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Xmba 296 t lecture 5 revenue

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  • 1. The Lean LaunchPad Session 5: Revenue Model and Pricing Professors Steve Blank,Jon Feiber, Jim Hornthal, Oren Jacob https://sites.google.com/site/xmba296t / XMBA296T
  • 2. images by JAM customer segments key partners cost structure revenue streams channels customer relationships key activities key resources value proposition
  • 3. REVENUE STREAMS what are customers really willing to pay for? how? are you generating transactional or recurring revenues?
  • 4.
    • Test Hypotheses:
    • Problem
    • Customer
    • User
    • Payer
    • Test Hypotheses:
    • Demand Creation
    • Test Hypotheses:
    • Channel
    • Test Hypotheses:
    • Product
    • Market Type
    • Competitive
    • Test Hypotheses:
    • Pricing Model / Pricing
    • Test Hypotheses:
    • Size of Opportunity/Market
    • Validate Business Model
    • Test Hypotheses:
    • Channel
    • (Customer)
    • (Problem)
    Customer Development Team Agile Development
  • 5. Two types of companies
    • Single-sided markets that care about revenues
    • Multi-sided markets that care about users first, revenues second
  • 6. “ Revenue First” Companies
    • Time to doublings for monthly revenues
    • Key questions:
      • When will I get to $100k/month in revenues?
      • When will I get to $1M/month in revenues?
      • What assumptions about my business am I making when I reach these milestones?
  • 7. “ Users First” Companies
    • If you say your business is advertising based:
    • How do you get to 10M monthly users?
    • How do you become one of the top 5 websites visited?
  • 8. The Two Key Questions
    • What’s my revenue model ?
    • Within the revenue model – how do I price the product?
  • 9. Revenue Model = the strategy the company uses to generate cash from each customer segment
  • 10. Pricing Model = the tactics you use to set the price in each customer segment
  • 11. buzz group
  • 12. Web/Mobile Revenue Models
  • 13. “Direct” revenue models
    • Sales: Product, app, or service sales
    • Subscriptions : SAAS, games, monthly subscription
    • Freemium: use the product for free: upsell/conversion
    • Pay-per-use : revenue on a “per use” basis
    • Virtual goods : selling virtual goods
    • Advertising sales : unique and/or large audience
  • 14. “Ancillary” revenue models
    • Referral revenue : pay for referring traffic/customers to other web or mobile sites or products.
    • Affiliate revenue : finder’s fees/commissions from other sites for directing customers to make purchases at the affiliated site
    • E-mail list rentals : rent your customer email lists to advertiser partners
    • Back-end offers : add-on sales items from other companies as part of their registration or purchase confirmation processes, or “sell” their existing traffic to a company that strives to monetize it and share the resulting revenu3
  • 15. Physical Revenue Models
  • 16. Asset Sale
    • Sale of ownership right to a physical product
  • 17. Usage Fee
    • Usage of service. Fee is proportional to the usage of the service.
  • 18. Subscription Fee
    • Fee for continuous access to a service
  • 19. Renting
    • Fee for temporary access to a good or service
  • 20. Licensing
    • Fee for use of some IP (including software)
  • 21. Intermediation Fee
    • Often found in marketplaces of various types, a fee for bringing together two or more parties involved in a transaction
  • 22. Advertising
    • Fee paid by brands and companies to get in front of potential customers
  • 23. Pricing
  • 24. Other words we use in the place of price
    • Fee
    • Commission
    • Subscription
    • Toll
    • Interest
    • Rent
    • Tax
    • Shipping
  • 25. Common approaches to pricing
    • Cost + markup
    • Typically not a strategic way to price
    • Driven by internal economics and not customer insight
    Cost based Value based
    • Based on buyer’s perception of value (e.g. time saved, new efficiency created, etc.)
    • Customers don’t necessarily feel that they want to pay this way
  • 26. Pricing Choices (1)
    • Cost-based pricing : based on a multiple of actual product cost. Typically priced for maximum revenue/profit versus volume
    • Value pricing : based on the value delivered by the product rather than the cost itself
    • Competitive pricing : positions the product vs. others in its competitive set, typically in existing markets
    • Volume pricing : designed to encourage multiple purchases or users
  • 27. Pricing Choices (2)
    • Portfolio pricing . Mix of high markups and some with low, depending on competition, lock-in, value delivered, and loyal customers
    • “ Razor/razor blade” model : part of the product is free or inexpensive; yet it pulls through repeat, highly profitable purchases on an ongoing basis
    • Subscription : while now thought of a software strategy, the “Book of the Month Club” pioneered this for physical products
    • Leasing: lowers the entry cost for customers. Provides constant earnings over a period of years
  • 28. Additional components of pricing
    • Exclusive vs. non-exclusive
    • What do you price? What do you give away for free?
    • How does cost vary at different production levels?
  • 29. Competition as an influence
    • Pure competition
    • Oligopoloy
    • Monopoloy
    Nature of Market How they will react?
    • What is their product?
    • What are their costs and prices?
    • “ What pricing will make them feel the worst?”
  • 30. Other Revenue Issues
    • Channel issues
      • Return rights?
      • Channel discounts? SPIFs?
    • Market Type?
  • 31. New Market Revenue Forecast New Market Sales Curve
  • 32. Existing Market Revenue Forecast Existing Market
  • 33. Resegmented Market Revenue Forecast
  • 34. Other Questions
    • What are my customers paying for?
    • What capacity do my customers have to pay?
    • How will you package your product ?
    • How will you price the offerings?
    • What constitutes cost for the company?
    • What are the key financials metrics for your business model?
    • What are the risks involved?
  • 35. buzz group