Revenue stream is the denomination of all revenues generated by one service, product, or a source in general. In other words, it is a company’s revenue broken down by source (eg. by region, by specific products, etc.). Let’s imagine a business like a lake. The sources of revenue (revenue streams) are all tributaries to this lake. Some businesses may have only one revenue stream which makes them more vulnerable because if the source is down for some reason or starts to weaken, this has a direct impact on the business as a whole. Just as the lake starts to dry. In this respect, the revenue stream relates in particular to operating revenues.
If possible, companies are building more revenue streams so they can draw on other sources if one of them weakens. If a company provides more paid services or produces more products, then it has more revenue streams.
How do we categorize the revenue streams?
Primarily, the revenue streams are categorized depending on whether the revenue is repetitive or transactional, and what products or services the revenue comes from. In practice, however, we can classify the revenue streams into several categories that correspond to some segments or criteria, such as regions (geography), customers size (sole traders and micro companies, small and medium-sized enterprises, corporations) and the like. What is important is the measurability of the “tributaries” of various sources (revenue streams) and the effect of their weakening (or strengthening) on the total revenue of the business.
- Recurring revenue is a revenue generated regularly, most frequently through a lease or provision of license
- Transactional revenue is a revenue generated by individual business transactions (eg. sale of goods)
Revenues may come, in principle, from the provision of services, from the sale of products or goods or combination of both.
- Service revenue is a revenue generated by service provision (eg. for carrying out an audit)
- Revenues from the sale of goods and products are generated most often by transaction, the customer pays for the product supplied
- Project revenue is generated by project implementation, project revenues are characterized by irregularity and spasmodic character, they are demanding in regards to cashflow
What revenue models are there?
In practice, there is a variety of revenue models (ie. a way of generating revenues) being used, especially in services.
- Unit price - customer pays for the quantity of goods or services supplied (ie. price per unit - meter, hour of work, the capacity provided, etc.)
- Flat rate - customer pays one amount of money in all cases (regardless of the quantity of goods or services supplied)
- Cost per used features - customer pays for the used features, typically in software businesses
In addition to the aforementioned models that set the price in advance (fixed price), there are also pricing models that determine the price dynamically, for example based on the current demand.
- Auction based price - customers or bidders compete for price
- Real-time market price - eg. Uber far
- Yield management - variable pricing strategy where, for example, a ticket price depends on flight occupancy
Why should one know the sources of his or her revenues?
It’s not an accounting concept. There is a big chance that you will come across this term while creating a business strategy (“We will create a new revenue stream by expanding our services to the Central European region.”) or while presenting a project (startup) in front of the investor or the budget owner. You should be able to demonstrate how your project or startup will generate revenues and how the sales process will be supported.