One of my all-time favorite business books, Business Model Generation by Alexander Osterwalder and Yves Pigneur, discusses revenue streams, or the money a company generates from customer relationships and customer segments. When evaluating your company’s revenue streams, there are a few key questions to consider:
- What do your customers value?
- What do they currently pay for?
- How are they currently paying?
There are several ways to generate revenue streams:
- Asset Sale – An asset sale is the act of selling the rights to a physical product. Examples could be everything from groceries to cars to property.
- Usage Fees – A usage fee is generated by the use of a particular service. The more a service is used, the more the customer pays. Think of postage or utilities. The more you use, the more you pay.
- Subscription Fees – This represents selling continuous access to a service. Cloud-based software services are sold this way. You pay a subscription on a monthly or annual basis for the right to access the service. A gym membership is an example of this type of revenue stream.
- Lending/Renting/Leasing – This revenue stream is generated by temporarily allowing someone the exclusive right to use a particular asset for a fixed period of time. Think of renting a house or leasing an automobile. The renter/leasee gets the exclusive right to use the asset without incurring the full cost of ownership.
- Licensing – The owner of intellectual property generates fees by allowing someone else to use the property in exchange for a licensing fee. This is often seen in the technology and media industries. Think of a syndicated television show. The owners of the show allow it to be shown on several different networks for a licensing fee.
- Brokerage Fees – Revenue is created by being an intermediary between two parties, such as a stock broker and real estate agent. In both of those cases, they provide a service to the buyer and the seller without ever taking title to or owning the assets they are selling.
- Advertising – The seller gets paid for advertising a particular product or service. This is seen throughout the media, professional sports, and on the web. Think of how much revenue Google and Yahoo generate from advertising or “click through” revenue.
- Now that we have covered the basics of revenue streams, ask yourself: what is it that you provide to your customers, and what do they value? Companies can find themselves in an outdated mindset very easily.
It is very possible that you are selling assets and your customers would rather rent. One of our clients had this scenario a few years ago. They produced and sold electronic testing equipment. After conversations with several of their clients, they determined that it would be more beneficial to both parties to lease them the equipment and keep it in top working order rather than selling them the equipment. This was a shift in their business model that ultimately proved to more profitable.
Over the next month, consider all of the ways that your company generates revenue and compare that to what your customers value and will pay for. It may even prove beneficial to establish a customer advisory board and ask your top customers directly. If you would like help with this process or have questions as you are working on this aspect of your business, please let us know and we would be glad to assist you.