23 June 2021 | Financial Modeling

7 Revenue Streams & How to Pick the Right Ones for Your Business

Your startup began with a great idea.

And now, you have a business that’s generating revenue. Amazing!

But how many revenue streams does your current business model have?

If it’s only one, your startup may be at an elevated risk of running out of cash if business slows down.

Let’s tackle the types of revenue streams available to your startup and which ones you should pick to diversify your sources of revenue.

Table of contents:

What is a Revenue Stream?

A revenue stream is the lifeblood of any business. It’s where your revenue comes from.

Before you can have a revenue stream, your startup needs assets. But you can generate revenue in several ways using the same asset.

For example, let’s say you own two cars. These cars are your assets, and you want to generate revenue from them. Several income streams are available to you. You could:

  1. Sell one car
  2. Rent the cars to people, either by the hour or by the day
  3. Provide a taxi service using the cars
  4. Offer advertising space on your cars

That’s four different revenue streams from two assets.

multiple revenue streams

Of course, you can have more than one asset to generate your revenue streams. A startup can have a SaaS as their main source of revenue, but the talent on their team is another asset they can use to provide services, as we’ll discuss later.

How Many Revenue Streams Should a Business Have?

It’s important not to rely on a single revenue stream for too long.

As a startup, you may only be able to manage one revenue stream at first. But the sooner you diversify your business, the safer it will be.

If your only revenue stream dries up, your cash runway will start to shorten until you get back on track. On the other hand, if you have at least two to three revenue streams, you can offset the drop in revenue from a dried-up stream.

Amazon is probably one of the biggest examples of a company with several revenue streams. Here are just some of their revenue streams:

You don’t have to be the size of Amazon to have multiple revenue streams though. Look at Icons8, a site that sells clipart, illustrations, and music. They have several revenue streams, including:

Hubspot, Salesforce, and Shopify are also examples of startups that have used multiple revenue streams to fuel their growth.

7 Types of Revenue Streams You Can Implement For Your Startup

Let’s take a look at what types of revenue streams you can use for your startup, as well as the pros and cons of each.

1. Subscriptions

The subscription model is popular with the SaaS business model. Customers pay you a recurring subscription fee (monthly, quarterly, or yearly) to get access to a product or service.

Instead of owning a product or paying once for a service, customers get access as long as they continue paying their subscription fee.

Pros of the subscription model include:

However, there are important cons to keep in mind:

Examples of businesses that use subscriptions as a revenue stream include:

dollar shave club revenue streams

2. Licensing

Licensing comes in different shapes and forms. In software, licensing was the most popular revenue stream before the subscription model took over.

One example of a software company that still uses perpetual licensing is Microsoft. Although they offer their products on a subscription basis, you can still purchase licenses for their products outright, like Microsoft Word.

microsoft word revenue streams

But software isn’t the only thing you can license. You can also grant the right for someone else to use a trademark or copyrighted material.

Other examples of businesses that use a licensing model include:

Here are the pros of using licenses as a revenue stream:

But here are the cons:

3. Product Sales

Product sales is exactly what it sounds like — selling products. Unlike licensing, customers who purchase products own the product outright.

E-commerce companies are the best example of this revenue stream. Brick and mortar retail companies do the same. Some examples include:

Some companies do a blend of both. For example, Google offers paid software like GSuite, but they also sell physical electronics like the Google Pixel phones, the Google Chromecast, and the Google Nest smart home products.

Here are the pros of having product sales as a revenue stream:

But here’s the negative side you should be aware of:

4. Services and Consulting

If you have talent on your team—whether that’s you or your employees—you have an asset that you can leverage in the form of services or consulting.

Some companies are purely service-based and offer several services, which each represent a separate income stream. Local companies like nail salons or landscaping companies are good examples of this model.

Other examples include:

Some other companies provide software, like Evolv.ai with A/B testing, but also provide services to strategize and implement their solution.

evolve revenue stream

Services are a great way to add a new income stream without creating assets from scratch. There’s no need to invest in research and development for a new product. You can survey your customers to figure out what services they need, then use your existing in-house expertise to deliver this service.

Services offer several benefits:

However, here are some cons to watch out for:

5. Advertising

If you have an audience, you also have the ability to sell advertising space.

This can be done in a variety of ways.

For example, let’s say you have a podcast in addition to the existing products and services you sell. You can create ad breaks in your podcast and sell the space to relevant companies.

This is how most podcasts and radio stations make money.

If you have an email list, you can also partner with other brands to advertise their products or services to your subscribers. Or, if you have a blog that generates a lot of traffic, you can place ads in your posts, too.

Examples of businesses that use the advertising model include:

Some pros of selling advertising space include:

But watch out for these cons:

6. Leasing and Renting

When you use leasing and renting as a revenue stream, you give exclusive usage rights to the buyer for a specific period of time.

You typically need assets to rent out in order for this model to work for you. For example, E-commerce companies like Rent the Runway allow members to rent out designer clothing.

rent the runway revenue streams

Businesses like these often have other revenue streams, such as subscription fees and product sales (since people can opt to buy the products, too).

Car rental companies and hotels work in the same way.

Other examples of leasing and renting companies include:

If you’re a startup with a large office space, you could even lease unused parts of your office space to smaller companies or freelancers.

Let’s explore the pros of leasing and renting:

But there are some cons to the model, too:

7. Brokerage Fees

Companies get paid a brokerage fee when they match people with specific companies.

For example, freelancing websites like Upwork make money from matching freelancers with clients who need their help. Twenty percent of the money a client pays for freelance services is taken as a brokerage fee.

Freelancers benefit because they get matched with clients, and clients win because they get access to thousands of talented professionals.

Other businesses that use a brokerage model include:

Here’s how your business can benefit from using a brokerage model:

However, there are downsides to using brokerage fees as a revenue stream:

How to Choose the Right Revenue Stream

With all these revenue streams to choose from, which one is the best for your startup?

It depends on what your current assets are, who your customers are, and what you have as a main source of revenue.

First, you need to survey your existing assets. This includes your team, too.

From those assets, what would be the most effective way to add an income stream?

For example, if you currently have a subscription-based SaaS business, do you also have a talented team behind your SaaS that could provide a service? Or do you have an already popular podcast that could be monetized with ads?

The best revenue stream is the one that adds the least complexity to your existing business structure. That’s why it’s best to use your existing assets.

However, you can also expand on those assets if necessary. But your expansion should be in line with what your customers want. Survey your existing buyers to find out what they want or need, then see if your business can fill that need with a new revenue stream.

For example, if you sell products, perhaps you’ll find out that your customers would enjoy a monthly subscription box that makes it easy for them to always have what they need.

Diversify your startup’s revenue streams to make it more resilient

If your startup currently has a single revenue stream, consider adding one or two more to the mix. This will help your business become more resilient to change.

For example, if the market suddenly shifts (as it did in 2020) and one of your revenue streams dries up, you’ll still have other sources of revenue to keep your business afloat while you pivot.

As a final thought, don’t get too carried away with adding all the income streams to your startup, though. Make sure your new sources of revenue are still in line with your vision and don’t distract from your purpose.

Charlene Boutin

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