20. Channel Economics
Direct Sales
20
SG&A + R&D
EndConsumer
EU
Discounts
Your Revenue
List
Price
Source: Mark Leslie, Stanford GSB
Cost of Goods
(Supply Chain)
PROFIT
21. 21
Cost of Goods
(Supply Chain)
SG&A +
R&D
EU
Discounts
Reseller
Source: Mark Leslie, Stanford GSB
Cost of Goods
(Supply Chain)
EndConsumer
Your Revenue
List
Price
Channel Economics
Resellers
PROFIT
23. We covered Direct Sales, and
using Reseller / Distributors…
When does the Channel look
like a Customer??
24. We covered Direct Sales, and
using Reseller / Distributors…
When does the Channel look
like a Customer??
Products embedded in others (OEM)
Products resold by others (VARs,
System Integrators)
Who’s the customer?
25. Channel Economics: OEM or IP
Licensing
25Your Product Becomes Your Customer’s Cost of Goods
Reseller
SG&A
+ R&D
Cost of
Goods
(Supply
Chain)
EU
Discounts
Reseller
Distributor
Master
Distributor
SG&A +
R&D
Cost of
Goods
(Supply
Chain)
List
Price
Channel Economics
OEM or IP Licensing
EndConsumer
Your Revenue
List
Price
PROFIT
PROFIT
37. What can we learn about
how customers make
decisions?
38. Customer Archetypes
Drive Get / Keep / Grow
• What’s their role?
– How this person is evaluated / promoted / compensated?
• Who are they?
– Buyer’s name
– Position / title / age / sex
• How do they buy?
– Discretionary budget (name of budget and amount)
• What matters to them?
– What motivates them?
• Who influences them?
– What do they read/who do they listen to?
50. The Two Key Questions
• What’s my revenue model?
• Within the revenue model – how do I price
the product?
51. Revenue Model =
the strategy the company uses to
generate cash from each
customer segment
52. Revenue Streams
1. How many will we sell?
2. Where/who is the money coming from?
3. How do we price the product?
4. Does this add up to a
business worth doing?
53. Key Revenue Model 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?
54. Pricing Model =
the tactics you use to set the price
in each customer segment
56. 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
57. How to price the product?
• Cost plus
• Competitive
pricing
• Volume pricing
• Value pricing
• Portfolio pricing
• “Razor/razor blade”
model
• Subscription
• Time/Hourly Billing
• Leasing
(Pricing Models for physical products)
58. Payment Flow
Leasing company
Tenant
Property Owners
install meter
send monthly
water bill
$9/month
(2yrs)
$200 one time
water bill
plus $2/month
$2/month
activities
payments
1. Draw the diagram
2. Put in numbers
63. Other considerations
• Distribution channel affects
revenue streams
• Market type affects revenue streams
• Demand curve affects revenue streams
• Consider lifetime value
64. “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
65. “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