Revenue model

A revenue model is a framework for generating revenues. It 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 company's business model. It primarily 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.

Without a well defined revenue model, that is, a clear plan of how to generate revenues, new businesses will more likely struggle due to costs which they will not be able to sustain. By having a clear revenue model, a business can focus on a target audience, fund development plans for a product or service, establish marketing plans, begin a line of credit and raise capital.

The type of revenue model that is available to a firm depends, in large part, on the activities the firm performs, and how it charges for those. Various models by which to generate revenue include:

In the production model, the business that creates the product or service sells it to customers who value and thus pay for it. An example would be a company that produces paper, who then sells it to either the direct public or to other businesses, who pay for the paper, thus generating revenue for the paper company.

Manufacturing is the production of merchandise using labour, materials, and equipment, resulting in finished goods. Revenue is generated by selling the finished goods. They may be sold to other manufacturers for the production of more complex products (such as aircraft, household appliances or automobiles), or sold to wholesalers, who in turn sell them to retailers, who then sell them to end users and consumers. Manufactures may market directly to consumers, but generally do not, for the benefits of specialization.

Construction is the process of constructing a building or infrastructure. Construction differs from manufacturing in that manufacturing typically involves mass production of similar items without a designated purchaser, while construction typically takes place on location for a known client, but may be done speculatively for sale on the real estate market.

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