10 Revenue Models Types and how to pick yours
Apr
When building a business, choosing how you’ll make money is just as important as what you’re offering. That’s where your revenue model comes in. It’s the blueprint that defines how your business earns income—from subscriptions and product sales to commissions and ads.
Whether you’re launching a startup, refining an existing business, or just exploring ideas, understanding different revenue models can help you make smarter strategic decisions. In this article, we’ll break down the most common types of revenue models, show real-world examples of companies using each one, and help you decide which approach fits your business best.
Contents
What Is a Revenue Model?
A revenue model is the method a business uses to generate income. It outlines where the money comes from—whether that’s selling physical products, offering a subscription, charging for access, or collecting commissions.
While often confused with the broader business model, the revenue model is specifically focused on monetization. It answers the question: “How does this business make money?”
Choosing the right revenue model is essential for long-term sustainability. It impacts everything from pricing strategy and customer relationships to marketing and product development. A clear revenue model also helps attract investors, align teams, and prioritize efforts.
10 Revenue Models Types
Let’s break down 10 different revenue models so you can decide which one is the best to your business.
Advertising Revenue Model
The advertising revenue model is built on attracting a large audience and monetizing their attention by selling ad space. Rather than charging users directly, companies earn money from advertisers who want to reach that audience.
How It Works: Businesses provide free content, services, or platforms to users and sell visibility (banner ads, sponsored posts, video ads) to third parties. The more users or engagement they generate, the more ad revenue they can earn.
Practical Example: A blog about entrepreneurship offers free articles and places banner ads throughout its content. Each time a user views or clicks on an ad, the blog earns a small amount. With enough traffic, this can become a substantial revenue stream.
Companies That Use the Advertising Model
- Google – earns most of its revenue from ads shown on search results and across the web (Google Ads).
- Facebook (Meta) – generates billions from ads targeted based on user data.
- YouTube – splits ad revenue with content creators through its Partner Program.
- BuzzFeed – offers free viral content and earns through native ads and branded content.
| Pros | Cons |
| Scales with audience growth | Requires large traffic volume to be profitable |
| Free content attracts users | Ad-blockers can reduce effectiveness |
| Multiple formats (video, banner, native) | Dependence on third-party platforms (e.g., Google AdSense) |
Subscription Revenue Model
The subscription revenue model is based on recurring payments—typically monthly or annually—in exchange for continued access to a product or service. It focuses on building long-term relationships with customers and generating predictable, stable income.
How It Works: Customers pay on a recurring basis to maintain access. This could be access to software, streaming content, educational resources, or even physical products through subscription boxes.
Practical Example: A startup offering productivity software charges users $12/month. Customers get continuous access to premium features, updates, and customer support as long as their subscription remains active.
Companies That Use the Subscription Revenue Model
- Netflix – charges a monthly fee for access to its library of streaming content.
- Spotify – offers premium music streaming with no ads and offline downloads.
- Notion – a SaaS productivity platform with tiered monthly pricing.
- The New York Times – digital subscriptions for premium news access.
This is one of the most popular choices for a subscription business model, especially in SaaS, media, and creator platforms.
| Pros | Cons |
| Predictable and recurring revenue | High churn can hurt growth |
| Easier to forecast and plan cash flow | Requires ongoing value to retain subscribers |
| Enables stronger customer relationships | More complex billing and support systems |
Freemium Revenue Model
The freemium revenue model combines free access with optional premium upgrades. Users get a basic version of the product at no cost, while advanced features, tools, or content are locked behind a paywall.
How It Works: The idea is to build a large user base by offering free value, then convert a portion of those users into paying customers. The free version acts as a marketing tool and onboarding channel.
Practical Example: A design tool lets users create and download basic graphics for free. If they want to use premium templates, remove the watermark, or collaborate with a team, they need to upgrade to a paid plan.
Companies That Use the Freemium Model
- Canva – free design tools with paid Pro features.
- Zoom – free video calls with limitations; premium tiers unlock longer meetings and business tools.
- Dropbox – free storage with limited space; upgrades available for more storage and advanced features.
- LinkedIn – free networking with paid Premium for recruiters, job seekers, and sales professionals.
| Pros | Cons |
| Attracts a large number of users quickly | Only a small percentage convert to paying users |
| Low barrier to entry | Free users still incur costs (support, servers) |
| Builds brand familiarity and trust | Can be hard to draw the line between free and paid value |
Transaction/Commission-Based Revenue Model
The transaction-based revenue model—also called the commission model—generates income by taking a cut from each sale or transaction that occurs on the platform. It’s common in marketplaces and service-based platforms that act as intermediaries.
How It Works: The business connects buyers and sellers (or service providers and clients) and earns a fee each time a transaction is completed. The more volume the platform processes, the more revenue it earns.
Practical Example: A freelance job platform charges 10% of every payment made between a client and freelancer. If the freelancer earns $1,000, the platform takes $100.
Companies That Use the Transaction-Based Model
- Airbnb – charges service fees to both hosts and guests per booking.
- Uber – takes a percentage of each ride fare paid by passengers.
- eBay – earns commissions from every product sold on its platform.
- Fiverr – collects a 20% fee from freelancers for each project completed.
| Pros | Cons |
| Scales with transaction volume | Revenue depends on high usage |
| No upfront cost for users | Competitive pricing pressure from other platforms |
| Aligns with user success | Complex logistics (disputes, refunds, etc.) |
Product Sales (Direct Sales) Revenue Model
The product sales revenue model is one of the most traditional and straightforward: businesses earn revenue by selling physical or digital products directly to customers, usually for a one-time payment.
How It Works: Customers pay a fixed price in exchange for ownership or access to a product. The business earns revenue with each sale, and profitability often depends on volume, pricing, and cost management.
Practical Example: An e-commerce store sells a $60 desk lamp. Each sale generates immediate revenue, minus costs like production, packaging, and delivery.
Companies That Use the Product Sales Model
- Apple – sells devices like iPhones, MacBooks, and accessories.
- Nike – sells shoes, apparel, and gear directly through its stores and website.
- Amazon (1P side) – sells its own products like Kindle and Echo devices.
- Etsy sellers – sell handmade or digital goods directly to consumers.
| Pros | Cons |
| Simple to understand and implement | No recurring revenue; income is tied to new sales |
| Immediate cash flow | Inventory and logistics management required |
| Works well for both physical and digital products | Scaling can require large upfront investment in stock |
Licensing Revenue Model
The licensing revenue model allows companies to generate income by giving other parties the right to use their intellectual property—like software, technology, brand, or content—under specific terms.
How It Works: Instead of selling a product outright, the business licenses its use for a fee, which can be recurring (subscription-style) or one-time. The licensee gets usage rights, while the licensor retains ownership.
Practical Example: A software company creates a proprietary algorithm and licenses it to other businesses for integration into their platforms, charging an annual fee per license.
Companies That Use the Licensing Model
- Microsoft – licenses Windows OS and Office software to millions of users and businesses.
- Shutterstock – licenses stock images and videos to creators and marketers.
- Dolby – licenses its audio technology to electronics manufacturers.
- Disney – licenses characters and branding for toys, clothing, and more.
| Pros | Cons |
| Scalable with minimal marginal cost | IP protection and legal enforcement can be complex |
| High margins | Revenue depends on external adoption |
| Great for software, media, and IP-based businesses | Limited control over how licensees use the product |
Affiliate Revenue Model
The affiliate revenue model generates income by promoting other companies’ products or services and earning a commission for each sale or lead generated through referral links. It’s performance-based—revenue only comes when results are delivered.
How It Works: An affiliate shares a unique tracking link to another company’s product. When someone clicks that link and completes a purchase (or signs up), the affiliate earns a percentage of the sale.
Practical Example: A blog writes a review of the best email marketing tools and includes affiliate links to each platform. If a reader signs up for one of the tools through the link, the blog earns a commission.
Companies That Use the Affiliate Model
- Amazon Associates – one of the largest affiliate programs, offering commissions for product referrals.
- YouTube creators – often include affiliate links in video descriptions for gear and software.
- NerdWallet – earns referral commissions when users sign up for credit cards or financial tools.
- Influencers and bloggers – across all niches, from fashion to tech.
| Pros | Cons |
| Low barrier to entry and no product needed | Dependent on third-party sales and conversion rates |
| Scalable across multiple platforms and audiences | Income can be inconsistent |
| Works well for content creators and influencers | Trust is key—can feel “salesy” if not done right |
Data Monetization Revenue Model
The data monetization model turns user data into a revenue stream. Instead of selling a product or service directly, businesses leverage the data they collect—either by selling it, aggregating it for insights, or using it to enhance advertising and personalization.
How It Works: Data collected from users (with consent) is either sold to third parties, used internally to optimize monetization (like targeted ads), or offered as insights in the form of reports or dashboards to other businesses.
Practical Example: A navigation app collects real-time traffic data from users and sells anonymized datasets to city planners and logistics companies.
Companies That Use the Data Monetization Model
- Waze – provides free GPS navigation while monetizing aggregated traffic data.
- Facebook (Meta) – uses behavioral data to enable hyper-targeted advertising.
- Foursquare – monetizes location data through analytics services.
- Credit bureaus – collect and sell credit data to banks and lenders.
| Pros | Cons |
| Highly profitable when scaled | Raises privacy and ethical concerns |
| Leverages existing user behavior | Complex data security and compliance requirements (e.g., GDPR) |
| Adds an extra revenue layer without disrupting core offering | Requires robust tech infrastructure |
| Valuable for enterprise clients and partners | Risk of user distrust if not transparent |
Pay-Per-Use Revenue Model
The pay-per-use or usage-based revenue model charges customers based on how much they consume. Instead of paying a flat fee, users pay in proportion to the service or product they actually use.
How It Works: Customers are billed according to units of usage—this could be gigabytes of storage, number of API calls, minutes of usage, or volume of transactions. It’s often used in cloud computing, utilities, and telecom services.
Practical Example: A startup uses a cloud provider that charges $0.023 per GB of data storage. If they use 100 GB in a month, they pay $2.30. As their usage grows, so does the cost.
Companies That Use the Pay-Per-Use Model
- Amazon Web Services (AWS) – charges based on computing power, storage, and bandwidth used.
- Twilio – charges per text message or phone call made through its API.
- Zapier – charges based on the number of tasks or automations executed.
- Utilities (like water or electricity providers) – charge based on consumption.
| Pros | Cons |
| Flexible and scalable pricing for customers | Unpredictable revenue compared to subscriptions |
| Revenue grows as customer usage grows | Can be hard for customers to estimate monthly costs |
| Attractive for businesses with fluctuating needs | Usage spikes may lead to churn if pricing feels “punitive” |
| Low barrier to entry—pay only for what you use | Requires robust metering and billing infrastructure |
Razor and Blade Revenue Model
The razor and blade model (also known as the loss leader model) involves selling a primary product at a low price—or even at a loss—while making profits from recurring purchases of complementary, higher-margin products.
How It Works: The initial product (the “razor”) is priced attractively to increase adoption. Once customers are locked in, they must purchase compatible products or consumables (the “blades”) repeatedly.
Practical Example: A coffee machine is sold for $79, but the buyer must purchase proprietary pods to use it. These pods generate ongoing revenue with much higher margins.
Companies That Use the Razor and Blade Model
- Gillette – sells inexpensive razors; profits come from replacement blades.
- Nespresso – affordable machines, high-margin coffee pods.
- HP – sells printers cheaply and earns from ink cartridge sales.
- Xbox/PlayStation – consoles sold near cost; profits come from game sales and subscriptions.
| Pros | Cons |
| Encourages mass adoption with a low entry cost | High reliance on continued customer purchases |
| Creates recurring revenue from consumables | Risk if customers find alternatives or reusable options |
| Builds brand loyalty through ecosystem lock-in | Can generate negative sentiment if follow-up costs feel excessive |
| High margins on repeat purchases | May require upfront investment or subsidies on core product |
How to Choose the Right Revenue Model
Choosing the right revenue model is a strategic decision that can determine your business’s growth potential, customer relationships, and long-term sustainability. There’s no one-size-fits-all answer—but there are key factors you should consider:
1. Know Your Target Audience
- Are they price-sensitive or value-driven?
- Do they prefer one-time purchases or ongoing access?
- Are they individuals or businesses with predictable budgets?
2. Understand the Nature of Your Product or Service
- Is it something used once, or continuously over time?
- Does it have consumable components?
- Can it be digitized, duplicated, or licensed?
3. Consider Scalability and Predictability
- Subscription models offer steady cash flow.
- Usage-based models scale with demand.
- Advertising requires massive reach to scale.
4. Evaluate Customer Acquisition and Retention Costs
- Freemium can attract lots of users but may convert poorly.
- Commission models require building a two-sided marketplace.
- Product sales can be expensive to scale if inventory is involved.
5. Think About Long-Term Flexibility
- Can you add new revenue streams over time?
- Will the model grow with your customer base?
- Are you locking yourself into pricing structures too early?
6. Mixing Models Is Allowed
Many successful companies combine multiple revenue streams. For example:
- Amazon uses product sales, subscriptions (Prime), and advertising.
- Adobe moved from one-time licensing to a subscription model.
- YouTube blends advertising, channel memberships, and transaction fees (Super Chat).
Conclusion
Your revenue model is more than just a financial decision—it’s a strategic foundation for how your business creates, captures, and scales value. From subscriptions and product sales to commissions and data monetization, each model offers unique advantages and trade-offs depending on your market, product, and growth stage.
The most successful companies often combine multiple revenue models to diversify income, enhance customer experiences, and create long-term sustainability. Whether you’re launching a startup or rethinking your current approach, understanding these models—and the companies that use them—is the first step toward making smarter business decisions.
Ready to build your revenue model? Use our Business Model Canvas template or explore our guides on pricing strategies to take the next step.
