Xmba 296 t lecture 5 revenuePresentation Transcript
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
images by JAM customer segments key partners cost structure revenue streams channels customer relationships key activities key resources value proposition
REVENUE STREAMS what are customers really willing to pay for? how? are you generating transactional or recurring revenues?
Pricing Model / Pricing
Size of Opportunity/Market
Validate Business Model
Customer Development Team Agile Development
Two types of companies
Single-sided markets that care about revenues
Multi-sided markets that care about users first, revenues second
“ Revenue First” Companies
Time to doublings for monthly revenues
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?
“ 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?
The Two Key Questions
What’s my revenue model ?
Within the revenue model – how do I price the product?
Revenue Model = the strategy the company uses to generate cash from each customer segment
Pricing Model = the tactics you use to set the price in each customer segment
Web/Mobile Revenue Models
“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
“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
Physical Revenue Models
Sale of ownership right to a physical product
Usage of service. Fee is proportional to the usage of the service.
Fee for continuous access to a service
Fee for temporary access to a good or service
Fee for use of some IP (including software)
Often found in marketplaces of various types, a fee for bringing together two or more parties involved in a transaction
Fee paid by brands and companies to get in front of potential customers
Other words we use in the place of price
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
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
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
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?
Competition as an influence
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?”
Other Revenue Issues
Channel discounts? SPIFs?
New Market Revenue Forecast New Market Sales Curve
Existing Market Revenue Forecast Existing Market
Resegmented Market Revenue Forecast
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?