Offer ends in
2016-01-06 00:00:00Cash FlowEnglishKnow Your Best Revenue Stream: The best way to determine profitability in order to pare down your costs is to calculate, Pricing mechanisms. Your Best Revenue Stream

Know Your Best Revenue Stream

2 min read

A company’s revenue stream is the blood in its veins: it keeps a business’s heart beating by mobilizing the ‘oxygen’ of human and other types of resources. To begin with, let’s define what this phrase means. A revenue stream refers to a company’s sources and methods of obtaining monies from different customer segments. In other words, it is where an organization’s cash flow originates and often indicates whether a company has a strategic business model in place or not.

Depending on your company’s skill-set and focus, and the type of product or service that you’re selling, you might consider any one of the following revenue-generation avenues.

Types of revenue streams include lease agreements, licensing fees, and brokerage fees. The sale of assets, service use and subscription fees, and pricing mechanisms also constitute viable revenue streams. Let’s take a look at the last three revenue mechanisms, as they are characteristic of the SME sector. Sale of assets: Some companies, like those in the retail sector, sell readymade merchandise like books, shoes, or groceries. Others, like car manufacturers, make and sell cars.

Small businesses that make and sell their own organic house cleaning products, for example, would also fall into this category. Service use charges: Revenue thus generated could be one-time or recurrent. Say you’re a catering start-up that delivers customers fresh-cooked meals.

You’re offering a service—preparation and delivery of food—that you charge customers for. You might charge different rates for different types of food or for delivery during peak traffic hours or late at night.

You could also offer customers a chance to purchase continued access to your service: perhaps in the form of a subscription fee for the delivery of specific meals on specific days (Mumbai’s Dabbawallas are a sterling example.)

Pricing mechanisms: The type of pricing mechanism used depends on the product that’s being sold. Fixed pricing for example, often applies to consumer goods like cleaning supplies for the home. Dynamic pricing is linked to market volatility and is sometimes susceptible to the pressures of a good bargain.

Think vegetable and pulses—their prices are known to fluctuate quite wildly, but are also shaped by the collective bargaining tactics of middlemen and wholesalers. Whether your revenue stream is product-based or service-based, the need of the hour is to figure out just how profitable your current business planning process is.

If you happen to have multiple streams, you will need to determine which ones bring in the most revenue and are therefore most deserving of your time, labor, and focus. Strategically minimal input that results in maximum output is what you should aim for.

The best way to determine profitability in order to pare down your costs is to calculate

  1. the actual costs of producing that service
  2. the cost of marketing and delivering the service

You might realize that the least profitable streams are the ones eating up the bulk of your production and marketing time, and vice-versa. Time and labor cost money and should ideally yield robust cash flows as well as profits. Once you have a steady revenue stream, you can start focussing on diversifying your revenue generation mechanisms.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

Related Articles