Chapter 10: Creating Revenue Models Flashcards
What are the 11 types of revenue models?
- Crowdsourcing Model
- Razor-and-Blade Model
- Affiliate Model
- Freemium Model
- Transaction Fee Model
- Pay-per-Use
- Licensing Model
- Unit-sales Model
- Subscription Model
- Advertising Model
- Data Monetization Model
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Unit and Sales Model
Revenue is generated from selling individual products or services directly to customers.
Advantages: Simple to implement, easy to track and forecast.
Disadvantages: Requires consistent customer acquisition to maintain growth.
Subscription Model
Revenue is earned from customers who pay a recurring fee for ongoing access to products or services.
Advantages: Customer loyalty, consistent income, predictable, recurring revenue
Disadvantages: Requires high retention rates to remain profitable.
Licensing Model
Revenue is generated by licensing intellectual property (IP), technology, or brand names for other businesses for use.
Advantages: Low operational involvement, can scale globally easily (McDonalds)
Disadvantages: Limited direct customer interaction, reliant on licensee performance
Freemium Model
Offers basic features for free while charging for premium features or upgrades. Converts free users into paying customers over time.
Advantages: Attracts a large user base quickly, users can explore product before committing.
Disadvantages: High customer acquisition costs, low conversion rates to from free to paid users.
Advertising Model
Revenue comes from displaying ads, typically when a platform or business generates significant user traffic. Websites, apps, or platforms offering free content while earning from sponsored ads (think YouTube)
Advantages: Monetizes traffic and content without charging users, free access attracts more users.
Disadvantages: Can disrupt user experience, relies heavily on audience size and engagement.
Data Monetization Model
Revenue is generated from collecting, analyzing, and selling customer data to other businesses. Must comply with legal regulations.
Advantages: High margins if data collection is efficient, adds a revenue stream without new products.
Disadvantages: Privacy concerns and legal/compliance risks, required advanced analytics and capabilities.
Transaction Fee Model
Revenue is generated by taking a % of each transaction facilitated by the business (UberEats).
Advantages: Low operational costs, scales with transaction volume
Disadvantages: Highly competitive in platform-heavy industries.
Affiliate Model
Revenue is generated by earning a commission for promoting or selling another company’s products/services. Blogs or influencers earning from affiliate links or referrals.
Advantages: Minimal operational involvement, scales based on network and reach
Disadvantages: Relies on external partner performance, revenue is unpredictable
Pay-Per-Use Model
Revenue is based on customer usage rather than a fixed price. Popular for services with variable demand.
Advantages: Aligns with cost usage, attracts price-sensitive consumers.
Disadvantages: Unpredictable revenue streams, requires scalable infrastructure (be able to handle more requests)
Crowdsourcing Model
Revenue is generated by harnessing contributions from a large group of people, often for a common goal. Ex: Kickstarter or GoFundMe
Advantages: Reduces financial risk for product launches, builds early customer engagement.
Disadvantages: Success depends on campaign appeal, limited repeatability for single projects.
Razor-and-Blade Model
Selling a primary product (razor) at a low price and earning revenue from consumables (blades).
Ex: Printers sold cheaply with revenues generated from ink sales.
Advantages: Creates ongoing revenue streams, enhances customer loyalty through dependency
Disadvantages: Initial product sales may be unprofitable, requires reliable consumable supply chains.
What are revenue drivers?
Volume of Sales: More customers = more revenue
Upselling and Cross-Selling: Selling additional products or premium services to existing customers.
What are cost drivers?
Fixed Costs: Rent and salaries that remain constant
Variable Costs: Costs tied to production volume, like materials and shipping.
What is the importance of flexibility?
Adapting revenue models and pricing strategies to customer preferences and market conditions is critical for long-term success.
Name 11 types of pricing strategies
- Competition-Led Pricing
- Value-Based Pricing
- Psychological Pricing
- Penetration Pricing
- Skimming Pricing
- Dynamic Pricing
- Bundling Pricing
- Cost-Plus Pricing
- Freemium Pricing
- Geographic Pricing
- Pay-what-you-want Pricing
Competition-Led Pricing
Pricing based on competitor rates. Used in highly competitive markets with similar products.
Advantages: Easy to implement, ensures prices are market-relevant
Disadvantages: May lead to price wars, ignores unique values proposition
Value-Based Pricing
Charging based on the perceived value to the customer. Example: Charging more for health-focused organic meal kits.
Advantages: Maximizes customer willingness to pay, reinforces product quality uniqueness
Disadvantages: Requires deep understanding of customer needs, can alienate price-sensitive customers
Psychological Pricing
Leveraging pricing tactics like $9.99 to make prices seem lower to appeal to customers emotional or subconscious decision-making.
Advantages: Increased perceived affordability or exclusivity
Disadvantages: May not work in markets focused purely on cost.
Penetration Pricing
Setting a low initial price to attract customers and gain market share. Effective for entering new markets or launching new products.
Advantages: Quickly builds customer base, deters competition
Disadvantages: Can lead to losses initially, difficult to increase prices later.
Skimming Pricing
Setting a high price initially and gradually lowering it as demand decreases. Common for innovative or technologically advanced products.
Advantages: Maximizes revenue from early adopters, recoups R&D costs quickly
Disadvantages: Limits accessibility to price-sensitive customers, may attract competitors faster
Dynamic Pricing
Adjusting prices based on demand, time, or other variables. Used in industries like travel.
Advantages: Maximizes revenue based on demand fluctuations, customizable to market conditions.
Disadvantages: Can confuse/frustrate customers if perceived as unfair.
Bundling Pricing
Offering multiple products or services together at a discounted price.
Advantages: Encourages customers to purchase more, enhances perceived value.
Disadvantages: May reduce profits if not carefully calculated.
Cost-Plus Pricing
Adding a fixed percentage markup to the product’s cost.
Advantages: Simple to implement, ensures costs are covered.
Disadvantages: Ignores customer value and market trends, may lead to overpriced or underpriced products.
