A revenue model is a strategic framework for how a business will make money. It defines the brand’s products or services, target audience, pricing methods, and revenue streams.
Netflix, for example, launched as a video rental service that delivered DVDs to customers by mail on a per-rental basis. Over time, it morphed into the subscription-based streaming service it is today, a model that propelled the company to 325 million paid memberships as of late 2025.
This guide will walk you through what a revenue model is, how it differs from a revenue stream and business model, and how to choose the right option for your business.
What is a revenue model?
A revenue model defines how a company earns income through its products or services. It outlines key factors like what is sold, how it’s priced, who’s buying the product, and which revenue sources to prioritize.
This matters because:
- It gives you a predictable plan for generating revenue for your business
- It helps you find the most profitable and most competitive angle for your industry
- It defines your target audience and who will be most interested in your products
- It helps you find the right price point for your products among your competitive market
- It attracts investors who want to know how you plan to make money
Revenue model vs. revenue stream vs. business model
While these terms are related, they each refer to a different part of a business’s underlying structure.
A revenue model depicts how a business plans to make money. It may involve multiple revenue streams, which is one specific way a business will generate revenue. A business model is the overarching plan that sits above all of this, encompassing all the moving parts that work together to create, deliver, and capture value for the customer.
Revenue models are often based on these three ways a business can make money:
- Recurring revenue. Steady revenue a business can rely on. For example, a subscription model that charges a customer monthly is a way to bring in recurring revenue.
- One-time revenue. Revenue that only comes in when orders are made, like from a customer purchasing a single product.
- Usage-based revenue. Customers only pay for the amount of product or service they use. Think storage space, utility bills, and taxi cabs.
Common revenue models for ecommerce
These seven revenue models are common structures an ecommerce business might use to start bringing in revenue.
Subscription
With a subscription model, customers pay a recurring fee for access to your product or service, providing a steady revenue stream for your business. Recurring revenue models like this are ideal for products or services that offer ongoing value to customers.
Electric toothbrush brand Quip is an example of what a subscription revenue model might look like. The company sells its electric toothbrushes as a one-off product, then offers a quarterly subscription for new toothbrush heads so consumers can keep their electric toothbrushes fresh. This lets the brand generate passive, recurring revenue long after a customer has purchased their initial toothbrush.
Keep in mind that subscription models can also be volatile. Ecommerce subscription businesses had a median annual churn rate of 4.25% as of July 2026, among the highest of the industries tracked in Recurly’s churn benchmarks.
Shopify Subscriptions lets you build subscription products right inside your Shopify admin. This makes it easy to offer subscription options as part of your Shopify store offerings.
Upsides: A subscription revenue model can provide a steady revenue stream and build long-term customer relationships, and as you acquire more subscribers it’s easy to scale up your efforts.
Downsides: High churn (the rate at which customers stop using a product or service) can make revenue unpredictable, and subscription services require substantial upfront setup costs and a continuous investment in content and product updates.
Sales
The sales revenue model involves selling physical or digital products to customers for a one-time fee. It’s a straightforward and widely used approach.
The sales revenue model is most commonly used by ecommerce stores selling products like clothing or electronics. It’s also a great fit for creators offering digital products like ebooks and music downloads.
There are two main options to consider here: retail versus wholesale. With retail, you’re selling your products directly to the end consumer. With wholesale, you’re selling bulk orders to other retailers at a discounted price per unit so they can sell the product for you and still make a profit.
“It’s tempting to go the [wholesale] route because you want exposure and it’d be great to get into some stores,” Province of Canada Cofounder Julie Brown said in a Shopify Masters interview. “But we didn’t want to play the seasonal game. We don’t want to discontinue products after six months.”
Upsides: Each sale generates instant revenue, and you can offer a wide range of products and adjust prices as needed.
Downsides: Revenue streams depend on market demand, which can be inconsistent. Effective inventory management is required to avoid overstocking and stockouts. Competitive pressure can lead to pricing and profit margin challenges.
Advertising
If your business has a large audience or user base, you may be able to generate revenue through an advertising revenue model. This involves displaying other companies’ ads on your website or app and charging for the advertising space.
Ad space is priced based on metrics like:
- Cost per mille (CPM). You’re paid once 1,000 people view an ad on your website.
- Cost per click (CPC). You’re paid when people click on an ad from your website.
- Cost per action (CPA). You’re paid when people take an action through an ad on your website.
- Flat rate. You’re paid a fixed fee to host an ad on your website.
Social media platforms, search engines, content websites, and mobile apps commonly use an advertising model to generate revenue. US digital advertising revenue reached nearly $300 billion in 2025, according to the Interactive Advertising Bureau.
Upsides: The profit margin can be high because serving ads requires minimal costs. You have a diverse revenue stream that monetizes traffic from various sources like websites and social media, and the model can grow as traffic and audience engagement increase.
Downsides: The adoption of ad blockers can reduce revenue, you need to cultivate a large and consistent audience to be effective, and excessive ads can negatively impact user experience and engagement.
Affiliate
The affiliate revenue model entails promoting another company’s products or services and earning a commission on each sale generated through a unique referral link.
Moonboon used Shopify Collabs to organize an affiliate program that had been scattered across spreadsheets and paid software tools. The centralized platform handled affiliate link creation, discount codes, and commission tracking, letting Moonboon scale creator onboarding by more than 400% to over 300 creators across five European markets. Affiliate sales topped $1 million, with creators contributing about 10% of monthly net sales and an average ROI of 6.5 times on influencer activations.
Examples of affiliate revenue models include fashion bloggers promoting clothing brands, social media influencers endorsing beauty products, and travel websites recommending hotels with affiliate links.
Upsides: The affiliate model has minimal startup costs and inventory requirements, it can generate passive income through ongoing referrals, and mutual relationships with affiliate partners build trust and loyalty.
Downsides: Affiliate revenue depends upon the success of affiliate partners, and competition among affiliates for the same products can be high.
Commission
Ecommerce marketplaces that connect buyers and sellers often use commission-based revenue models, earning money from each transaction. Popular ecommerce marketplace Amazon led the list of top global online retailers, at $847.35 billion in gross merchandise value in 2025, followed by Pinduoduo, at $780.45 billion and TikTok Shop, at $656.45 billion, according to ECDB.
The commission revenue model, commonly known as the marketplace revenue model, incentivizes these platforms to provide a good user experience, secure payment processing, and dispute resolution.
Examples of commission-based revenue models include job marketplaces connecting freelancers and clients, travel-booking platforms, and ride-hailing services. Revenue sharing is also a common commission structure, including when commission comes from recurring or subscription purchases.
Upsides: Earnings increase as the number of transactions grows, and there’s no need to maintain inventory as revenue is generated from transactions.
Downsides: Revenue is highly dependent on transaction volume and market conditions, competition can lead to lower commission rates, and adhering to industry-specific regulations can be complex and costly.
Membership
Similar to subscriptions, the membership revenue model involves offering exclusive benefits or access to a community for a recurring fee. However, memberships often focus on a specific niche or interest group.
Examples of this revenue model include online fitness communities with monthly fees for exclusive workout programs and professional organizations with membership benefits.
Shopify App Appstle Memberships lets Shopify store owners create and manage membership programs.
Singular Society is one example of a store that offers a membership for customers. They came up with a plan to make a profit through their monthly membership despite offering low prices. Members get access to products near wholesale value, while non-members can still shop, but at regular retail prices.
Upsides: Membership fees can be steady and predictable, and this model builds community and long-term engagement.
Downsides: You need to retain members and justify the membership fees, put a lot of effort into the initial setup, and continually provide value to your audience.
Freemium
The freemium revenue model is an effective customer acquisition strategy for ecommerce businesses with digital products or services. By offering a free version, you can attract a large audience and convert some into paying customers for access to advanced features.
Examples of the freemium model include photo editing software with free basic tools and premium subscriptions for advanced features. Another example would be music streaming services that provide a free ad-supported tier and premium ad-free plans with offline listening.
Upsides: You can attract a large number of users relatively cheaply with a free offering and convert free users into paying customers by offering premium features.
Downsides: Only a portion of free users convert to paying customers, there are ongoing costs to support free users without direct revenue, and competition is high, as many businesses use the freemium model.
Choosing the right revenue model
The right revenue model for your business depends entirely on your unique offerings and target audience. Consider factors like whether you plan to offer a subscription versus one-time purchase, what type of revenue model your audience would prefer, and what resources you have at your disposal.
Ask yourself questions like:
- Does your product offer ongoing value (subscription), or is it a one-time purchase (sales)?
- Is your audience budget-conscious, preferring one-time purchases (sales)? Or do they value ongoing access to your service (subscription)?
- Can you manage inventory (sales)? Can you build a platform and handle complex transactions (commission)?
The US Small Business Administration’s guidance recommends doing research surrounding demand validation and pricing tolerance, analyzing your competitors to look for an edge, and looking at federal data from the Census or Bureau of Labor Statistics for market information.
Consider experimenting or combining models. For instance, if you’re an illustrator, you could offer free digital prints to attract an audience and sell custom works of art to individual buyers for a one-time fee. From there, you might consider offering design classes on a subscription basis, opening up multiple revenue streams.
“A lot of opportunities that have happened for me to diversify my revenue streams have not been from my own brain,” Chandler Honey Founder Tique Chandler says in a Shopify Masters interview. “It’s been people asking me about something and me just being like, ‘Yeah, why not?’”
The key is to find a model that aligns with your business goals and allows for sustainable growth.
Revenue model FAQ
How many types of revenue models are there?
There are many types of revenue models, including subscription, sales, advertising, affiliate, commission, membership, and freemium. Alternative revenue models include rental, licensing, sponsorship, transaction fees, royalties, and lead generation.
Which is the most commonly used revenue model?
The most common revenue model is the sales revenue model, where businesses generate revenue by selling products or services directly to customers for a one-time fee. This straightforward approach is widely adopted, due to its simplicity and effectiveness in generating immediate revenue.
How do you make an effective revenue model?
Understand your target audience and their willingness to pay for your product or service. You can also analyze your competitors’ pricing strategies for insights into what might work for your business. Align your revenue model with your business goals, adjusting it periodically based on market feedback, customer behavior, and financial performance to stay profitable and competitive.
How do you build a revenue forecast model?
To build a revenue forecast model, you need to gather your historical data (e.g., from the past 12 months), identify your biggest growth drivers, and put together a calculation that can help you predict your future revenue based on your past data. Three popular forecasting methods are based on data like unit sales, billable hours, and recurring revenue.
At what stage does a business start to earn revenue?
A business can start to earn revenue shortly after launch, as soon as it makes its first sale. Revenue is any money coming into the business, which is different from profit. Profit is calculated after all expenses have been covered. Many businesses can take months or years to become profitable.
