Chapter 10: Creating Revenue Models

Question 1

Define revenue model.

Answer 1

A revenue model is a key component of the business model; it identifies how the company will earn revenue and generate profits. It explains how entrepreneurs will make money and capture value from delivering on the customer value proposition (CVP) that is outlined as part of their business model.

Question 2

What are the 10 main revenue models?

Answer 2

1. Unit Sales: The amount of revenue generated by the number of items (units) sold by a company.
2. Advertising: The amount of revenue gained through advertising products and services.
3. Data: The amount of revenue generated by selling high-quality, exclusive, valuable information to other parties.
4. Intermediation: The amount of revenue generated by third parties.
5. Licensing: The amount of revenue generated by giving permission to other parties to use protected intellectual property (patents, copyrights, trademarks) in exchange for fees.
6. Franchising: The process whereby franchises are sold by an existing business to allow another party to trade under the name of that business.
7. Subscription: The amount of revenue generated by charging customers payment to gain continuous access to a product or service.
8. Professional: The amount of revenue generated by providing professional services on a time and materials contract.
9. Utility and Usage: The amount of revenue generated by charging customers fees on the basis of how often goods or services are used.
10. Freemium: The amount of revenue gained by mixing free (mainly web-based) basic services with premium or upgraded services.

Question 3

What are the 4 main revenue drivers?

Answer 3

1. Customers: How many customers will come into your coffee shop? How much are they willing to pay to stay? How will you attract customers to your location?
2. Frequency: How often will your customers come into your coffee shop? What incentives can you offer to keep them coming back?
3. Selling process: How many hours will you operate a week (known as selling time)? What kind of upselling or cross-selling opportunities can you find?
4. Price: Impact of higher/lower pricing than competitor?

Question 4

What are the 2 main cost drivers?

Answer 4

1. Cost of goods sold: How much it costs to produce t-shirt.
2. Operating expenses: Rent, utilities, marketing…

Question 5

What are the 8 main pricing strategies?

Answer 5

1. Competition-Led Pricing: You copy the prices suggested by other businesses selling the same or very similar products and services.
2. Customer-Led Pricing: you ask customers how much they are willing to pay and then offer your product at that price.
3. Loss Leader: offering a product or service at a below-cost price in an attempt to attract more customers.
4. Introductory Offer: encourage people to try your new product by offering it for free or at a heavily discounted price.
5. Skimming: a form of high pricing, generally used for new products or services that face very little or even no competition and gradually decrease price.
6. Psychological Pricing: intended to encourage customers to buy based on their belief that the product or service is cheaper than it really is (.99$).
7. Fair Pricing: reasonable, based on market testing.
8. Bundled Pricing: packaging goods together for a deal.