Week 11 - Revenue Model

Introduction

In a nutshell, a revenue model is the strategy a startup uses to generate cash. It's all about how you take money from your customers' pockets and put it into your own. Simple, right? So, when someone asks about your business model, they're essentially asking how your startup makes money. It's different from pricing, so let's not get confused there.

Pricing vs. Revenue Model

Let's clarify the difference between pricing and revenue models. Pricing is all about how much you charge for your product or service, including any discounts or tactics you use. On the other hand, a revenue model is the bigger picture—it's the overall strategy for generating cash. Remember, pricing is just a part of your revenue model.

Let's Explore Some Examples

Now that we understand the basics, let's dive into a few examples. Direct sales is a revenue model where you sell products directly to customers. Think of an e-commerce platform where you recently made a purchase. How much did you pay? Did you get any discounts? That's pricing in action.

Another revenue model is subscription-based. For example, services like Netflix or Spotify offer subscriptions where customers pay a recurring fee for access to content. The pricing might differ based on the features or number of users, but it's all part of the subscription revenue model.

Avoiding Common Mistakes

As you venture into revenue models, it's essential to avoid some common pitfalls. One mistake is confusing pricing, where you set the cost based on your expenses, with what customers are actually willing to pay. Instead, consider what customers have paid in the past for similar products or services.

Another common mistake is underpricing, assuming that charging less will automatically attract more customers. However, that's not always the case. Sometimes, offering higher value at a higher price can attract a more dedicated customer base, especially in business-to-business contexts.

Understanding Customer Value

To nail down the right revenue model, it's crucial to understand what value your customers are truly paying for. For instance, if your startup focuses on advertising, think about what advertisers are paying for precisely. Is it access to a specific audience? Is it the impact your ads create? Knowing this helps you build a revenue model that aligns with customer needs.

Conclusion

In conclusion, revenue models is all about finding the right strategy to generate cash for your startup. Avoid common pricing and revenue model mistakes, and always keep your customers' value in mind. Just like driving different cars, revenue models offer various approaches to help your startup thrive. So, choose the revenue model that suits your journey towards success!

The Gamechanger's Revenue Model

Our startup idea "Hatud", a passenger ride booking app that connects drivers and passengers in the Misamis Oriental, has a revenue model that is based on taking a 20% commission on each transaction, which amounts to 10 pesos per successful ride. Based on the Market Share, which is 15% of Available Market, we are expecting to have a revenue of ₱136,000 at the end of the year.

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