well in this video we're going to be
talking about revenue models and so what
we're going to be covering really first
and foremost is what is a revenue model
and then we're going to talk about some
of the different types of revenue models
now some might make sense in might apply
to your business and others might not
but ultimately we're looking at other or
different opportunities for us to be
able to generate revenue and profit for
our business so to start things out
we're going to keep things fairly simple
and we're first going to talk through
well really what is this concept that we
call revenue and I apologize if this is
fairly basic for you feel free and
fast-forward a little bit to get to kind
of the revenue model piece so revenue
basically is simply just income
generated from the sale of goods and
services so if we are producing a
physical good or we offer some type of
service the money that we bring in as a
result of a transaction that takes place
between the buyer which would be the
customer and the seller would be us
would constitute revenue so if you have
a coffee shop and you sell cups of
coffee and lattes the revenue is the
revenue you generate from that
particular exchange when the consumer
purchases the cup of coffee if you are a
software company and you offer a service
on a platform based upon subscriptions
then your revenue is basically the total
dollar amount of the monthly
subscriptions from paying customers so
that we call revenue now when we talk
about a revenue model
what we're actually referring to is
essentially a component of our business
model so we'll talk about business
models in future weeks but it's a
component of our business model that
actually explains how we're going to
earn revenue so while revenue is the
actual money itself that's generated the
revenue model explains ultimately based
upon the goods and services that we
offer how are we going to
revenue and this is a pretty important
question to to address right because
ultimately we know that a business is
not going to be successful if we don't
have a way of bringing in revenue to
support the operations of our business
so we can have the best of intentions
and trying to help people and make the
world a better place but if our plans
are to operate a for-profit business and
that's the structure that we choose we
ultimately need a way to actually
capture that value for ourselves because
ultimately we can't do any good if we
can't pay for our basic operating
expenses right we can't pay for rent and
pay to market and pay really talented
people to come and work for us and to
pay for utilities and equipment and all
those other types of things so we need
to have a way of bringing in revenue to
support those particular functions right
now if you are a non-profit entity this
whole discussion is essentially not
necessarily valuable simply because
we're gonna rely on funding and those
types of things but we're talking about
for-profit businesses and for-profit
businesses need to have some kind of
reliable source of revenue so they can
cover all the expenses so as we kind of
talk through some of these different
revenue models there's a couple of
things that you might want to have in
the back of your mind questions you
might want to have as you're trying to
decipher which of these revenue models
makes the most sense for your business
now on top of that what I'm gonna add
here is these revenue models are not
mutually exclusive and so you'll see
plenty of examples of larger
corporations that have multiple
different revenue streams which is by
design right they're trying to reduce
their reliance on one particular revenue
stream and ultimately increase the total
revenue of the business having a lot of
revenue streams really helps with that
obviously as you're starting out though
you really don't want to have a ton of
revenue streams because that is a lot of
work to maintain and there's a lot of
infrastructure needed to support all of
these other revenue streams it's
something that we diversify into as we
continue to grow and as we look for
other opportunities for expansion so a
couple things to keep in mind one how
much are customers willing to pay it's a
very important question
doesn't necessarily dictate the revenue
model but as you're thinking about
revenue models you might want to think
about well how much can I capture via
this revenue model on a per transaction
basis is that enough to support my
business how many customers do I need to
support the revenue model and the
subsequent fixed costs and operating
expenses that I would incur in order to
support that model and then ultimately
how much does this revenue model
contribute to my total revenue and
that's only if you're going to be
launching with several different revenue
streams so with that in mind and those
questions kind of in the back of your
mind we're going to go through and we're
gonna talk about some of the different
revenue models now some of these will be
really really simple others will be a
little bit more complicated but you'll
kind of get the ins and outs of them so
the first and probably the simplest of
all is what we call unit sale which is
sometimes referred to as asset sale if
you ever read business model generation
which is a fantastic book that goes into
the different components of a business
model that we talk about a little bit
later in the course the yeah they use
the asset sale terminology but unit cell
is essentially the same thing so with
the unit sale or asset sale revenue
model we're actually generating revenue
based upon the number of units sold now
you might be thinking that doesn't
really differentiate this from anything
else well let me add a couple of pieces
of information typically in a unit sale
model it's most common when we're
selling a particular item and the
consumer takes ownership over the item
so if you were to think about the cup of
coffee that we talked about before
selling a cup of coffee is a unit sale
model because you've got two parties
right we've got the the buyer and then
we also have the seller and there's a
transaction that takes place and so the
buyer will pay some kind of cash or
money and then the seller provides the
good which in this case is coffee
and so this is a unit sale model because
there's a transfer of ownership that
actually takes place right now the
seller is in possession of the money and
the buyer is in possession of the good
or the service now it doesn't
necessarily need to be a physical good
right if you were to sell like Apple way
way back when they used to kind of sell
music and now a lot of their revenue is
derived from just licensing with Apple
music and subscriptions and those types
of things but if you were to purchase a
song and you can't see me but I'm using
kind of the air quotes with purchase you
essentially acquire an actual digital
license to that particular music and so
it's it's now frankly in your possession
now you have certain restrictions on
that but ultimately you are now in
ownership of that particular license so
it can be digital products as well if
you were to purchase a digital download
that is a unit sale because you're
acquiring ownership of that although you
have some restrictions so this is
probably the most common revenue model
it's very simple it's been around
forever
and it's one that's it's pretty
tried-and-true and it's something to
definitely take a look at now another
revenue model that's been around for
some time is called the advertising
revenue model and the advertising
revenue model you're probably familiar
with it ultimately we're gaining revenue
by advertising goods and services now
this one here looks a little bit
different as far as how we set it up and
there are certain types of businesses
that tend to rely more heavily on this
advertising model and you'll kind of
understand the reasons why as we kind of
go through this so thinking about kind
of our buyer and seller sort of model
here with advertising we are kind of in
the middle of of a couple of different
parties and so let's say that this is us
right here and then we have an
advertiser so this would be someone who
has a particular ad that they want to
show and they want to reach people and
then here we have
we can call them a potential buyer let's
say so we're in the middle here and so
ultimately our goal is to attract as
much of these potential buyers as
possible so that we can then sell access
to them to an advertiser and ultimately
our ability to attract a lot of viewers
is kind of correlated to our ability to
gain a lot of advertising revenue so the
most common types of businesses that we
see use an advertising type model tend
to be newspapers especially with digital
content where newspapers provide access
and to information and try to get a lot
of viewers and then in turn take that
viewership and of course monetize it via
advertising you see this happened with
television networks that buy the rights
to certain programming and then try to
get a lot of viewership and then sell
access to that viewership with ads so
this revenue model is directly tied to
the number of viewers which is why it's
really difficult to get any kind of
traction if you don't have a lot of
viewers so this isn't one that I really
recommend that you launch with so if
you're thinking about let's say starting
a blog and you're gonna advertise it
you're gonna link with Google Ads and
you're gonna show kind of PPC
advertisements in the sidebars in
different places you might make some
money but it's really hard to get it to
get a lot of it if you don't have a lot
of viewers right and that's why with a
lot of companies that go this route
their focus is on viewership and content
creation and trying to get a critical
mass of people and then monetizing that
later on with advertising if that's what
they want to go with but to start out
it's really tough because it doesn't
really provide a reliable stream of
revenue and you really need that revenue
stream to be able to build up cash to
help support paying for your cost and be
able to grow your actual business the
next revenue model we're going to
explore is what we call the data revenue
model now this revenue model is
typically common with social media
companies and the way that
works it's very similar to an
advertising model the only difference
here is that we're dealing with with
data instead of showing ads although
you'll see a lot of social media
companies that do a multitude of them so
ultimately what we're gonna do is we're
gonna generate revenue by selling
preferably high-quality or exclusive or
valuable information and if you think
about this this is really the revenue
model for a lot of social media
companies like Facebook and others they
give away typically how they do this is
they use kind of a variation of freemium
so there's a there's a free item right
free product free service in this case
for Facebook it's the ability to use
Facebook and Instagram and so that in
turn right you get a lot of people that
are viewers let's say and want to use
the free services and then what Facebook
and then go ahead and do is it can do a
couple things one it's able to utilize
this revenue model this advertising
revenue model here which it certainly
does and use you're scrolling through
your feed you'll see advertisements and
that's a way that Facebook earns money
because it charges those businesses to
sponsor those posts or to run those
advertisements but then it can also do
is it also take that information that
you willingly provide based upon you
know navigating the website interacting
with certain posts by providing
information about yourself and then I
can take that information and then I can
try to sell that to some kind of third
party if it chooses to do so and if you
read through a lot of the agreements
which no one does because they're
incredibly long a lot of them include
some verbage of that that they can
provide access to the data and that's
kind of the cost of the platform right
we think the service is free because
it's easy to get we just register and
answer a couple of questions but the
service really isn't free because it
gives Facebook access to lie this data
which allows them to in turn gain
revenue through advertising but also
allows them to sell access to
information to third parties and those
other types the next revenue model we're
going to talk about is the inter
mediation revenue model this one sounds
a little intimidating but it's really
not all that intimidating the way that I
want you to think about intermediating
is ultimately based upon generating
revenue by let's say facilitating an
exchange so in this case we've got two
parties right we've got a buyer and a
seller so we've got buyer here and then
we've got a seller here and the business
their job is to facilitate this exchange
that takes place between the buyer or
the seller they don't really take
ownership of everything they really just
provide the ability for a transaction to
happen so a common example of an
intermediation model would be like a
real estate broker if you purchase a
home the realtor we're kind of act as
this intermediary here and we'll help
facilitate the transaction between the
buyer and the seller that help with
paperwork to help you go look at
different homes and kind of filter down
a list based upon some of the important
criteria for you and then they'll help
you with the offer and doing the
negotiation side of things and then
ultimately at the conclusion they'll
help process all the paperwork and all
those sorts of things as well that would
be an example of intermediation we've
also seen through technology companies a
way to provide intermediating much
faster and to do it at scale right
because if you're a realtor obviously
it's time consuming to facilitate one
transaction so with technology we can
remove kind of the human element and we
can allow the transaction to take place
without really any human involvement and
so if you think about platforms such as
uber and lyft and Airbnb they very much
so run on this intermediation model
because they're allowing you to an uber
case engage in a transaction with a
driver and uber doesn't own any of the
cars and uber doesn't you know employ
really any of the drivers they merely
provide a platform that allows the
buyers and sellers to connect so
intermediation is very
much so kind of based upon the
facilitating that exchange and so if you
were running an intermediate model your
goal would be to try to get as many
buyers and sellers here so that
ultimately you can facilitate a lot of
transactions and it makes it really
valuable for everyone because if your
uber and you have a bunch of buyers so
but people that want to get rides to
places but you don't have these sellers
here the drivers then it really doesn't
the platform doesn't work right you need
a critical mass of both people so you
have to creatively look at ways to be
able to increase the number of buyers
and sellers so that ultimately the Trant
the platform itself is much more
reliable another revenue model that's
still been around for quite some time
that works really well is what we call a
licensing model and I'm gonna go over
licensing as well as kind of franchising
at the same time and you're gonna see
why so in a licensing model we're
generating revenue by giving somebody
access to kind of like our intellectual
property and so we're giving people the
right to use our IP so if you think
about if you have a patent for something
which essentially gives you the
exclusive ability to produce a
particular product right or a product
that has a certain design or a certain
function or does something in a certain
way or if you've created a brand and
people recognize that brand and want to
put it on t-shirts and different
merchandise and things like that you can
essentially license the ability to do
that or if you create a board game and
you've created all the instructions and
the pieces and all those sorts of things
and you don't want to produce it
yourself
instead you can sell access to the game
in this case your intellectual property
to someone else like a board game maker
and they can pay you a royalty based
upon how many they're produce this is
also really common in music where
artists create songs and they license
them to some of the popular platforms
like Apple music and Spotify and others
and they get royalties via licensing
so every listen to a song an artist gets
like a fraction of a cent as a result of
that so it's not anything individually
but can add up pretty quickly as well so
you're really just creating something
and giving permission to be able to use
that and that helps generate revenue now
this is very similar to franchising and
kind of why I go over them in the same
vein the only difference here is under
franchising you're giving someone not
only access to IP but also kind of
operating procedures on how to run the
business so you're essentially giving
someone a playbook so this works one of
two ways if you are the person that is
franchising you'll operate let's say a
fast casual restaurant and you've
operated one for a period of time and
you get really good at it and so you
start to codify or write down all your
procedures and then you want to get
approval to franchise so that somebody
else can pay you money to operate that
business so not only do they get access
to your IP but they get access to just
your way of doing things right so every
single process that you've created so
the benefit for you is it allows you to
scale and grow faster by reducing your
risk since somebody else is actually
running the business and making the
investment and the benefit for the
person that is actually acquiring the
franchise or at least getting an
agreement to do the franchisee is
they've got a tried-and-true way of
operating a business that somebody else
is already vetted right so instead of me
as the entrepreneur trying to figure out
product market fit and then fine tune
everything I'm getting something that is
very plug-and-play so I can use it
immediately instead of trying to test
the market and trying to make sure that
there's a need and then trying to
develop a solution for that particular
need as well and the last revenue model
we're going to talk about in this video
is the subscription revenue model now
the subscription revenue model has been
around for quite some time and is
actually probably one of the more
popular revenue models today with a lot
of different services that we see now
kind of going subscription-based so the
basic concept of this is we are going to
generate revenue by charging customers
for let's say access to a product or
service
so notice subscription and asset or unit
sale or asset sale are actually pretty
similar if you think about them and
there's kind of a Genesis if you will on
where unit sale has kind of moved more
sort towards the subscription type model
under the subscription revenue first off
these go hand in hand so that's part of
the interesting thing is you can take
the same product or service and you can
find a way to generate revenue from it
differently so in a unit sale let's take
music for example you could create
physical CDs right we don't really use
them a great deal anymore but it was
popular at a time not too long ago where
you would buy a physical compact disc
and you would put it into a player and
then you would listen to that song and
now we kind of use subscriptions a
little bit more heavily so instead of
purchasing the actual CD we now just pay
a fee let's say anywhere from 10 to 15
dollars a month and we get access to
everything now ultimately we are paying
for only access now access is different
than ownership if we purchase a CD going
with this unit sale model here we have
ownership under subscriptions we have
access so when we stop paying for
something so like when we cancel our
Netflix subscription we don't own any of
those movies we don't own any of the
shows so we no longer have the ability
to access them and so that's very
different businesses are liking the
subscription model because instead of
just charging you a one-time fee for a
song or for software what if I charged
you a subscription and now I have a
recurring revenue stream that I can
count on so it's very predictable and it
creates a lot more value for me long
term as long as I maintain it and add
features and fixed bugs and do those
sorts of things to get you to continue
to use it and if your continue to have
be happy with it then you're gonna pay
me a subscription all the time which is
very very wonderful because one of the
most difficult things are running a
business is you have a hard time
predicting revenue but under
subscription
model someone who's paid you the prior
month is probably gonna pay you the next
month in the following month assuming
that you're continuing to put out good
content and provide access to the
service that people want so now that
you've kind of had a little bit or some
familiarity with some of the different
types of revenue models here and there
are certainly more but these are
probably some of the more common ones I
would encourage you to take the product
or service that you have and I would
just go through each of these revenue
models and try to ask yourself how you
would utilize that revenue model so some
might be pretty easy right so if you're
opening up a coffee shop you can say
well if it's a unit sale I'm just gonna
sell cups of coffee that's pretty easy
if it's advertising though which is
probably not a good thing right just so
we're on the same page but if you wanted
to let's say well we could give out free
cups of coffee and then we would get a
lot of people that would come because
people like free stuff and then I can go
to other businesses and say hey I've got
like a thousand customers that come in
every you know day would you like to
reach those people and how much would
you pay so that doesn't mean it's a good
way of getting revenue right advertising
is probably not a good way of Jayne
gaining revenue in that example but what
you're doing is you're kind of allowing
yourself to envision different revenue
streams for your business and although
it might not make sense at the beginning
what you can often find as you might
identify a secondary or even tertiary
revenue stream that maybe not now but
later on and appear after a period of
time it makes sense for you to explore
so I would encourage you to kind of
engage in that exercise of trying to
think about different ways of making
money off of your idea oftentimes you
end up at the same spot with the
original revenue model but you might
surprise yourself and you might find
that there is another way of gaining
revenue that actually might make a
little bit more sense for you and make
sense for your business model
you