revenue models in 15 minutes

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

REVENUE IN 15 MINUTES

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TWITTER –A SPECIAL CASE

THEY HAVETHEY HAVE NO REVENUENO REVENUE


POSSIBLE REVENUE MODELS

Advertising

SMS sent to twitterSMS sent to twitter

Pay-per-tweet


WHAT IT TAKES TO MAKE REVENUE

ANSWER THE FUNDAMENTALS

Pain point

Value propositionValue proposition

Revenue model

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


REVENUE MODEL INNOVATION

T diti l t ti hTraditional segmentation has historically relied on geography or broad demographic traits to segment Saul Berman, Not for

Free: Revenue Strategiescustomers.Behavioral segmentation looks to the customer to see how they use the

Free: Revenue Strategies for a New World

custo e to see o t ey use t eproduct, on what platforms or through what channels, how are they paying for it etcit etc.


SOLVE SIGNIFICANT PAIN POINTS

Create pain killers, not vitamins


WHO WILL PAY FOR IT?

End users / buyers

Sellers

Advertisers or sponsors

Govt subsidies (medical reliefs etc)

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

P1

P2

P1

demand demand

QtyQ2 Q1 QtyQ2 Q1


WHEN DO WE MAKE REVENUE?

New product, new marketFollow on product, existing market

Revenue Revenue

even

ue

even

ue

Revenuelag

Revenuelag

R R

Time Time

Rate of revenue making (cash)

Rate of revenue making (accrual)


WHAT HAPPENS IF WE DON’T MAKE REVENUE?


ANTICIPATE NOT MAKING REVENUE

Change product

Change revenue modelChange revenue model

Change sales process


DEFINE NEW AND EXISTING CUSTOMERS

Customer acquisition

Cost of acquiring

Customer retention

Cost of maintainingq g

Cost of conversion from free to paid

g

Life-time value

UpsellUpsellAn existing customer is 3 times more profitable


EXAMPLEREVENUE MODELS

PRODUCT SALES REVENUE MODELS

Model Description Example

Clicks and bricks (eg)

Traditional location-based retail, combined with internet + mobile.

Wal-Mart

After-sales service

Profit from recurring servicing, post sale. Mercedes

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 HertzRental / 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-acquisition, affiliate marketing

Google AdSense

E-commerce Compete with traditional retails using range and price Amazon.com

Transaction fee Utilities which facilitate commerce and take a commission. It is pay-per-use.

PayPal

Software-as-a-service

Subscription model with recurring billing Salesforce.com

Third party sponsorship

Service is free to the direct user, paid for by a third party sponsorship

Mint.com

Donation Users decide what the product or service is worth Wikipedia


GAME REVENUE MODELS


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

S b i i i d i f b dd ddi i lSubscription tiers

Basic product is free, but add-ons are additional Zynga

Advertising Serving contextual ads to gamers Electronic Arts

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

Merchandise Purchase physical goods to activate a online membership

Webkinz toys

Event fees Differentiated experience Netamin'sEvent fees Differentiated experience Netamin s


SIMPLISTIC VIEW ON HOW TO MAKE $250K IN REVENUEREVENUE

PRODUCT SALES

Total revenue per month

Sale price Salesp

$250,000 $100 2,500 units

Total expenseper month

COGS Distribution R+D

$187 500 $30 $20 $25$187,500 $30 $20 $25


ADVERTISING FEES / MNTH

Total revenueper month

RPM* Page visits Pages**p

$250,000 $2 175,000 30,000

Total expense per month

Editors Cost per editor Pages each

$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 per month

Premium customers

Premium fee / mnthp

$250,000 20,000 $25

Total expenseper month

Marketing to get customer

Other costs

$$75,000 50,000 25,000


WHAT VCs WANT

CLEAR FINANCIAL ASSUMPTIONS

Clearly state on page on of the business plan 4 key financial assumptions which

d i th ti b i lunderpin the entire business plan.


SCALABILITY

Calculate the cost and revenue of adding one addition customer. Rethink products

d i ifand services if necessary.


TRUE PICTURE

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

tcosts.


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

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

in-a-world-of-free

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

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revenue models in 15 minutes

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