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Revenue Models
Shaer Hassan
CEO, Nascenia
What?
• How a business generates revenue streams
from its products and services
Why
• To sustain the business
Revenue Models: Commerce & Retail
• Selling physical goods: Clothing
• Selling digital products: Cell phone
Ideal Customers Advantage Problems Ideal Products
• A service sold per unit (hour, distance, weight,
bandwidth): ISP, Telecom, Theater, Bus
• A service with fixed price: ISP, Telecom
• Daily deals / flash sales: ajkerdeal, akhoni
(previously)
Ideal Customers Advantage Problems Ideal Products
Revenue Models: Commerce & Retail
Revenue Models: Subscription &
Usage Fees
• Subscription: Newspaper
• Usage fees: Electricity
• Rental: House, Car
Ideal Customers Advantage Problems Ideal Products
Revenue Models: Licensing
• License of usage: Software
Ideal Customers Advantage Problems Ideal Products
Revenue Models: Auctions & Bids
• Auctions: ebay
Ideal Customers Advantage Problems Ideal Products
Revenue Models: Advertising
• Advertisements: TV, Newspaper, Priyo.com
• Promoted content: Bikroy.com
• Sponsorships: Maya.com.bd
Ideal Customers Advantage Problems Ideal Products
Revenue Models: Data
• Databases: SMS gateways
Ideal Customers Advantage Problems Ideal Products
Revenue Models: Transaction /
Intermediation
• Brokerage
• Transaction enablers: epayment gateway – SSL
Commerze
• Affiliate programs: Amazon
• Creating a platform / marketplace: Odesk, Oployee,
kaymu.com.bd, carmudi.com.bd
Ideal Customers Advantage Problems Ideal Products
Revenue Models: Freemium
• Paid version without advertisements
• Paid version without restrictions
• Paid version with additional features
Ideal Customers Advantage Problems Ideal Products
Revenue Models: Negative Operating
Cycle
• Lower price by receiving payment before
delivering the offering
– Amazon, Airbnb, courier service for c-commerce
in Bangladesh
Ideal Customers Advantage Problems Ideal Products
Revenue Models: Razor/Blades
• Offer the high-margin below cost to increase
volume sales of the low-margin razor blades.
– Printers and ink
– Glucometer
– Free connection with router by ISPs
– Free SIM by Telcos
Ideal Customers Advantage Problems Ideal Products
Revenue Models: Reverse
Razor/Blades
• Offer the low-margin item below cost to
encourage sales of the high-margin
companion product
– Kindle, iPod/iTunes
Ideal Customers Advantage Problems Ideal Products
Pricing Strategy
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price
Pricing Objective
• Survival
• Maximum Current Profit
• Maximum Market Share
• Maximum Market Skimming
• Product-Quality Leadership
• Other Objectives
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price
Determining Demand
• Price Sensitivity
– Less price sensitive when
• Product more distinctive
• Buyers are less aware of substitute
• Expenditure is smaller part of buyer’s income
• Expenditure is small compared to the total cost of the
product
• Product is assumed to have more quality, prestige or
exclusiveness
• Estimating Demand Curves
• Price Elasticity of Demand
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price
Estimating Costs
• Types of costs and level of productions
- Variable cost
- Total cost
- Average cost
• Accumulated production
• Target costing
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price
Estimating Costs
• Accumulated production
• Target costing
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price
Analyzing Competitors’ Costs, Prices
and Offers
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price
Selecting a Pricing Method
• Markup Pricing
– Unit cost = variable cost + fixed cost / unit sales
– Markup price= unit cost / (1 - desired return on
sales) = 16/(1-0.2) = 20
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price
Selecting a Pricing Method
• Target-return Pricing = unit cost + (desired
return*invested capital) / unit sales
• Break-even Volume = fixed cost / (price-
variable cost)
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price
Selecting a Pricing Method
• Perceived Value Pricing
• Value Pricing
• Going Rate Pricing
• Auction-Type Pricing
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price
Selecting Final Price
• Impact of other marketing activities
• Company pricing policies
• Gain-and-risk-sharing Pricing
• Impact of Price on other parties
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price
Need to Know before Revenue Model
• Your strength
– Operation
– Selling skills
– Existing networks
– Market / customer readiness
– Potential market
Thank you
shaer@nascenia.com
linkedin.com/in/shaerhassan
www.nascenia.com

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Revenue Models and Pricing

  • 2. What? • How a business generates revenue streams from its products and services
  • 3. Why • To sustain the business
  • 4.
  • 5. Revenue Models: Commerce & Retail • Selling physical goods: Clothing • Selling digital products: Cell phone Ideal Customers Advantage Problems Ideal Products
  • 6. • A service sold per unit (hour, distance, weight, bandwidth): ISP, Telecom, Theater, Bus • A service with fixed price: ISP, Telecom • Daily deals / flash sales: ajkerdeal, akhoni (previously) Ideal Customers Advantage Problems Ideal Products Revenue Models: Commerce & Retail
  • 7. Revenue Models: Subscription & Usage Fees • Subscription: Newspaper • Usage fees: Electricity • Rental: House, Car Ideal Customers Advantage Problems Ideal Products
  • 8. Revenue Models: Licensing • License of usage: Software Ideal Customers Advantage Problems Ideal Products
  • 9. Revenue Models: Auctions & Bids • Auctions: ebay Ideal Customers Advantage Problems Ideal Products
  • 10. Revenue Models: Advertising • Advertisements: TV, Newspaper, Priyo.com • Promoted content: Bikroy.com • Sponsorships: Maya.com.bd Ideal Customers Advantage Problems Ideal Products
  • 11. Revenue Models: Data • Databases: SMS gateways Ideal Customers Advantage Problems Ideal Products
  • 12. Revenue Models: Transaction / Intermediation • Brokerage • Transaction enablers: epayment gateway – SSL Commerze • Affiliate programs: Amazon • Creating a platform / marketplace: Odesk, Oployee, kaymu.com.bd, carmudi.com.bd Ideal Customers Advantage Problems Ideal Products
  • 13. Revenue Models: Freemium • Paid version without advertisements • Paid version without restrictions • Paid version with additional features Ideal Customers Advantage Problems Ideal Products
  • 14. Revenue Models: Negative Operating Cycle • Lower price by receiving payment before delivering the offering – Amazon, Airbnb, courier service for c-commerce in Bangladesh Ideal Customers Advantage Problems Ideal Products
  • 15. Revenue Models: Razor/Blades • Offer the high-margin below cost to increase volume sales of the low-margin razor blades. – Printers and ink – Glucometer – Free connection with router by ISPs – Free SIM by Telcos Ideal Customers Advantage Problems Ideal Products
  • 16. Revenue Models: Reverse Razor/Blades • Offer the low-margin item below cost to encourage sales of the high-margin companion product – Kindle, iPod/iTunes Ideal Customers Advantage Problems Ideal Products
  • 17. Pricing Strategy Selecting Pricing Objective Determining Demand Estimating Costs Analyzing Competitor’s Costs, Prices and Offers Selecting a Pricing Method Selecting Final Price
  • 18. Pricing Objective • Survival • Maximum Current Profit • Maximum Market Share • Maximum Market Skimming • Product-Quality Leadership • Other Objectives Selecting Pricing Objective Determining Demand Estimating Costs Analyzing Competitor’s Costs, Prices and Offers Selecting a Pricing Method Selecting Final Price
  • 19. Determining Demand • Price Sensitivity – Less price sensitive when • Product more distinctive • Buyers are less aware of substitute • Expenditure is smaller part of buyer’s income • Expenditure is small compared to the total cost of the product • Product is assumed to have more quality, prestige or exclusiveness • Estimating Demand Curves • Price Elasticity of Demand Selecting Pricing Objective Determining Demand Estimating Costs Analyzing Competitor’s Costs, Prices and Offers Selecting a Pricing Method Selecting Final Price
  • 20. Estimating Costs • Types of costs and level of productions - Variable cost - Total cost - Average cost • Accumulated production • Target costing Selecting Pricing Objective Determining Demand Estimating Costs Analyzing Competitor’s Costs, Prices and Offers Selecting a Pricing Method Selecting Final Price
  • 21. Estimating Costs • Accumulated production • Target costing Selecting Pricing Objective Determining Demand Estimating Costs Analyzing Competitor’s Costs, Prices and Offers Selecting a Pricing Method Selecting Final Price
  • 22. Analyzing Competitors’ Costs, Prices and Offers Selecting Pricing Objective Determining Demand Estimating Costs Analyzing Competitor’s Costs, Prices and Offers Selecting a Pricing Method Selecting Final Price
  • 23. Selecting a Pricing Method • Markup Pricing – Unit cost = variable cost + fixed cost / unit sales – Markup price= unit cost / (1 - desired return on sales) = 16/(1-0.2) = 20 Selecting Pricing Objective Determining Demand Estimating Costs Analyzing Competitor’s Costs, Prices and Offers Selecting a Pricing Method Selecting Final Price
  • 24. Selecting a Pricing Method • Target-return Pricing = unit cost + (desired return*invested capital) / unit sales • Break-even Volume = fixed cost / (price- variable cost) Selecting Pricing Objective Determining Demand Estimating Costs Analyzing Competitor’s Costs, Prices and Offers Selecting a Pricing Method Selecting Final Price
  • 25. Selecting a Pricing Method • Perceived Value Pricing • Value Pricing • Going Rate Pricing • Auction-Type Pricing Selecting Pricing Objective Determining Demand Estimating Costs Analyzing Competitor’s Costs, Prices and Offers Selecting a Pricing Method Selecting Final Price
  • 26. Selecting Final Price • Impact of other marketing activities • Company pricing policies • Gain-and-risk-sharing Pricing • Impact of Price on other parties Selecting Pricing Objective Determining Demand Estimating Costs Analyzing Competitor’s Costs, Prices and Offers Selecting a Pricing Method Selecting Final Price
  • 27. Need to Know before Revenue Model • Your strength – Operation – Selling skills – Existing networks – Market / customer readiness – Potential market