[Revenue Models For Startups] How Can Startups Generate Revenue In Early Stages
Over the last decade, we have seen Indian startups grow and achieve massive feats. Experimenting with their revenue models, the growth of Indian startups is quite evident as it has been raining unicorns for the past few years. Now, the Indian startup ecosystem is home to 100 unicorns.
In the first four months of 2022, 14 Indian startups have entered the coveted unicorn club with a total valuation of $18.9 billion. These growing numbers are themselves a measure of the boom in the ecosystem, making it evident that the future is bright.
Though the growth is good, this still leaves us with a major concern as many startup unicorns & well-off startups are yet not profitable. The gap between the pay-offs and the earnings is not being traded off well enough.
However, this problem can be solved by focusing on the methods by which early-stage startups can generate revenue.
Popular Revenue Models For Startups
Depending on the product/service and the industry, early-stage startups can use one or more of these revenue models. Following are the different revenue models for startups.
1. Pay-Per-Use Business Model
In this revenue model, every time a user utilizes a platform’s service, the user is charged a commission. Rates may vary depending on the service given and the quantity.
This revenue model is a good option for small businesses as it offers them the scalability for their ever-increasing or even volatile business demands.
2. Licensing Revenue Model
Most inventors and intellectual property owners make money by licensing their inventions. This revenue model is used by people who have patented their inventions.
Licensing cost varies and generally depends on time, location, and volume. Technology makers can monetize their new technology goods by licensing them to other companies so that they can be integrated into a finished product.
3. Arbitrage Revenue Model
This business concept is based on the pricing differences between markets for the same product. Different marketplaces trade currencies, bonds, and commodities, and the profit gained from trading results in cash flow.
The arbitrage online system is a public relations strategy that entails buying traffic from a site that links to your website and selling advertising space on your website.
4. Advertising Revenue Model
Using this model money is made by offering a platform for businesses or individuals to display their adverts.
This business strategy allows social media platforms to profit. If executed correctly, this income model is quite profitable. If an offline channel exists, a provider may charge an advertiser depending on time and area or based on clicks and views in the case of online channels.
5. Markup Revenue Model
In this revenue model, profit is earned by selling things at a greater price than their actual price. This margin comprises all earnings, commission-based revenue models, and additional costs.
6. Commission Revenue Model
Charging a commission for connecting a provider with a consumer via a platform. In this revenue model, a commission is charged based on the service or commodity sold.
The commission could be fixed or based on a percentage of the sale price.
7. Subscription Business Model
This revenue model provides a steady cash flow as the number of subscription payments is decided on at the time of initial sale, allowing the business to predict your revenue each month.
This type of revenue generation is most popular for OTT (over the top) platforms and SaaS (software as a service) suppliers.
Depending on the service and its supplier, the frequency can be weekly, monthly, or yearly. This revenue model has a high recurring ratio, which means that if a customer enjoys the service and the Return on Investment is satisfactory, he may return to the platform.
What Is A Good-fit Revenue Model For My Startup?
Finding a good fit revenue model for your startup is subjective to the sector your startup belongs to. Following are the commonly used revenue models for startups industry-wise:
The subscription Business Model can be a good where part of the content comes on a freemium basis, and live doubt sessions and special doubt clearing sessions can be provided to the paid users.
Pay Per Use Model can also work for platforms similar to Chegg, where you pay for a question you need an explanation on. This can further yield revenue on a Markup Model where you keep the margin between the solver’s take and the asker’s pay.
Undoubtedly Commission Revenue Model, Arbitrage Model and Pay Per Use Model can be laid down as the source of revenue.
In some cases, the tech involved behind the startup might be lucrative to fellow entrepreneurs. Therefore, licensing the tech and generating Licensing Revenue can also be a great means of earning revenue.
The ongoing development in the tech behind agri-startups motivates a Licensing Revenue Model in most cases. Apart from that, Arbitrage Model and Pay Per Use Model are worthy methodologies to implement.
Health and Wellness Startups:
For startups operating in the health and wellness industry, the subscription model, as in the case of Innovaccer, is a good revenue model.
The advertising model can also be used in tie-ups with various hospitals and pharmacies. Also, the commission Model can be easily laid down, as in the case of online pharmacy startups like PharmEasy.
Software as a Service (SaaS) Startups:
As businesses in this sector can serve multiple purposes, almost all the popular revenue models discussed above can be implemented.
As e-commerce marketplaces provide a platform where the listing and sales go on, one of the very basic suitable revenue models is the Pay Per Use Model for the customer with a Markup Model (affiliate marketing).
Since the platform provided by the E-Commerce Startup garners a good screen-time for the user, it opens up scope for the Advertising Model of revenue too.
The Advertising Model is one of the best revenue-generating methods in Gaming startups, but it is also necessary to not overfeed the user with Ads.
Making your product sticky is necessary to ensure an active userbase. Again, in-app purchases and publishing paid and free versions are great ways to generate revenue via the Subscription Model.
Media and Entertainment Startups:
Efficiently placing advertisements that won’t affect the watch time of users is the key to the revenue of various startups, and this Advertisement Model works pretty well. Again, freemium and paid plans are a general offering making the Subscription Model a genuine source of earnings.
Business challenges become unique for early-stage startups who are disrupting an industry or creating a new one. And as a business journey comes with unexpected challenges, sometimes you have to make a pivot in your revenue model or add one as per the situation.
Note: The StartupLab is a one-stop solution for Indian entrepreneurs who want to stay on top of the business game and get their legal work done. Contact us for auditing, taxation, financial modeling, startup compliance services, CFO services, business reports, business valuation, legal assistance, USA Company Registration, project advisory, and other professional services.
Visit Indian Startup News to read the latest startup news.