Revenue models in 15 minutes

Prepared for Ideas Inc,
Nanyang Technological
University.
As of June 2012.

REVENUE IN
15 MINUTES

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TOUCH

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THEY HAVE
NO REVENUE


POSSIBLE REVENUE
MODELS

Advertising

SMS sent to twitter

Pay-per-tweet


ANSWER THE
FUNDAMENTALS

Pain point

Value proposition

Revenue model

http://futurebooks.com.sg/blog/writing-business-plans-that-speak-to-investors/2308


REVENUE MODEL
INNOVATION

T diti l t ti h
Traditional segmentation has
historically relied on geography or
broad demographic traits to segment Saul Berman, Not for
Free: Revenue Strategies
customers. for a New World
Behavioral segmentation looks to the
custo e
customer to see how t ey use the
o they t e
product, on what platforms or through
what channels, how are they paying for
it etc.
etc


SOLVE SIGNIFICANT
PAIN POINTS

Create pain killers,
not vitamins


WHO WILL
PAY FOR IT?

End users / buyers
Sellers
Advertisers or sponsors The end user doesn’t
always pick up the bill.
Govt subsidies (medical reliefs etc)


WHAT EFFECT
DOES PRICE HAVE?

Inelastic Elastic
demand demand

$ $

demand demand

P2 P2

P1 P1

Q2 Q1 Qty Q2 Q1 Qty


WHEN DO WE
MAKE REVENUE?

Follow on product, existing market New product, new market

Revenue Revenue
lag lag
Revenue

Revenue

Time Time

Rate of revenue Rate of revenue
making (cash) making (accrual)


WHAT HAPPENS IF WE
DON’T MAKE REVENUE?


ANTICIPATE NOT
MAKING REVENUE

Change product

Change revenue model

Change sales process


DEFINE NEW AND
EXISTING CUSTOMERS

Customer acquisition Customer retention
q g
Cost of acquiring g
Cost of maintaining
Cost of conversion Life-time value
from free to paid
Upsell
An existing
customer is 3 times
more profitable


PRODUCT SALES
REVENUE MODELS

Model Description Example

Clicks and bricks Traditional location-based retail, combined with Wal-Mart
(eg) internet + mobile.
After-sales Profit from recurring servicing, post sale. Mercedes
service
Franchise Franchise fees and sometimes product sales. Subway

License Leverage existing sales channel to sell products. Adobe

Group-buying Improve purchase power of consumers Groupon

Rental / leasing Differentiate through service Hertz

Govt subsidy Product is made free, or subsidised by Govt. Pharma

Consulting Design specialised products for other manufacturers ARM


INTERNET REVENUE
MODELS


Advertising Cost-per-click, Cost-per-impression, cost-per- Google AdSense
acquisition, affiliate marketing
E-commerce Compete with traditional retails using range and price Amazon.com

Transaction fee Utilities which facilitate commerce and take a PayPal
commission. It is pay-per-use.
Software-as-a- Subscription model with recurring billing Salesforce.com
service
Third party Service is free to the direct user, paid for by a third Mint.com
sponsorship party sponsorship
Donation Users decide what the product or service is worth Wikipedia


GAME REVENUE
MODELS


Virtual goods Buy functional, decorative, in-game items Nexon

Subscription
S b i i Basic product i f
i d is free, b add-ons are additional
but dd ddi i l Zynga
tiers
Advertising Serving contextual ads to gamers Electronic Arts

Land use fees Virtual land is sold leased to individuals Second Life

Merchandise Purchase physical goods to activate a online Webkinz toys
membership
Event fees Differentiated experience Netamin s
Netamin's


SIMPLISTIC
VIEW ON HOW
TO MAKE
$250K IN
REVENUE

PRODUCT
SALES

Total revenue Sale price Sales
p
per month
$250,000 $100 2,500 units

Total expense COGS Distribution R+D
per month
$187,500
$187 500 $30 $20 $25


ADVERTISING
FEES / MNTH

Total revenue RPM* Page visits Pages**
p
per month
$250,000 $2 175,000 30,000

Total expense Editors Cost per editor Pages each
per month
$ ,
$75,000 100 2,500
, 30

*Revenue per thousand visits including CPC, CPM and CPA
** Singapore’s top sites receive XYZ per month (Source: Alexa)


FREEMIUM +
PREMIUM

Total revenue Premium Premium fee /
p
per month customers mnth
$250,000 20,000 $25

Total expense Marketing to Other costs
per month get customer
$75,000 50,000 25,000


CLEAR FINANCIAL
ASSUMPTIONS

Clearly state on page on of the business
plan 4 key financial assumptions which
underpin the entire business plan.
d i th ti b i l


SCALABILITY

Calculate the cost and revenue of adding
one addition customer. Rethink products
and services if necessary.
d i


TRUE PICTURE

Plan for victory, but prepare for setbacks.
Underestimate revenue, and overestimate
costs.
t


http://freetoplay.biz/2007/08/02/top-10-revenue-models-for-free-to-play-games/

http://www.slideshare.net/JeremyGislason/how-to-increase-membership-sales-using-
different-revenue-models-presentation

CREDITS http://www.slideshare.net/rashmi/scaling-revenue-rashmi

http://www.sixteenventures.com/7-SaaS-Revenue-Streams-with-Details.pdf

http://www.fastcompany.com/1740192/revenue-model-innovation-how-to-generate-sales-
in-a-world-of-free
in a world of free

http://bohknet.tm.tue.nl/OHKNET/section31/rm.html

http://www.1000ventures.com/business_guide/revenue_model.html

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