Modelling Product & Business

Revenue

There Are many Different Ways To Make Money

Revenue and pricing models describe how a business generates revenue streams from its products and services. It is one of the key components of the business model. Existing businesses interested in expanding to new areas or adjusting to a new generation of competitors should carefully consider their revenue models. A strong revenue model is also most important for early stage startups; their investors are usually very conscious of monetization.

Pricing is one of the core components of every business model, but although it generally seems easy to understand, it is often one of the one of the most challenging. People often think it is easy because we all buy products that have prices, and many believe all you have to do is sell the product for more than it costs you to earn a profit. However, setting prices in a vacuum with too much or too little emphasis on costs, sales channels, or misunderstood consumer perceptions can cause you to lose valuable time getting traction.

You can make the same profit selling 1 widget for $100 as you can selling 100 widgets for $1 each. But they are very different widgets, brands, and business models.

As accountants will tell you, determining the real cost is not trivial. More importantly, deciding on the price is so much more difficult because, in addition to the physical factors of cost and profit, price is subject to psychological factors, some of which are out of your company’s control. The best companies work diligently to gain control over the psychological factors through branding. Of course, to get the branding right, companies have to know how to develop the right underlying corporate image and positioning strategies.

In an ideal world, you would have no or little competition for a product that is difficult to emulate. This would enable you to employ the most powerful and effective of all pricing strategies – What The Market Will Bear.

I am not an Accountant or Financial Advisor. I am a business, product, and marketing specialist who can help you model and understand the impact of different pricing models and structures.

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