Unit V: REVENUE MODELS

AND FINANCING
INTRODUCTION
Most entrepreneurs create and plan their business
model so that they would know how they will operate
and offer value in the marketplace. Undeniably, the
business model is very essential for any business.
However, equally important to design is the revenue
model because it is needed to determine the
feasibility of any startup. Revenue model is
significant also for the long-term projections of a
business. An important factor also to consider is
finding financing not just for startups, but also for
business expansion. It is essentially difficult to
secure funds during tough times, hence financing is
a risky decision.
WHAT IS A REVENUE MODEL?
A revenue model is a conceptual structure that
explains how a business generates money. It
includes where the revenue comes from and the
resources needed for every aspect of the revenue
generation strategy of the business. Sources of
revenue can be in the form of commission, markup,
rent, bids and other types of Payments. Part of the
revenue model also are the techniques use to
generate revenue and the target consumers of the
product and/or service being offered. It is one of
the important elements of the business model.
WHAT IS A REVENUE MODEL?
A revenue model provides a synopsis of the
present and future opportunities to earn profit. It
is necessary for a startup to identify its revenue
model, since it vital for the long-term projections
of a company. It is also for a start up to have a
strong revenue model because investors are
always mindful on how the business will earn. For
an existing business that is interested to expand
in new fields or wanted to Feat competition
considering a review of its revenue model is quite
basic.
DIFFERENT TYPES OF
REVENUE MODELS
 With the introduction of the
Internet, there are numerous
revenue models both online or
offline types which startups may
use. Here are some of the most
common and effective revenue
models employed by companies,
both big and small.
Commercial and Retail
In this revenue model physical products are sold in
the market either through business to business (B2B)
or business to consumer (B2C). Retail sales entails
setting up a traditional department store or retail
store that offers physical goods to customers.
Retailers require shelf space at existing stores for a
fee. Retailing is best suited for products that require
logistics to reach customers. Today, digital products
are also being traded in the marketplace.
Commercial and Retail
1. Selling physical goods
2.Selling digital products
3.A service sold per unit
4.A service with fixed price
5.Sale of services for future use
6.Daily deals /flash sales
 1. Selling physical goods
Traditionally this is the retail world that
consists of high-street stores and malls.
However, when Amazon came in the 90s,
the E-commerce which offered less price
became popular. Selling over the Internet
presented less real estate costs.
2. Selling digital products
Nowadays, there are numerous digital
goods that could just be downloaded and
be consumed immediately. They usually
do not have production or inventory costs
or even limitations when it comes to
quantity. Digital products could be in the
form of songs, e-books, games and apps
for electronic gadgets
3. A service sold per unit
This model considers the work-hour
applied by lawyers, accountants,
consultants and website developers
among others. Other common units
include distance of Grab taxis, weight of
parcel shipment companies and
bandwidth of internet service providers.
This model is also being applied by
platforms such as Get a Freelancer,
Upwork and Elance.
4. A service with fixed price
A service with fixed price - Here the service
being offered has a fixed amount. In the
salon and barber shop, the services have its
set amount such as haircut styling, coloring
as well as manicure and pedicure. In the
digital marketplace, Fiverr, each small
service is priced at $5 per hour like
translation, editing and marketing.
5. Sale of services for future use
Phones that make use of prepaid
payments or the use of credit cards
for future travels are good examples
for this revenue model.
6. Daily deals /flash sales
Consumers are given the chance to
buy items at a steep discount. Here,
suppliers sell big quantities via a
coupon company (Groupon
Philippines is an example) which
allow a decrease in marketing, sales
and inventory costs.
Subscription and
Usage Fees
 This category entails offering
customers a specific product
service that customers can pay for
over a longer period of time, usually
month to month, or even year to
year.
Here are the revenue models under
this category:
1. Subscriptions
2.Usage fees
3.Rental
1. Subscriptions - This model provides
a specified service for a pre-determined
periodic charge. Users are charged a
recurrent fee (monthly or annual) for
using their services. Annual subscription
fee is charged on a monthly basis by
magazines and newspapers in exchange
to deliver a new issue every month for 12
months. These days, Netflix, Spotify,
YouTube and LivePlan used this model in
the software, online movies and mobile
carriers.
2. Usage fees - Utilities such as
Meralco for electricity, Manila
Waters and Maynilad for water and
Converge for providing Internet
are good examples of companies
using this revenue model. Mobile
phone carriers also use this model
to charge for minutes of outbound
calls and quantities of SMS text
messages.
3. Rental - Rental as a
revenue model commonly
makes use of a physical asset.
The income comes from
periodic basis such as monthly
or annual rental. This could
also involve one-time payment
called lease for temporary use
of the asset such as land or
building for instance.
Auctions and Bids
Commonly auction happens
when a seller offers an item or
items for sale and expects the
highest price. In a specific
place, the products are
exhibited and Participants try to
outbid one another by placing
higher bids. The product is
awarded to the highest bidder
at the end of the auction.
1.Auctions - The traditional auction industry is being
used by furniture, antiques, painting and vintage
cars. eBay however has changed the industry in the
90s.
2. Dynamic pricing - In dynamic pricing,
businesses set flexible prices for products or
services based on current market demands.
A few marketing sectors like the travel,
hospitality, entertainment, electricity and
public transport retails widely practice
dynamic pricing. The airline industry change
prices based on the viability of the seats,
number of seats, type of the seats and also
the length of time before which the flight
departs. Therefore, a seat in flight can have
several prices based on demand.
Advertising
Advertising as a revenue model makes money by
charging the advertiser per size of the space offered in
print, the length of the video in television or the
duration of the commercial in radio. Today,
advertisements have become more complex and
creative. With the Internet, pay-per-views and pay for
clicks have been added to the list revenue models.
1. Advertisements - Some time ago, advertisements
appeared simply in traditional media such as
newspapers, magazines, billboards, television and
radio. Today, advertising also embraces the Internet
and expands on apps and mobile platforms.
Facebook, Twitter, Instagram, and WhatsApp as
social media sites together with Search Engine sites
that include Google, YouTube, and Pinterest obtain
the bulk of their money using an advertising revenue
model.
2. Promoted content - Known also as
sponsored or suggested content,
promoted content is almost like a
regular user content. Some users
consider it as more credible
compared to other forms of
advertisements. Others are
unmindful that someone paid to
promote the content. Facebook,
Twitter and social networks that
make use of this model.
3. Sponsorships - Sponsorship is
basically a fixed promotion. It can
involve placing a logo on a website
or on the jerseys of a popular sports
team. Sponsorships are regularly
traded on the audience size.
Companies may sponsor, for
instance, sports events, conventions,
websites, and Technology,
Entertainment, Design (TED) talks.
PRICING STRATEGIES
Price is a significant element of the marketing
mix. This is the company’s complete source
of earning. It does not only include the cost of
production but the profit margin as well. The
three most essential influencers of pricing are
cost, consumer demand and competition.
The company must have a concrete and
explicit pricing strategy to be adopted once it
offers a product and/or service. Setting the
right is important for a product and/or service
maximizes an entrepreneur’s profit at the
same time maintaining a good customer
relationship.
CALCULATING PRICE
Pricing is one of the most essential
aspects of a market strategy, that
includes promotion, distribution and
people. The consideration of pricing is
based on the target customers. The
objective of pricing is to encourage
customers to buy the product and/or
service being offered. This is also the
reason why an entrepreneur creates a
strategy that is applicable to the target
market.
EQUITY FINANCING
 Equity financing is the process of
generating capital through the sale of
shares. Most companies raise money for
reasons such as to pay bills or for long
term investment. There several sources
of funds in equity financing like
entrepreneur's friends and family,
investors, or an initial public offering
(IPO).