Top 7 Revenue Models for Startups in Nigeria: Types, Examples and Template

What is the top revenue model for startups? Writing a business plan is important. Creating a business model is also important. But one thing most startups aren’t told is that it is equally important to create a revenue model.

What is a revenue model, you may wonder. How does it affect your startup? How does one decide the best revenue model for startups? These, and more, are the questions we will answer in this article.

What is a Revenue Model?
Top 7 Revenue Models for Startups in Nigeria with Examples
How to Choose the Best Revenue Model for Your Business
- Factors to Consider when Selecting a Business Revenue Model
Frequently Asked Questions
Conclusion: It’s Revenue Time
Recommendations
References

What is a Revenue Model?

A revenue model is the means by which a company makes profit from its product or service.

Think of it this way: you have an orange and you want to get the juice out of it. You know that it can get you some juice. But you have to decide HOW you are going to extract the juice from it, right? You can choose to squeeze it manually, or you can choose to use a juice extractor.

It’s the same thing with your product or service. You have an offering. You know it can get you some income. But you have to plan HOW it’s going to get you that income.

Are you going to turn it into a platform for ads or are you going to make users subscribe to it? Are you going to rent it out? Or are you going to license it to a bigger corporation?

The method you employ to squeeze the “juice” out of your product or service, the process of managing that method, that’s your revenue model.

Also read: 12+ Small Business Loans for Startups and How to Get Them in 2024

Top 7 Revenue Models for Startups in Nigeria with Examples

Choosing a revenue model for your brand largely depends on the nature of your business offering.

It is important to understand some types of revenue models before making your choice.

Below are some top revenue models for startups in Nigeria. Note that these models have been ranked in no particular order.

#1 – Commission-based Revenue Model for Startups

Suitable for: Online travel agencies, food delivery services, and ride-hailing companies.

Platforms that use commission-based revenue model: Uber, Upwork, Bookings.com, Lyft, Ticketmaster.

A commission-based revenue model is one in which a company uses its online platform to host the product or service of another company or individual. In return, they take a sum from the cost of the product or service.

Uber is a good example of this revenue model. It serves as a host platform for drivers around the world. Any driver can register on Uber and start selling their services. In return, Uber takes a percentage from every sales the driver makes.

Airbnb also generates revenue by taking a commission on each booking secured through its website.

A commission-based revenue model is usually a recurring agreement that the distributor has with the production company.

The commission could be a certain percentage charged from the cost of the product, or an extra sum added to the original cost.

A commission could be charged per transaction, or as a flat rate.

Also read: David Lanre Messan Joins Lagos Business School’s Tech-Leap Initiative Board

#2 – Ads-based Revenue Model for Startups

Suitable for: Blog sites, social networks, online newspaper sites, online marketplaces, etc.

Platforms that use ads-based revenue model: Instagram, YouTube, Facebook, Pulse Africa, Tellit, etc.

In the ads-based revenue model for startups, digital media companies use some part of their web space as ads holders.

Other brands buy these holders to advertise their goods or services, thereby generating revenue for the host platform.

The host platform is usually created for a bigger purpose than running ads.

For instance, if you ask Mark Zuckerberg why he created Facebook, he’s not going to say “to run ads.” He would say something along the lines of “to connect people.” Yet Facebook runs ads today while fulfilling its core mission of connecting people.

For a platform to thrive on an ad-based model, it has to be traffic-intense. Brands are more likely to advertise their products where they will gain a wide visibility and massive conversion.

It is a good revenue model for startups that already have a large following and traffic.

See template here.

#3 – Web Transaction-based Revenue Model for Startups

Suitable for: Online movie stores, Online music stores, Online art platforms.

Platforms that use web transaction-based revenue model: Netflix, YouTube Premium, Spotify, and Canva.

Transactions are some of the most common ways by which companies generate revenue.

The revenue is generated by selling a product or a service to another brand (B2B) or to an individual (B2C).

The transaction-based revenue model may be direct or web-based.

Web transaction-based revenue models are becoming increasingly common. They are a fast and sure way of generating revenue, thanks to the rise in the use of the internet.

Some popular web transaction-based revenue models are:

Licensing/one-time purchase, used by Microsoft Windows
Subscriptions, used by Netflix, YouTube Premium, Spotify, and Canva
Pay-per-use, used by Google Cloud Platform.

The is a suitable revenue model for startups looking to conduct most of their transactions online.

Also read: eCommerce Market Research: Why Do We Need It & How to Do Market Research for E-commerce Business

#4 – Direct Transaction-based Revenue Model for Startups

Suitable for: Boutiques, Pharmacies, Food businesses, educational services, etc.

Platforms that use direct transaction revenue model: Nike, eBay, Microsoft, Apple, Boeing, McDonald’s, Jumia, eBay, Amazon, Flipkart, Konga, etc.

Direct sales is a traditional way of making money.

This involves selling your goods or services to customers directly.

Sales may be done in a store, at an exhibition, through online order services, or even in a private setting.

Customers can pay with cash, through transfer, or POS.

McDonald’s or any fast food is a typical example of a direct transaction-based revenue model. Customers walk in or call the order line, place their orders and pay.

Direct transaction-based is like saying “You want a product or a service? I’ll give you directly, and you pay me directly. No indirect deals like commissions, subscriptions, ads, etc. Let’s just strike the deal directly.”

#5 – Affiliate Revenue Model for Startups

Suitable for: Freelancers, Online marketplaces

Platforms that use the affiliate revenue model: Broadway.com, Hubspot, Fiverr, Shopify, ClickBank, ShareASale, CJ Affiliate, Metasearch tools, etc.

Affiliates are like marketers. They advertise goods and services for brands, but they don’t sell. Rather, they redirect the customer to the producer’s site or store.

Most times, affiliates are paid per conversion. That is, for every sale the company makes through a referral by the affiliate, the affiliate earns a percentage from the sales.

Startups may engage in affiliate marketing to generate income for their brands. Rather than selling ad space(s) on your online platform for a flat rate, you may choose instead to earn a commission for every sale a brand makes through its adverts on your platform.

The commission may be small, but it can act as a passive stream of income while you focus on other revenue models. It is indeed a smart revenue model for startups and individuals.

See template here.

#6 – Donations-based Revenue Model for Startups

Suitable for: Fresh businesses with very low startup capital

Platforms that use donation-based revenue model: GoFundMe, Kickstarter, Indiegogo, CrowdFunder, RocketHub, etc.

The Donations-based revenue model is a new system gaining traction. It is a great revenue model for startups, as it is less capital-intensive.

In this model, the company raises seed funding by seeking donations on crowdfunding platforms.

Most times, companies give their funders some shares in the company, in exchange for their financial support.

Also read: 21 Best Tools For Market Research For Startups To Grow Their Business

#7 – Freemium Revenue Model for Startups

Suitable for:

Platforms that use Freemium revenue model: Duolingo, Hubspot, Spotify, YouTube, etc.

In this model, the seller offers a product or service for free, but charges some fee for upgraded features of the same product or service.

This model is employed by our everyday apps; YouTube, Spotify, Coursera, Skype, LinkedIn, etc.

You can use YouTube for free, but to access the no-ads feature, you’ll need to subscribe for YouTube Premium.

It’s like baiting the user with some part of the product, then shutting down their access just when it’s beginning to get interesting. This way, they’ll be tempted to subscribe to the main deal.

Also read: How Can I Start Bitcoin Business in Nigeria in 2024

How to Choose the Best Revenue Model for Your Business

The best revenue model for your business largely depends on the nature of your business.

There is no revenue model that is “best.” They all have their unique features. They have the kind of businesses that they best fit. Below are some factors you want to consider:

Factors to Consider when Selecting a Business Revenue Model

Here are some factors to consider when selecting a revenue model for your business:

What does your product have to offer? An in depth understanding of your product or service helps to determine the best approach to take in fruiting it.

The price of your goods or services also matters. Some revenue models are more expensive to manage than others. You may suffer a low ROI if you delve into a costly revenue model for startups. For instance, you may need a full fledged team of experts to run direct sales; from the customer service operator, to the financial manager, etc. You may also need to rent a store. If you have little to no profit after covering these expenses, then it may not be worth it. You might want to consider other ways of milking your product or service.

You would want to consider how much traffic you can generate on your site before you choose models like the affiliate model or the ads-based model. Because as we earlier mentioned, brands will not advertise on your site or engage you as an affiliate if you have low following/traffic.

How much profit you’re looking to make also matters. Income generated from some models, like the affiliate revenue model, is usually quite low, and might take some time to accumulate. Such models are best used as a passive model, not the main model.

Understand your target audience. What do they want? What are their paintings points? How can your product meet their needs while earning you money? How can you tap into the pockets of your target audience without appearing too salesy? These and more, are some questions to ponder on.

Finally, analyse the work of your top competitors. Discover what model(s) works best for them.

Frequently Asked Questions

Can I Use Multiple Revenue Models?

Yes. Many organisations often combine revenue models.

What is the Most Popular Revenue Model?

Currently, the transaction-based revenue model is one of the most commonly used models by business owners. This includes subscriptions, direct transactions, licensing, pay-per-use, etc. Some top brands that employ the transaction-based revenue model are Netflix, Amazon Prime, McDonald’s, etc.

What are the Five Revenue Models for Startups?

Some recommended revenue models for startups are subscriptions, licensing, freemium, affiliate programs,

Conclusion: It’s Revenue Time

Generating revenue is a very important part of your business. Without revenue, you would be running a free social service. This is why creating a clear plan for your revenue cannot be overemphasized.

Experiment and combine the various models if necessary. Just make sure you consider all the factors mentioned in this article, and do what works for your brand.