I help entrepreneurs leapfrog over the typical potholes that derail most small businesses with inspiration, motivation, education, and support across a wide range of business topics drawn from over a decade of running my own business, teaching entrepreneurship for the City of New York, and coaching and consulting privately with dozens of women and minority small business owners. Honestly, why go it alone when help is an email away?
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This week, I want to dive into one aspect of your business model that often confuses and confounds entrepreneurs, their revenue model(s).
One thing I want to make clear, a revenue model isn’t the same as a pricing model.
Even in resources I’ve read by respected business experts and institutions, I have found these two conflated.
While they are intrinsically connected, they’re different.
Simply put, a revenue model is the strategy by which you will earn money.
A pricing model is the strategy by which you assign monetary value to what you deliver.
A successful revenue model relies on a savvy pricing model…and vice versa.
So, let’s review some of the more common revenue models out there:
Advertising​
​You earn fees for selling ‘ad’ space to other companies on platforms or in publications you own and manage.
Newspapers and magazines are the obvious example. In the Internet age, it’s a huge revenue component of social media platforms as well as diverse small companies who integrate advertising, promotional opportunities, and/or sponsorships into their websites, events, and publications.
Affiliate/Commission​
​You earn fees for driving sales of other parties’ products or services.
Many service providers and online platforms offer referral fees or commissions to those who send business their way and/or facilitate the actual sale of their goods and services.
For instance, Amazon offers compensation for referral links that result in sales. And, many realtors, mortgage brokerages, financial advisors and insurance brokers operate using a commission model.
Licensing​
​You earn fees for granting customers the right to use your protected intellectual property.
Software companies like Microsoft and Adobe built their empires by utilizing this model as did many artists, musicians, and entertainment companies, including Disney, Elvis, and Charles Schultz, the famed Peanuts creator.
Recurring or subscription​
​You receive regularly scheduled payments from customers in exchange for ongoing delivery of and/or access to goods or services.
Creative services companies often offer retainer packages, where clients pay a monthly fee in exchange for a set number of hours of work.
Many retailers and platforms offer some type of monthly, quarterly, or annual subscription plan for their goods or continued usage and access to their products.
Of course, the OG of this model are newspapers and magazines and, in our modern age, Dollar Shave Club, which spawned an entire segment of online businesses built on the subscription model.
Note: This model also includes membership programs.
Direct Sales​
​You receive payment directly from customers/end-users in exchange for your goods or services.
If you sell your products or services direct-to-consumers (DTC) or business-to-business (B2B), then this is a revenue model you are likely employing.
Third-Party/Wholesale ​
​You earn revenue by selling your goods or services to another company who then sells them to their customers for a profit.
The companies that supply goods to department stores, retailers like Target and Walmart, groceries stories, and places like Ulta and Sephora, Amazon, and all the small boutiques around the globe are employing this model.
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Do you recognize your existing revenue model(s)? Do any strike you as potential new models to try?
As you evaluate your business model and plan for the future, consider how adding or amending your revenue model might impact your bottom line as well as the amount of time you need to invest in selling and delivering on each sale.
Why not check out some other business model components, including cost structure, channels, and pricing models.
Until next week, remember there are many routes to arrive at the same destination, so choose the one that gets you there in the time and style that's right for you.
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Easily Said & Done
I help entrepreneurs leapfrog over the typical potholes that derail most small businesses with inspiration, motivation, education, and support across a wide range of business topics drawn from over a decade of running my own business, teaching entrepreneurship for the City of New York, and coaching and consulting privately with dozens of women and minority small business owners. Honestly, why go it alone when help is an email away?
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