Australian Venture Capitalists:
Many Australian VCs are late-stage investors (Series A and beyond), decrease their investment risk by interrogating startups on a capital raising track these recurrent questions:
a) What is the pathway for increasing the current number of users?
b) What are the current and future revenue streams?
c) When is the first liquidity event for the VC?
So, no surprise, the startup’s revenue modelling is vitally important. The purpose of this article is to outline the various revenue models and flesh out those revenue models that, in my view, are particularly relevant for startups.
Revenue Models for Startups
I will elaborate on the revenue models with a double asterisk.
- Affiliate Revenue Model**
- Web Sales
- Direct Sales
- Subscription Revenue Model**
- Ad-Based Revenue Model
- Transactional Revenue Model
- Peer to Peer**
- Channel Sales (or Indirect Sales)
- Product is Free, But Services Aren’t
- Freemium Model**
- Retail Sales
But, first, Co-Founders who are working with a Startup Incubator Sydney it’s critical that trusted guidance is provided to revenue modelling, otherwise VCs will cut short the meeting. At AppCurate we suggest you carefully select your Startup Incubator Sydney!
Affiliate Revenue Model
The affiliate revenue model is popular because it’s essentially based on commissions. This model benefits both the affiliate by delivering a continued revenue stream via commissions; and the original seller extending their market reach and generating new sales.
Through coded affiliate links the affiliate revenue model works by:
a) Pay Per Lead (PPL) – when someone clicks on an affiliate link and takes action (completing a form to generate a new sales lead) the affiliate gets paid.
b) Pay Per Click (PPC) – whenever the affiliate link is clicked the affiliate gets paid.
c) Pay Per Sale (PPS) – when a sale is made the affiliate receives a percentage of the sale price of that item.
d) Pay Per Impression (PPI) – when someone lands on the merchant’s site the affiliate gets paid.
The affiliate framework can be successfully applied to a startup that represents a recurring or subscription-based business model.
Subscription Revenue Model
A subscription-based revenue model requires your customers to pay a recurring fee in exchange for your services or products – monthly, annual, or even lifetime subscription.
The benefit of this revenue model is that it’s a pathway for continued growth and one of the best types of revenue models for startups.
Most importantly, the sustainability of this revenue model is dependent on the number of subscribers and the trend line of subscriber growth over time. Critically, if the startup business can continue to grow the number of seed subscribers the ability to raise the next round of capital – increases.
Peer-to-Peer Revenue Model
One of the best revenue models for any startup is the peer-to-peer revenue model (also called P2P), particularly since the internet has given rise to where two individuals buy (demand) and sell (supply) goods directly.
For the peer-to-peer revenue model to be successful the platform must provide value to both end-users of the platform, the buyer and seller. For example, Uber and Airbnb platforms operate seamlessly and are business models where it’s vital that the business caters to both sides: buyers and sellers.
Special Note – Market Timing
Getting the timing right arguably is the most critical factor in launching an online business. Both Uber and Airbnb got the timing perfectly right even though they launched during the 2008-09 global financial crisis – consumers were ready for peer-to-peer value exchange, extra money in their pockets went a long way.
Freemium Revenue Model
Co-Founders and their Startup Incubator Sydney have developed a freemium revenue model that offers basic services for free, but users must pay for additional premium features.
In a nutshell – the goal of a freemium revenue model is to get enough users hooked on your product services and subscribe to the premium version.
The advantage of the freemium revenue model is that it allows the startup to showcase their product services; increase their user base and market penetration; and generate revenue.
However, the freemium revenue model requires an investment of resources and still leaves the startup with uncertainty, particularly when you’re in the early-stage of growth and watching very closely your monthly cash burn rate.
AppCurate Startup Incubator
For more information on AppCurate email us at info@appcurate.com. Let’s together get on a Faster Path to Commercialization and we’ll show you the revenue streams, sooner rather than later.