Revenue Streams Meaning Examples Top 6 Types

Revenue Streams Meaning

Components

Depending on nature, such revenues can be recurring or non-recurring –

#1 – Recurring Revenue

The recurring revenueRecurring RevenueRecurring Revenue is a part of the Company’s total revenue or income constantly generated in the future at regular intervals (monthly or yearly). This type of revenue is relatively stable as you can predict its occurrence with reasonable confidence. read more is a source of income, which is ongoing, and the recurring revenue model is the one which most organizations aspire to set up as this is predictable and healthy input for working capital requirements. For example – an organization operating in automobile sectors, the after-sales services are recurring in nature and forms a major source of income. A company is providing broadband services, or for a cellular company, the monthly subscription fee is recurring in nature. The recently started online website Netflix, the monthly subscription of their customers are recurring in nature.

#2 – Non-Recurring Revenue

It is the source of income, which is occasional in nature and cannot be predicted easily. For example – a company providing video services will have more subscribers than usual when there is Wimbledon or the Football world cup going on. Similarly, a company providing data cellular services might find users making more calls during Christmas and new year.

Top 6 Types of Revenue Streams

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#1 – Services

The income received from providing services falls under Service revenue. So, for example, the government earns revenue by providing transportation services in any country is revenue from providing services. Also, consulting provided, audit fees, and various other professional fees are services in nature.

#2 – Project Revenue

Some companies earn revenue by taking up a project with a new or existing customer. For example – deployment of metro services in a city, building roads & flyovers, etc. These kinds of projects are assigned to one or a few after reviewing applications from many parties.

#3 – Leasing

It is a concept where the owner, called lessor of a property, which could be Land, Building, Machinery, and other assets, allows another person called lesseeLesseeA Lessee, also called a Tenant, is an individual (or entity) who rents the land or property (generally immovable) from a lessor (property owner) under a legal lease agreement. read more to use its assets. The lesser charges rent or interest depending on the type of assetType Of AssetAssets are the resources owned by individuals, companies, or governments expected to generate future cash flows over a long period. There are broadly three types of asset distribution: 1. Based on convertibility (current and non-current assets), 2. Physical existence (tangible and intangible assets), 3. Usage (operating and non-operating assets)read more, and this is revenue for the lessor. The lease can be Operating leaseOperating LeaseAn operating lease is a type of lease that allows one party (the lessee), to use an asset held by another party (the lessor) in exchange for rental payments that are less than the asset’s economic rights for a particular period and without transferring any ownership rights at the end of the lease term.read more or financing leaseFinancing LeaseFinance lease simply refers to a method of providing finance in which the leasing company purchases the asset on behalf of the user and rents it to him for a set period of time. The leasing company is referred to as the lessor, and the user is referred to as the lessee.read more depending on the nature of the contract.

#4 – Based on Transactions

Revenue earned from sale proceeds, which are usually one-time customer payments, is termed as revenue based on transactions. For example – the pizza outlets or McDonald’s earn their revenue by selling it directly to the customers, which are usually non-recurringNon-recurringNon-recurring items are income statement entries that are unusual and unexpected during regular business operations; examples include profits or losses from sale of asset, impairment costs, restructuring costs, and losses in lawsuits, and inventory write-off.read more in nature.

With the increase in the use of computers and globalizationGlobalizationGlobalization is defined as the extension of trade, commerce and culture of an economy across different nations.read more, copyrights and licensing have become a major source of income for companies who have the license. For example – Every time we buy a computer or a laptop, we also have to buy a Microsoft license to use Microsoft office products like Word, Excel, PowerPoint, Skype, etc. Microsoft does not sell the product but only grants the license to use for a limited period and takes the payment. It is revenue from licensing.

#6 – Others

There are other types of revenue streams as well from which the organization or a person makes income. Brokerage firms, lending assets, advertisements, debt collection services, intermediary payments, etc. are examples of various other modes of a source of income. Also, with the increasing digitization and mobile payments, visa and mastercard earn their revenue by working as the link between the parties making and receiving payments.

Revenue Streams Example

Let us consider that X Ltd., which is in the business of providing cellular services, has revenue of $5 Million. When we look at the financial report of the company, we find that monthly recurring revenue is $4.5 Million, which is the subscription fee from the old customers of last year, and new customers added this year. So, every month the user pays the charges, which are recurring revenue for X Ltd. There is also non-recurring revenue of $0.4 million, which is from providing new sim cards and replacement of old ones. Then there is $0.1 million from occasional extra usage of the customers. The point here is that every organization has various Revenue streams by nature.

Advantages

A steady stream of revenue Improves the goodwillThe GoodwillIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company’s net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company’s net identifiable assets from the total purchase price.read more and integrity of the organization in the market in the long runImportant for applying for loans as revenue plays an important factorImportant for maintaining steady working capital managementWorking Capital ManagementWorking Capital Management refers to the management of the capital that the company requires for financing its daily business operations. It is important for the company in order to maximize its operational efficiency, manage its short term liabilities and assets properly, avoiding the underutilization of the resources and avoiding the overtrading, etc.read moreRevenue is the measurement of success of the organization, as they say that it is a billion-dollar company, it means the annual revenue is over $1 BillionHelps in payment of dues and employees on timeExtra cash generated from revenue could be used for capital investmentsCapital InvestmentsCapital Investment refers to any investments made into the business with the objective of enhancing the operations. It could be long term acquisition by the business such as real estates, machinery, industries, etc.read more

Disadvantages

It is a tough task to maintain steady revenue streams and customers over a longer period of timeSometimes a slight decrease in revenue percentage plays a big role in the stock prices of an organization

Points to Note

Nowadays, with the development of the accounting system, it is easy and quick to prepare the books of accounts as all the departments are interlinked through ERPERPThe full form of ERP stands for Enterprise Resource Planning. ERP is a process to integrate the basic processes such as Finance, HR, Manufacturing, Supply Chain in one single integrated system. ERP is a system that helps organizations to smoothly run their operations by integrating the basic operations systematically.read more – Enterprise Resource Planning systems, which make it easier to analyze the data.

An organization must always monitor and analyze the revenue streams closely. A decrease could suggest a big customer leaving or extra credit issue or any issue in the billing system. Likewise, the increase in revenue could be a result of a recent takeover or a new customer or increase in business from an existing customer.

Conclusion

Revenue is the blood of the business, which brings money, which circulates through all the departments and ensures that the organization keeps on functioning. Revenue streams are so important that companies become bankrupt when they are dried up. That is why an organization must always put the best resources for collection, billing, sales, and other support teams dealing with them.