricing strategies, or leveraging technology to improve sales and distribution channels.

For instance, many companies are now adopting the subscription model, which involves charging customers a recurring fee for access to a product or service. This model provides a steady stream of income and can help a company build a loyal customer base. Similarly, many companies are leveraging technology to improve their sales and distribution channels, such as by selling products online or using digital marketing strategies to reach a wider audience.

In conclusion, the revenue model is a critical component of the Business Model Canvas and plays a crucial role in a company's success. It encompasses various elements such as revenue streams, pricing mechanisms, and sales and distribution channels, and is closely linked to other elements in the Business Model Canvas such as the value proposition, customer segments, channels, and customer relationships.

Understanding and optimizing the revenue model is therefore crucial for any business. By adopting innovative strategies and continuously evolving the revenue model, a company can drive revenue growth, stay competitive, and achieve long-term success.

Whenever you are ready - here are a couple of ways how I can help you grow your business:

1. ​ Business Free Training Design Sprint ​ . Join Over 2,000 founders, creators and innovators in our FREE 7-day crash course on growth design. 7 emails delivered to your inbox giving you a flavour of the strategic planning, business growth systems and methods we use.

2. ​ Builder OS - Online Course - If you're looking to grow your business, I share expertise, methods and step-by-step blueprints on finding growth opportunities, building lean offers and acquiring customers.

3. Venture Builder Newsletter ​ - Sign up for the newsletter to receive 1 weekly email with practical tips on finding profitable niches, creating irresistible offers and traffic generating systems.out your business.

Helping designers and strategists turn their boldest ideas into market-leading ventures through Business, Design and Growth.

Whenever you are ready - here is how I can help:

1. ​ Newsletter ​ . Join over 2.000 founders, creators and innovators and get access to the business builder framework.

2. ​ Business Builder OS - Masterclass on finding growth opportunities, building lean offers and acquiring customers - driven by A.I.

3. Builder Toolkit - 30 ideas on how to grow your revenue.

Actionable advice about spotting new opportunities, creating offers & growing revenue.

Find, build and grow new ventures, better and faster.

©2024 Untaylored. All Rights Reserved.

• Company Profiles

How Companies Make Money

Learn to understand a company's profit-making plan

• Search Search Please fill out this field.

What Is a Business Model?

Understanding business models, evaluating successful business models, how to create a business model.

• Business Model FAQs

The Bottom Line

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

• How Companies Make Money CURRENT ARTICLE
• Lockheed Martin
• Bank of America
• Credit Karma

The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help companies attract investment, recruit talent, and motivate management and staff.

Businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors to evaluate companies that interest them and employees to understand the future of a company they may aspire to join.

Key Takeaways

• A business model is a company's core strategy for profitably doing business.
• Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses.
• The two levers of a business model are pricing and costs.
• A business model should be periodically revised to make sure it still reflects the business environment and customer demands.
• Analysts and investors often look at a company's gross profit to evaluate the success of a business model.

Investopedia / Laura Porter

A business model is a high-level plan for profitably operating a business in a specific marketplace. This plan helps the company to identify the best way to go about doing its business while also serving to attract investors and talent.

A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients; it should ideally be stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. And they are subject to change. Many businesses revise their business models periodically to reflect changing business environments and market demand .

Investors and Business Models

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Fortunately, it's not hard to find. Most companies outline their business model on their website and in their annual reports .

Admittedly, the business model may not tell you everything about a company's prospects. Investors need to fill in the blanks, look beyond the sales pitch, and recognize that sensitive information or any flouting of rules of ethics to gain an advantage won't be mentioned. The investor who understands the business model, even on a basic level, can make better sense of the financial data.

A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs up to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.

One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS) . Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income —that is, gross profit minus operating expenses, which is an indication of just how much real profit the business is generating.

The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit.

Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. In that case, if expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.

When evaluating a company as a possible investment, find out exactly how it makes its money—not just what it sells but how it sells it. That's the company's business model.

Types of Business Models

There isn't one type of business model. Not all companies are the same and each has different ways of making money. Business models can vary considerably. An aerospace company such as Boeing, for example, may operate similarly to a peer such as Airbus but won't share much in common in terms of how it makes money with, say, a shoe store or bar.

Direct sales, franchising , advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA .

Below are some common types of business models; note that the examples given may fall into multiple categories.

One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.

Example: Costco Wholesale

Manufacturer

A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass-produced products and can sell what it makes to distributors, retailers, or directly to customers.

Example: Ford Motor Company

Fee-for-Service

Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.

Example: DLA Piper LLP

Subscription

Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.

Example: Spotify

Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of becoming an upgraded member.

Example: LinkedIn/LinkedIn Premium

Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers a free version and a premium version.

If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.

Example: AT&T

Marketplace

Marketplaces receive compensation for hosting a platform for business to be conducted. Although transactions could occur without a marketplace, this business model attempts to make transacting easier, safer, and faster.

Example: eBay

Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.

Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni

Razor Blade

Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component needed to use that product. Also referred to as the " razor and blade model ", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.

Example: HP (printers and ink)

"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.

Reverse Razor Blade

Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.

Example: Apple (iPhones + applications)

The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.

Example: Domino's Pizza

Pay-As-You-Go

Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.

Example: Utility companies

A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development and freight.

Example: Re/Max

There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps someone can take to create a plan:

• Identify your audience : Most business model plans will start with either defining the problem or identifying your audience and target market . A strong business model will reflect who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
• Define the problem : In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need that creates demand for your services or products, your business may struggle to find its footing.
• Understand your offerings : With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you're able to provide.
• Document your needs : With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future.
• Find key partners : Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.
• Set monetization solutions : A business model isn't complete until it identifies how the company will make money and turn a profit. This includes selecting the strategy or strategies laid out in the business model types section above.
• Test your model : When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so.

Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review , suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits.

Complicated business models can put off investors and hinder a company's growth. People are less eager to invest in a company they don't understand. Moreover, some business models can be less profitable and at risk of being compromised. What works one year, isn't guaranteed to continue doing so in the future.

Take the airline industry. For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

• Productivity and business processes : Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based on product usage (i.e. the amount of data being uploaded to SharePoint).
• Intelligent cloud : Microsoft offers server products and cloud services for a subscription.
• Personal computing : Microsoft sells the Windows operating system as well as physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retailers may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

There are various types of business models. Examples include subscription models, bundling, and franchising. Business models can sometimes also be loosely defined by industry. For example, manufacturers produce their own goods and may or may not sell them directly to the public, whereas retailers buy goods to later resell to the public.

How Do I Build a Business Model?

There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to make a profit. After building a business model, a company should have a stronger direction on how it wants to operate and what its financial future appears to be.

U.S. Federal Trade Commission. " Tying the Sale of Two Products ."

Harvard Business Review. " Why Business Models Matter ."

Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."

Microsoft. " Segment Information ."

• Terms of Service
• Editorial Policy
• Privacy Policy

Startup financial models - 12 templates compared

Posted by Stéphane Nasser | April 20, 2020

As a founder, there comes a time when you need a business plan, complete with financial forecasts, income statements, and fancy graphs that will impress your investors.

Don't build it from scratch - use an existing model.

A financial model allows you to draft financial projections easily, fast, and in a professional manner. A great template will also force you to think through all the aspects of your project and make sure you really get the financial logic behind your business.

It can be annoying but trust me, it's worth your time.

This post compares the top 12 templates of financial models for SaaS startups. I have personally tested each model. I have ranked them on 40+ items along 5 categories. I've looked at both spreadsheets and SaaS apps, and both free and paid solutions.

If you are looking at building your SaaS financials, this article is for you.

Table of Contents

Methodology - what makes a great financial model for saas startups.

Here is the methodology I used to build this benchmark.

I compared 40 points across 5 categories: (a) financial statements, (b) analysis capabilities, (c) revenue modeling, (d) cost modeling, (e) extra features. A detailed analysis of each model is available below. In each case, I tested the software/spreadsheet myself.

Criteria 1: Financial statements

• Time scale : Are the statements over 1 year, 3 years or more? You usually want 3 years as a minimum when you speak with professional investors.
• Income statement : Does the template include an income statement? You usually want a monthly income statement, at least for year 1.
• Cash flow statement : Same as income statement
• Balance sheet : Same as income statement
• GAAP/IFRS : Are the statements compliant with GAAP and/or IFRS rules?
• Currency : How many currencies are available?

Criteria 2: Analysis capabilities

• Financial analysis : Number of typical financial metrics included e.g. breakeven point, quick ratio, average inventory, etc.
• SaaS analysis : Number of typical SaaS metrics included e.g. MRR growth, SaaS magic number, CAC/LTV, etc.
• Graphs : Number of built-in graphs
• Costs by P&L category : Does the template break down costs into P&L categories (CoGS, RD, G&A, etc.)
• Costs by departments : Does the model break down costs into departments (sales, marketing, CS, engineering, etc)
• VS Scenarios : Does the template allow you to compare multiple scenarios?
• VS Industry comparables : Does the template compare your financials against industry comparables?
• VS Actuals : Does the template allow you to run your model versus your actual numbers?

Criteria 3: Revenue modeling

• New client acquisition : How do you enter new clients into the model? Possibilities include: entering a number manually for each month or year (it sucks); autofill the model from a base number and a growth rate (sucks a bit less); autofill several streams - each stream represents a different type of client e.g SMB/enterprise (better); or even fully model each acquisition channel (the best, very rare)
• Offerings : How many offers can you define and how precisely can you model them? This includes the possibility to create one-off offers, recurring offers, or a combo, but also the possibility to create introduction times and end times for specific offers.
• Pricing model : How many pricing models can you define and how precisely: tiers (free, basic, premium), revenue models (per seat, per usage, etc), automatically increase or decrease the plans price over years.
• Existing clients : Can you model expansion, contraction, churn, reactivation?
• Commitment : Can you model monthly VS yearly VS multi-annual contracts?
• Service revenue : Can you model punctual service revenue on top of all the other pricing models and offerings?
• Enterprise specific : Does the template offer specific features to model complex enterprise sales, such as landing/expansion, custom product developments, various sales cycles, etc?

Criteria 4: Costs modeling

• Direct labor costs : The best templates allow you to correlate direct labor costs with relevant metrics. For example, your sales staff is calculated based on forecasted income and sales target per account executive. Same for customer success payroll with number of customers and workload target per CS staff.
• Direct non-labor costs : just like with labor costs, the best templates allow you to link some direct non-labor costs with relevant metrics. For instance, server costs can be a % of MRR.
• Indirect labor costs : same as above. Even for indirect costs, some templates find smart ways to tie them to some aspect of the business.
• Indirect non-labor costs : same as above
• Payment terms : Can you define the payments terms with your vendors and suppliers? May be useful if there is a hardware component to your offer.
• Hardware-friendly : This is a special mention for templates that model things like shipping costs, inventory delay, etc.

Criteria 5: Extra features

• Documentation : Is there proper documentation in the model and on the website? Are there good explainer videos? What kind of direct support (chat, email) comes with the template?
• Languages : In what language is the template available?
• Third-party integration : Third-party integrations can be useful to input or update data over time, or to display advanced graphs.
• Excel spreadsheet : Can you access your financials as a Microsoft Excel spreadsheet? This is a must if you need to share it with investors.
• Google Sheets : Does the model work in Google Sheets? Not all models that work in Microsoft Excel work in Google, so you may want to consider that point.
• Editable formulas : Some templates do not allow you to modify formulas - which is a massive bummer when it comes to customization.

Granted, it's not a perfect methodology. One could argue forever about whether cap tables should be included in a startup financial model. But it's the best I could come up with - without being a finance nerd myself :)

Disclaimers: affiliation, impartiality, and non-finito

Before jumping to the heart of the matter, please allow me three disclaimers:

• Affiliation: Some links in the article are affiliated - which means that if you end up buying a template through one of those links, OpenVC will get a few $$$. It doesn't cost you anything, and it allows us to keep writing useful articles for you.
• Impartiality: Regardless of whether there is a referral in place or not, I am committed to providing you with an honest opinion. We take great pride in being an independent, honest, and trusted source of information for entrepreneurs.
• Non finito: This is a non-finite work. We are happy to update the article if you bring new, relevant information to our knowledge. We are also happy to fix any mistake or clarify any confusion that you may find in the article.

1. "FISY Innovation Plan" by Remi Berthier

Fisy Innovation Plan, by Rémi Berthier

For years, this template has been the go-to financial model for French entrepreneurs. However, it didn't age that well.

Analysis capabilities are limited: only a handful of financial metrics, zero SaaS metrics, a couple of graphs, and it's impossible to categorize costs. Modeling, be it for revenue or costs, is all too basic and requires a lot of manual input. Also, it's entirely in French.

Having said that, it remains a free-of-charge, easy-to-use, easy-to-customize template that covers all the basics while including specificities to the French ecosystem such as CIR, JEI, etc. It also offers a detailed page of instructions on the website.

This model makes a lot of sense for French entrepreneurs looking for a simple solution. For the others, keep on reading.

Edit 2023: I've re-downloaded the template in 2023 and didn't notice any significant change versus the 2017 version I had initially reviewed, so I kept my review untouched.

2. "SaaS Financial Plan 2.0" by Christoph Janz

SaaS Financial Plan 2.0, by Christoph Janz

This template was built by SaaS apostle Christoph Janz, and you can tell. It packs a punch of SaaS knowledge in a sleek, clear spreadsheet. You'll find lots of good stuff: basic/pro/enterprise plans, churn/upgrade/downgrade, an elegant client acquisition model and a wealth of graphs and charts.

It's not all rosy, though. You want a 5 years forecast? No, you only need 2. You want to sell annual pro plans? Too bad, pro plans are monthly and that's that. Also, no balance sheet.

This template works great if you are a typical SaaS startup and fits the vision that Christoph put into his financial plan. If not, you may be better off considering templates with broader horizons.

Edit 2023: Based on the Dropbox information, the template has not been modified since my first review in 2017, so I kept it untouched.

3. "SaaS Financial Model 3.0" by Baremetrics

SaaS Financial Model 3.0, by Baremetrics

I reviewed this model for the first time in 2017, when Jaakko Piiponen was its sole author. Since then, the Baremetrics team has substantially updated it. This new 2023 review should finally do it justice.

This SaaS Financial Model 3.0 is geared towards people who want to pilot their SaaS business, as opposed to just raising funds. Its underlying philosophy is that you need to match actual numbers with your forecasts for maximum piloting accuracy. To reach that objective, this model wants you to frequently pull data from your accounting software (e.g. Quickbooks, Xero…) and will project many assumptions based on your last 3 months - what they call "Autopilot". It's a healthy approach, and if you're ok with the extra work, it may be the right one for you.

When it comes to financial statements, this model nails it: you get a monthly view of your P&L, cash flow, and balance sheet over 5 years. However, because this model is not designed for fundraising, it doesn't include a cap table, which may be a dealbreaker to some. The whole model is in USD - you can manually change to any other currency, but you'll have to click a lot….

The Baremetrics team has also beefed up the analysis capabilities. This new version packs up all the must-have financial and SaaS metrics (Churn, ARPC, LTV, Paid CAC, Blended CAC, CAC:Payback time, CAC:LTV, MRR Breakdown), plus 11 built-in charts. A very nice attention is the Chartbuilding tab, which groups all the numbers in a clean format so you can build additional custom charts effortlessly. Like Janz's and Murray's models, you can break down expenses by category (engineering, marketing, etc.). The icing on the cake: this SaaS financial Model 3.0 is the only free model of this benchmark that lets you build a "worst case scenario" on top of your base case - and of course, compare both scenarios to your Actuals. Kudos to that!

Revenue modeling and cost modeling follow the "Autopilot" philosophy described above, with a few notable twists. For instance, the Acquisition model can be augmented with a separate "Marketing funnel" sheet (also provided by Baremetrics, also free) that models a proper 7 step funnel (visitor, signups, MQL, SQL, opportunities, trial, customer) and distinguishes between paid and organic leads. Your CMO will love it. Similarly, each expense line can be tied to specific variables to reflect dependencies.

All in all, this model by Baremetrics is a very strong contender. The only weakness I found relates to modeling complex offers, such as a Basic, a Premium and a Pro plan. It's just not possible. Even modeling annual plans seems to take a bit of work using the "Deferred revenue" tab. On the upside, this SaaS Financial Model 3.0 models expansion, contraction, churn, and even reactivation, so it's a tit for tat.

If you're looking for a free model that cares about accuracy to pilot your SaaS business the year round, and you don't mind getting your hands dirty a bit, then this is the one. Support is limited to a well-written, opinionated page of instructions, and you can contact the creators on Twitter. The model is available on Excel and Google Sheets, and all the formulas are editable.

4. "Standard SaaS Financial Plan for Startups and SMBs" by Ben Murray

SaaS Financial Plan for Startups and SMBs, by Ben Murray

This template published by Ben Murray, AKA the SaaS CFO, has a lot in common with Chris Janz's model: it's free, it's SaaS-centric and it's really good overall.

But that's where similarities stop. Let's look at what differentiates them:

• Cost modeling: Janz does a much better job as many costs are tied to activity metrics. With Murray, you have to fill it all manually. Janz 1 - 0 Murray
• Commitment: Murray allows you to define which plans are annual and which are monthly. Janz does not. Janz 1 - 1 Murray
• Client acquisition: Murray wants you to manually input new clients each month, where Janz includes 3 acquisition channels. Janz 2 - 1 Murray
• Murray also allows you to add service revenue and offers up to 5 years of forecasts. Janz 2 - 2 Murray
• Since its latest update, Murray's model also allows you to input your actual number and compare them with your forecasts. Janz 2 - 3 Murray

At the end of the day, Murray's SaaS template is great - maybe the best amongst the free templates. It is a bit disappointing when it comes to modeling new client acquisition and costs, though.

To explore more powerful (and paid) templates, read on!

5. "SaaS Startup" by Pro Forma

SaaS Startup Kit, by Pro Forma

The SaaS startup kit is the first paying template we're looking at: one-time $99.

Because you're paying, you obviously get a lot more in return: balance sheet, cap table, GAAP/IFRS compliance, 161 currencies to choose from, a ton of financial metrics and graphs, and advanced capabilities to model your costs and your revenue, including for hardware startups.

Now, because we are paying, we are a lot pickier. And I see 3 problems with this SaaS Startup Kit. First, you cannot account for upgrades and downgrades (you can model churn, though). Second, you cannot break down costs by P&L categories or departments. Third, the formulas are "locked ' so you cannot edit them. That's a big problem if, like me, you like looking under the hood. But maybe you don't care?

All in all, I cannot tell you not to look at the SaaS startup kit. It has a lot going for it, and at $99, it's priced right. But if you can stretch your budget a little more, look at the next model - it may be the right one for you.

6. "SaaS Financial Model" by Taylor Davidson

"SaaS Financial Model" by Taylor Davidson

Let me start right off the bat: this "SaaS Financial Model" by Taylor Davidson is one of the best templates out there.

For $149, you get all the financial statements you may wish for, laid out over 5 years, and GAAP-compliant. Additional tabs are built-in for fundraising (assess needs and uses), valuation (ownership, DCF, waterfall exit, ROI), variants (simplified scenarios), and impact (for purpose-driven startups). Bonus point: the model works in Microsoft Excel and Google Sheets, supports all currencies, and is fully editable.

In terms of analysis capabilities, the template generates boatloads of financial and SaaS metrics, as well as 20+ beautiful graphs. Costs can be broken down by departments and P&L categories so you can make sense of all that good stuff. SaaS experts will especially appreciate the granularity provided by monthly cohort analysis - a rarity!

Modeling revenue and costs is extremely versatile. Instead of pre-modeling everything for you, the template provides you with very unique features (Pricing, Pipeline, Drivers) that allow you to customize it to your needs. Here are a few examples of what you can do:

• You can build as many subscription plans as you want.
• Contract length is not limited to monthly or annual but can be anything you want.
• Billings are separate from contract cycles, so can do an annual contract with quarterly billings, or 3-year contract with annual billings, or annual contract with monthly billings
• All costs, direct and indirect, labor and non-labor, can be tied to relevant activity metrics (revenue, headcount, etc.) which is what you would expect from this kind of template.
• All costs can also be tied that are *not* tied to an activity metric, say periodic costs that occur quarterly or annually, or costs that increase a % over time, or costs that are a % of salaries, or a % of revenues, for example. This is all built-in within the Drivers sheet and an absolute delight to use.
• For Enterprise sales, you can model a good old Pipeline in the Pipeline sheet and attribute different numbers of seats and "likelihood to close" to each deal.

True, it takes a bit of time to wrap your head around the internal logic of that model. But once you master it, there is virtually no limit to what you can do.

Thankfully, this financial model is well-documented. The website includes a long, detailed "Getting Started" page as well as specific articles and videos for technical points. The highlight is definitely the email support - I've consistently received detailed replies within 24 hours - at zero extra cost. Kudos to that.

Long story short - if you are willing to shell out $149 for a SaaS financial model, Taylor Davidon's template is arguably one of the absolute best you can get your hands on. The other one is the model built by Alexander Jarvis - read on to learn about it.

7. "SaaS: SME & Users" by Alexander Jarvis

8. "saas: enterprise, sme & users" by alexander jarvis.

"SaaS: SME & Users" by Alexander Jarvis

"SaaS: Enterprise, SME & Users" by Alexander Jarvis

It's hard to write a serious review about this template - everything about it is absolutely ridiculous. It is ridiculously rich, ridiculously detailed, ridiculously powerful. It's the kind of template that you use when you want to make a statement, like impress your investors or make your CFO feel irrelevant. It's heavy, bold, and over-the-top, in the best way possible. Brace yourselves, let's dive in.

This template by Alexander Jarvis comes in 2 versions. The "SaaS: SME & Users" is perfectly fine for most SaaS businesses. It sells at $319. The "SaaS: Enterprise, SME & Users" retails at $1,299 and includes extra logic to model enterprise sales. Because of their complexity, both models only work in Microsoft Excel (no Google Sheets).

In return for your money, you get the most advanced modeling capabilities - period.

• Each acquisition channel is modeled in great details: paid, organic, blog, social, emailing, and channel partners. Each channel can be assigned its own conversion rate from visitor to user. You can also differentiate between the customers that self-onboard and those who require sales intervention.
• You can design composite offerings based on usage fee, monthly fee and/or a one-time service fee. The templates allow 3 paid plans - typically basic, premium, pro - as well as a free trial plan, and each of these plans can exist with a monthly or annual commitment.
• Customers can upgrade, downgrade or churn, and you can even schedule module releases at different points in time, so you create new revenue streams over the years.
• All costs, direct and indirect, labor and non-labor, are modeled in a clever way i.e. they are tied to relevant activity metrics

I cannot stress enough how detailed this model is. Here is an example: the "email marketing" tab (yes, there is such a thing) takes into account 12+ inputs including stuff like the % of recipients who will share the newsletter with their friends. I love this kind of detail because it gives actionable points when thinking about execution. It also makes it easier to defend your numbers in front of investors because you can explain the underlying assumptions. If it's too much for you, you can always deactivate the advanced fields with the switch and focus on the core input.

If you buy the $1,299 version, you get an extra slew of tabs specifically dedicated to enterprise sales in all its complexity: enterprise-specific products and offerings, geographies, sales cycles, "land and expand", custom development, etc. If you are building the next Oracle or Palantir, that stuff alone is invaluable.

Documentation is ok. Instructions and comments are included inside the template, but not much in terms of FAQ/articles on the website. Having said that, I particularly appreciated the tutorial videos: one 28-min overview and 20 shorter videos that each cover a specific tab.

You want more? Time to talk about analysis capabilities. Alexander Jarvis' model is most lavish when it comes to that point. 50+ graphs are readily available - and that's without counting the sparklines that are peppered throughout the sheet. Because modeling is so detailed, the template can provide advanced SaaS metrics such as marketing leverage or expansion % of new MRR. Of course, costs can be allocated to P&L categories and departments so you really understand what's going on in your model.

When it comes to financial statements, the $319 version gives you only 3 years of forecasts, with no balance sheet and no cap table. The $1,299 version does a bit better with 5-year forecasts, but still no sign of balance sheet nor cap table. Some would argue that an early-stage startup doesn't need formal financial statements... However, this template does include a tab to compare your forecasts to your actuals, and another tab listing down industry metrics - both are very welcome additions.

If you want the best spreadsheet ever, it boils down to comparing Taylor Davidson's and Alexander Jarvis' templates, and picking the one that fits you the most. See the final section "Conclusion" for a side-by-side of both models.

However, some prefer using a specialized SaaS app to build their startup financial model. If that's your case, check out the last 4 models.

9. "EY Finance Navigator" by Alex and Wout

EY Finance Navigator, by Alex and Wout

The Finance Navigator was developed by Alexander Matthiessen and Wout Bobbink from EY's Dutch office. It's a SaaS app: you pay a monthly subscription to access an online tool. It's a fundamentally different approach from the spreadsheet-based models we've explored so far.

The Finance Navigator costs $30 per month without commitment or $380 over an 18 month period. For that price, you get very exhaustive financial statements: income statements, cash flow statements, and balance sheets over 10 years - no cap table though. All currencies are available and you can export the statements to a clean, well-designed spreadsheet format (only numbers, no formulas).

Documentation is good, with in-app guidance, website posts, a Q&A, and a 37 min walkthrough video. The tool was clearly thought to be user-friendly and the onboarding is best-in-class. You will have zero difficulties using EY's Finance Navigator whatsoever.

Unfortunately, simplicity is a double-edged sword. Revenue and cost modeling is super basic. For example, revenue is defined as a base number for month 1, then a monthly growth rate. No channels, no conversion rate, no pricing plans. The same goes for costs: you cannot tie costs to specific activity metrics, so you have to input them manually. Because it's a SaaS application, you cannot customize the model by adding fields or modifying formulas. And because it's so basic, there is only the bare minimum in terms of analysis capabilities.

At the end of the day, EY's Finance Navigator holds a lot of promises. UX is great and they have a couple of nice features like comparables and scenarios. The product has evolved over the years, adding up features and getting more usable. In my estimation, it's not quite enough to be used by advanced SaaS entrepreneurs. The product is geared towards traditional businesses - think bakery, restaurant, consulting, who just want clean and easy financials. Not the right pick for SaaS people - yet. I'd love to revisit the tool in a year and see what progress has been made.

10. "Liveplan" by Palo Alto Software

Liveplan, by Palo Alto Software

Liveplan sells its financial modeling SaaS app at $20 per month ($360 over 18 months), which makes it a close competitor to EY Finance Navigator.

Starting with the strong points, Liveplan offers exhaustive statements over 5 years: income statements, cash flow statements, and balance sheets. Compared with EY's model, you have a bit more control over revenue modeling: offerings can be defined as recurring fees, billable hours, and a one-time upfront fee can also be added. Pricing can be increased automatically over time, churn can be factored in, and you can model monthly or annual plans.

When looking at cost modeling, you can adjust payment terms for clients and suppliers. There are also specific variables for hardware products. Documentation is just fine, with a tutorial video per section embedded directly in the app, as well as plenty of instructions. Liveplan exists in 5 languages, and integrates with Quickbooks, which allows importing your actual numbers and comparing them with your forecasts. You can also export your financials into a (numbers-only) spreadsheet to share with your investors.

Now, although Liveplan's software has more powerful modeling capacities than EY's, it remains insufficient in my estimation. Here are just a few examples.

• Direct labor costs can be set as a % of revenue, but do not update the number of employees accordingly.
• Indirect costs can only be set as a constant, a % of overall revenue, or a % of a specific revenue.
• New client acquisition is just manual input - as in you manually input "2" clients in March and "4" clients in April. There is no channel modeling whatsoever.
• Costs cannot be broken down by P&L categories nor departments.

When modeling is too superficial, it translates into poor analysis capabilities. In Liveplan's case, you do have a dozen financial metrics available (net cash flow, account payable, cash on hand…) and another dozen graphs. But SaaS metrics are absent, which is a bummer for SaaS entrepreneurs.

At the end of the day, LivePlan was built for non-tech entrepreneurs. Perfect for a bike shop owner, but not quite there for SaaS people.

Don't take my word for it: there is a 60-day trial, so give it a spin for free and make up your own mind.

11. "Summit" by Matt Wensing

Summit, by Matt Wensing

Summit is a young startup (founded 2019) that brings a fresh take on the whole financial modeling thing with a SaaS solution.

Let's make it clear - Summit is not meant for fundraising. Forecasts on Summit are made for an 18-month period only. Costs cannot be allocated to P&L categories and departments, nor can you differentiate between labor/non-labor or direct/indirect costs. Therefore, you won't be able to generate any financial statements that your investors may require . Hell, you can't even export a spreadsheet!

So why talk about Summit? Because Summit is pretty awesome when it comes to piloting your SaaS startup with a financial model. Here is how it works. First you connect your live metrics (Stripe, Baremetrics, etc.) to your Summit account. This allows Summit to derive your future growth from the current trends. The next step consists in optimizing that future growth. To do that, you define a baseline scenario around 20+ metrics from sales, product, finance, then you play around with those variables to maximize your MRR or any other metric you like. What if we increase our close rate? What if we raise funds and funnel that money into paid ads? You instantly get clear answers. What's more, the clean dashboards and convenient built-in comments feature makes it easy and even pleasant to run those analyses and share with your team. It's a really fresh experience - no comparison possible with fuddy-duddy spreadsheets.

Summit is still a young product and there is room for improvement: currencies, tax rates, expansion and contraction of existing clients, one-off revenue. In particular, client acquisition would greatly benefit from more granularity and native integrations with social media accounts for instance.

At the end of the day, Summit is not meant to build financial statements, but to make decisions in a data-driven way. It's such a refreshing approach in the space that I highly recommend trying it out. Bonus point: it's 100% free for now, so it's a no-brainer.

12. "Causal" by Taimur and Lukas

Causal, by Taimur and Lukas

At first glance, Causal seemed very similar to Summit. It's also a SaaS solution, also founded in 2019, also bringing a new approach to modeling. But that's where the comparison stops because the philosophy behind Causal is quite unique.

Causal is not just a financial modeling tool for SaaS startups. It's a modeling tool that aims at replacing Excel for every modeling need you may have. This means that (a) Causal is super versatile and goes much deeper than Summit, and (b) Causal is much more complex with a steeper learning curve than Summit.

Looking at revenue and cost modeling, you can model anything you want on Causal with an interface that's 10x more modern and user-friendly than a spreadsheet. The same thing goes for analysis capabilities: you can generate dashboards, tables, and graphs for absolutely anything - including any financial statement your investors may want. You can also connect live data sources (Stripe and Google Sheets for now, more to come) to automatically update your models with real-time metrics.

As a SaaS entrepreneur, you don't have time to build a model from scratch. Lucky you, Causal has built-in templates - including two SaaS models built by Taylor Davidson himself (see template #6). You are then able to augment or fine-tune those models to suit your specific needs.

In terms of documentation, there are a few videos, a live chat as well as a walkthrough when you start a new model. That's not much, but Causal assumes that you are a modeling "nerd" and that your usual work environment is massive spreadsheets. If that's the case, you'll be just fine. Assuming you have the time and desire to put in the hours to learn a new tool, Causal may very well be the ultimate platform for financial modeling.

New models - reviews coming soon

"financial model template for startups" by basetemplates.

Financial Model Template, by BaseTemplates

Conclusion: this is the best financial model for SaaS startups

Best free spreadsheet

If you want a "good enough" model but are not willing to pay for it, go for Ben Murray's (model #4) or Chris Janz's (model #2) . Customize them a bit to offset their weaknesses.

See below a side-by-side comparison of the differences between both models.

Best paid spreadsheet

If you want the best financial model spreadsheet out there and are willing to pay for it, go for Taylor Davidson's (model #6) or Alexander Jarvis' (models #7/#8) . They are by far the best stuff on the market today.

See below a side-by-side comparison of the differences.

Best software

If you want to experience the future of financial modeling, go for Summit (model #11) or Causal (model #12) - while keeping in mind that both are very different.

Thanks for reading. Don't hesitate to leave a question in the comments, I try to reply personally to each one of them.

OpenVC is a radically open platform that helps tech founders connect with the right investors.

POPULAR Posts

An LP take on VC portfolio construction

How to write a top 1% cold email to VCs

Pitch deck for startups - 9 templates compared

How to Model a Venture Capital Fund

How to whitelist OpenVC

You might also enjoy

Here's our list of the absolute best 9 templates of pitch decks for startup founders. Most of what you find online - both free and paid - sucks. So we tested them all and produced a detailed benchmark for you.

Need a financial model for your startup? Fear not. I have extensively compared the top 12 templates, free and paid, so you don't have to do it.

How to Write a Business Revenue Model

• Small Business
• Business Communications & Etiquette
• Business Writing
• ')" data-event="social share" data-info="Pinterest" aria-label="Share on Pinterest">
• ')" data-event="social share" data-info="Reddit" aria-label="Share on Reddit">
• ')" data-event="social share" data-info="Flipboard" aria-label="Share on Flipboard">

Examples of Sales Projections

How to write a 3-year business forecast, how to make a projected sales budget.

• What Is a Revenue Model?
• Appraising a Sole Proprietorship

A business revenue model answers the most important question about a new business: How will you make money? When you are first starting out, this may feel like a guessing game. However, the experience you have accumulated and the study of more established businesses can give you a wealth of information to begin your own revenue model. Once you begin bringing in money, use the revenue model as a living document to change your strategies, focusing on sources of income that work best, while revising your approach to those that aren't working well.

Gathering Data and Finding New Ideas

Gather your sales data if your business has already produced some income. Make a note of each type of income source and an estimate of the total revenue. If you have not yet launched your business, but worked in the same market for someone else in the past, make notes of the revenue sources your company had. The more sales history you have, the more accurate your revenue model will be.

Determine how many customers exist for your products or services by doing some market research. You can research this yourself using resources such as the most current Economic Census or by hiring a market research consultant.

Make a list of primary revenue models you can use. For example, you can sell products and services on a project-by-project basis. You can also charge a retainer to organizations that may need your services, such as lawyers and public relations firms do. You may also be able to offer services on a subscription basis.

Make a list of secondary revenue models you can use. For example, if you promote your business on your website, you may be able to add to your revenue by selling affiliate products related to your core business. You may also be able to make additional money by putting advertisements on your website. In addition, you may be able to charge a monthly fee for premium content on your website or license your content to other websites.

Make a list of other marketing methods used by other businesses. Examples include Facebook fan pages, online sales using a service such as PayPal, eBay, and indexing your business for local search results on websites such as Google.

Writing Your Revenue Model

Launch word processing software and create a new document for your revenue model or add it as a new section in your business plan.

Write down a second list of long-term revenue sources. These may eventually bring in a lot of income but are not enough themselves to sustain your business today. These may be secondary income sources such as website advertising or subscription-based services.

Create a new page for each revenue source and use the revenue source as the title for that page. Detail the steps you need to take to achieve the revenue goal you specified in the summary page. Specify how much time each will require to implement, as well as how much time will be required to keep it active.

Review your revenue model on a regular basis and adjust it as needed. If your business is just starting, you will have a much stronger understanding of your revenue after a month than you will before you began. Increase the amount of time you spend on the revenue sources that work well. Decrease the time you spend on revenue sources that are not working as well as you projected until you can revise your strategies for them.

• Corbett Barr: An In-Depth Guide to Online Business Revenu Models for Lifestyle Entrepreneurs

A published author and professional speaker, David Weedmark has advised businesses and governments on technology, media and marketing for more than 20 years. He has taught computer science at Algonquin College, has started three successful businesses, and has written hundreds of articles for newspapers and magazines throughout Canada and the United States.

Related Articles

The entries for closing a revenue account in a perpetual inventory system, marketing budgets that include pro forma financial statements, how to calculate budgeted revenue, how do i write a three-year business plan, how to calculate revenue vs. labor, business start-up strategies, how to plan & grow a business venture, what financial projections do investors look for in a business plan, what is a revenue budget, most popular.

• 1 The Entries for Closing a Revenue Account in a Perpetual Inventory System
• 2 Marketing Budgets That Include Pro Forma Financial Statements
• 3 How to Calculate Budgeted Revenue
• 4 How do I Write a Three-Year Business Plan?

The Leading Source of Insights On Business Model Strategy & Tech Business Models

Business Model vs Revenue Model

A business model is a holistic way to look at a company, which comprises the revenue model , but it also goes beyond it. A revenue model instead is primarily about how a company makes money. In short, where a revenue model is about how a company makes money, a business model is way beyond that, as it looks a distribution , product, marketing , and financials.

Key Highlights

• Business Model: A comprehensive view of a company that goes beyond just the revenue model . It includes aspects such as distribution , product, marketing , and financials, providing a holistic understanding of how the company operates.
• Revenue Model: Focuses on how a company generates money. It is a subset of the business model , specifically addressing the methods and strategies employed by the company to earn revenue.
• Scalable Business Model: A model that allows a business to increase productivity and growth without proportionally increasing input. It involves scalable elements like underlying profitability, process automation, and a robust distribution network.
• Underlying Profitability: The foundation of a scalable business model , ensuring that revenue growth is achieved without sacrificing profitability.
• Process Automation: The ability to automate core processes as a business scales, improving efficiency and reducing manual labor.
• Distribution Network: A strong and effective distribution network that supports the business’s expansion and enables it to reach a broader customer base.
• Sustainable Financial Model: Incorporating a revenue model that ensures steady and consistent revenue generation, making the business financially viable in the long term.
• Creating a Digital Business: Revenue modeling aids in designing a sustainable financial plan for revenue generation in digital businesses, both new startups and existing ones.
• Analyzing Existing Digital Businesses: Revenue modeling can be used to reverse engineer and analyze the revenue generation strategies of successful digital businesses.
• Holistic Understanding: Business models provide a comprehensive and interconnected view of all aspects of the company, helping stakeholders understand the complete picture of how the company operates and makes money.

Read Next: Business Model , Revenue Model .

Connected Strategy Frameworks

ADKAR Model

Ansoff Matrix

Business Model Canvas

Lean Startup Canvas

Blitzscaling Canvas

Blue Ocean Strategy

Business Analysis Framework

Balanced Scorecard

Blue Ocean Strategy 

GAP Analysis

GE McKinsey Model

McKinsey 7-S Model

McKinsey’s Seven Degrees

McKinsey Horizon Model

Porter’s Five Forces

Porter’s Generic Strategies

Porter’s Value Chain Model

Porter’s Diamond Model

SWOT Analysis

PESTEL Analysis

Scenario Planning

STEEPLE Analysis

Main Guides:

• Business Models
• Business Strategy
• Marketing Strategy
• Business Model Innovation
• Platform Business Models
• Network Effects In A Nutshell
• Digital Business Models

More Resources

About The Author

Gennaro Cuofano

Discover more from fourweekmba.

Subscribe now to keep reading and get access to the full archive.

Type your email…

Continue reading

• Business Essentials
• Leadership & Management
• Credential of Leadership, Impact, and Management in Business (CLIMB)
• Entrepreneurship & Innovation
• Digital Transformation
• Finance & Accounting
• Business in Society
• For Organizations
• Support Portal
• Media Coverage
• Founding Donors
• Leadership Team

• Harvard Business School →
• HBS Online →
• Business Insights →

Business Insights

Harvard Business School Online's Business Insights Blog provides the career insights you need to achieve your goals and gain confidence in your business skills.

• Career Development
• Communication
• Decision-Making
• Earning Your MBA
• Negotiation
• News & Events
• Productivity
• Staff Spotlight
• Student Profiles
• Work-Life Balance
• AI Essentials for Business
• Alternative Investments
• Business Analytics
• Business Strategy
• Business and Climate Change
• Design Thinking and Innovation
• Digital Marketing Strategy
• Disruptive Strategy
• Economics for Managers
• Entrepreneurship Essentials
• Financial Accounting
• Global Business
• Launching Tech Ventures
• Leadership Principles
• Leadership, Ethics, and Corporate Accountability
• Leading Change and Organizational Renewal
• Leading with Finance
• Management Essentials
• Negotiation Mastery
• Organizational Leadership
• Power and Influence for Positive Impact
• Strategy Execution
• Sustainable Business Strategy
• Sustainable Investing
• Winning with Digital Platforms

8 Types of Business Models & the Value They Deliver

• 26 May 2016

You want to start a company but aren’t sure about a viable business model. How might you create something that people are willing to pay for and could earn you a profit?

Before diving into potential strategies, it’s important to understand what a business is and does. At its heart, a business generates value for its customers. A business model is a specific method used to create and deliver this value.

What Is Value in Business?

A successful business creates something of value . The world is filled with opportunities to fulfill people’s wants and needs, and your job as an entrepreneur is to find a way to capitalize on these opportunities.

A viable business model is one that allows a business to charge a price for the value it’s creating, such that the business brings in enough money to make it worthwhile and continue operating over time. Whatever the business is offering must also satisfy the customer’s needs and quality expectations.

It’s important to note that value is subjective. What’s valuable to one person may not be to another. Moreover, the concept of value excludes any moral judgments about the intrinsic worth of an offering. For example, while most would agree that human life is more valuable than sports, some professional athletes make far more money than the average brain surgeon.

Nonetheless, the concept of value provides a useful bedrock on which to begin building your business model. In particular, consider what forms of value people are willing to pay for. Here are eight potential business models and the forms of value they deliver—as well as the pros and cons of each—to help you get started.

Access your free e-book today.

8 Types of Business Models to Explore

A product is a tangible item of value. To run a successful product-focused business, try to produce the item for as low a cost as possible while maintaining a reasonable level of quality. Once the item is produced, your objective should be to sell as many units as you can for as high a price as people are willing to pay to maximize profit.

Products are all around us. From laptops to books to HBS Online courses (products don’t have to be physical), products are a classic form of value with high upside if you can get them right.

• Pros: Many products can be easily duplicated. Thus, firms can achieve economies of scale after bearing some upfront costs of production.
• Cons: Physical products need to be stored as inventory, which can increase costs. They can also be damaged or lost more easily than, say, a service.

Related: How to Create an Effective Value Proposition

A service involves offering assistance to someone else for a fee. To make money from your service, provide a skill to others that they either can’t or don’t want to do themselves. If possible, repeatedly provide this benefit to them at a high quality.

Like products, services are in abundance, especially in the knowledge economy. From hairdressers to construction workers to consultants to teachers, people with lucrative skills can earn good money for their time.

• Pros: If you have a skill in high demand or a skill that very few others have, you can charge a fair price for your time and stand out in your field.
• Cons: If you don’t charge enough for your services, or many people have your skill, your business may not be as lucrative.

3. Shared Assets

A shared asset is a resource that many people can use. Such resources allow the owner to create or purchase the item once and then charge customers for its use. To run a profitable business around shared assets, you need to balance the tradeoff of serving as many customers as you can without affecting the overall quality of the experience.

For instance, think of a fitness center. A gym typically buys treadmills, ellipticals, free weights, bikes, and other equipment and charges customers monthly membership fees for access to these shared assets. The key is to charge customers enough to maintain and, if needed, replace their assets over time. Finding the right range of customers is the key to making a shared asset model work.

• Pros: This model provides people access to a lot of assets they wouldn’t otherwise have access to. In addition, many people are willing to pay a lot for access to trendy social spaces.
• Cons: Because they don’t own the assets, customers have little incentive to treat your resources well. Make sure you have enough in your budget for quick fixes, if necessary.

4. Subscription

A subscription is a type of program in which a user pays a recurring fee for access to certain specified benefits. These benefits often include the recurring provision of products or services. Unlike a shared asset, however, your experience with the product or service isn’t affected by others.

To have a successful subscription-based offering, build a subscriber base by providing reliable value over time while attracting new customers.

The number of subscription services has exploded in recent years. From magazines to streaming services to grocery and wine delivery subscriptions, businesses are turning to the subscription-based model, often with great success.

• Pros: This model provides certainty in the form of predictable revenue streams, making financial forecasting a bit easier. It also benefits from a loyal customer base and customer inertia (for instance, customers may forget to cancel their subscription).
• Cons: To run this model, your business operations must be strong. If you can’t deliver value consistently over time, you may want to consider a different business model.

5. Lease/Rental

A lease involves obtaining an asset and renting it out for an agreed-upon amount of time in exchange for a fee. You can lease virtually anything, but it’s in your best interest to rent assets that are durable enough to be returned in good condition. This ensures you can lease the good multiple times and, perhaps, eventually sell it.

To profit from leases, the key is to ensure that the revenue you get from leasing the asset before it loses value is greater than the purchase price. This requires you to price the rental of the item strategically and potentially not lease to those who may not return it in good condition. This is why many rentals of high-value items require references, credit checks, or other background information that can predict how someone may return the leased item.

• Pros: You don’t have to have a novel idea to make money using a lease business model . You can purchase assets and rent them to others who wouldn’t buy them for full value and earn a premium.
• Cons: You need to protect yourself from unexpected damage to your assets. One way to do so is through insurance.

6. Insurance

Insurance entails the transfer of risk from a customer to a seller of an insurance policy. In exchange for the insurance company (the seller of the policy) taking on the risk of a specified event occurring, they receive periodic payments ("premiums" in insurance lingo) from the policyholder. If the specified event doesn’t happen, the insurance company keeps the money, but if it does, the company has to pay the policyholder.

In a sense, insurance is the sale of safety—it provides value by protecting people from unlikely, but catastrophic, risks. Policyholders can take insurance out on almost anything: life, health, house, car, boat, and more. To run a successful insurance company, you have to accurately estimate the likelihood of bad events occurring and charge higher premiums than the claims you pay out to your customers.

• Pros: If you calculate risk accurately, you’re guaranteed to make money using the insurance business model.
• Cons: It can be difficult to accurately calculate the likelihood of specific events occurring. Insurance only works because it spreads risk over large numbers of policyholders. Insurance companies can fail if a large portion of policyholders is impacted by a widespread, negative event they didn’t see coming (for example, the Global financial crisis in 2007 and 2008).

Related: 5 Steps to Validate Your Business Idea

7. Reselling

Reselling is the purchasing of an asset from one seller and the subsequent sale of that asset to an end buyer at a premium price. Reselling is the process through which most major retailers purchase the products they then sell to buyers. For example, think of farmers supplying fruits and vegetables to a grocery store or manufacturers selling goods to a hardware store.

Companies make money through resale by purchasing large quantities of items (usually at a bulk discount) from wholesalers and selling single items for a higher price to individuals. This price raise is called a markup.

• Pros: Markups can often be high for retail sales, enabling you to earn a profit on the items you resell. For example, a bottle of water might cost 10 cents to produce, whereas a customer may be willing to pay $1.50 or more for the same bottle.
• Cons: You need to be able to gain access to quality products at low costs for the reselling business model to work. You’ll also need the physical space to store inventory to manage sales cycles.

8. Agency/Promotion

Agents create value by marketing an asset, which they don’t own, to an interested buyer. They then earn a fee or a commission for bringing the buyer and seller together. Thus, instead of using their own assets to create value, they team up with others to help promote them to the world.

Running a successful agency requires good connections, excellent negotiation skills , and a willingness to work with a diverse set of individuals. One example is a sports agent who promotes players to teams and negotiates on their behalf to get the best deal. In return, they typically receive compensation equal to a certain percentage of the contract.

• Pros: You can highly profit from expertise and connections in your industry, be it publishing, acting, advertising, or something else.
• Cons: You only get paid if you seal the deal, so you have to be able to live with some uncertainty.

Setting Your Business Up for Success

These eight types of business models each have pros and cons and deliver value in their own ways. If you’re looking to start a business and need a place to start, one of these could be the best fit for your venture and entrepreneurial skill set .

Interested in honing your entrepreneurial skills? Explore our four-week online course Entrepreneurship Essentials and our other entrepreneurship and innovation courses to learn the language of the business world.

This post was updated on February 19, 2021, and is a compilation of two posts, previously published on May 26, 2016, and June 2, 2016.

About the Author

18 of My Favorite Sample Business Plans & Examples For Your Inspiration

Published: July 01, 2024

I believe that reading sample business plans is essential when writing your own.

hbspt.cta._relativeUrls=true;hbspt.cta.load(53, 'e9d2eacb-6b01-423a-bf7a-19d42ba77eaa', {"useNewLoader":"true","region":"na1"});

As you explore business plan examples from real companies and brands, it’s easier for you to learn how to write a good one.

So what does a good business plan look like? And how do you write one that’s both viable and convincing? I’ll walk you through the ideal business plan format along with some examples to help you get started.

Table of Contents

Business Plan Types

Business plan format, sample business plan: section by section, sample business plan templates, top business plan examples.

Ultimately, the format of your business plan will vary based on your goals for that plan. I’ve added this quick review of different business plan types that achieve differing goals.

For a more detailed exploration of business plan types, you can check out this post .

Free Business Plan Template

The essential document for starting a business -- custom built for your needs.

• Outline your idea.
• Pitch to investors.
• Secure funding.
• Get to work!

Download Free

All fields are required.

You're all set!

Click this link to access this resource at any time.

1. Startups

Startup business plans are for proposing new business ideas. If you’re planning to start a small business, preparing a business plan is crucial. The plan should include all the major factors of your business.

You can check out this guide for more detailed business plan inspiration .

2. Feasibility Studies

Feasibility business plans focus on that business's product or service. Feasibility plans are sometimes added to startup business plans. They can also be a new business plan for an already thriving organization.

3. Internal Use

You can use internal business plans to share goals, strategies, or performance updates with stakeholders. In my opinion, internal business plans are useful for alignment and building support for ambitious goals.

4. Strategic Initiatives

A strategic business plan is another business plan that's often shared internally. This plan covers long-term business objectives that might not have been included in the startup business plan.

5. Business Acquisition or Repositioning

When a business is moving forward with an acquisition or repositioning, it may need extra structure and support. These types of business plans expand on a company's acquisition or repositioning strategy.

Growth sometimes just happens as a business continues operations. But more often, a business needs to create a structure with specific targets to meet set goals for expansion. This business plan type can help a business focus on short-term growth goals and align resources with those goals.

I’m going to focus on a startup business plan that needs to be detailed and research-backed as well as compelling enough to convince investors to offer funding. In my experience, the most comprehensive and convincing business plans contain the following sections.

Executive Summary

This all-important introduction to your business plan sets the tone and includes the company description as well as what you will be exchanging for money — whether that’s product lines, services, or product-service hybrids.

Market Opportunity

Information about gaps in your industry’s market and how you plan to fill them, focused on demand and potential for growth.

Competitive Landscape Analysis

An overview of your competitors that includes consideration of their strengths and how you’ll manage them, their weaknesses and how you’ll capitalize on them, and how you can differentiate your offerings in the industry.

Target Audience

Descriptions of your ideal customers, their various problems that you can solve, and your customer acquisition strategy.

Marketing Strategy

This section details how you will market your brand to achieve specific goals, the channels and tactics you’ll utilize to reach those goals, and the metrics you’ll be using to measure your progress.

Key Features and Benefits

This is where you’ll use plain language to emphasize the value of your product/service, how it solves the problems of your target audiences, and how you’ll scale up over time.

Pricing and Revenue

This section describes your pricing strategy and plans for building revenue streams that fit your audiences while achieving your business goals.

This is the final section, communicating with investors that your business idea is worth investing in via profit/loss statements, cash flow statements, and balance sheets to prove viability.

Okay, so now that we have a format established, I’ll give you more specific details about each section along with examples. Truthfully, I wish I’d had this resource to help me flesh out those first business plans long ago.

1. Executive Summary

I’d say the executive summary is the most important section of the entire business plan. It is essentially an overview of and introduction to your entire project.

Write this in such a way that it grabs your readers' attention and guides them through the rest of the business plan. This is important because a business plan can be dozens or hundreds of pages long.

There are two main elements I’d recommend including in your executive summary: your company description and your products and services.

Company Description

This is the perfect space to highlight your company’s mission statement and goals, a brief overview of your history and leadership, and your top accomplishments as a business.

Tell potential investors who you are and why what you do matters. Naturally, they’re going to want to know who they’re getting into business with up front. This is a great opportunity to showcase your impact.

Need some extra help firming up your business goals? I’d recommend HubSpot Academy’s free course to help you set meaningful goals that matter most for your business.

Products and Services

Here, you will incorporate an overview of your offerings. This doesn’t have to be extensive, as it is just a chance to introduce your industry and overall purpose as a business. I recommend including snippets of information about your financial projections and competitive advantage here as well.

Keep in mind that you'll cover many of these topics in more detail later on in the business plan. The executive summary should be clear and brief, only including the most important takeaways.

Executive Summary Business Plan Examples

This example was created with HubSpot’s business plan template . What makes this executive summary good is that it tells potential investors a short story while still covering all of the most important details.

Our Mission

Maria’s Gluten Free Bagels offers gluten-free bagels, along with various toppings, other gluten-free breakfast sandwich items, and coffee. The facility is entirely gluten free. Our team expects to catch the interest of gluten-free, celiac, or health-conscious community members who are seeking an enjoyable cafe to socialize. Due to a lack of gluten-free bagel products in the food industry currently, we expect mild competition and are confident we will be able to build a strong market position.

The Company and Management

Maria’s Gluten Free Bagels was founded in 2010 by Maria Jones, who first began selling her gluten-free bagels online from her home, using social media to spread the word. In 2012 she bought a retail location in Hamilton, MA, which now employs four full-time employees and six part-time employees. Prior to her bagel shop, Maria was a chef in New York and has extensive experience in the food industry.

Along with Maria Jones, Gluten Free Bagel Shop has a board of advisors. The advisors are:

• Jeni King, partner at Winding Communications, Ltd.
• Henry Wilson, president of Blue Robin, LLP.

Our Product

We offer gluten-free products ranging from bagels and cream cheese to blueberry muffins, coffee, and pastries. Our customers are health-conscious, community-oriented people who enjoy gluten-free products. We will create a welcoming, warm environment with opportunities for open mic nights, poetry readings, and other community functions. We will focus on creating an environment in which someone feels comfortable meeting a friend for lunch, or working remotely.

Our Competitive Advantages

While there are other coffee shops and cafes in the North Shore region, there are none that offer purely gluten-free options. This restricts those suffering from gluten-free illnesses or simply those with a gluten-free preference. This will be our primary selling point. Additionally, our market research [see Section 3] has shown a demand for a community-oriented coffee and bagel shop in the town of Hamilton, MA.

Financial Considerations

Our sales projections for the first year are $400,000. We project a 15% growth rate over the next two years. By year three, we project 61% gross margins.

We will have four full-time employees. The salary for each employee will be $50,000.

Start-up Financing Requirements

We are seeking to raise $125,000 in startup to finance year one. The owner has invested $50,000 to meet working capital requirements, and will use a loan of $100,000 to supplement the rest.

Example 2 :

Marianne and Keith Bean have been involved with the food industry for several years. They opened their first restaurant in Antlers, Oklahoma in 1981, and their second in Hugo in 1988. Although praised for the quality of many of the items on their menu, they have attained a special notoriety for their desserts. After years of requests for their flavored whipped cream toppings, they have decided to pursue marketing these products separately from the restaurants.

Marianne and Keith Bean have developed several recipes for flavored whipped cream topping. They include chocolate, raspberry, cinnamon almond, and strawberry. These flavored dessert toppings have been used in the setting of their two restaurants over the past 18 years, and have been produced in large quantities. The estimated shelf life of the product is 21 days at refrigeration temperatures and up to six months when frozen. The Beans intend to market this product in its frozen state in 8 and 12-ounce plastic tubs. They also intend to have the products available in six ounce pressurized cans. Special attention has been given to developing an attractive label that will stress the gourmet/specialty nature of the products.

Distribution of Fancy's Foods Whipped Dream product will begin in the local southeastern Oklahoma area. The Beans have an established name and reputation in this area, and product introduction should encounter little resistance.

Financial analyses show that the company will have both a positive cash flow and profit in the first year. The expected return on equity in the first year is 10.88%

Tips for Writing Your Executive Summary

• Start with a strong introduction of your company that showcases your mission and impact, then outline the products and services you provide.
• Clearly define a problem, explain how your product solves that problem, and show why the market needs your business.
• Be sure to highlight your value proposition, market opportunity, and growth potential.
• Keep it concise and support ideas with data.
• Customize your summary to your audience. For example, you might emphasize finances and return on investment for venture capitalists, whereas you might emphasize community benefits and minimal environmental impact for progressive nonprofits.

For more guidance, check out our tips for writing an effective executive summary .

2. Market Opportunity

This is where you'll detail the opportunity in the market. Ask and answer: Where is the gap in the current industry, and how will my product fill that gap?

To get a thorough understanding of the market opportunity, you'll want to conduct a TAM, SAM, SOM analysis , a SWOT analysis , and perform market research on your industry to get some insights for this section. More specifically, here’s what I’d include.

• The size of the market
• Current or potential market share
• Trends in the industry and consumer behavior
• Where the gap is
• What caused the gap
• How you intend to fill it

Market Opportunity Business Plan Example

I like this example because it uses critical data to underline the size of the potential market and what part of that market this service hopes to capture.

Example: The market for Doggie Pause is all of the dog owners in the metropolitan area and surrounding areas of the city. We believe that this is going to be 2/3 of the population, and we have a goal of gaining a 50% market share. We have a target of a 20% yearly profit increase as the business continues.

Tips for Writing Your Market Opportunity Section

• Focus on demand and potential for growth.
• Use market research, surveys, and industry trend data to support your market forecast and projections.
• Add a review of regulation shifts, tech advances, and consumer behavior changes.
• Refer to reliable sources.
• Showcase how your business can make the most of this opportunity.

3. Competitive Landscape Analysis

Since we’re already speaking of market share, you‘ll also need to create a section that shares details on who the top competitors are. After all, your customers likely have more than one brand to choose from, and you’ll want to understand exactly why they might choose one over another.

My favorite part of performing a competitive analysis is that it can help you uncover the following:

• Industry trends that other brands may not be utilizing.
• Strengths in your competition that may be obstacles to handle.
• Weaknesses in your competition that may help you develop selling points.
• The unique proposition you bring to the market that may resonate with customers.

Competitive Landscape Business Plan Example

I like how the competitive landscape section of this business plan shows a clear outline of who the top competitors are. It also highlights specific industry knowledge and the importance of location. This demonstrates useful experience in the industry, helping to build trust in your ability to execute your business plan.

Competitive Environment

Currently, there are four primary competitors in the Greater Omaha Area: Pinot’s Palette Lakeside (franchise partner), Village Canvas and Cabernet, The Corky Canvas, and Twisted Vine Collective. The first three competitors are in Omaha and the fourth is located in Papillion.

Despite the competition, all locations have both public and private events. Each location has a few sold-out painting events each month. The Omaha locations are in new, popular retail locations, while the existing Papillion location is in a downtown business district.

There is an opportunity to take advantage of the environment and open a studio in a well-traveled or growing area. Pinot’s Palette La Vista will differentiate itself from its competitors by offering a premium experience in a high-growth, influential location.

Tips for Writing Your Competitive Landscape

• Complete in-depth research, then emphasize your most important findings.
• Compare your unique selling proposition (USP) to your direct and indirect competitors.
• Show a clear and realistic plan for product and brand differentiation.
• Look for specific advantages and barriers in the competitive landscape. Then, highlight how that information could impact your business.
• Outline growth opportunities from a competitive perspective.
• Add customer feedback and insights to support your competitive analysis.

4. Target Audience

Use this section to describe who your customer segments are in detail. What is the demographic and psychographic information of your audience? I’d recommend building a buyer persona to get in the mindset of your ideal customers and be clear about why you're targeting them. Here are some questions I’d ask myself:

• What demographics will most likely need/buy your product or service?
• What are the psychographics of this audience? (Desires, triggering events, etc.)
• Why are your offerings valuable to them?

Target Audience Business Plan Example

I like the example below because it uses in-depth research to draw conclusions about audience priorities. It also analyzes how to create the right content for this audience.

The Audience

Recognize that audiences are often already aware of important issues. Outreach materials should:

• Emphasize a pollution-prevention practice
• Tell audience a little about how to prevent pollution
• Tell audience where they can obtain information about prevention.

Message Content

• Focus the content for outreach materials on cost savings, such as when and where pollution prevention is as cheap as or cheaper than traditional techniques. Include facts and figures.
• Emphasize how easy it is to do the right thing and the impacts of not engaging in pollution prevention.
• Stress benefits such as efficiency or better relations with government, for businesses not primarily concerned with public image.

Tips for Writing Your Target Audience Section

• Include details on the size and growth potential of your target audience.
• Figure out and refine the pain points for your target audience , then show why your product is a useful solution.
• Describe your targeted customer acquisition strategy in detail.
• Share anticipated challenges your business may face in acquiring customers and how you plan to address them.
• Add case studies, testimonials, and other data to support your target audience ideas.
• Remember to consider niche audiences and segments of your target audience in your business plan.

5. Marketing Strategy

Here, you‘ll discuss how you’ll acquire new customers with your marketing strategy. I think it’s helpful to have a marketing plan built out in advance to make this part of your business plan easier. I’d suggest including these details:

• Your brand positioning vision and how you'll cultivate it.
• The goal targets you aim to achieve.
• The metrics you'll use to measure success.
• The channels and distribution tactics you'll use.

Marketing Strategy Business Plan Example

This business plan example includes the marketing strategy for the town of Gawler. In my opinion, it works because it offers a comprehensive picture of how they plan to use digital marketing to promote the community.

You’ll also learn the financial benefits investors can reap from putting money into your venture rather than trying to sell them on how great your product or service is.

This business plan guide focuses less on the individual parts of a business plan, and more on the overarching goal of writing one. For that reason, it’s one of my favorites to supplement any template you choose to use. Harvard Business Review’s guide is instrumental for both new and seasoned business owners.

7. HubSpot’s Complete Guide to Starting a Business

Don't forget to share this post!

Related articles.

What is a Business Plan? Definition, Tips, and Templates

7 Gantt Chart Examples You'll Want to Copy [+ 5 Steps to Make One]

How to Write an Executive Summary Execs Can't Ignore [+ 5 Top Examples]

20 Free & Paid Small Business Tools for Any Budget

Maximizing Your Social Media Strategy: The Top Aggregator Tools to Use

The Content Aggregator Guide for 2024

The 8 Best Free Flowchart Templates [+ Examples]

16 Best Screen Recorders to Use for Collaboration

The 25 Best Google Chrome Extensions for SEO

Professional Invoice Design: 28 Samples & Templates to Inspire You

2 Essential Templates For Starting Your Business

Marketing software that helps you drive revenue, save time and resources, and measure and optimize your investments — all on one easy-to-use platform

How to Write a Business Plan: Your Step-by-Step Guide

So, you’ve got an idea and you want to start a business —great! Before you do anything else, like seek funding or build out a team, you'll need to know how to write a business plan. This plan will serve as the foundation of your company while also giving investors and future employees a clear idea of your purpose.

Below, Lauren Cobello, Founder and CEO of Leverage with Media PR , gives her best advice on how to make a business plan for your company.

Build your dream business with the help of a high-paying job—browse open jobs on The Muse »

What is a business plan, and when do you need one?

According to Cobello, a business plan is a document that contains the mission of the business and a brief overview of it, as well as the objectives, strategies, and financial plans of the founder. A business plan comes into play very early on in the process of starting a company—more or less before you do anything else.

“You should start a company with a business plan in mind—especially if you plan to get funding for the company,” Cobello says. “You’re going to need it.”

Whether that funding comes from a loan, an investor, or crowdsourcing, a business plan is imperative to secure the capital, says the U.S. Small Business Administration . Anyone who’s considering giving you money is going to want to review your business plan before doing so. That means before you head into any meeting, make sure you have physical copies of your business plan to share.

Different types of business plans

The four main types of business plans are:

Startup Business Plans

Internal business plans, strategic business plans, one-page business plans.

Let's break down each one:

If you're wondering how to write a business plan for a startup, Cobello has advice for you. Startup business plans are the most common type, she says, and they are a critical tool for new business ventures that want funding. A startup is defined as a company that’s in its first stages of operations, founded by an entrepreneur who has a product or service idea.

Most startups begin with very little money, so they need a strong business plan to convince family, friends, banks, and/or venture capitalists to invest in the new company.

Internal business plans “are for internal use only,” says Cobello. This kind of document is not public-facing, only company-facing, and it contains an outline of the company’s business strategy, financial goals and budgets, and performance data.

Internal business plans aren’t used to secure funding, but rather to set goals and get everyone working there tracking towards them.

As the name implies, strategic business plans are geared more towards strategy and they include an assessment of the current business landscape, notes Jérôme Côté, a Business Advisor at BDC Advisory Services .

Unlike a traditional business plan, Cobello adds, strategic plans include a SWOT analysis (which stands for strengths, weaknesses, opportunities, and threats) and an in-depth action plan for the next six to 12 months. Strategic plans are action-based and take into account the state of the company and the industry in which it exists.

Although a typical business plan falls between 15 to 30 pages, some companies opt for the much shorter One-Page Business Plan. A one-page business plan is a simplified version of the larger business plan, and it focuses on the problem your product or service is solving, the solution (your product), and your business model (how you’ll make money).

A one-page plan is hyper-direct and easy to read, making it an effective tool for businesses of all sizes, at any stage.

How to create a business plan in 7 steps

Every business plan is different, and the steps you take to complete yours will depend on what type and format you choose. That said, if you need a place to start and appreciate a roadmap, here’s what Cobello recommends:

1. Conduct your research

Before writing your business plan, you’ll want to do a thorough investigation of what’s out there. Who will be the competitors for your product or service? Who is included in the target market? What industry trends are you capitalizing on, or rebuking? You want to figure out where you sit in the market and what your company’s value propositions are. What makes you different—and better?

2. Define your purpose for the business plan

The purpose of your business plan will determine which kind of plan you choose to create. Are you trying to drum up funding, or get the company employees focused on specific goals? (For the former, you’d want a startup business plan, while an internal plan would satisfy the latter.) Also, consider your audience. An investment firm that sees hundreds of potential business plans a day may prefer to see a one-pager upfront and, if they’re interested, a longer plan later.

3. Write your company description

Every business plan needs a company description—aka a summary of the company’s purpose, what they do/offer, and what makes it unique. Company descriptions should be clear and concise, avoiding the use of jargon, Cobello says. Ideally, descriptions should be a few paragraphs at most.

4. Explain and show how the company will make money

A business plan should be centered around the company’s goals, and it should clearly explain how the company will generate revenue. To do this, Cobello recommends using actual numbers and details, as opposed to just projections.

For instance, if the company is already making money, show how much and at what cost (e.g. what was the net profit). If it hasn’t generated revenue yet, outline the plan for how it will—including what the product/service will cost to produce and how much it will cost the consumer.

5. Outline your marketing strategy

How will you promote the business? Through what channels will you be promoting it? How are you going to reach and appeal to your target market? The more specific and thorough you can be with your plans here, the better, Cobello says.

6. Explain how you’ll spend your funding

What will you do with the money you raise? What are the first steps you plan to take? As a founder, you want to instill confidence in your investors and show them that the instant you receive their money, you’ll be taking smart actions that grow the company.

7. Include supporting documents

Creating a business plan is in some ways akin to building a legal case, but for your business. “You want to tell a story, and to be as thorough as possible, while keeping your plan succinct, clear, interesting, and visually appealing,” Cobello says. “Supporting documents could include financial projects, a competitive analysis of the market you’re entering into, and even any licenses, patents, or permits you’ve secured.”

A business plan is an individualized document—it’s ultimately up to you what information to include and what story you tell. But above all, Cobello says, your business plan should have a clear focus and goal in mind, because everything else will build off this cornerstone.

“Many people don’t realize how important business plans are for the health of their company,” she says. “Set aside time to make this a priority for your business, and make sure to keep it updated as you grow.”

	You might be using an unsupported or outdated browser. To get the best possible experience please use the latest version of Chrome, Firefox, Safari, or Microsoft Edge to view this website.

Simple Business Plan Template (2024)

Updated: May 4, 2024, 4:37pm

Table of Contents

Why business plans are vital, get your free simple business plan template, how to write an effective business plan in 6 steps, frequently asked questions.

While taking many forms and serving many purposes, they all have one thing in common: business plans help you establish your goals and define the means for achieving them. Our simple business plan template covers everything you need to consider when launching a side gig, solo operation or small business. By following this step-by-step process, you might even uncover a few alternate routes to success.

Featured Partners

ZenBusiness

$0 + State Fees

Varies By State & Package

On ZenBusiness' Website

On LegalZoom's Website

Northwest Registered Agent

$39 + State Fees

On Northwest Registered Agent's Website

$0 + State Fee

On Formations' Website

Whether you’re a first-time solopreneur or a seasoned business owner, the planning process challenges you to examine the costs and tasks involved in bringing a product or service to market. The process can also help you spot new income opportunities and hone in on the most profitable business models.

Though vital, business planning doesn’t have to be a chore. Business plans for lean startups and solopreneurs can simply outline the business concept, sales proposition, target customers and sketch out a plan of action to bring the product or service to market. However, if you’re seeking startup funding or partnership opportunities, you’ll need a write a business plan that details market research, operating costs and revenue forecasting. Whichever startup category you fall into, if you’re at square one, our simple business plan template will point you down the right path.

Copy our free simple business plan template so you can fill in the blanks as we explore each element of your business plan. Need help getting your ideas flowing? You’ll also find several startup scenario examples below.

Download free template as .docx

Whether you need a quick-launch overview or an in-depth plan for investors, any business plan should cover the six key elements outlined in our free template and explained below. The main difference in starting a small business versus an investor-funded business is the market research and operational and financial details needed to support the concept.

1. Your Mission or Vision

Start by declaring a “dream statement” for your business. You can call this your executive summary, vision statement or mission. Whatever the name, the first part of your business plan summarizes your idea by answering five questions. Keep it brief, such as an elevator pitch. You’ll expand these answers in the following sections of the simple business plan template.

• What does your business do? Are you selling products, services, information or a combination?
• Where does this happen? Will you conduct business online, in-store, via mobile means or in a specific location or environment?
• Who does your business benefit? Who is your target market and ideal customer for your concept?
• Why would potential customers care? What would make your ideal customers take notice of your business?
• How do your products and/or services outshine the competition? What would make your ideal customers choose you over a competitor?

These answers come easily if you have a solid concept for your business, but don’t worry if you get stuck. Use the rest of your plan template to brainstorm ideas and tactics. You’ll quickly find these answers and possibly new directions as you explore your ideas and options.

2. Offer and Value Proposition

This is where you detail your offer, such as selling products, providing services or both, and why anyone would care. That’s the value proposition. Specifically, you’ll expand on your answers to the first and fourth bullets from your mission/vision.

As you complete this section, you might find that exploring value propositions uncovers marketable business opportunities that you hadn’t yet considered. So spend some time brainstorming the possibilities in this section.

For example, a cottage baker startup specializing in gluten-free or keto-friendly products might be a value proposition that certain audiences care deeply about. Plus, you could expand on that value proposition by offering wedding and other special-occasion cakes that incorporate gluten-free, keto-friendly and traditional cake elements that all guests can enjoy.

3. Audience and Ideal Customer

Here is where you explore bullet point number three, who your business will benefit. Identifying your ideal customer and exploring a broader audience for your goods or services is essential in defining your sales and marketing strategies, plus it helps fine-tune what you offer.

There are many ways to research potential audiences, but a shortcut is to simply identify a problem that people have that your product or service can solve. If you start from the position of being a problem solver, it’s easy to define your audience and describe the wants and needs of your ideal customer for marketing efforts.

Using the cottage baker startup example, a problem people might have is finding fresh-baked gluten-free or keto-friendly sweets. Examining the wants and needs of these people might reveal a target audience that is health-conscious or possibly dealing with health issues and willing to spend more for hard-to-find items.

However, it’s essential to have a customer base that can support your business. You can be too specialized. For example, our baker startup can attract a broader audience and boost revenue by offering a wider selection of traditional baked goods alongside its gluten-free and keto-focused specialties.

4. Revenue Streams, Sales Channels and Marketing

Thanks to our internet-driven economy, startups have many revenue opportunities and can connect with target audiences through various channels. Revenue streams and sales channels also serve as marketing vehicles, so you can cover all three in this section.

Revenue Streams

Revenue streams are the many ways you can make money in your business. In your plan template, list how you’ll make money upon launch, plus include ideas for future expansion. The income possibilities just might surprise you.

For example, our cottage baker startup might consider these revenue streams:

• Product sales : Online, pop-up shops , wholesale and (future) in-store sales
• Affiliate income : Monetize blog and social media posts with affiliate links
• Advertising income : Reserve website space for advertising
• E-book sales : (future) Publish recipe e-books targeting gluten-free and keto-friendly dessert niches
• Video income : (future) Monetize a YouTube channel featuring how-to videos for the gluten-free and keto-friendly dessert niches
• Webinars and online classes : (future) Monetize coaching-style webinars and online classes covering specialty baking tips and techniques
• Members-only content : (future) Monetize a members-only section of the website for specialty content to complement webinars and online classes
• Franchise : (future) Monetize a specialty cottage bakery concept and sell to franchise entrepreneurs

Sales Channels

Sales channels put your revenue streams into action. This section also answers the “where will this happen” question in the second bullet of your vision.

The product sales channels for our cottage bakery example can include:

• Mobile point-of-sale (POS) : A mobile platform such as Shopify or Square POS for managing in-person sales at local farmers’ markets, fairs and festivals
• E-commerce platform : An online store such as Shopify, Square or WooCommerce for online retail sales and wholesale sales orders
• Social media channels : Facebook, Instagram and Pinterest shoppable posts and pins for online sales via social media channels
• Brick-and-mortar location : For in-store sales , once the business has grown to a point that it can support a physical location

Channels that support other income streams might include:

• Affiliate income : Blog section on the e-commerce website and affiliate partner accounts
• Advertising income : Reserved advertising spaces on the e-commerce website
• E-book sales : Amazon e-book sales via Amazon Kindle Direct Publishing
• Video income : YouTube channel with ad monetization
• Webinars and online classes : Online class and webinar platforms that support member accounts, recordings and playback
• Members-only content : Password-protected website content using membership apps such as MemberPress

Nowadays, the line between marketing and sales channels is blurred. Social media outlets, e-books, websites, blogs and videos serve as both marketing tools and income opportunities. Since most are free and those with advertising options are extremely economical, these are ideal marketing outlets for lean startups.

However, many businesses still find value in traditional advertising such as local radio, television, direct mail, newspapers and magazines. You can include these advertising costs in your simple business plan template to help build a marketing plan and budget.

5. Structure, Suppliers and Operations

This section of your simple business plan template explores how to structure and operate your business. Details include the type of business organization your startup will take, roles and responsibilities, supplier logistics and day-to-day operations. Also, include any certifications or permits needed to launch your enterprise in this section.

Our cottage baker example might use a structure and startup plan such as this:

• Business structure : Sole proprietorship with a “doing business as” (DBA) .
• Permits and certifications : County-issued food handling permit and state cottage food certification for home-based food production. Option, check into certified commercial kitchen rentals.
• Roles and responsibilities : Solopreneur, all roles and responsibilities with the owner.
• Supply chain : Bulk ingredients and food packaging via Sam’s Club, Costco, Amazon Prime with annual membership costs. Uline for shipping supplies; no membership needed.
• Day-to-day operations : Source ingredients and bake three days per week to fulfill local and online orders. Reserve time for specialty sales, wholesale partner orders and market events as needed. Ship online orders on alternating days. Update website and create marketing and affiliate blog posts on non-shipping days.

Start A Limited Liability Company Online Today with ZenBusiness

Click to get started.

6. Financial Forecasts

Your final task is to list forecasted business startup and ongoing costs and profit projections in your simple business plan template. Thanks to free business tools such as Square and free marketing on social media, lean startups can launch with few upfront costs. In many cases, cost of goods, shipping and packaging, business permits and printing for business cards are your only out-of-pocket expenses.

Cost Forecast

Our cottage baker’s forecasted lean startup costs might include:

Business Need	Startup Cost	Ongoing Cost	Source

Gross Profit Projections

This helps you determine the retail prices and sales volume required to keep your business running and, hopefully, earn income for yourself. Use product research to spot target retail prices for your goods, then subtract your cost of goods, such as hourly rate, raw goods and supplier costs. The total amount is your gross profit per item or service.

Here are some examples of projected gross profits for our cottage baker:

Product	Retail Price	(Cost)	Gross Profit

Bottom Line

Putting careful thought and detail in a business plan is always beneficial, but don’t get so bogged down in planning that you never hit the start button to launch your business . Also, remember that business plans aren’t set in stone. Markets, audiences and technologies change, and so will your goals and means of achieving them. Think of your business plan as a living document and regularly revisit, expand and restructure it as market opportunities and business growth demand.

Is there a template for a business plan?

You can copy our free business plan template and fill in the blanks or customize it in Google Docs, Microsoft Word or another word processing app. This free business plan template includes the six key elements that any entrepreneur needs to consider when launching a new business.

What does a simple business plan include?

A simple business plan is a one- to two-page overview covering six key elements that any budding entrepreneur needs to consider when launching a startup. These include your vision or mission, product or service offering, target audience, revenue streams and sales channels, structure and operations, and financial forecasts.

How can I create a free business plan template?

Start with our free business plan template that covers the six essential elements of a startup. Once downloaded, you can edit this document in Google Docs or another word processing app and add new sections or subsections to your plan template to meet your specific business plan needs.

What basic items should be included in a business plan?

When writing out a business plan, you want to make sure that you cover everything related to your concept for the business,  an analysis of the industry―including potential customers and an overview of the market for your goods or services―how you plan to execute your vision for the business, how you plan to grow the business if it becomes successful and all financial data around the business, including current cash on hand, potential investors and budget plans for the next few years.

• Best LLC Services
• Best Registered Agent Services
• Best Trademark Registration Services
• Top LegalZoom Competitors
• Best Business Loans
• Best Business Plan Software
• ZenBusiness Review
• LegalZoom LLC Review
• Northwest Registered Agent Review
• Rocket Lawyer Review
• Inc. Authority Review
• Rocket Lawyer vs. LegalZoom
• Bizee Review (Formerly Incfile)
• Swyft Filings Review
• Harbor Compliance Review
• Sole Proprietorship vs. LLC
• LLC vs. Corporation
• LLC vs. S Corp
• LLP vs. LLC
• DBA vs. LLC
• LegalZoom vs. Incfile
• LegalZoom vs. ZenBusiness
• LegalZoom vs. Rocket Lawyer
• ZenBusiness vs. Incfile
• How To Start A Business
• How to Set Up an LLC
• How to Get a Business License
• LLC Operating Agreement Template
• 501(c)(3) Application Guide
• What is a Business License?
• What is an LLC?
• What is an S Corp?
• What is a C Corp?
• What is a DBA?
• What is a Sole Proprietorship?
• What is a Registered Agent?
• How to Dissolve an LLC
• How to File a DBA
• What Are Articles Of Incorporation?
• Types Of Business Ownership

Next Up In Company Formation

• Best Online Legal Services
• How To Write A Business Plan
• Member-Managed LLC Vs. Manager-Managed LLC
• Starting An S-Corp
• LLC Vs. C-Corp
• How Much Does It Cost To Start An LLC?

Best West Virginia Registered Agent Services Of 2024

Best Vermont Registered Agent Services Of 2024

Best Rhode Island Registered Agent Services Of 2024

Best Wisconsin Registered Agent Services Of 2024

Best South Dakota Registered Agent Services Of 2024

B2B Marketing In 2024: The Ultimate Guide

Krista Fabregas is a seasoned eCommerce and online content pro sharing more than 20 years of hands-on know-how with those looking to launch and grow tech-forward businesses. Her expertise includes eCommerce startups and growth, SMB operations and logistics, website platforms, payment systems, side-gig and affiliate income, and multichannel marketing. Krista holds a bachelor's degree in English from The University of Texas at Austin and held senior positions at NASA, a Fortune 100 company, and several online startups.

Get instant access to detailed competitive research, SWOT analysis, buyer personas, growth opportunities and more for any product or business at the push of a button, so that you can focus more on strategy and execution.

Table of contents, developing a strategic model management business plan.

• 5 June, 2024

Developing Your Business Model

When starting a model management business, developing a strong and effective business model is crucial for long-term success. This involves understanding your value proposition and identifying revenue models that align with your business goals.

Understanding Value Proposition

Your value proposition refers to the unique value or benefit that your model management business offers to clients in the fashion industry. It is what sets you apart from competitors and attracts customers to your agency. Depending on your business model, the value proposition can be a subject of exchange, where customers pay to access your services ( AltexSoft ).

To determine your value proposition, consider the specific services you will provide to clients. This can include scouting and managing models, organizing fashion shows, arranging photoshoots, or providing training and development opportunities for aspiring models. Understanding the needs of your target market and the unique value you can offer them will help shape your value proposition.

Revenue Models for Success

Once you have defined your value proposition, it’s essential to identify revenue models that will generate income for your model management business. There are various revenue models to consider, depending on whether your value proposition is paid or free ( AltexSoft ).

If your value proposition requires customers to pay for your services, your revenue model will be transaction-based. This means that customers will pay a fee to access your model management services. You can offer different pricing plans or packages to cater to various client needs and generate multiple revenue streams.

On the other hand, if your value proposition is free, you can explore other revenue streams to generate income. This can include selling ad space on your website, partnering with affiliate programs, accepting donations, or even reselling products related to the fashion industry. Combining different revenue streams can help diversify your income and create sustainable revenue sources.

To ensure the financial success of your model management business, it is important to regularly evaluate your revenue models, adjust pricing strategies if necessary, and monitor your profitability. Gross profit, which is the total revenue minus the cost of goods sold, is a key metric for assessing the efficiency and effectiveness of your business model. Additionally, analyzing cash flow and net income will provide insights into the financial health of your company ( Investopedia ).

By understanding your value proposition and implementing revenue models that align with your business goals, you can develop a strategic business model that sets the foundation for your model management agency’s success. Remember to continually adapt and refine your business model as industry trends and client demands evolve, ensuring your agency remains competitive in the ever-changing fashion industry.

Elements of a Business Plan

When starting a model management business, developing a comprehensive business plan is essential for success. A well-crafted business plan defines your vision, outlines your goals, and provides a roadmap for achieving them. In this section, we will explore three crucial elements of a business plan: defining products and services, identifying the target market, and anticipating expenses.

Defining Products & Services

Clearly defining the products and services your model management business will offer is the first step in developing a business plan. Consider the range of services you plan to provide, such as talent management, contract negotiation, portfolio development, and marketing support. Outline the unique qualities and value proposition of your agency that sets it apart from competitors.

To further enhance your business plan, consider including a table to showcase the various services your model management business will offer:

Services
Talent management
Contract negotiation
Portfolio development
Marketing support
Industry networking
Runway and photoshoot bookings

By clearly defining your products and services, you establish a solid foundation for your model management business.

Identifying Target Market

Identifying your target market is crucial for tailoring your services to meet the needs of potential clients. Consider the specific niche within the fashion industry that your model management business aims to serve. Are you focusing on high-fashion runway models, commercial models, or niche markets?

Additionally, understanding the demographics and preferences of your target market will help you develop effective marketing and promotional strategies. For example, if your target market consists of fashion brands seeking diverse models for their campaigns, you can tailor your marketing efforts towards promoting inclusivity and diversity.

Anticipating Expenses

Anticipating and budgeting for expenses is a critical aspect of any business plan. It is important to consider both one-time startup costs and ongoing operational expenses. Startup costs for a model management agency may include office space, equipment, legal fees, branding and marketing, and technology infrastructure. Ongoing expenses may include salaries, rent, utilities, advertising, and professional fees.

To ensure accuracy and comprehensiveness, research the industry to understand the typical expenses associated with a model management business. You can refer to our article on model management agency startup costs for a detailed breakdown of potential expenses.

By carefully considering and budgeting for expenses, you can develop a realistic financial plan that aligns with your business goals and ensures the long-term stability and profitability of your model management business.

As you develop your business plan, remember to regularly revisit and update it to adapt to changes in the market. Strategies must evolve to suit changing circumstances, and new opportunities should be considered. Building relationships with industry professionals and networking in the fashion industry ( networking in the fashion industry ) can also play a vital role in the success of your model management business.

By focusing on these key elements of a business plan, you can lay a solid foundation for your model management business and position yourself for long-term success in the dynamic fashion industry.

Evaluating Business Efficiency

When it comes to evaluating the success of your model management business, assessing the efficiency and financial health of your operations is crucial. Two key aspects to consider are the importance of gross profit and the analysis of cash flow.

Importance of Gross Profit

Gross profit is a critical metric for evaluating the efficiency and effectiveness of a business model. It represents the total revenue generated minus the cost of goods sold ( Investopedia ). By calculating gross profit, you can determine the profitability of your model management business and assess its ability to cover expenses and generate sustainable revenue.

To calculate gross profit, subtract the cost of goods sold (which includes expenses directly related to producing or delivering your services) from your total revenue. The resulting figure represents the amount of money available to cover operating expenses and contribute to the overall profitability of your business.

Analyzing Cash Flow

Cash flow is another crucial aspect to consider when evaluating the success of your model management business. Cash flow refers to the movement of money into and out of your business over a specific period. It represents the net amount of cash and cash equivalents flowing in and out of your business.

Analyzing cash flow allows you to understand the real profit generated by your business and assess its ability to cover expenses and maintain financial stability. Positive cash flow indicates that your business is generating more cash than it is spending, which is essential for sustainability and growth.

To assess your cash flow, examine your net income, which represents your total revenue minus all expenses, including operating costs, taxes, and interest. A positive net income indicates that your business is profitable, while a negative net income suggests financial challenges that need to be addressed.

By regularly monitoring your gross profit and analyzing your cash flow, you can gain valuable insights into the financial health and efficiency of your model management business. This information can help you make informed decisions, identify areas for improvement, and ensure the long-term success of your business.

Remember, evaluating business efficiency is just one aspect of running a successful model management agency. To learn more about starting and growing your business, consider exploring topics such as networking in the fashion industry , model management agency startup costs , finding models for your agency , and building relationships with industry professionals .

Types of Business Models

When starting a model management business, it’s essential to consider the various types of business models available. Each model has its unique approach to generating revenue and serving customers in the fashion industry. In this section, we will explore two common business models: retailer & manufacturer models and subscription & freemium models.

Retailer & Manufacturer Models

The retailer model involves buying products from manufacturers or wholesalers and selling them directly to customers. In the context of model management, this could involve representing models and connecting them with clients in need of models for various fashion-related projects. The agency acts as the intermediary, facilitating contracts and negotiations between the models and clients.

On the other hand, the manufacturer model involves creating and producing products for sale. In the fashion industry, this could be a modeling agency that also acts as a production company, organizing fashion shows or photo shoots and managing all aspects of the event, including casting models, providing hair and makeup services, and coordinating with designers.

Both the retailer and manufacturer models rely on establishing strong relationships within the fashion industry. Networking and building relationships with industry professionals are crucial for success in this field. For more information on networking in the fashion industry, check out our article on networking in the fashion industry .

Subscription & Freemium Models

The subscription model is a popular revenue model in various industries, including the fashion industry. This model involves charging customers a recurring fee for access to a product or service. In the context of model management, a subscription-based agency could offer a range of services to its clients, such as access to a database of models, exclusive industry insights, or personalized consulting services. This model provides a predictable and steady stream of revenue and encourages long-term customer loyalty. For more information on starting a subscription-based business, consult our article on model management agency startup costs .

Another variation of the subscription model is the freemium model. This model offers a basic version of a product or service for free while charging for additional premium features or access. In the context of model management, a freemium agency could provide a platform where clients can browse and view basic profiles of models for free, but charge a fee for access to more detailed information or premium services. This model allows potential clients to get a taste of the agency’s offerings before committing to a paid subscription.

When considering a subscription or freemium model for a model management business, it’s crucial to offer unique value and consistently deliver high-quality services to attract and retain clients. Understanding the needs and preferences of your target market is key to designing a subscription or freemium model that meets their demands. Identifying and targeting your specific niche within the fashion industry will help ensure the success of your business.

By exploring different business models, you can determine the most suitable approach for your model management business. Whether you opt for a retailer or manufacturer model, or choose to implement a subscription or freemium model, it’s important to understand your target market and offer valuable services that meet their needs. Building relationships with industry professionals and staying responsive to industry trends are crucial for adapting your business model over time.

Adapting to Market Changes

In the dynamic fashion industry, it is crucial for model management businesses to adapt to market changes in order to stay relevant and successful. This section explores the evolution of business models and the importance of responding to industry trends.

Evolution of Business Models

Business models can evolve over time to reflect changing business environments and market demands. It is essential for model management businesses to periodically evaluate and update their business models to ensure they remain competitive and aligned with customer needs. By embracing innovation and staying ahead of industry trends, model management businesses can position themselves for long-term success.

As technology continues to advance, new opportunities and challenges arise. For example, the rise of social media and online platforms has transformed the way models are discovered and booked. Model management businesses need to leverage these digital platforms to connect with a wider audience and increase their visibility. By embracing technology and incorporating it into their business models, model management businesses can enhance their efficiency and reach.

Additionally, changes in societal values and beauty standards influence the demand for different types of models. Model management businesses should be adaptable and inclusive, representing a diverse range of models that reflect the evolving preferences of the industry and its consumers. By being proactive in understanding and responding to these shifts, model management businesses can maintain their relevance and attract a broader client base.

Responding to Industry Trends

The fashion industry is constantly evolving, driven by trends and consumer preferences. Model management businesses need to closely monitor these trends and proactively respond to them. By staying informed about emerging fashion trends, popular campaigns, and industry events, model management businesses can position themselves as trendsetters and trusted partners.

Networking within the fashion industry is crucial for staying connected and informed about the latest trends and opportunities. Attending industry events, participating in fashion weeks, and building relationships with industry professionals can provide valuable insights and help model management businesses adapt to changing market dynamics. For more tips on building relationships with industry professionals, check out our article on building relationships with industry professionals .

In addition to tracking fashion trends, model management businesses should also stay updated on changes in the business landscape. This includes understanding shifts in consumer behavior, emerging markets, and the impact of technology. By keeping a pulse on these industry shifts, model management businesses can make informed decisions and adjust their strategies accordingly.

By continuously evolving and responding to market changes, model management businesses can position themselves as industry leaders and thrive in the ever-changing fashion landscape. Embracing new technologies, staying informed about fashion trends, and maintaining strong industry connections are key steps towards success.

Setting Up a Modeling Agency

When venturing into the world of model management, there are important considerations to make when setting up a modeling agency. This section will explore the two main options for representing models: agency representation and freelance modeling.

Agency vs. Freelance Models

One of the fundamental decisions when starting a modeling agency is whether to work with agency models or freelance models. Both options have their own advantages and considerations.

Agency Models : Models signed with agencies benefit from personalized management and support. Agencies typically handle the bookings, negotiations, and logistics on behalf of the models, allowing them to focus on their craft. Additionally, agencies often have established relationships with industry professionals, which can open doors to a wider range of opportunities. However, models signed with agencies generally have less control over their bookings and may need to adhere to certain contractual obligations ( Medium ).

Freelance Models : Freelance models, on the other hand, have more control over their careers. They can choose to book jobs independently and keep all their earnings without sharing commissions. Freelancing allows models to have greater flexibility and choose the projects that align with their personal style and preferences. However, freelancers may face challenges when it comes to securing international opportunities and may need to invest more effort in networking and building relationships within the industry ( Medium ).

The decision between agency and freelance models ultimately depends on personal preferences and goals. Some models thrive with the personalized management and guidance from agencies, while others prefer the freedom and control that freelancing offers. It’s important to carefully evaluate the needs of your agency and the models you aim to represent before making a decision.

Commission Structures & Contracts

In the modeling industry, money flows from the agency to the model. Legitimate modeling agencies make their money by securing jobs for models and charging a commission fee. It is crucial for agencies to have transparent and fair commission structures outlined in contracts. Any agency that expects models to pay money upfront or charges exorbitant fees is likely a scam. Models should be cautious of agencies that require significant financial investments before providing any substantial services ( Quora ).

Commission rates can vary among agencies, typically ranging from 10% to 20% of a model’s earnings. The exact percentage depends on factors such as the agency’s reputation, the level of support provided, and the nature of the modeling work. It’s essential to establish clear and fair commission agreements with models to ensure transparency and a mutually beneficial working relationship. This includes outlining the commission rate, payment terms, and any additional fees or expenses that the model may be responsible for ( Quora ).

Contracts between the agency and the models should cover various aspects, including the duration of the representation, exclusivity, territorial rights, and the responsibilities of both parties. Contracts should also clearly state the obligations and expectations regarding payment, cancellations, and non-compete clauses. It’s advisable to seek legal guidance when drafting contracts to ensure they are comprehensive, fair, and compliant with industry standards.

By understanding the differences between agency and freelance models and establishing transparent commission structures and contracts, you can effectively set up a modeling agency that provides the necessary support and opportunities for models to thrive in the fashion industry. Remember to prioritize ethical practices, professional relationships, and the overall success of your agency and the models you represent. For more tips on starting a model management business, consider exploring our article on building relationships with industry professionals .

Perform Deep Market Research In Seconds

Automate your competitor analysis and get market insights in moments

Create Your Account To Continue!

Automate your competitor analysis and get deep market insights in moments, stay ahead of your competition. discover new ways to unlock 10x growth., just copy and paste any url to instantly access detailed industry insights, swot analysis, buyer personas, sales prospect profiles, growth opportunities, and more for any product or business..

From Idea to Foundation

Master the Essentials: Laying the Groundwork for Lasting Business Success. 

Funding and Approval Toolkit

Shape the future of your business, business moves fast. stay informed..

Discover the Best Tools for Business Plans

Learn from the business planning experts, resources to help you get ahead, revenue model, table of contents.

Coming Soon!

Related Terms

Also see: Financial Projections

Welcome to Businessplan.com

Currently in beta test mode.

Products available for purchase are placeholders and no orders will be processed at this time.

Let’s craft the ultimate business planning platform together.

Have questions, suggestions, or want a sneak peek at upcoming tools and resources? Connect with us on X or join “On the Right Foot” on Substack .

This site uses cookies from Google to deliver its services and to analyze traffic.

Ok, Got It.

Privacy Policy

Porsche deliveries fall on weaker demand in China, model changes

The company projects margins of 15 to 17% this year, with revenue up to 42 billion euros

• Porsche expects its profitability to improve next year after the automaker updates it model range next year. PHOTO: REUTERS

AUTOMAKER Porsche’s deliveries declined 7 per cent in the first half of the year, as the German manufacturer introduced a number of new models and demand in China softened further.

The Volkswagen brand sold 155,945 vehicles in the first six months of the year, with growth in Europe unable to offset declines in China and North America, Porsche said on Tuesday (Jul 9).

Its sales slump in China accelerated, with deliveries there dropping by a third.

Porsche’s performance has deteriorated in the past months. The company reported the weakest result in the first quarter since listing in September 2022.

While the automaker has said this will likely mark the low point of the year, luxury buyers have also become choosier about spending, and demand in China is waning due to a prolonged real estate crisis and weaker economy.

In April, Porsche warned that introducing new models including the electric Macan and revamped 911 sports car will weigh on output and returns. Macan sales dropped 18 per cent, while shipments of the Panamera sport utility vehicle fell by a quarter. Sales of the electric Taycan slumped 51 per cent.

BT in your inbox

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Porsche expects operating margins of between 15 to 17 per cent this year, with group revenue up to 42 billion euros (S$61.4 billion). The manufacturer has guided for profitability to improve next year on the back of its updated model range.

“In 2024, we will put the most powerful Porsche product portfolio of all time on the road,” Porsche’s head of sales Detlev von Platen said. He added that the manufacturer will continue to offer combustion-engine vehicles alongside plug-in hybrid models and electric cars.

This will provide “an attractive offering for all customers – regardless of preferences and developments in the individual regions of the world”. BLOOMBERG

more in International

Asia’s worst stock loser erases thai founder from billionaire status.

Jul 10, 2024 10:51 AM

US plans up to US$1.6 billion in funding for packaging computer chips

Jul 10, 2024 10:07 AM

TikTok, Instagram influencers help ageing Nato connect with Gen Z

Jul 10, 2024 09:09 AM

Euro zone wage growth edges up in June, Indeed says

Jul 10, 2024 09:08 AM

Eight killed after storm Beryl sweeps across US

Jul 10, 2024 08:22 AM

US says it broke up Russian AI bot farm on X

Jul 10, 2024 07:24 AM

Biden seeks upper hand against revolt

Jul 10, 2024 07:16 AM

Jokowi mulls delaying move to new capital: report

Jul 10, 2024 07:08 AM

• privacy policy
• terms & conditions
• cookie policy
• data protection policy

MCI (P) 064/10/2023. Published by SPH Media Limited, Co. Regn. No. 202120748H. Copyright © 2024 SPH Media Limited. All rights reserved.