Sharpening your revenue model

Now when we have entered more uncertain times we know that customers will be more risk conscious and super careful on how they spend their budgets. When revisiting or innovating your business model, one area that really can help you make a big difference is the revenue model.

Business model vs revenue model

The difference between the models is that the business model describes how a company generates value. The revenue model describes how a company generates revenue from the value it has generated for customers. By tweaking existing model, combining different models or introduce a new one, can be effective in creating differentiation from competitors, ease up buying resistance, create loyalty, minimize risk etc.

A classic example is how the software industry went from licenses to a subscription model which have revolutionize the whole business, changing their customers focus from capex to opex. Though one can now see that the pendulum is swinging back when some SAAS companies is offering a one-off-fee for the service instead of a reoccurring one. Another example is how some consulting services and business process outsourcing services has changed from a time and material or a fixed price model to a model based on customers actual cost savings or revenue growth.

Revenue Model Innovation

For adjusting or developing a new revenue model it all comes down to two basic areas; market knowledge and product knowledge.

Market knowledge

Where are your customers? How are they accessible to you? What are their financial preferences today? Who are the competitors and their revenue models? Where is the baseline value for equivalent products to yours in the market? Examine your products value propositions honestly. Not only will a frank assessment of your product’s value save you from mistakes in pricing, but it will also show you how to capitalize on its value and where your developmental compass should be pointed. It’s all come down to make buying as easy as possible for your customers, differentiate your model from you competitors and at the same time make sure that you will receive a revenue that is reflecting you products customer value.

Product knowledge

Sometimes the nature of a product dictates the best revenue model for it by itself, and sometimes not. Again, evaluate your product’s performance honestly. How does your product perform compared with its competitors? How wide is your feature array (whether it’s a service or a product) compared with the competition? An awareness of your product enables you to choose a revenue model that hits the value/willingness-to-pay sweet spot.

Create an innovative climate

When we talk about money we are also talking about risk, which makes it so much easier to go with an existing model, the one we know so well. Trying new stuff is scary, especially if it has a major economic impact. But, forming a revenue model should be an activity done with an innovative mindset. Creating the short list of new possible models, modification of the old one or a combination of different models should be done with a total open mind. Save the risk calculations and implementation challenges for a later step.

Business Model Pattern Cards by BMI Labs

Imagine your business in a complete different business pattern

Good tools for helping you to innovate is the BMI Lab tools (https://businessmodelnavigator.com/explore). They have developed a set of tools based on their research within business model innovation. One interesting tool is their Business Model Pattern Cards. The cards contain about 60 different business model patterns with a brief description, illustration and some examples of companies that successfully applied the pattern. A lot of these cards also gives you a hint what kind of revenue model is applicable. These cards can help you to imagine how your business would function with other business- and revenue models. After creating a short-list of new possible models comes the reality check. Number crunching, risk assessment, revenue recognition (so the administrative burden is acceptable) and so forth.

Business Model Navigator

Usually you adjust the revenue model in conjunction when you are innovating your products business model. You can therefore use approaches designed for business model innovation, for a step-by-step guide. One example is The St. Gallen Business Model Navigator (https://businessmodelnavigator.com/). The site has a rich set of resources that will help you to succeed with your business innovation.

I hope you found the article somewhat interesting and I look forward to your feedback and comments on how you sharpen your revenue models to boozt your business.