There are a lot of different ways to charge customers it's important to choose an effective strategy and to test it with customers
We'll walk through some of the options to think about in this video
Hi
I'm Steve Morris and I use this Startup SOS channel to provide practical how-to advice for first-time entrepreneurs topic today
Revenue streams and the hypotheses that you have to document in your business model canvas so that you can test them
so we're walking through the different sections of the canvas and
We're tackling in this video the last section on the right side the sort of the customer slash revenue focused side of the canvas on
revenue streams
So the questions to ask when you think about revenue streams are how will you charge?
Who will you charge how will you decide on the price and then of course?
What is your price for?
Very important questions to think about we'll walk through them one by one
So first of all, how will you charge?
well three basic approaches to charging you could do a
One-time fee or you can do some kind of a recurring fee now beyond the charge for the product itself
there's always a customer support to think about you may have a support contract which would be probably a
Recurring fee over time. So those were the categories of of charging. Let's walk through some actual approaches
Well the most obvious one
Perhaps is the asset sale. You're selling a physical product
Or maybe it's some kind of a usage fee
In other words depending on how much the customer uses the product they pay more or less
think in terms of your cell phone bill the more minutes you use the more you pay or a
Subscription service very common model for a lot of software products or there's the renting and leasing model
there's a licensing model where you sell a
license to a user that may involve an upfront fee as well as a recurring fee or
Just an upfront fee or just a recurring fee. Lots of options
there's a brokerage fee where you charge some kind of a fee or a
commission that for transactions to the customer and of course selling advertising is an another approach for
Charging the customer. The other question is
Who will you charge in a multi-sided market?
Sometimes there are some choices to be made, you know, for example consider the freemium model where a lot probably the majority of your users
Aren't paying anything at all
But a minority of users pay for an upgrade to some premium tech capabilities
Okay, that's sort of a two-sided market you have for users and users who are willing to pay
You can also have other types of multi-sided markets where you have users, you know versus say advertisers consider
for example
Your typical social media company where you have users who pay nothing versus advertisers who pay for advertising?
So again, it's a multi-sided market. You know, the question is in your market
Who should you charge? Is it a multi-sided market where you need to think through?
Actually, what's the right customer strategy in terms of who pays next question?
how will you price there's of course fixed pricing approaches and then there are
Dynamic pricing approaches. Let's walk through some examples on the fixed pricing approach
Of course you could have just a standard list price for the product
here's what it is or maybe your product has a lot of options now consider like configuring a
Laptop where you have more memory more disk space faster processor. So it's more of a feature based pricing
You sort of configure your solution and add up the price
There's customer segment pricing you could have different prices for different customer segments
you know think in terms of on Airlines first class versus coach
Yeah, they're getting a little bit different service more amenities in first class versus coach on the other hand
They're basically getting flown from point A to point B, and the overall cost involved
isn't that much different but they all
Certainly pay a very different price and then of course, there's a volume pricing
You may be in a situation
where especially in a b2b market you can sell larger volumes to cut some customers and that can drive down your
Costs make you more efficient. So you may offer
Lower per unit prices to customers that buy in volume, then there are different approaches to dynamic pricing
Pricing might be negotiation based now
You probably still need some guidelines so that you're not going to sell too much product below what it costs you, but still
You know negotiation is one approach time and availability is a different approach think hotels
You know when you get up to the last minute and you have hotel rooms available
You might want to lower the price and try to get those sold because it's good to have some revenue
versus knowing another one would be real time supply and demand based pricing for example some electricity markets in the US where when
Electricity is in high demand. The price goes up and
When it's in low demand the price is lower and then of course there's an auction
Approach to pricing. So a lot of different ways to have a more dynamic approach to pricing your product
So a lot of things to think about how will you charge who will you charge?
How will you determine the price the approach and then what is your actual price?
We haven't tackled that one yet. Lots of things to think about it
So how do you decide the answers to all of those questions?
Well, first of all
it's good to understand how customers want to pay when you're choosing an
Approach to how you're going to charge customers you clearly want to use an approach that makes sense
To customers that's acceptable to customers you want to think about your competitive differentiation?
What exactly is the competition's?
Pricing how do you compare to the competition? Frankly?
If you're delivering more value, you might not want to underprice the competition your price might be higher
But you certainly need to think about the competition and your competitive strategy your overall
Positioning strategy is important to think about are you positioning as a premium product or as a low-cost product?
Obviously that can affect your your thinking on pricing
Your cost structure clearly is important your price needs to be set at a price that will cover your costs and deliver
hopefully some profit so cost is important to look at and then perceived value how much are
Customers willing to pay what price makes sense to them wants to understand the value you're delivering now
That's a conversation in and of itself
We'll put off to another video but there are some ways to figure out what people are willing to pay
Asking them how much they're willing to pay generally is not one of the better approaches, but we'll tackle that one. Later
So that's our discussion of revenue streams
Your action plan fill out your revenue stream section to the canvas how we charge who you charge?
How will you price and what is the price that you believe is the right price again? These are all
Hypotheses that you're going to go check when you talk to customers. That's our discussion of revenue streams
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Coming out and remember. This is one of a series of videos
We're walking through every section of the canvas and there's a link to the entire playlist right below me
so please check that out and
Thank you very much for watching