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What Is a Revenue Model?
Being a part of a
business model, a revenue model is the business
plan for an enterprise to make money. There are many different types of
revenue models. Actually, every innovative company invents its own unique
revenue model.
Case in Point
Xerox
Corporation
Xerox Corporation's early days in the copy
machine business with its Xerox Model 914 copier illustrate the importance
of the business model and innovative
revenue model.3
The Model 914 used the relatively new
electrophotography process, which is a dry process that avoids the use of
wet chemicals. In seeking potential marketing partners, the company
repeatedly was turned down by the likes of Kodak, GE, and IBM, who had
concluded that there was no future in the technology as seen through the
lens of the then-prevalent business model. While the technology was superior
to earlier copy methods, the cost of the machine was six to seven times more
expensive than alternative technologies. The model of selling the equipment
below cost and making up the difference by large margins in the sale of
supplies was not viable because the cost of the supplies was about the same
as that of the alternatives, so there was little room to maneuver.
Xerox then decided to market the new product
itself and developed a new business model to do so. The new model leased the
equipment to the customer at a relatively low cost and then charged a per
copy fee for copies in excess of 2000 copies per month. At that time, the
average business copier produced an average of only 15-20 copies per day.
For this model to be profitable to Xerox, the use of copies would have to
increase substantially.
Fortunately for Xerox, the quality and the
convenience of the new copy technology proved itself and companies began to
make thousands of copies per day. As a result, Xerox sustained a compound
annual growth rate of 41% over a 12 year period. Without this business
model, Xerox might not have been successful in commercializing the
innovation.
Revenue Models for an Internet Business
Below are different revenue models which can be
implemented on the Internet.
-
Selling Your Products / Services.
Providing a
value-added
and
differentiated
product or service is one of the most traditional and successful revenue
models.
-
Premium Subscriptions. Charging a
subscription fee for delivery provides a predictable income. It can take
the form of a premium members only community, a premium email
list, website with access to content, tutorials, support, and more.
-
Affiliate Marketing. Affiliate
marketing is selling the products or services of another company and
taking a commission on the sale.
-
Contextual Advertising. The ads are
served through a third party and are matched based on the content of
your website or web page in which the advertisement appears. This
revenue model requires little work. Your just add and modify a code of
an existing web page. A third party will do all of the selling, billing
and fulfillment for you.
-
Direct Advertising. This is the most
traditional method which involves selling ad space directly to
businesses on a monthly, impression based, or other direct agreement.
Many of these popular revenue models can be
combined or varied.
Experiment
with all or some of them to develop your own unique winning combination.
Value Proposition
Yin-Yang of Value Innovation
Your company should deliver a particular
customer value proposition to a definable market in order to exist. Value
proposition is a description of the customer problem, the solution that
addresses the problem, and the value of this solution from the customer's
perspective...
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Effective Pricing
The best price is always the one that provides
you with the most long-term profits. Price in terms of value rather than
cost. Cost-plus pricing is worst choice. When you start pricing more
intelligently, you will have a real advantage over most of your competitors...
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Create Sustainable Profit
Growth
3 Strategies of Market Leaders
To create a sustainable revenue stream and
profit growth, keep asking the following nine questions...
More
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