Chapter 9 Flashcards
what is revenue
: income gained from sales of goods and services
what is a Revenue model
: key component of the busines model that identifies how the company will earn income and make profits
CVP and Revenue model
how do you capture CVP and make more
question should ask in revenue model
- How much money is consumer willing to pay
- How may customers do I need
- How much revenue can be generated through sales
- If I have +1 revenue streams, how much does each stream contribute to the total
Is customer always the end user?
NO
10 types of revenue models
- unit sales revenue model
- advertising revenue model
- data revenue model
- intermediation revenue model
- licensing revenue model
- franchising revenue model
- subscription revenue model
- professional revenue model
- utility and usage revenue model
- Freemium revenue model
- Unit sales revenue model
a. :generating revenue by the number of items sold by a company
b. Typically when sold directly to the consumer (end user)
c. Can be physical or intangible items (apps)
d. Also called razor and razor blade model
i. Sells low cost razor to sell blades
- Advertising Revenue model
a. : generating revenue by advertising products and services
b. Is dependent on attracting traffic or developing a dominant niche
c. Ex: Google AsWords not its main service and not main revenue
i. Cost per click model – charger per click
- Data revenue model
a. : generating revenue by selling high-quality, exclusive, valuable information to other parties
b. Ex: data brokers who sell data
- Intermediation revenue model
a. : The different methods by which third parties such as brokers (middleman) can generate money
b. Brokers-> generate transactions between buyers and sellers
c. Ex: ebay
- Licensing revenue model
a. : earning revenue by giving permission to other parties to use protected intellectual property (patents, copyrights, trademarks) in exchange for fees
b. Ex: using computer with software
c. Ex: apps
- Franchising revenue model
a. : earning revenue by selling franchises of an existing business to allow another party to trade the name of that business
- Subscription revenue model
a. : charging customers to gain continuous access to a product or service
b. Ex: Netflix
- Professional revenue model
a. : earning revenue by providing professional services on a time and materials contract
b. Ex: Lawyers and accountants
- Utility and usage revenue model
a. : pay as you go model that charges customers fees on the basis of how often goods or services are used
b. Ex; Pay as you go phone plan
- Freemium revenue model
a. :mixing free (mostly web) basic services with premium or upgraded services
b. Low version for free
c. Ex: survey monkey
2 models to generating revenue for free
Direct cross subsidies
:pricing a product above its market value to pay for the loss of giving away a product or service for free or below its market value
Ex; Flair you have to pay for baggage
Attracts customer by eliminating or reducing the upfront costs of a product
Multiparty Markets
:giving one party a product or service for free but charging the other party
Ex: Internet Ads like YouTube
Ex: job seekers post for free but employers pay
revenue drivers
Customers- how many will you attract
Frequency- how often will your customers come back
Selling process- how much will you be able to sell and what kind of upselling
Price- high or lower
cost drivers
Cost of goods sold
* : the direct cost of producing a product
* Occurs when sale takes place
* Ex: t-shirt: how much to produce shirt
* Keep low but not too low or will be bad quality
Operating expenses
* : the cost of running your business, including your rent, utilities, admin, marketing, employee salaries…
* Can reduce
o Reducing salaries or location
Income statement
o Financial report that shows revenues, expenses and profit for a period of time, typically a month, quarter, or a year
o Total revenue – COGS- expenses = profit or loss
Pro-forma
o Estimates what the company could do
o Similar to income statement
is there a right way to price a product
NO
* Need to find going rate of your product
* Ask people how much they are willing to pay
* What can your customers afford
* Need consistent revenue streams
* Pricing products and services
Types of pricing strategies
Competition led pricing
Matches the prices of other business selling the same or very similar product and services
Customer led pricing
Asks customer how much they are willing to pay and offer at that price
Loss leader
Offer at a lower price to attract customers
Walmart
Introductory offer
Offering product for free or heavy discount to get people to try
Skimming
High price strategy for new products that there is little to no competition
Psychological pricing
Intended to encourage customers to buy on the basis of their belief that the product is cheaper then it really is
Ex buy one get one free or 1.99
McDonalds
Fair Pricing
When customer and business think it is reasonable
Bundled pricing
Companies package set of goods or services together and then sell them at a lower price then if they were sold separately
break even measurement
o Break even = fixed costs/(sales price-VC per unit)
o Measured in units
