11 recipe templates, examples and tips for choosing the right template (2023)

one of the mostfamous lines ofCitizen Kaneis: "It's not a trick to make a lot of money if that's all you want to do is make a lot of money." I wish that statement was as true as it seemed. Perhaps it would be more accurate to say: "There areMany waysto earn a lot of money.”

This has never been truer for software companies in particular than it has been in the last 10-15 years, with the Internet causing an explosion in the number of viable revenue models. However, choosing which revenue model works best for your SaaS business is not easy (even if all you want to do is choose a revenue model for your SaaS business).

Your choice will help determine yoursales strategyand from there, growth rates, the amount of money you'll need to invest up front, and the kind of relationships you're likely to build with your customers. More than that: the choice determines the future of your business.

Let's take a look at some of the most popular recipe models in use today: why they're popular, why they work, and why they'll (or won't) work for you.

Index:
1. What is a revenue model?
2. 11 different types of recipe templates
3. Costs associated with revenue models
4. How to choose the right revenue model
5. How to correctly recognize revenue
6. Conclusion

osubscription templateIt's the “vanilla” SaaS revenue model, not that there's anything boring about a well-designed subscription plan. Businesses charge a customer each month or year for the use of a product or service. All income is deferred and then paid in installments.

The subscription model is perhaps the most popular among SaaS companies due to its versatility, promise ofrecurring incomeand high value: customer lifetime balance.Done right, it's a one-way ticket to sustainable growth.

Companies that work with recurring revenue models, such assubscription or license, see more value from a customer during a given lifetime of the customer.

Being able to offer a variety of value options means your business can satisfy more than one set of customer needs, broadening your appeal. Hubstaff's subscription plan, seen below, is a classic of its kind:

The various Hubstaff plans differ from each other in price and features. This flexibility in the subscription model means budget or transient customers can still get what they need while retaining visibility into what extra they could get for a few dollars more per month.

Markup is a very common revenue model for buying companies (that is, companies that buy the products they sell). It's as simple as it sounds: take the cost of the goods you just bought, increase it by X%, and mark up on the original purchase.

There are several subgenres of the markup model, including the following:

Licensing involves the leasing of goods or services to other companies. The seller retains full control of the copyright of the product or service used by the buyer. Licensing is commonplace for media companies and for patents, copyrights and trademarks, wherever intellectual property is used. Compare this to subscribers, for example, paying for a copy of a product or service.

Computer software producers like Adobe turn to license revenue models just as oftensubscription recipemodels

A typical software license agreement, this one for an Adobe XI Pro package.

The main difference between subscription and license is that the subscription is valid for a fixed period while the license is perpetual, until terminated by one of the parties involved. Licenses offer more stable recurring revenue; Subscription offers a greater opportunity to increase sales.

Advertising allows any platform that attracts a significant amount of traffic to convert that traffic directly into revenue. You've seen it on your favorite blog, media site, and social media platform.(don't think about Google, Facebook and LinkedIn): The popularity of the medium is valued, and advertisers pay to feature their product somewhere (known as display advertising) to capture a percentage of that site's user base.

Other types of advertising that fall under the same revenue model include search engine marketing, social media marketing,Facebook Advertisingand mobile advertising.

On a typical page hosted by a UK newspaperThe Guardian, which otherwise operates a donation revenue model, we can see a graphic ad posted to the right.

It's easy to combine with other recipe templates for maximum effect. For example, that online news source that uses a subscription or donation-based revenue model could also use advertising to increase its overall revenue.

One of the most enduring legacies of SaaS in the business world is the introduction of Pay Per User (PPU). It involves giving the customer potentially unlimited access to a variety of resources, charging only for the services they use. In the early days of SaaS, because the software required no physical delivery and was quickly and cheaply deployed, PPU seemed like the most sensible revenue model.

Yet as natural as it once seemed,pay per user is not popularno more. Assigning value to your product is one of the key considerations of your revenue model, and that includes demonstrating why your target customers are worth valuable money, not just making everything so cheap and easy that they can't turn you down. The problem with PPU, then, is that it is rarely where value is assigned to your product.

Additionally, PPU removes the monthly active user metric. The per user metric is not the most useful metric for clients in terms of driving value: their take it or leave it approach actively works against the number of daily active users and therefore contributes to your churn rate.

As evidenced by the rise and rise ofKick starter- miPatreonBusiness-based, altruism is, though unpredictable, a fairly effective revenue model in its own right. Relying on donations from regular users is a common revenue model for nonprofits, online media (i.e. YouTubers), and independent news outlets.

A donation page for the freelance blog "With a Terrible Fate", showing your base donation level.

Businesses operating with this revenue model can incentivize donations by offering unique content for donations or by offering tiered giving plans, allowing businesses to enjoy a small recurring revenue stream.

What isaffiliate marketing🇧🇷 This new popular model works by promoting referral links to relevant products and charging commission on subsequent sales of those products. Take advantage of the synergy of your product with another product in an adjacent space and both will benefit.

The affiliate model can be as simple as including an external link to a book or other product mentioned in an article, or offering your customers expert recommendations on their purchase history (again, Amazon is a master of this art). Some companies, like Etsy, even have aspecific programto its affiliates, where other businesses can earn a commission on eligible sales resulting from sending links to Etsy products and services.

The affiliate revenue model is becoming increasingly popular due to the way it effectively blends with other revenue models, particularly ad-based models.

Primarily applicable to sellers or market-oriented businesses, the arbitrage revenue model uses the price difference in two different markets for the same good/service to make a profit. You buy in one market (a security/currency/commodity) and simultaneously sell in another market, at a higher price, what you just bought, keeping the temporary difference in price.

Arbitration is popular withaffiliate merchants, as well as many cryptocurrency companies, SFOX being a prime example.

Crypto depth charts are often as dizzying as this one and featuresell walls, which means that skilled arbitrageurs are more likely to earn high income from cryptocurrency trading.

The high variability of cryptocurrenciesmakes arbitrage the natural revenue model for the field: the goal of arbitrage is to buy low and sell high, and when it comes to cryptocurrency, the lows can be very low and the highs just as stratospheric.Crypto is not as stable as gold, in fact, it is quite the opposite being highly volatile.

However, arbitrage is one of the most unpredictable basic income models. It is almost certainly the highest risk (with certain risks exclusive to certain sectors, such as cryptocurrency itself) and, in sectors where it is a natural fit as a potential revenue model, requires the work of a uniquely skilled sales team to function.

This transactional revenue model involves charging the intermediary a commission for each transaction it handles between two parties or for any leads it provides to the other party. It's especially popular with online marketplaces and aggregators, as well as companies like independent music distributors.

It's particularly easy to get started with a commission-based business model because you're working with existing products. However, unless your field is well conditioned for a monopoly and unless your company is (or may become) such a monopoly, you will find the commission modelvery difficult to climb.

Have you ever heard the phrase, "If you can't see how the money is made, you are the product"? This is data selling in action.

many companiessale of digital productsand the services could not exist without the underlying key data assets. In the data sales revenue model, this data is sold directly to a consumer or business customer. While some companies use data sales as their primary revenue model, the use ofdata salesboosting another revenue model is practically ubiquitous.

While some are using it as abusiness company, is also the subject of considerablepublic concernand it must be handled with care if you decide to adopt it as your revenue model.

The old revenue model revamped, web sales and direct sales involve paying for goods or services digitally.

Web sales involve a customer finding your product through outbound marketing (or a web search) and can be used for software, hardware, and subscription deals.

Direct sales revolves around inbound marketing and is good at dealing with multiple buyers and influencers in expensive markets.

The first cost you are likely to consider is the cost of products: how much it costs to produce the products or services you sell. For hardware, this could include testing and manufacturing; for software, it will include the entire development cycle. Regardless of what you produce, administrative fees will also apply.

You'll find that cost of goods is a considerably less comprehensive metric than cost of revenue, which is the total cost of manufacturing and delivering a product or service to consumers. This includes everything we just covered, plus distribution and marketing costs. Revenue costing is most often used in SaaS and other service-oriented industries because it makes it easy to track the many costs incurred outside of production in SaaS.

Prototyping is a key aspect of any production cycle, and unfortunately, it is one of the most expensive. When testing prototypes or beta versions of your new product, even the smallest revisions can require costly changes to your production/development process.

This typically includes a base level cost in addition to iteration costs. When forecasting prototyping costs, it's a good idea to plan for multiple iterations; it's highly unlikely that you'll get everything right the first time, especially if your product is innovative or feature-rich.

One of the advantages of being a SaaS company is that there are no production lines to run. However, equipment costs are still factored into the bottom line.

firmware,application development tools, server rental, plus any other admin services purchased on the subscription (for example, Slack or Hubstaff) will play a big part in your team costs, but generally speaking, team costs should be the easiest to figure out. predict.

A low-paid workforce is an unhappy workforce (if it is a workforce at all); Salary costs come off your bottom line.

Based on the interaction of salary and commission in yourcompensation planAs well as the type of commission you offer (fully open or limited? Are there accelerators/decelerators involved?), you'll need to plan your labor spend differently.

Your advertising and marketing costs will be determined by the following:

Where are your customers? How accessible are they to you? If your buyer personas are primarily one-time customers, offer them subscription options that are expertly targeted to their needs andhow your product can serve them🇧🇷 On the other hand, if you're looking to sell to larger companies that need a custom version of your core product, consider a license-based option that will allow you to establish a strong, high-performing relationship with the legs to run. for the long term.

Knowing your market also means knowing your competitors. Before choosing a revenue model, make sure you have a solid understanding of industry benchmarks: where is the benchmark for products equivalent to yours in the marketplace? Where is your product located? Question your product honestly. An honest assessment of your product's value will not only avoid the mistake of pricing it too high (or too low), it will also show you how to capitalize on its value and where to point your development compass.

Consider the strength of your connections with similar compatible companies. For example, if you're running time management software and have connections to a neighboring company that sells compatible HR software, contact them. A strong network connection can be leveraged with an effective strategy based on an affiliate revenue model.

Knowing your product is just as important as knowing your market, if not more. Sometimes the nature of a product itself determines the best revenue model for it. If you have a suite of products, is it more sensible to have them as a subscription service or as standalone products? The smart money in this case, for the sake of its growth and number of daily users, would be in the subscription option.

Again, evaluate the performance of your product honestly. How is your product performing compared to your competitors? How wide is your range of resources compared to the rest? Knowledge of your product allows you to choose a revenue model that hits the sweet spot of value/willingness to pay.

Consider your options further if your product is not a straightforward software proposition. For example, if your product is platform-based, research your advertising prospects to capitalize on your traffic and think laterally to find potential partners for an affiliate strategy that will give your revenue an extra boost.

Pitchfork's affiliate program with craft brewers can be seen in the tab on the left.

Music blogging platform Pitchfork found that the only thing their readers love more than left-field music is craft beer, so they introduced an affiliate feature with the brewery game back in October. It's a smart visualization of affiliate earning score.

As your product line changes and your business grows, your initial revenue model may change. You can start with a subscription revenue model that integrates aspects of affiliate sales, advertising, and data models with time and opportunity. You can start as a fledgling independent blog about donations with a bit of advertising, then find a large enough audience to avoid advertisers, install a subscription model, and keep the integrity of your writing protected.

Alternatively, you can start with a subscription, see only a fraction of your potential success realized, and move to a license revenue model. The important thing is to be willing to change your revenue model or bring in additional models to complement what you already use if the situation requires it.

So you went through all of that, did the math, and chose a winning revenue model. That's optimal. The next step is high caliber revenue recognition.

Without the right revenue recognition approach, you can become a prisoner of your own success; human error, a maze of spreadsheets, and expensive data analytics resources can become a greater burden the more revenue you have to track.

With solutions like ProfitWell'sTo recognize, advanced AI can automate and perform many of the most tedious aspects of revenue recognition with a new degree of accuracy, giving your team the freedom to continue chasing their own revenue.

So many streams of income, so many revenue models, so little time.

There are some fundamental differences between revenue models. For example, if you're a SaaS company producing your own software product, you're unlikely to go that far with an arbitrage model. Similarly, if your product is a medium or if you are a seller, a subscription-based revenue model will not solve the problem. A donation model does not best serve a product with a high ceiling for potential revenue.

However, the choice of an off-the-batch basic revenue model that works for your product and how to combine them with the appropriate aspects of other models is yours and yours alone. Your product and market should always be top of mind when deciding on, adding to, and refining your model. After that, mentioning the recipe itself should be as easy as possible.Citizen Kaneis