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?
- How many revenue streams should you have?
- 7 examples of revenue streams
- How to choose the right revenue streams
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:
- Sell one car
- Rent the cars to people, either by the hour or by the day
- Provide a taxi service using the cars
- Offer advertising space on your cars
That’s four different revenue streams from two assets.
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:
- E-commerce sales
- Amazon Prime subscription
- Amazon Music
- Prime Video
- Audible memberships
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:
- Licensing for their icons/illustrations
- Graphic design software subscription
- Dataset sales
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.
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:
- If you can forecast your customer churn rate and new MRR you can predict how much revenue your business will generate next month (you can do this in Finmark)
- If your marketing efforts slow down or stop, you can still generate revenue from existing subscribers
- Subscriptions are lower risk than upfront purchases for customers, which makes it easier to close sales
However, there are important cons to keep in mind:
- If your CAC payback period is longer than the average period customers stay around for, your business will bleed money
- You need to invest resources to avoid high cancellation rates
- Revenue can be uncertain during the startup phase
Examples of businesses that use subscriptions as a revenue stream include:
- Streaming services like Netflix
- SaaS companies like Finmark
- Membership companies like country clubs
- Subscription box companies like BarkBox
- Ecommerce companies like Dollar Shave Club
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.
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:
- Walt Disney (for example, when they grant McDonald’s a license to use trademarked characters for Happy Meal toys)
- Music production companies grant licenses to film production crews to use specific songs in movies
- Software like Clip Studio Paint
Here are the pros of using licenses as a revenue stream:
- You don’t need to worry about monthly churn since licenses are typically granted long term
- Your business gets more money upfront from purchases
But here are the cons:
- Customers only buy once, unless you create a new and improved product for them to purchase a few years later
- Your revenue will dip to zero if you make no sales in a month
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:
- Low ticket items are easier to sell
- Higher ticket items provide a large influx of revenue at once
But here’s the negative side you should be aware of:
- Products tend to have lower profit margins than software
- Every product needs to be manufactured, stored, and shipped
- It can become cheaper to manufacture products as you scale up, but there is a limit to how cheap you can make it
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:
- Marketing agencies and consultants
- Financial advisors
- Building inspectors
Some other companies provide software, like Evolv.ai with A/B testing, but also provide services to strategize and implement their solution.
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:
- Because services are one-to-one instead of one-to-many, you can also charge more, which means you need fewer clients to reach a certain revenue goal
- For example, let’s say you need to increase your revenue by $50,000 a month — you only need five clients who pay $10,000 each for high-value consulting services compared to 1,000 clients who pay $50 a month for a software subscription
However, here are some cons to watch out for:
- Services aren’t easily scalable — if you want to onboard more clients, you’ll not only need to scale your marketing efforts, but you’ll also need to train and onboard more employees to provide these services
- There are more moving pieces to services than to software subscriptions — for example, customer services need to be much more involved
- You’re more responsible for the outcomes your clients get when you provide a service compared to a product or subscription
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:
- The Penny Hoarder and other large blogs
- Sports stadiums that sell space for advertising in their arena
- Real estate owners who put banners on their buildings
Some pros of selling advertising space include:
- It doesn’t require you to spend extra resources to turn on this revenue stream
- Ads can be highly lucrative if you have a large audience
But watch out for these cons:
- You’ll be associated with the brands you advertise, so it’s important to choose your partners wisely
- It may not bring in much if your audience is small
- Ads can distract your audience from your own offers
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.
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:
- Moving gear rental companies
- Vacation rentals
- Real estate leasing companies
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:
- You can generate a high amount of revenue from a single asset over time
- Customers don’t need to justify long-term purchases, so it can be easier to make sales
But there are some cons to the model, too:
- It can take a while to make your money back after investing in your assets
- You need to account for depreciation of your assets
- Wear and tear will likely happen over time
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:
- Once your startup has the ability to match people together, it can become a relatively low-effort revenue stream, since it doesn’t require you to deliver products or services
- Customers don’t have to pay upfront — you usually take cuts from their transactions — which means that there can be less friction for sales
However, there are downsides to using brokerage fees as a revenue stream:
- It’s not easy to set up — most startups who depend on other revenue streams won’t easily be able to add brokerage fees as a revenue source without investing some serious time and resources into it
- Brokerage fees are only typical in a few industries
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.