120 PART | III ITS business models
(2011). A revenue model is a framework for generating revenues. The revenue
model identifies which revenue source to pursue, what value to offer, how to
price the value, and who pays for the value. It is a key component of a com-
pany’s business model and identifies what product or service will be created in
order to generate revenues and the ways in which the product or service will be
sold.
A new business will struggle due to costs which they will not be able to
sustain without a well-defined revenue model, that is, a clear plan of how to
generate revenues. Having a clear revenue model can help a business focus on
a target audience, fund development plans for a product or service, establish
marketing plans, begin a line of credit and raise capital (Zott & Amit, 2006).
According to Zolt and Amit (2006), although it is clearly an important compo-
nent of a business model, a revenue model does not in itself define a company’s
business model. A revenue model is defined as the means by which value is
captured by a firm.
The main step to develop the revenue model is to determine the types and
sources of revenue the business will generate. Sources of revenue from service
sales can vary depending on customer type and category, including online, mo-
bile, consumer, corporate, institutional, and/or government. A revenue model
includes every aspect of the revenue generation strategy of the business. Rev-
enue can be generated from a myriad of sources, in the form of commission,
markup, arbitrage, rent, bids, etc. and can include recurring payments or just a
one-time payment.
10.6.1 Business model versus revenue model versus revenue
stream
“Business model,” “revenue model,” and “revenue stream,” are very often used
interchangeably. However, they are different from each other. Alex Genadinik
(2014), in his article, “What is the difference between a revenue model, revenue
stream and a business model?” summarized the differences.
• A revenue stream is a company’s single source of revenue. A company can
have zero or many revenue streams, depending on its size.
• A revenue model is the strategy of managing a company’s revenue streams
and the resources required for each revenue stream.
• A business model is the structure comprised of all aspects of a company,
including revenue model and revenue streams, and describes how they all
work together.
10.7 Types of revenue models
There are many sources that can be used to generate revenue especially with the
advent of the internet. According to Pahwa (2019), the following are the top 10
revenue models. Pahwa (2019) gives the definitions as follows