Business Model Canvas Revenue Streams and Pricing

Summary

In this Startup SOS video, Steve Morris discusses various revenue stream strategies for entrepreneurs. He covers how to charge customers, including one-time fees, recurring fees, and support contracts. Morris also explores different pricing approaches like fixed, dynamic, feature-based, and volume pricing. He emphasizes the importance of understanding customer preferences, competitive differentiation, cost structure, and perceived value when setting prices. The video concludes with an action plan to document these hypotheses in a business model canvas for validation through customer feedback.

Takeaways

• 🚀 **Choosing an Effective Charging Strategy**: It's crucial to select an effective strategy for charging customers and to test it with your target audience.
• 📊 **Revenue Streams in Business Model Canvas**: The video focuses on the revenue streams section of the business model canvas, which is essential for documenting and testing hypotheses.
• 💸 **How to Charge**: Businesses can charge customers through one-time fees, recurring fees, or support contracts.
• 🛍️ **Types of Charging Approaches**: Asset sale, usage fees, subscription services, renting/leasing, licensing, brokerage fees, and advertising are all potential ways to charge customers.
• 👥 **Who to Charge**: In a multi-sided market, businesses must decide whether to implement a freemium model or charge different segments like users versus advertisers.
• 💹 **Pricing Strategies**: Fixed pricing and dynamic pricing are two broad approaches to setting prices for products or services.
• 📋 **Fixed Pricing Examples**: Standard list price, feature-based pricing, customer segment pricing, and volume pricing are all part of fixed pricing strategies.
• ⏱️ **Dynamic Pricing Approaches**: Negotiation-based, time and availability, real-time supply and demand, and auction are examples of dynamic pricing.
• 🤔 **Determining the Price**: Businesses need to consider customer preferences, competitive differentiation, positioning strategy, cost structure, and perceived value when setting prices.
• 📝 **Action Plan**: Fill out the revenue stream section of the business model canvas, including how, whom, and how to price, which are all hypotheses to be validated with customers.
• 🔔 **Engagement Call to Action**: Encourages viewers to like, share, comment, subscribe, and turn on notifications for new videos, highlighting the series nature of the content.

Q & A

What are the three basic approaches to charging customers mentioned in the script?

The three basic approaches to charging customers mentioned are: a one-time fee, a recurring fee, and customer support which could be a recurring fee over time.

What are some examples of different charging approaches discussed in the video?

Examples of different charging approaches include asset sale, usage fee, subscription service, renting and leasing, licensing, brokerage fee, and selling advertising.

How does the script define a multi-sided market in terms of charging customers?

A multi-sided market is defined as a scenario where some users pay nothing while others pay for premium features (freemium model), or where users are distinct from advertisers who pay for the service.

What are the different types of fixed pricing approaches discussed in the script?

Fixed pricing approaches include standard list price, feature-based pricing, customer segment pricing, and volume pricing.

Can you explain dynamic pricing approaches mentioned in the video?

Dynamic pricing approaches mentioned are negotiation-based pricing, time and availability-based pricing, real-time supply and demand-based pricing, and auction-based pricing.

What factors should be considered when deciding how to charge customers according to the script?

Factors to consider include understanding how customers want to pay, competitive differentiation, overall positioning strategy, cost structure, and perceived value.

What is the importance of documenting revenue hypotheses in a business model canvas?

Documenting revenue hypotheses in a business model canvas is important for testing with customers and ensuring the chosen charging strategy aligns with customer expectations and business goals.

How does the script suggest determining the right price for a product or service?

The script suggests determining the right price by considering customer willingness to pay, competitive pricing, positioning strategy, cost structure, and perceived value.

What is the action plan recommended by Steve Morris for entrepreneurs after discussing revenue streams?

The action plan is to fill out the revenue stream section of the business model canvas, which includes how to charge, who to charge, how to price, and determining the actual price.

What is the significance of testing revenue hypotheses with customers as mentioned in the script?

Testing revenue hypotheses with customers is significant because it validates the assumptions about charging and pricing strategies, ensuring they are acceptable and effective in the market.

How does the script describe the process of deciding who to charge in a multi-sided market?

The script describes the process of deciding who to charge in a multi-sided market by considering different customer segments and their willingness to pay, such as free users versus premium users or users versus advertisers.

Outlines

00:00

💼 Revenue Streams and Pricing Strategies

In this video segment, Steve Morris discusses the various methods of charging customers and emphasizes the importance of selecting an effective strategy. He introduces the topic of revenue streams within the business model canvas and outlines the key questions to consider: how to charge, who to charge, and how to determine pricing. Steve explains different charging approaches such as one-time fees, recurring fees, asset sales, usage fees, subscription services, renting/leasing, licensing, brokerage fees, and advertising sales. He also touches on the concept of multi-sided markets and the freemium model, where most users pay nothing while a minority pays for premium features. The segment concludes with an introduction to fixed and dynamic pricing strategies, including standard list pricing, feature-based pricing, customer segment pricing, volume pricing, negotiation-based pricing, time and availability pricing, and real-time supply and demand pricing.

05:05

📈 Deciding on Pricing and Revenue Streams

The second paragraph delves into the decision-making process for revenue streams and pricing. Steve advises understanding how customers prefer to pay and aligning the charging approach with customer acceptance. He highlights the importance of considering competitive differentiation and positioning, whether as a premium or low-cost product. The cost structure is crucial, as prices need to cover costs and yield profit. Steve also mentions the significance of perceived value and the challenge of determining what customers are willing to pay. He suggests that directly asking customers about their willingness to pay is not always effective and proposes discussing this in a future video. The segment ends with an action plan for viewers to fill out their revenue stream section in the business model canvas, considering how they will charge, who they will charge, and how they will price their product or service. Steve encourages viewers to engage with the video by liking, sharing, commenting, and subscribing for updates on new videos in the series.

Keywords

💡Revenue streams

Revenue streams refer to the different ways a company generates income. In the video, Steve Morris discusses various revenue models such as one-time fees, recurring fees, asset sales, usage fees, subscription services, renting, leasing, licensing, brokerage fees, and advertising sales. These revenue streams are central to the business model canvas and are crucial for entrepreneurs to understand and test with customers.

💡Business model canvas

The business model canvas is a strategic management tool that helps businesses outline, analyze, and design their business models. The video focuses on the customer/revenue-focused side of the canvas, which includes revenue streams. It is a framework that allows entrepreneurs to document and test hypotheses about their business model.

💡One-time fee

A one-time fee is a single payment made by a customer for a product or service. In the context of the video, Morris mentions this as one of the basic approaches to charging customers, as opposed to a recurring fee. An example given is a customer purchasing a physical product, where the payment is made once at the time of purchase.

💡Recurring fee

A recurring fee is a payment made periodically by a customer for ongoing access to a product or service. The video script mentions customer support contracts as an example of a recurring fee, where customers pay a fee over time for ongoing support.

💡Subscription service

A subscription service is a business model where customers pay a periodic fee to have ongoing access to a product or service. The video uses software products as an example, where customers pay a regular fee to continue using the software.

💡Licensing model

A licensing model involves granting a customer permission to use a product or service in exchange for payment. The video explains that this could involve an upfront fee along with a recurring fee or just one of the two. It's a way to generate revenue from intellectual property.

💡Multi-sided market

A multi-sided market involves different groups of customers interacting with each other through a platform. The video discusses the freemium model and social media companies as examples, where one group of users pays for premium services while another group (advertisers) pays for advertising.

💡Fixed pricing

Fixed pricing is a pricing strategy where the price of a product or service does not change. The video mentions standard list price and feature-based pricing as examples of fixed pricing, where customers pay a set price for a product or service or choose options that add to the price.

💡Dynamic pricing

Dynamic pricing is a pricing strategy where prices change based on factors such as demand, time, and availability. The video gives examples like hotel rooms, where prices may be lowered at the last minute to fill vacancies, and real-time supply and demand pricing in electricity markets.

💡Customer segment pricing

Customer segment pricing is a strategy where different prices are set for different customer segments. The video uses the example of airlines offering different prices for first class and coach, despite the similar service of transporting passengers from one place to another.

💡Volume pricing

Volume pricing is a strategy where discounts are offered for bulk purchases. The video explains that in B2B markets, selling larger volumes at a lower per-unit price can be beneficial for both the seller and buyer, as it can reduce costs and increase efficiency for the seller.

Highlights

Choosing an effective charging strategy for customers is crucial.

Steve Morris provides practical advice for first-time entrepreneurs on revenue streams.

Revenue streams are a key section of the business model canvas.

Questions to consider include how to charge, who to charge, and pricing decisions.

Three basic approaches to charging: one-time fee, recurring fee, and customer support contract.

Asset sale, usage fee, subscription service, renting/leasing, and licensing are examples of charging methods.

Consider brokerage fees and selling advertising as alternative charging approaches.

In a multi-sided market, decide whether to use a freemium model or charge advertisers.

Fixed pricing approaches include standard list price, feature-based pricing, and customer segment pricing.

Volume pricing offers lower per unit prices for customers buying in larger volumes.

Dynamic pricing approaches can include negotiation-based, time and availability, real-time supply and demand, and auction pricing.

Understand how customers want to pay when choosing a charging approach.

Consider competitive differentiation and positioning strategy when setting prices.

Cost structure and perceived value are important factors in determining pricing.

Document hypotheses in the business model canvas to test with customers.

Fill out the revenue stream section of the canvas with how, who, and pricing details.

Engage with customers to validate the hypotheses about charging and pricing.

Subscribe for more videos on different sections of the business model canvas.

Transcripts

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