Revenue Streams
Revenue streams are the various sources from which a business earns money from the sale of goods or the provision of services. The types of revenue that a business records on its accounts depend on the types of activities carried out by the business.
Types of Revenues
To classify revenues at a high level, there are operating revenues and non-operating revenues.
- Operating revenues describe the amount earned from the company’s core business operations.
- Non-operating revenues refer to the money earned from a business’s side activities.
For the majority of companies, the following are a few common revenue accounts:
- Revenue from goods sales or service fees: This is the core operating revenue account for most businesses, and it is usually given a specific name, such as sales revenue or service revenue.
- Interest revenue: This account records the interest earned on investments such as debt securities. This is usually a non-operating revenue.
- Rent revenue: This account records the amount earned from renting out buildings or equipment, and is considered non-operating revenue.
- Dividend revenue: The amount of dividends earned from holding stocks of other companies. This is also non-operating revenue.
Examples of Revenue Streams
Revenue streams categorise the earnings a business generates from certain pricing mechanisms and channels. To describe it simply, a revenue stream can take the form of one of these revenue models:
- Transaction-based revenue: Proceeds from sales of goods that are usually one-time customer payments.
- Service revenue: Revenues are generated by providing service to customers and are calculated based on time. For example, the number of hours of consulting services provided.
- Project revenue: Revenues earned through one-time projects with existing or new customers.
- Recurring revenue: Earnings from ongoing payments for continuing services or after-sale services to customers. The recurring revenue model is the model most commonly used by businesses because it is predictable and it assures the company’s source of revenue is ongoing.
Possible recurring revenue streams include:
- Subscription fees (e.g., monthly fees for Netflix)
- Renting, leasing, or lending assets
- Licensing content to third parties
- Brokerage fees
- Advertising fees
How to Create a Revenue Stream?
Listed below are the step-by-step guide on how to create revenue streams.
1. Determine the key market and the main source of income: If a company's owners do not even know what they're marketing or to whom they're marketing it, they won't get anywhere with any business approach they employ.
2. Opportunities that might supplement the current source of money should be considered: Maintaining consistency and harmony with the established brand is a vitally important step in how to create a revenue stream for financial gain.
3. Do some research and consult with clients to find out what it is that they need: Make use of the feedback provided by existing customers to generate ideas regarding what it is that they would want and need from a company in the future.
4. Begin to expand the base of customers: Put all of the effort into acquiring new clients so that the business can increase the number of existing customers. Increase the number of potential clients that are reached by the current marketing operations by reaching out to a greater number of people.
5. Examine the development of the company once it has been established: It is important to keep an eye on the new revenue stream and monitor how well it is doing. Make modifications as needed. Owners should give it some time to grow and develop, but if it becomes a headache and costs so much more than it's worth, owners shouldn't be afraid to pull the plug on it.
It is important to understand the different types of revenue streams that a business can generate so your income can accurately be reflected in the business records. As a small business in particular, knowing what alternative streams you have available also helps you grow your overall revenue to ultimately grow your business.
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