Class 5 Flashcards
Why do revenue models matter?
All businesses must be able to generate revenues, long-term revenues must exceed aggregate costs, regulatory changes are not business solutions.
Business models vs. revenue models:
Business models– how the firm will create, deliver, and capture value
Revenue models– how the company will earn income and make profits
Revenue streams– different sources of income
Revenue Model Strategies MUST Address:
Pricing-– How much are customers willing and able to pay?
Market sizing-– How many customers do you need?
Profitability-– How much revenue can be generated through sales?
Remember: Profitability = Profit Margin ($) * Quantity
Revenue streams-– How much does each stream contribute to the total?
Cost to acquire-– How much money do you have to spend per customer to get the first sale?
Lifetime value of the customer-– How many times will the customer buy your products over time?
New customers purchase based on __________, returning customers purchase based on ____________.
Expectations, experience.
Unit Sales Revenue Model:
Revenues are generated by the number of items sold, retail businesses use the unit sales model by selling directly to
consumers, pricing can vary by unit sold, pricing must generally be applied in a consistent and fair approach.
Advertising Revenue Model:
Revenue generated through the sale of advertising, the success of this model is dependent on your access to a desired customer base, revenue can be generated by prioritizing the information a customer receives (promoted content).
Data revenue model:
Generating revenue by selling high-quality, exclusive, &
valuable information to other parties, data brokers collect third-party information about people with whom they have no relationship, brokers organize transactions between buyers and sellers.
Intermediation Revenue Model:
Generating revenue by acting as a broker or middleman.
Licensing Revenue Model:
Generating revenue by selling rights to your intellectual property, including patents and copyrights, licensing frequently takes place in the technology industry.
Franchising Revenue Model:
Generating revenue by selling the rights to another party to
trade under the name of your business in exchange for royalties, revenue can come from franchise (startup) fees and royalties, franchisor supports franchisee.
Professional revenue model:
Provides professional services on a time and materials contract, consultants, lawyers, and accountants often charge by the hour for their services, often include additional pricing structures.
Subscription Revenue Model:
Involves charging customers to gain continuous access to a
product or service, the subscription model is not the answer to all problems.
Utility and Usage Revenue Model:
Charges customers fees based on how often goods or services
are used, typically combined with multiple models, consider whether to include expiring purchases.
Freemium Revenue Model:
Involves mixing free basic services with premium or upgraded
services, can rapidly expand customer base and customers who buy extras tend to buy more extras.
Direct Cross-Subsidies:
Overpricing a product or service above its market value to
compensate for underpricing other products/services.
