Driving Growth Through Revenue Model Variations
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Driving Growth Through Revenue Model Variations

  • Posted by: Obafemi Awobajo

Sales, as many will argue, is the life-blood of every business. For most organizations, increasing revenue and profit margin are major priorities. However, each strategy and business model has its own capacity and limitations, and that is why it is very essential for businesses to consistently look for untapped growth opportunities around them.

The findings of an economic survey carried out in the summer of 2016, show that many… businesses are pursuing ambitious growth targets. Of the respondents, 70 per cent expect their turnover to rise in the following year. A significant number also expect to see rising profits in 2016–2017. Some 12 per cent are strongly growth-driven, while 63 per cent will pursue growth to the extent possible. Finnish Association of Designers Ornamo

In seeking growth opportunities, business leaders often look at products and services as the source of innovation, and because of this conventional ideology of where growth opportunities lie, it is very rare for revenue streams to have the spotlight. However, revenue streams themselves can be a good source of facilitating growth, depending on how you are looking at it. Here is a fresh approach that will extend the array of innovation sources you know.

For every business, there are four basic revenue models. Although, there are different variations, but from a transactional angle, these are the four basic ways every business make money:

  1. Fee for Solution: this is when customers engage a professional or an organization to “absolutely” solve a problem or meet a need. In this case, payment is contingent upon RESULT. This particular model emphasizes “fee for outcome.” Hence, no result, no payment!

Example:

In barbing salons, customers only pay for haircuts and other essential services connected to looking good. In cases where the barber did not do a good job, the customer can refuse to pay, since there no correlation between expectation and outcome. Another example will be the repair shops, where customers pay for the repairs of fixed devices or appliances.

  1. Fee for Service: this is applicable when customers exchange money for “prospective solution.” Even though the underlying intention is solution, this model emphasizes engagement than solution. Solutions proffered in this case are often not as ‘absolute’ as in the ‘Fee for Solution’ segment.

Example:

In most cases, Hospitals charge patients for diagnosis, prescriptions and treatments, not healing. However, patients pay in anticipation that the diagnosis, prescriptions and treatments will eventually translate to healing (or wellness).

Another example is schools, where parents and students pay for enlightenment, and not necessarily for success. In this case, for instance, emphasis is not placed on brilliance, exams passed, or jobs acquired. Focus is primarily on the impartation of knowledge, in anticipation for being prepared to secure a job and provide solution to problems.

In conclusion, the fee for service model bill for “prospective solutions,” not “absolute solutions.”

  1. Fee for Access: this is when customers employ a product or service to gain access to a system, facility, or facilitated network. This model primarily emphasizes “enablement,” not solution. In addition, modes such as subscription fees, usage fee, licensing, lending, renting and leasing, are basic means of applying the Fee for Access

Example:

Gym Membership, Cloud Storage Service, Social Clubs, Co-working Space, and so on.

  1. Fee for Ownership: this is applicable where customers pay for acquisition. In this case, customers primarily pay for purchase, and not for solution nor access.

Examples:

For auto companies, customers who purchase automobiles are basically billed for the transfer of ownership. Electronic stores, convenience stores and so on, also use this revenue model.

Making Sense of the Revenue Model as a Growth Driver

In pursuing growth, applying the combination of these revenue models for existing offerings could be a good source of new earnings. For instance, an auto dealer selling used cars, could launch a car hire service through which it offers older models for rent. Alternatively, it could also decide to create a conversion process for taxi drivers to become owners. By providing taxi drivers access to use these cars for business, and creating flexible payment plans that will allow them pay in bits until they reimburse the company (both the primary cost and interest), the company can open up an entirely new segment for its industry and also increase its earnings without necessarily venturing into a new business.

In conclusion, do not limit your business by restricting yourself to conventional thought patterns about where growth can come from. Looking at your business with a different lens, especially through these revenue models, could be the game changer, the missing piece of your growth puzzle.

Explore, Experiment, Expand!

Author: Obafemi Awobajo
Obafemi Awobajo is a strategy, innovation and business growth consultant. His latest audiobook is “Mastering the Game of Business.

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