Ways for a company to reinvent its business can be found buried deep in its business plan.
Eight Types of Revenue ModelsAny business will benefit from rethinking the implications of changing their revenue model, and doing so early in the design process rather than as an afterthought. However, the task of doing so may seem daunting due to the enormity of ways that a company can make money. Professor Andy Hargadon at UC-Davis has come up with a useful framework for revenue models. There may be an infinite number of variations a company can use to make money, but they really all boil down into eight types: 1. Unit sales: Sell a product or service to customers. GE uses this method when they sell microwaves. 2. Advertising fees: Sell others the opportunities to distribute their message on your space. Google uses this method with its search product. 3. Franchise fees: Sell the right for someone else to invest in, grow, and manage a version of your business. McDonald's uses this method with its stores that are independently owned and operated as franchises. 4. Utility fees: Sell goods and services on a per-use or as-consumed basis. Most electric companies use this model when they charge customers only for the electricity they use. 5. Subscription fees: Charge a fixed price for access to services for a set period of time. Gold’s Gym charges a monthly or yearly subscription fee for people to access their gym. 6. Transaction fees: Charge a fee for referring, enabling, or executing a transaction between parties. Visa charges a transaction fee to retailers each time a customer purchases a product in their store. 7. Professional fees: Provide professional services on a time-and-materials contract. H&R Block makes money by charging customers for the time it takes to prepare their taxes. 8. License fees: Sell the rights to use intellectual property. Every time a customer buys a T-shirt or a hat with the logo of their favorite sports team on it, that team makes money from license fees.
Using Revenue Models to Design a BusinessAny company leader can look at the eight revenue models and brainstorm new ways to reinvent their business. Doing so early on in the design of a new business concept will not only lead to different ways to make money, it will lead to different businesses. By bringing revenue model ideation into the design process, and thinking about the implications of those revenue model changes, a company can find their own versions of "no late-fees" and "online queue" to upend their industry.
Ryan Baum applies his analytical mind and deep consulting experience to help clients develop growth strategy in a variety of industries, including healthcare and hi-tech. Ryan previously worked at both strategy and design firms, and spent several years consulting on sales and marketing strategy to the health care industry. He has also spent time helping technology and pharmaceutical startups develop the business rationale needed to raise additional rounds of venture capital funding. Ryan holds a B.A. in ethics, politics, and economics from Yale University, where he completed a thesis on urban education and tax policy. [Top image by Pixel Addict]