Business Planning Considerations: How to Generate and Collect Revenue
In the simplest business model, your business makes a product or provides a service, sells it to a customer, and collects revenue directly. You might collect revenue on the spot, or you might sell on credit and collect in 30 days or over a longer timeframe, if that’s part of the deal.
Or, you might lease your offering or provide it on a subscription basis. Or maybe you sell your product along with a service package, which would give your business model two streams of revenue: one from the sale and one from the service fee. In any of these scenarios, however, the sales transaction is between your business and your customer, and pretty straightforward and direct.
Other business models employ less direct, more complicated revenue-generation approaches. For example:
Instead of selling directly to customers, some businesses sell through wholesalers, distributors, franchises, multilevel marketing schemes, auctions, licensing agreements, or countless other indirect approaches.
Some business models involve selling the primary product for practically nothing, generating profit by selling accessories or other offerings the primary product requires. For example, think of the usage contract you sign when you get your cellphone for free, or close to it, or the ink you buy to keep your almost-free printer in use.
Some business models involve giving away the primary product and then converting a minor percentage of free users into buyers of a value-added version under what’s called a freemium business model. LinkedIn, Pandora, Skype, and SurveyMonkey are among the highly visible examples.
Other businesses — especially broadcasters and bloggers — charge consumers nothing at all. Instead, they generate content that they basically give away, earning revenue by selling ads or sponsorships to those who want to reach the audiences the stations or sites attract.
There’s no best approach. Your business might generate revenue from retail transactions, hourly service fees, membership fees, user fees, advertising sales, premium-level product sales, or any combination of these or other revenue-generating approaches. Just be sure that your business model clearly defines what you’re selling, how you’re selling it, when and how you’ll collect payments, and your strategy for growth.