Business Model Vs. Revenue Model

by Catherine Capozzi; Updated September 26, 2017
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Most businesses prepare a blueprint for how the company will conduct its operations. Such blueprints are typically referred to as a model. These templates serve many purposes and come in a variety of forms, including business and a revenue models. Despite the similarities between a business and revenue model, the two outlines serve different functions and outline distinct aspects of the business.

Business Model Identification

The “Harvard Business Review on Business Model Innovation” charts four basic tenets of a business model: how the company creates and delivers value to its customers, the ways in which the company will earn a profit, which key components will be utilized and which key processes the company will incorporate. Key components include staff and human resources, machinery and technology as well as branding efforts. Business operations such as manufacturing and training make up the business’s key processes. Each business model differs depending on the organization’s size, industry and expectations.

Revenue Model Identification

A revenue model is a subset component of a business model. The revenue model focuses on answering the question of how the business will generate revenue and, ultimately, how the company will be profitable. The revenue model depends on the industry. For example, a website might employ a contextual advertising model, which means the business generates money by users clicking on third-party ads within the page content. A baseball stadium, on the other hand, may have a revenue model that includes raising money from ancillary goods such as team apparel and dining outlets.

Differences

Michael Hitt, author of “Creating Value” states that a revenue model and business model are similar but separate outlines. Hitt explains that a business model’s goal is to outline how the business generates value, whereas a revenue model specifies how the business allocates the created value. Thus, a business model explains the company’s strategy, operations and management tactics. The revenue model draws from these explanations to outline how the company will earn money.

Considerations

The choice of model depends on circumstance. Companies draft a business model and present it to financial institutions in order to get a loan. Venture capitalists typically view a business model in order to make decisions to invest in the company. On the other hand, corporations review their revenue model to make financial forecasts. Companies also inspect their revenue model to see if it’s relevant in lieu of any changes in operations. For instance, the revenue model could need modification if the cost of production rises or wages change.

About the Author

Since 2008 Catherine Capozzi has been writing business, finance and economics-related articles from her home in the sunny state of Arizona. She is pursuing a Bachelor of Science in economics from the W.P. Carey School of Business at Arizona State University, which has given her a love of spreadsheets and corporate life.

Photo Credits

  • signing of model release image by Igor Zhorov from Fotolia.com