Revenue models in 15 minutes
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Prepared for Ideas Inc, Nanyang TechnologicalNanyang Technological University.As of June 2012.
REVENUE IN 15 MINUTES
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STAY IN TOUCH
Email us at [email protected] or visit www.futurebooks.com.sg
@futureb00ks
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TWITTER –A SPECIAL CASE
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THEY HAVETHEY HAVE NO REVENUENO REVENUE
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POSSIBLE REVENUE MODELS
Advertising
SMS sent to twitterSMS sent to twitter
Pay-per-tweet
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WHAT IT TAKES TO MAKE REVENUE
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ANSWER THE FUNDAMENTALS
Pain point
Value propositionValue proposition
Revenue model
http://futurebooks.com.sg/blog/writing-business-plans-that-speak-to-investors/2308
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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.
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SOLVE SIGNIFICANT PAIN POINTS
Create pain killers, not vitamins
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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)
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WHAT EFFECT DOES PRICE HAVE?
Inelastic Elastic
$
demand
$
demand
demand demand
P2
P1
P2
P1
demand demand
QtyQ2 Q1 QtyQ2 Q1
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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)
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WHAT HAPPENS IF WE DON’T MAKE REVENUE?
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ANTICIPATE NOT MAKING REVENUE
Change product
Change revenue modelChange revenue model
Change sales process
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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
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EXAMPLEREVENUE MODELS
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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
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INTERNET REVENUE MODELS
Model Description Example
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
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GAME REVENUE MODELS
Model Description Example
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
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SIMPLISTIC VIEW ON HOW TO MAKE $250K IN REVENUEREVENUE
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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
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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)
$ , ,
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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
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WHAT VCs WANT
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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.
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SCALABILITY
Calculate the cost and revenue of adding one addition customer. Rethink products
d i ifand services if necessary.
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TRUE PICTURE
Plan for victory, but prepare for setbacks. Underestimate revenue, and overestimate
tcosts.
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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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TERMS OF USE
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