On behalf of all of us at GoForth Institute, we’d like to wish all of our readers and fellow Canadian entrepreneurs a very Happy New Year. We hope 2025 is wonderful for everyone – in small business and in life!
Business Model Canvas: Revenue Streams
In our last post, we discussed the Customer Relationships portion of a Business Model Canvas. The Business Model Canvas allows you to describe and think through the business model of your small business, your competitors, or any other company. This concept has been applied and tested around the world and used in large organizations, as well as hundreds of thousands of small businesses.
Today, let’s talk about Revenue Streams.
What are Revenue Streams in the Business Model Canvas?
The Revenue Streams Building Block represents the cash a company generates from each Customer Segment (costs must be subtracted from revenues to create earnings).
If customers comprise the heart of a business model, Revenue Streams are its arteries. A company must ask itself, for what value is each Customer Segment truly willing to pay? Successfully answering that question allows the firm to generate one or more Revenue Streams from each Customer Segment. Each Revenue Stream may have different pricing mechanisms, such as fixed list prices, bargaining, auctioning, market dependent, volume dependent, or yield management.
Ask yourself these questions:
- For what value are our customers really willing to pay?
- For what do they currently pay?
- How are they currently paying?
- How would they prefer to pay?
- How much does each Revenue Stream contribute to overall revenues?
How to generate Revenue Streams
There are several ways to generate Revenue Streams:
Asset sale
The most widely understood Revenue Stream comes from selling ownership rights to a physical product. Amazon sells books, music, consumer electronics, and more online. Fiat sells automobiles, which buyers are free to drive, resell, or even destroy.
Usage fee
This Revenue Stream is generated by the use of a particular service. The more a service is used, the more the customer pays. A telecom operator may charge customers for the number of minutes spent on the phone. A hotel charges customers for the number of nights rooms are used. A package delivery service charges customers for the delivery of a parcel from one location to another.
Subscription fees
This Revenue Stream is generated by selling continuous access to a service. A gym sells its members monthly or yearly subscriptions in exchange for access to its exercise facilities. World of Warcraft Online allows users to play its online game in exchange for a monthly subscription fee. Some health and beauty companies send products regularly to subscribers of that service. And of course, this is the model used by streaming services.
Lending/Renting/Leasing
This Revenue Stream is created by temporarily granting someone the exclusive right to use a particular asset for a fixed period in return for a fee. For the lender this provides the advantage of recurring revenues. Renters or lessees, on the other hand, enjoy the benefits of incurring expenses for only a limited time rather than bearing the full costs of ownership.
Zipcar provides a good illustration. The company allows customers to rent cars by the hour in North American cities. Zipcar’s service has led many people to decide to rent rather than buy vehicles.
Licensing
This Revenue Stream is generated by giving customers permission to use protected intellectual property in exchange for licensing fees. Licensing allows rights-holders to generate revenues from their property without having to manufacture a product or commercialize a service. Licensing is common in the media industry, where content owners retain copyright while selling usage licenses to third parties. Similarly, in technology sectors patentholders grant other companies the right to use a patented technology in return for a license fee.
Brokerage fees
This Revenue Stream derives from intermediation services performed on behalf of two or more parties. Credit card providers, for example, make money by taking a percentage of the value of each sales transaction executed between credit card merchants and customers. Brokers and real estate agents earn a commission each time they successfully match a buyer and seller.
Advertising
This Revenue Stream results from fees for advertising a particular product, service, or brand. Traditionally, the media industry and event organizers relied heavily on revenues from advertising. In recent years other sectors, including software and services, have started relying more heavily on advertising revenues.
Each Revenue Stream might have different pricing mechanisms. The type of pricing mechanism chosen can make a big difference in terms of revenues generated.
Read our complete Business Model Canvas series here!
Why is your network so vital to business success?
Starting a small business is exciting, but it’s also difficult. One important resource you’ll need to marshal is your network – this means social contacts in family, social, professional and recreational networks, as well as professional role models. Later you’ll need access to another type of network as well, comprising lawyers, bankers, accountants, suppliers, potential customers and investors.
Why is an entrepreneur’s network of contacts so important?
Research shows that an entrepreneur’s use of networks is highest during the pre-venture planning stage and tapers off as the business starts and grows. This might be attributed to the lack of time the new business owner has for eating, let alone networking. Still, entrepreneurs can credit their success to networking and developing contacts to generate ideas, test concepts, and get support. Some cultures benefit from a strong connection to their faith or heritage communities. For example, Canada’s Indigenous community has a long history in the practice of storytelling. Stories are told to share the way of life of Indigenous people within and outside the community. Experiences are passed down so that other generations can benefit from the collective wisdom.
So, how do you expand your network?
Make sure to reach out to other entrepreneurs who can help connect you to other people. “Can you connect me?” or “Who is the one person in your network you think I should meet?” are two powerful phrases that you should get comfortable using over and over. Entrepreneurs like to help new and growing businesses succeed — it’s their way of giving back for the help that they too received in the early stages. If you’re shy or an introvert and shudder at the thought of networking, start slowly. Join a local business meet-up group, your local Chamber of Commerce or other business clubs to help get you started. When you’re a business owner, you’re in the sales business — and sometimes that means making small talk. But fear not! Learning to network effectively is a great skill to develop. Check out this blog post for more tips for networking for the networking-averse!
Best wishes for the holidays – and the New Year!
As we come to the end of 2022, we’d like to thank you for being with us this year. All of us here at GoForth Institute wish our fellow entrepreneurs a festive and restful holiday season. We’re looking forward to exciting new things in 2023, and we hope the new year is wonderful for everyone – in small business and in life!