Business Planning Considerations: How to Generate and Collect Revenue
In the simplest plan’s 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 systems, third-party auctions, licensing agreements, or countless other approaches.
Some business models practically give away the primary product, 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.
Other businesses — especially broadcasters and Internet sites — charge consumers nothing at all. Instead, they generate revenue by selling ad time or space to those who want to reach the audiences that the stations or sites attract. In other words, though they create content, their business models revolve around the sale of advertising.
There’s no perfect approach. Your business might generate revenue from retail transactions or service fees, membership fees, user fees, advertising sales, or any combination of these or other revenue-generating approaches. Just be sure that your business model clearly defines what you’re selling and how and when you’ll collect payments. Both decisions will affect your revenue picture and business success.