12 most popular and effective revenue models for startups

A key component of any company’s business model is choosing an effective revenue model for startups that defines exactly how you’ll generate revenue. Choosing the right start-up revenue model will allow you to grow fast and earn a large profit. If you’re wondering how to prepare a revenue model for startup success, consider the following revenue model examples and tips.

Here are 12 of the most popular and effective start-up revenue models.

1. Freemium

An offering where a companies basic services are free of charge, but a premium is charged for additional features, extensions and functions. This is a versatile revenue model for startup companies looking to attract a broad user base before monetizing. A couple of well renowned companies to use this strategy are LinkedIn and MailChimp. 

Revenue model example: The freemium model works best when you can offer a compelling enough free version that attracts users while having advanced features that create a strong incentive to upgrade. For example, Dropbox used a freemium model to grow from 100,000 to 4 million users in just 15 months.

2. Subscription

A subscription is a recurring revenue strategy, where customers are charged upfront for periodic use or access to the service. This is a popular strategy used among entertainment services like Netflix and Amazon Prime or SaSS products such as Office 365 and Salesforce.

Revenue model example: Consistency is key in subscription models. Offering regular updates, exclusive content, or new features can help maintain subscriber loyalty. Spotify’s annual “Wrapped” feature is a great example of keeping subscribers engaged with personalized content.

READ: Top 5 Financial Forecasting Tools For Startups because financial projections are crucial for subscription models to predict recurring revenue accurately. 

3. Pay-per-use

Customers have access to potentially unlimited services and features and only pay for what they use. It’s a commonly used revenue model within the telecom and cloud-based service industry.

Revenue model example: Pay-per-use models are especially effective for services that customers use intermittently. AWS (Amazon Web Services) allows startups to scale costs with usage, making it a popular choice for new tech companies.

4. Licensing

This licensing model grants permission to use a companies products, services or name at a predetermined or recurring cost. It’s common among creators, inventors and intellectual property owners such as Disney, Ferrari and the BBC.

Revenue model example: Licensing can be a lucrative revenue stream if your product has a unique value proposition. Dolby Laboratories licenses its sound technology to TV and audio manufacturers, ensuring a steady income while expanding its brand presence.

READ: Pre-Seed Pitch Decks For Startups because licensing models can benefit from a well-crafted pitch deck to attract initial investment.

5. Advertising

With an advertising approach the offering is absolutely free, and the emphasis is on the sale of advertising as a major source of revenue.This revenue model startup strategy is particularly effective for platforms with high user engagement. It’s a popular solution among traditional broadcast, print media as well as online media companies such as YouTube and countless mobile applications.

Revenue model example: High traffic is crucial for advertising models. Focus on building a large user base and offer targeted advertising opportunities. Facebook’s ad revenue grew by 56% in 2021 by leveraging user data to deliver highly targeted ads.

6. Franchise

Franchising can help you grow your business by selling the rights to use your brand and business model, instead of investing in new units of your own. The franchisee would use your successful business model in return for a fee – typically a fixed starting fee plus a commission from the income. McDonalds are the masters of this, attracting their first franchisee for their unique restaurant concept in 1952, today they have over 31,000 franchises in 119 countries and serve 47 million customers a day.

Revenue model example: Maintaining quality control and brand consistency is crucial when franchising. Subway uses a strict franchising model that includes comprehensive training and support to ensure uniformity across its 37,000+ locations worldwide.

7. Predictive Pricing

Uses past data, customer profile or performance to determine a future-price offering. This strategy is commonly used by insurance companies, for example if you have a negative history your cost will be higher. Aviva have invested heavily in Aviva Drive, an app that sends them data about how you drive – helping them better tailor their predictive pricing. This revenue model startup approach allows companies to adjust prices based on individual behavior and risk profiles.

Revenue model example: Invest in data analytics and machine learning to enhance the accuracy of your predictive pricing models. Progressive Insurance uses its Snapshot program to offer personalized car insurance rates based on driving behavior, leading to better pricing accuracy.

READ: A Complete Guide To Angel Investors For Small Businesses And Startups because angel investors might be interested in predictive pricing models as they offer personalized and scalable revenue strategies.

8. Affiliate

A popular strategy used within the online marketplace is the affiliate revenue model. An individual or brand promotes to their audience links to relevant third party products and charges commission or a fixed rate for every transaction. This revenue model for startups can be particularly effective for companies with strong online presences and influencer partnerships.

Revenue model example: Choose affiliates who align with your brand values and target audience to increase the effectiveness of your affiliate marketing efforts. Amazon Associates is a prime example, offering affiliates a way to earn commissions by promoting Amazon products.

9. Real-time pricing

According to the level of demand, customer or conditions the price of the offering can change accordingly. For example, an airline will change their prices according to their current demand and American energy company ComEd have recently introduced real time pricing based on current energy demand – leading to a 15% reduction on customers bills. This dynamic revenue model for startup allows for price adjustments in real time to match market conditions.

Revenue model example: Real-time pricing can optimize revenue by responding to demand fluctuations. Uber uses surge pricing during peak times to manage demand and supply, ensuring riders can always get a ride when they need one.

DOWNLOAD: Financial Forecast Template because financial forecasting is essential for real-time pricing models to adjust prices based on demand.

10. Price Leadership

By lowering the cost of production you can produce more, and take advantage of economy of scale, as a result this will lower the cost per production unit which you can pass onto your customer. This revenue model for startup company is ideal for businesses looking to compete on price while maintaining profitability.

Revenue model example: Achieving cost leadership often requires significant investment in technology and process improvements. Walmart’s use of advanced supply chain management and economies of scale allows it to offer lower prices than its competitors.

READ: The Pitfalls Of Undercutting In Your Startup Pricing Strategy

11. Premium

Normally applied for prestigious, luxury or niche products and services. Brand image and quality is an important element for premium revenue models. Some examples of well renowned companies to use this strategy include Rolls-Royce, Gucci and Rolex.

Revenue model example: To justify premium pricing, focus on delivering exceptional quality and a unique customer experience. Apple exemplifies this model, consistently offering high-quality products that justify their higher price points.

12. Bundle Pricing

Bundle pricing offers several products or services as a combined product for a lower price. Some common examples include value meals at restaurants, utility companies and software. For example Office 365 offers you Word, Excel, Powerpoint, Outlook, OneNote, Publisher and Access, all included for one price.  

Revenue model example: Bundle complementary products to add value and simplify purchasing decisions for customers. McDonald’s popularized the value meal, which bundles a burger, fries, and a drink at a lower price than purchasing each item separately.

Often two or more of these models are used in conjunction with each other – for example Spotify benefit from a freemium and subscription model. While Volvo now run a “car as a service” model that incorporates a fixed monthly subscription for the car and all expenses, such as insurance and servicing, with the option to add premium features on a pay-per-use basis.

There are of course many more types of revenue model, but hopefully the twelve we have highlighted in this article will give you a good place to start.