A revenue model, also called a sales model, is simply a framework for generating revenue. It refers to what value a product, service or organization offers, who receives the revenue, how much to charge for it, and what type of income to assign to each revenue stream. It’s a key element of a business’s overall sales model.
The best sales models are those that make sense and generate revenue in a predictable manner. In other words, they don’t depend on chance, but instead, rely on facts and data to predict where the revenue will go. The more reliable the revenue model, the easier it is to make predictions about revenue growth, profit potential and future performance.
However, revenue models can change. Often when a product, service or organization is introduced into the marketplace, the sales team need to make changes to the revenue model to reflect the new demands and opportunities being faced. If the new product or service does not meet the needs and wants of the current customer base, the sales team might need to rework their sales model to meet their own needs and desires. This can be a very difficult and time consuming process, but is an important part of any sales team’s success.
The first step in creating revenue models is identifying your needs, expectations and wants. Ask yourself if you’re really looking for a new service or a new product. If you have a specific product or service in mind, create a short description to help narrow down the focus on that particular product or service. Then, look at the existing products in your sales funnel and determine how well they meet your needs.
Once you have identified a product, determine if it’s really worth investing the time and effort in developing and selling. If you feel it isn’t worth your while, move on. Don’t risk losing money by spending money on something you know nothing about. Look at whether the product or service is something that a potential customer will want to purchase in the future.
Once you’ve created your model and identified the product that is right for you, it’s time to get the pricing right. There are several ways to determine pricing and some of them require more analysis than others. Most importantly, determine how you will determine how much of your product’s revenue will come from each customer and what percentage of that revenue goes to the product owner. You’ll also need to determine what percent is going to the product owner, the organization or business, and what percentage is going to the cost of production and distribution. The more you know about pricing, the easier it will be to plan and execute pricing.
Once you’ve established pricing, you’ll want to look at how to sell the product. How to sell your product or service will depend on how you’ve priced it. Is your product an impulse buy? Can you really control its price? Are you offering a high enough price to drive traffic to your web site and convert that traffic into potential customers?
Are you going to hire sales teams? Will your sales team to make sure that customers are motivated to buy your product? If so, the only way to make sure that they buy your product is to determine a sales price that will attract those sales. If not, you may be better off focusing on sales and marketing rather than pricing.
Revenue models take into consideration what you’re offering, who you are targeting, and your overall cost structure as well as the profit margin. For example, if you have a product that requires a huge up front investment but your costs are significantly lower than competing products, then you can expect to make more money than if you had a cheaper product with a lower margin.
A great part of any revenue model is the model itself. Once you’ve determined what you’re looking to make, you have to take the time to develop a revenue model that takes the profit potential into consideration. This means that you have to make sure you have a product that has a high enough potential for sales that you to make a reasonable profit and is also one that is priced right.
As with any business model, a model can be a long-term success if it’s well thought out and implemented. Without having an effective sales and marketing strategy, you’re wasting a lot of time and money. However, you can become successful in a shorter period of time with a good revenue model if you carefully plan and implement your model. Follow these steps and you’ll find that you can quickly and easily build and maintain a strong, profitable online business.