A business model canvas usually offers a visual representation of business models. Revenue streams are one of its major building blocks as they define the methods followed by a company to get its customers to buy its products or services. In this article, we will discuss in detail the importance of revenue streams business model canvas for the entrepreneur, as well as how to address it properly. Moreover, we will discuss two types of it i.e. recurring and transaction revenues. Read ahead to know more about the revenue streams building block of a business model canvas.
What Are Revenue Streams?
Revenue streams are one of the key building blocks of a business model generation canvas. It gives a clear understanding of the earnings of a business and is obtained by subtracting costs from revenue generated from each customer segment. This helps the organization assess the worth of the value provided for each customer segment. Also, keep in mind that its accurate evaluation helps the organization gain multiple revenues from a single customer segment.
How Are Revenue Streams Useful?
There must be clarity about revenue streams, and for this, they must be clearly defined. So, it is important to list their sources, specify product pricing, and its projected life cycle. This detailing helps to assess whether to opt for a revenue stream or not. For example, it is not viable for businesses if a product’s research and development costs are more than the price customers are willing to pay.
The best way to set the price for a product is to assess the magnitude of a problem in its customer’s life and their willingness to pay to resolve it. However, most businesses feel compelled to create a prototype of the solution to price it right, and hence they hesitate to fully analyze their revenue streams.
What Are The Different Types Of Revenue Streams?
As already stated, there are two types of revenue streams.
- Recurring Revenue: This is the revenue earned by the company consistently for ongoing payments; it can be from aftersales customer services or for delivering value proposition.
- Transaction Revenue: This is the revenue that is earned by the business when a customer makes a onetime payment for its product or service.
What Are The Different Pricing Mechanisms?
The pricing mechanism is the methodology used for pricing the product or services of a company based on demand and supply. There are two types of it, and they are listed below.
- Fixed pricing: In this type of pricing, the price of a product remains uniform.
- Dynamic pricing: In this type of pricing, the price of a product fluctuates due to variations in the market, as well as the inputs of the product.
Getting the right pricing of products or services is the key to the success of any business, and it is done with the revenue streams business model canvas.