Revenue Models: 17 Types, Examples & Template 2023

Asset sale or selling assets is one of the most mainstream ways that businesses make money across multiple industries. An asset sale also occurs when a business owner sells their company. Once the sale is complete, typically, a customer can use the product, resell or even destroy it as they own the asset. The sale of a physical product generates revenue for the business.

For example, Apple can sell a MacBook, iPhone, and iPad, each for a different price. Therefore, the net revenue formula should be calculated for each product or service, then added together to get a company’s total revenue. 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. The data sales revenue model is most common for online businesses, where businesses sell data that they have collected.

• 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.
• It is the measure of an organisation’s liquidity and ability to generate cash and meet its financial obligations.
• Even though the booking for the entire year is received upfront, revenue is recognized equally across the 12-month period.
• Treating cash and revenue the same can be a fatal mistake for any business, whether it is a large, public company selling software or a local private company selling groceries.
• For example, your personal household expense of $1,000 to buy the latest smartphone is $1,000 revenue for the phone company.

Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. We hope it has helped your understanding of accounting and financial reporting. Many growth stocks with rapid revenue growth don’t have any profits because expenses are still very high.

How to choose a revenue model for your business?

Meanwhile the opposing entry which is cash is debited with the same amount. This ensures that the double-entry system is maintained, and all balances are equal in the end. Accrual accounting is a method of accounting whereby a company’s position and performance is… Revenue is the total income your company makes from the sale of goods and services. You might have a sales return contra account or a sales discounts account. The Sales Discounts account shows the discounts you gave to a customer.

In the cash basis of accounting, a sale only counts once the payment is fully received and processed. Non-operating revenue is the money earned through secondary operations of the business. This form of revenue is the one generated other than the core operations of an organization. It’s also common practice for companies to wait to record revenue until they deliver the product or service to customers.

The affiliate commission revenue model is another common for online businesses, where businesses pay a commission to affiliates for referring customers. The benefit of this revenue stream is that you don’t have to deliver the product or service, you simply match the customer with the right business or service. The downside is that this sort of revenue stream really only applies to certain businesses and it takes a lot of time and effort to set up. Any business that acts as an intermediary takes a percentage fee for its services. Typically, there are pros and cons to each type of revenue stream.

Revenue Examples

This is also known as the top line of the company and appears on the income statement. A revenue account is an account used to track the revenue generated by a company through the sale of goods or services. To understand the above examples, it is important to be aware of the types of revenue accounts. When going through the company’s financial statement analyzing revenues is extremely important.

For example, peer-to-peer lending platforms, such as LendingClub and Prosper, generate revenue by charging interest on loans funded by investors. Here we will pay more attention to the most common revenue models used in the software industry and online business. 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. A revenue stream is a single source of revenue that a business has. Streams are often divided by customer segments that bring revenue via a given method.

What Is Revenue?

A revenue model is used to manage a company’s revenue streams, predict income, and modify revenue strategy. 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. Many companies, specifically public companies, must report their income on a quarterly and annual basis using earnings reports. Even within a private company, you can find total revenue on financial statements, like income sheets and cash flow statements. Revenue is the total money a company earns from its operations by selling products or services to customers and it does not take into account expenses incurred. Operating revenue is revenue you receive from your business’s main activities, like sales.

But licensing is still a popular option in photography, music, and video games where customers pay to use and access content, while the owner still retains the ownership rights. Operating revenue is the revenue that a business earns from its core business activities. For example, a bakery would earn its operating revenue by selling cakes and other food items it sells. This is most common with companies manufacturing standardized goods, like mining, oil, or agricultural companies. An oil company, for example, selling barrels of crude might recognize revenue after the oil is packaged and ready for sale, even if it hasn’t actually been purchased by the end customer. For larger purchases where a customer pays through installments—like a mortgage, for example—companies should only recognize revenue once the payment has been received.

The best revenue streams for your business depend on your assets, who your customers are, and your current main source of income. With various types of revenue models and streams available, the right revenue streams can differ. At a high level, a company can generate revenue from transactional revenue from a one-off payment like sales or through recurring revenue like a subscription. Revenue is a form of income that is based upon the sale of goods or services. Gross revenue is revenue earned before deducting the costs of generating the revenue, while net revenue is the revenue earned after deducting the costs of generating the revenue.

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While revenue is a gross amount focused just on the collection of proceeds, income or profit incorporate other aspects of a business that reports the net proceeds. Such a situation does not bode well for a company’s long-term growth. When public companies report their quarterly earnings, two figures that receive a lot of attention are revenues and EPS. A company beating or missing analysts’ revenue and earnings per share expectations can often move a stock’s price. In accounting, the income statement (also called the Statement of Profit and Loss) summarizes a company’s revenues, expenses, and net income.

For straightforward business models, calculating revenue is fairly simple. But, the more complex the business, the harder it is to determine income accurately. Record incoming money from main business operations in your Revenues/Sales account. Some businesses might be more specific when naming sales accounts. For example, Service Revenue is a type of account that records sales from services you perform. Non-operating revenue is money earned from a side activity that is unrelated to your business’s day-to-day activities, like dividend income or profits from investments.

Revenue in accounting

For service companies, it is calculated as the value of all service contracts, or by the number of customers multiplied by the average price of services. Revenue is the money generated from normal business operations, calculated as the average sales price times the number of units sold. It is the top line (or gross income) figure from which costs are subtracted to determine net income.

• Streams are often divided by customer segments that bring revenue via a given method.
• Any start-up, tech company, or digital business may combine different revenue models.
• In this specific example, Company C should record the revenue in March—since that’s when the products were delivered—even though the sale was booked in January and paid for in February.
• Revenue is a specific type of income generated by selling goods or services.
• Revenue is often used to measure the total amount of sales a company from its goods and services.
• Marketplaces and eCommerce platforms, in particular, utilize commissions the most.

The owner generated $85,000 last year by providing a grooming service to her customers. Additionally, she made $12,000 through the sale of pet accessories with her company’s logo. The owner has $18,000 in operating expenses, such as the lease on her shop, utilities, and advertising.

Revenue and Income

Often, when talking about revenue streams, these three terms are used a lot and it’s easy to confuse them. A business can have a single or multiple revenue streams, depending on the business model. When you’re looking at your revenue model, you’re diving deeper into elements like price and your value offering. Your business model takes everything into account, including your revenue streams and model. It’s a way of optimizing your business so that all elements work together to maximize profits.