Revenue models: Advertisement-supported vs. Subscription-based

Several models of revenue generation have been instrumental in the success of big and small companies around the world. Since it is one of the key components in establishing a solid and promising enterprise, a reliable revenue model is most needed especially for early stages of startups.

There are the different types of revenue models depending on the products and services that companies offer. For instance, two of the most common methods are the advertising models and the subscription models. Each or a combination of both are the ideal choices for websites, magazines, newspaper firms, and a lot more.

Digital businesses and online media websites usually choose between advertisement-supported and subscription-based revenue models but as a business owner yourself, which one should fit best for your firm? This discussion might help you decide.

In definition, choosing an advertisement-supported revenue model requires a business or site to offer free content and services to customers and relies on advertising to make money. On the other hand, a subscription-based revenue generation means that your company will charge users for the services or content that you provide. Here are several pros and cons for each.

 

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Advertisement Model

Pros:

  • Free content and services attract more users and reach a wider customer base.
  • A sizable number of users is attractive to advertisers who will pay to reach a large number of audience- specific customers to promote their own products and services.

Cons:

  • Advertising can be very costly. For TV ads, for example, production costs can go as high as $500,000 for national ads (or higher when there is a celebrity endorser) and placement can reach a similar amount for a 30-second prime-time spot on a national network.
  • There is a lack of ease in evaluating results. Measuring return on investment through advertising is nearly impossible to carry out.

 

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Subscription Model

Pros:

  • Revenue generation is based on active customer engagement.
  • The possibility of attracting a loyal customer base will give your company a bigger opportunity to derive additional revenues in the long run.
  • Monthly or annual subscription sign ups means a regular and stable source of revenue.

Cons:

  • Leverage is limited and often, the only options are customer growth or cost reduction.
  • Higher emphasis on quality products or services, which can actually be a good thing. That means higher pressure on the company to keep paying customers happy.
  • Offers customers little control over which items they can buy (or otherwise).

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