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Business model and financeRevenue model

Are you capturing the value you create?

The Next Organization helps you rethink your revenue model. Together, we find a model that fits how your customers want to buy and use what you offer today. Because the way you made money yesterday may not work tomorrow.

Sound familiar?

Customers love what you offer, but balk at the upfront cost
Customers ask for a monthly fee instead of one big invoice
The only way to grow revenue is to hire more people
You are always chasing the next sale to keep revenue coming in
Competitors are offering similar products as-a-service or on subscription

What is a revenue model?

A revenue model describes how your organisation makes money. It answers two questions: what does the customer pay for, and how do they pay? Pricing itself is covered under Products and services.

Types of revenue model

One-off sale

What it is: The customer buys the product and owns it. A warranty or paid aftercare follows
When it works: When the product delivers value on its own and needs little maintenance

How the income comes in

A large payment at the point of sale, followed by the occasional smaller amount for aftercare.

Hourly rate

What it is: You charge for every hour worked
When it works: For custom work where the scope is hard to predict

How the income comes in

Income tracks the hours you bill. To earn more, you need more hours, and so more people.

Subscription or lease

What it is: The customer pays a fixed fee per period to use a product or service
When it works: When customers need what you offer regularly and prefer to spread the cost

How the income comes in

The same amount every period: predictable, but smaller each time than a single sale.

As-a-service

What it is: The customer pays to use the product, while you keep ownership and take care of maintenance and replacement
When it works: When customers would rather not deal with maintenance, repairs and replacement, and are willing to pay more for that convenience

How the income comes in

A fixed amount each period for using the product. Because maintenance and replacement are included, it is often a little higher than a subscription.

Pay per use

What it is: The customer pays each time they use a service
When it works: When usage varies a lot

How the income comes in

Income rises and falls with usage, so it differs from period to period.

Licensing

What it is: The customer pays to use your knowledge, brand or technology
When it works: When you own protected know-how that others can put to work

How the income comes in

An upfront fee when the licence starts, followed by a recurring fee per period or per use.

Income from the customer per period: an indicative pattern, not actual amounts.

With a subscription or as-a-service model, payments shift from a single invoice to instalments spread over the contract. You invest first and earn later, and you need to be able to fund that gap in your cash flow. Customers also only stay as long as they keep getting value. With an hourly rate, revenue grows only as fast as the hours you bill, and so only as fast as your headcount.

Your revenue model is one part of your business model, which describes how you create, deliver and capture value, for which customers and with which partners. Changing your revenue model therefore affects your strategy, your customer relationships and your entire organisation. If you earn money together with partners through a platform, the Network Business Model Canvas can help.

What you get

You end up with a revenue model that fits how customers want to buy and use what you offer. You know what the switch will take in terms of cash flow, financing and organisation. And with a business case, you can make a well-founded decision.

Frequently asked questions

When does a subscription model make sense?

A subscription works when customers use what you offer again and again and like having fixed costs. The convenience has to be worth what is often a higher total price. For you, it means predictable income, but making the switch requires a cash buffer.

How do you know if your revenue model still works?

Keep an eye on what is changing among your customers and in your market. Shrinking margins on the same revenue, or customers coming back less often, are warning signs. That is why it pays to check your revenue model against your market insights regularly.

Can you combine more than one revenue model?

Yes, many organisations do. Think of a one-off sale combined with a maintenance subscription, or a licence alongside hourly consulting. Just make sure the combination stays clear to customers and your prices do not undercut each other.