The Revenue Component of A Business Model.
They had a great value proposition. They had a great user base and active users of their product.
They have tested their business model but yet the future of their business looks unsustainable.
For some years, Google business operated without a revenue model. They wanted the experience of their search engine to have an edge over the others in the search engine market.
They wanted to build a search without ads biased ranking. They wanted to rank pages based on quality and relevance.
But, how do they sustain a business without a revenue model. This is to show that the revenue model is actually one of the sustainability factors of a business.
In other words, how will the business make money to continue its operations and have resources to steer growth?
The Google founders(Sergie Brian and Larry Page) tried to solve this critical issue in their business models as explained in 3S rules. Fortunately, they arrived at Google Adwords, Google Adsense and other monetisation strategies.
In this second series of business model analysis, we shall be considering how to design your revenue model in such a way that the business model will be balanced.
Let's get started;
The Two Components of Value Valuation in a Business Modelling.
We have to look at the concept of revenue in a very clear way. What do you think will make the target market to exchange money for what you sell?
What mode do you intend to collect revenue from them? Here are two ways to go about this;
Product/Offering Of The Business:
Revenue is a product of the offering or the product you are giving to the market target. This is a well packaged value proposition and solutions to a specific need or problem of the target market.
Products or offerings are packaged solutions and packaged value propositions. When I teach copywriting or write copies, I call this an irresistible offer that will persuade clients to pay you and make you stand out in the market.
Continuing with the example of Google, their offering is providing a search engine to organize the world’s information and make it useful and accessible to everyone.yes,your product and offering first.
How do you want the users of your offering or product to pay you for rendering such services to them? How do you want your prospect to pay you for solving their problem with your product.
You know the concept of revenue modelling goes with the concept of exchange. That is your business is offering a solution and the market target is paying to have the solution.
The question is this; how do your prospects pay for your solution or your offering? This brings us to the concept of revenue modelling.
It is simply a design of how you want the market target to pay for your products. We have some of the following revenue models used in business;
- Subscription Revenue:
The user of the product or offering pays for the product and has access to use it for a certain period of time. When the time elapses, he will have to subscribe again or pay again to enjoy the service for a specified period of time.
- Commission Revenue:
This is simply charging a percentage from the transaction that takes place through your offering or product. We have Uber as a clear case study of this revenue model.
They provide the platform for the driver and rider, they take a cut from revenue made.
- Advert Revenue:
This is using the data of the users of your platform or products as a revenue modelling tool. You sell these refined data for advertisement by other businesses.
- Freemium Revenue:
You provide a basic free version of your product and a paid version. The free version is a lead generation tactic and the paid version is where users have to pay.
- Direct Revenue:
In this revenue modelling, the users pay directly for using a particular product. This is a very good example of how traditional businesses operate.
A good example is Supermarkets and retail stores where you pay for what you buy instantly.
You need to model your revenue based on what is suitable and strategic to your offering and business model. Sometimes, you may consider more than one business model in one business model. We shall continue in series 3 and series 4. Here is series one
The Business Models of Billion Dollar Worth Entrepreneurs
Have you ever wondered what makes some business start-ups to succeed and become global giants
while others fail?
With 3S Rules you will learn from global icons who founded companies such as Amazon, Microsoft, Lyft, Apple, Alibaba and many others on how they discovered their business ideas.
3S Rules will give you a first hand founder mindset on how to build your billion dollar startup idea.