Ways to monetize your business model

There’s been a quiet revolution in tech when it comes to monetization strategies.

Gone are the days of “perpetual licensing” where you pay once and own that shit for life.

Here are five monetization models you should consider for your biz:

1. Subscription

How It Works: You pay the same amount on a recurring basis, usually monthly or annually.

Examples: Zoom, Miro, Datadog, Notion, Adobe, Figma, QuickBooks

Flavors: Per seat, per feature, per team

Unit of Measure / License: Person, developer, member, host, team

Best Fit: Software you need regularly

Metrics to Monitor: ARR or MRR (New, Expansion), Churn / Shrink / Downsell, Average Revenue per User (ARPU), Net Retention, Gross Retention, Renewal Rate, Multi Product Attach Rate, CAC Payback Period, Lifetime Value, Accounts by ARR Band

2. Consumption:

How It Works: Pay based on how much you use

Examples: Snowflake, Twilio, AWS, Digital Ocean, Message Bird

Flavors: Metered pay as you go (monthly or annual), Prepaid (like loading a gift card to get better rates)

Unit of Measure: Text, Call, GB, TB, Compute

Best Fit: Plumbing and infrastructure businesses rely on; anything linked to data expansion

Metrics to Monitor: Usage, Product Revenue, Remaining Performance Obligation, Billings, Net Retention, Active Customers, Gross Margin, Accounts by Revenue Band

3. Hybrid:

How It Works: Pay a subscription for access plus a per item charge or implementation fee

Examples: Peloton, Zoominfo, Workday

Flavors: Subscription + One time fee, Subscription + Pay as you go, Subscription + Overage, Sub + Professional Services Installation Fee

Best Fits: Database companies allowing customers to export information

Metrics to Monitor: ARPU, Subscription Revenue, Professional Services Revenue, One Time Product Revenue, CAC, LTV, Active Users, Churned Users, Gross Margin

4. Per Transaction:

How It Works: Pay a rate on each transaction

Examples: Stripe, Adyen, Airbnb, Uber, Substack, OpenSea, Coinbase, Patreon

Flavors: Fixed, Variable, Fixed + Variable, Volume Tiered

Unit of Measure / License: Transaction volume, Transaction size

Best Fits: Payment Businesses, Marketplaces, Platforms

Metrics to Monitor: Gross Merchandise Volume (GMV), Average Take Rate, Growth in Transaction Volume, Average Transaction Value, Growth in Transaction Value

5. Advertising:

How It Works: Pay based on eyeballs

Examples: Snapchat, Indeed, Linkedin

Flavors: CPC (cost per click), CPM (cost per thousand), Cost per Action, Cost per Listing

Unit of Measure / License: Per advertisement, Per search

Best Fit: Social Networks, Media, Consumer Applications, Search engines

Metrics to Monitor: User Engagement, User Time, Clicks, Shares, CAC, CAC Payback Period, LTV, LTV:CAC, Gross Margin

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