A business is essentially a container for the process of value creation for customers, with a goal of profit for the business owner.
If you’ve completed up to Clarity 4 you have:
>> Identified the problems you solve and the outcomes your solution delivers.
(Expressed as your Brand value proposition and packaged in your Signature System)
So … the next logical steps are how and what questions:
- How will you make money?
- What are you going to sell and to whom?
- How will you deliver your products or services? (For example, would you rather work closely with a few people or influence a larger group?)
- How will you price your products and services?
- Where will you offer them?
- How will you promote and sell them?
Think deeply about what you really want and need. Magical thinking stops here, there is likely to be some “outside of comfort zone” stuff to face as growing a business will always involve a personal stretch and some inner work. Not everything you do will work out, and that is to be expected.
I work in depth with clients to understand the pros and cons of each of the main revenue models. We talk about what it really takes so you can make decisions and design your business from your strong zone.
Your business will develop and change. Not all the models are open to you at various stages but you can set the foundations for a model that you’ll be able to leverage as you grow, scale into something big or “make money while you sleep”.
So how will you choose and design a model that will give you the current revenue and “runs on the board” with future opportunity to scale and leverage? Let’s look at what you need to think about:
Considerations in Revenue Model Choice
- How to set up your business so you’ll get maximum enjoyment from your work: Do you want to work with larger numbers of people with a leveraged product (that doesn’t include personal access to you) or do you want to work deeply with fewer people, but at higher prices.
- Or some combination of the above?
- Your strengths and abilities
- What you enjoy
- The “shit sandwich*” – are you willing to “put up” or “shut up” with respect to the nature of the hard work required to get this done? And there will be hard work and some stuff you don’t enjoy. (*Popularised by blogger Mark Manson in this fantastic post)
- Your current Brand assets, including perceived authority and the appeal of your value proposition. Assets include intellectual property (including your signature system), content, processes, formulas, clients and relationships. You want to build on existing assets rather than start from scratch.
- Time to invest in or on the business. Non leveraged models such as 1-1 services, coaching and consulting, mean you can charge high prices, often for fairly short hours of actual work. However they do require you to commit to being available.
- Stage of business now, do you have a list of customers or are you starting from scratch?
- Lifestyle considerations
- Business size, team and other available resources
- Current and future business and lifestyle goals
- Technical ability
- Marketing ability. Marketing, building authority and visibility in your niche, creating relationships and bringing people into your orbit IS the actual work of many business models. If you are a producer of content but completely resist marketing, you need to find others (conduits) to sell for you. If you choose a conduit model, you must be good at marketing – that is your actual business.
- Starting knowledge. It is always better to leverage knowledge rather than undertake a business model with no prior experience of the market and model. (I did this and failed spectacularly).
TYPES OF REVENUE MODELS
The first “slice” which discriminates between business models is:
ONE: Will you sell and market your own products, services or assets? or
TWO: Will you act as a marketing or selling conduit for products, services or connections delivered by others?
Pre-Requisites
ONE: You are a producer. You have know how and production capability to leverage your knowledge asset to produce content, solutions, products, services or systems.
You MUST solve a problem that your ideal client both:
a) recognises and
b) is ready and willing to invest in YOUR pain killing solution / transformational outcome.
The test for this? Does your Transformational Content (Clarity 3) meet the 4 “P’s”?
– Problem
– Promise
– Package (Solution)
– Proof
TWO: You are a conduit. You have a capability to build, nurture and satisfy an audience. You can connect these people (and their wants and needs) to producers as warm audience. You will use Insight (Clarity 2) to leverage often via desires, shared interests, convenience
Remember, the primary cause of business failure is “building something that nobody wants”. So consider the pre-requisites mentioned above and if they are not in place, revisit these posts for help:
- Find your Sweet Spot (Clarity 1)
- Develop Deep Insight (Clarity 2)
- Understand the Transformation that your unique know how or abilities can create (Clarity 3).
So, which are you? A PRODUCER? Or a CONDUIT?
So having understood the major distinction, let’s look at a second layer of business model types:
If you are a PRODUCER; there are 3 models:-
- Asset sales of products or services
- Access to your know how and expertise
- Systematized or packaged intellectual property that allows other people to make money, such as franchising or licensing
If you are a CONDUIT and wish to sell products / contents or solutions created by others there are also 3 common models:
4. Market and sell products or services that are manufactured by another company (affiliate or partnership model
5. Market and sell complete solutions to your clients, which you orchestrate but don’t “back end” either part of all of the services (middle man model)
6. Create a platform that entertains, informs or connects either users or buyers and sellers.
Another discriminator is the pricing mechanisms as shown here. This is a spectrum with one time sales on the left and subscription revenue on the right.
- The first and simplest payment model is the one time sale – one product or service, each paid and delivered separately (of course can have repeat buyers)
- And next is the one time sale plus a built in methodology for additional sales; add-ons, cross sell, up sell or down sell. This recognises that the main cost is to acquire the customer once and each sale represents an opportunity to meet complementary needs.
- Limited continuity is when you sell a service for a block of time and seek to retain or rollover a good proportion of the customers into the next block.
- Printer and ink model is when your price has one component for an initial product or service plus an ongoing component to maintain or use the initial investment (also known as razors and blades).
- Subscription revenue is like a rental or leasing or insurance model where customers continue to pay to have a service available to them.
So what will differ for these different models?
Buyer Risk increases with the level of investment and length of commitment.
Likewise, the higher the level of investment and length of commitment, the more compelling the value proposition will need to be.
If you are new to business, don’t immediately disregard the one time sale. It is a good, simple, starting system that will create a customer base for you. However, it’s likely you’ll want to add other revenue strategies over time.
For other models you require a proven and repeatable sales process, plus a marketing system that delivers awareness, interest, desire and conversions.
Limited continuity, printer and ink or subscription revenue, require you to continue to deliver services over time and are improved by relationship and retention initiatives.
The predictability of subscription revenue is very attractive to all entrepreneurs. However, when starting from scratch, master some of the simpler models first and build strong relationships.
You must have shown you can develop appealing, sought after products before trying the more advanced models. Start where you are, with what you have.
The models are iterative, you can build a simpler model initially and set yourself up for a printer and ink or subscription down the track, when you have some critical mass.
A good example of this is someone who has a digital training courses. If you’ve proven that your courses and training are sought after, you have the option of repurposing them into a membership model with a subscription revenue. In this model, people come for the content and stay for the community and access to you for direct coaching or answers.
SPECIFIC REVENUE MODELS
PRODUCER MODELS – Selling Your Own Product / Content / Solutions
Selling your own assets products and services – one time sales
- Digital information products or training – eg infoproducts
- E-Commerce as a producer or manufacturer – eg physical products
- Plug-ins, apps, software for one time purchase
- Bricks and clicks – eg florist with online store
Selling your own assets products and services – subscription sales
- Services; financial, telecommunications & internet, insurance, entertainment streaming, health and fitness – eg gym membership, ISP
- Software as a service (often “freemium” model) eg Active Campaign, Canva
- Products by subscription (eg Stitch fix)
- White labelling / wholesaling – supplying unbranded services to other companies who maintain the customer relationship and sell it as their own solution.
Selling access to your “know-how” one-time sales (the key here is that your know how is your product, and the more direct access to you, the are you higher the price should be)
- Consulting projects, hour rate coaching or health practitioners, alternative therapies
- Local businesses or professional / specialist services – eg solicitors
- Done for you services eg paid traffic specialist
- Training workshops or events
- Productised services, such as an assessment, social media or content service.
- “Servitised” (made up word) products eg digital training enhanced with access such as 1-1 laser coaching
Selling access to your “know-how” – subscription sales or limited continuity
- Coaching / mentoring / therapy fixed term or evergreen programs (1-1 or intimate group)
- Membership programs or communities with training content and a promise of access to get specific questions answered.
- Long tail, (aka deeply niched) – serving a specific group (eg abuse survivors, transgender people) in significant depth
Systematised Intellectual Property – Scale Models
- Licensing, using branded IP created by others as part of your offer – eg Myers Briggs Type Indicator
- Franchising – allowing your brand, marketing, selling and delivery system to be operated by other business owners (various payment arrangements)
CONDUIT MODELS: Selling Others Product / Content / Solutions
Market and Sell for Others
- Affiliate Income: Typically this person has built a topic based audience or community and have a trust relationship with their audience. This enables them to introduce their audience to relevant offers produced by others and keep a share of the revenue if their audience buys. Often one time sale can sometimes be a subscription revenue
- Review sites: set up a platform to enable comparisons or reviews and create affiliate relationships – eg iSelect
Sell / Orchestrate Solutions
- Middleman / Agency Model: Act as a co-ordinator of services supplied white label by specialist providers
Platform Models:
- 2 Sided Models / Media Models – require 2 value propositions, one for users (“eyeballs”) and one for advertisers. These are common for entertainment, media, content creation, social media, services (all pricing models; often one time sales, some limited continuity and subscription)
- Connector Models: Platforms that connect users:
- dating (eg e-harmony) or
- sharing marketplaces (air bnb / uber)
- classifieds / business directories / listings– (eg white pages)
- crowdfunding (eg kickstarter)
- Some one time sales, weighted to subscription
Choosing Your Model
Can be an interative process.
Where you want to play on the producer / conduit continuum must be understood.
Then, use the resources you bring to the table. You have to be realistic about the likelihood of success.
Some business models are very attractive when pitched, but are more advanced, have pre-requisites, require a large investment.
For example, setting up a social media platform would require potentially a number of years as a loss leader before you had an audience attractive to advertisers.
Software as a service, though very appealing for its leverage and subscription income, is low barrier and a difficult model for those with lower technical abilities, and also needs critical mass and investment support through the early stages.
Similarly, a lot of people love the idea of a subscription based membership community, but it wouldn’t succeed without:
a) significant assets in the form of teaching content
b) critical mass with highly engaged starting members and
c) a well nurtured audience to pitch to and
d) perceived authority as a teacher or leader
To set yourself up for success and choose revenue models from a place of strength (revisit the Considerations section) and start where you are and build towards more advanced models.
Pricing
Pricing is a difficult beast, the first rule is always to offer products and services that have high perceived value.
In established markets and widely available physical products your price parameters (high to low) may be fairly restrictive. If goods are perceived to be of equal value, the lowest price will “win”. (This is why Branding is so valuable, because the perception of Brand quality creates a premium price)
In emerging markets if you build authority as a solution provider, you have more dominion over your price.
To charge a higher price you have to understand what gives things a higher perceived value:
- Currency / Freshness
- Brand Quality
- Ease or Acceleration – Relieving a Pain
- Scarcity or Uniqueness vs Wide Availability
- Access and Customisation, getting your problems addressed by an expert.
- Uses (for eg ability to earn money directly from learning something)