- Practice · 6 marks
Revenue streams and cost structure
Short answer
Revenue may come from sales, usage, subscription, licensing, commission, advertising or freemium; costs split into fixed and variable, which together decide profitability.
Describe the different types of revenue streams a startup can use. Also explain the cost structure of a business with fixed and variable costs.
A revenue stream is the way a business earns money from each customer segment. A cost structure lists all the costs of operating the business model.
Types of revenue streams
| Stream | How it earns | Example |
|---|---|---|
| Asset sale | One-time sale of ownership | Selling a phone |
| Usage fee | Pay per use | Taxi fare, electricity |
| Subscription | Regular fee for continuing access | Streaming service |
| Lending/renting/leasing | Temporary use of an asset | Equipment rental |
| Licensing | Fee for using intellectual property | Software licence |
| Brokerage/commission | Percentage for connecting parties | Marketplace |
| Advertising | Advertisers pay for audience | Media platforms |
| Freemium | Free basic, paid premium | Apps |
Pricing may be fixed (list price) or dynamic (demand-based, negotiated, auction).
Cost structure
- Fixed costs: do not change with output in the short run (rent, salaries, insurance, loan interest).
- Variable costs: change with output (raw material, packaging, sales commission).
- Semi-variable costs: part fixed, part variable (electricity with a minimum charge).
Total cost = fixed cost + variable cost per unit x quantity.
Business models can be cost-driven (lowest cost, high automation) or value-driven (premium value, higher cost). Knowing the structure shows the break-even point and where costs can be cut.
Answer: Revenue may come from sales, usage, subscription, licensing, commission, advertising or freemium; costs split into fixed and variable, which together decide profitability.
✓ Answer checked by Claude Opus 5.5 (high effort)
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