Professional Documents
Culture Documents
Canvas
Complete (10%)
Content (50%)
Research/Evidence (15%)
STEM Path to the MBA
Project Alpha
Present results of second set of
interviews
5-minute presentations
3 groups selected at random
Business Model
Generation
Revenue Streams
This Building Block represents the
cash a company generates from
each Customer Segment (costs
must be subtracted from revenues
to create earnings).
Revenue Streams
For what value are our customers really willing
to pay?
For what do they currently pay?
What capacity do my customers have to pay?
How are they currently paying?
How would they prefer to pay?
How much does each Revenue Stream
contribute to overall revenues?
Requires out of the building work directly with
your customer segments
STEM Path to the MBA
Revenue Streams
Two key questions
1. What are my Revenue Streams? Strategy
used to generate cash from each Customer
Segment.
2. Within the Revenue Streams, how do I price
the product? Tactical decision on price in
each Customer Segment.
Pricing (tactical) follows the Revenue Streams
(strategic)
STEM Path to the MBA
Revenue Streams
1. What is a Revenue Stream?
The strategy that the company uses to
generate cash from each customer
segment ways to charge
Revenue Streams
Example: Revenue Streams vs Pricing
Model
1. 15 sales reps, 27 cities (Revenue
Streams)
2. Cost ($99) + markup($30) = $129
(Pricing Model)
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Revenue Streams
Several ways to generate Revenue Streams:
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Revenue Streams
Additional Web/mobile resources
Referral revenue: payments for referring
customers to other websites or products
Affiliate revenue: finders fees or
commissions for directing customers to
sites
Email list rentals: subscription/membership
sites rent email lists to advertiser partners
Back-end offers: add-on sales from other
companies as part of their customer
registration/purchase confirmation
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Revenue Streams
Pricing Mechanisms
1.Fixed Menu Pricing - Predefined prices based on static variables Customer Segment
dependent
List Price
Product Feature Dependent Value priced
Volume Priced
2.Dynamic Pricing Price change based on Market Conditions
Negotiation (bargaining)
Yield Management, e.g. airlines, hotels
Real-time Markets
Auctions
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Revenue Streams
Common Mistakes
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Cost Structure
This Building Block describes all costs incurred
to operate a business model. Clearly Revenues
> Costs at some point in the companies life.
What are the most important costs inherent in our
business model?
Which Key Resources are most expensive?
Which Key Activities are most expensive?
Which Customer Relationships are most expensive
to maintain?
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15
Cost Structure
Two broad classes of business model cost
structures:
Cost-driven business models (e.g. WalMart,
Southwest)
Focus on minimizing costs wherever possible.
Based on low price Value Propositions
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Cost Structure
Important Cost Structure terms
to understand:
Fixed Costs
Variable Costs
Gross Profit
Net Profit
Economies of Scale
Economies of Scope
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Cost Structure
Fixed Costs vs Variable Costs:
Fixed Costs: NOT dependent on goods
and services produced
Variable Costs Cost related to
volume of sales
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Cost Structure
Fixed Costs NOT dependent on
goods and services produced;
Manufacturing companies have high
fixed costs
Rent
Insurance
Salaries
Property Taxes
Utilities
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19
Cost Structure
Variable Costs Cost related to
volume of goods or services produced
Direct Material cost
Some labor (piece rate labor)
Shipping costs (freight out)
Commissions
Credit card fees (% of sales)
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Cost Structure
Gross Profit: Net sales-COGS
January
February
Software
A Sales
$500,000
$900,000
Software
B Sales
$20,000
$15,000
Cost of
Goods
Sold
Gross
Profit
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March
Total
1st
Quarter
$655,000 $2,055,00
0
$25,000
$60,000
$1,150,00
0
$320,000
$415,000
$230,000
$965,000
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Cost Structure
Net Profit: Gross profit-Operating
expenses-Tax/Interest
January
February
$320,000
$415,000
$230,000
$965,000
$150,000
$175,000
$200,000
$525,000
$10,000
$100,000
$15,000
$125,000
$300
$200
$100
$600
Business
Ins.
$1,250
$1,250
$1,250
$3,750
Loan
Interest
$2,000
$2,000
$2,000
$6,000
$12,000
$14,000
$16,000
$42,000
Gross
Profit
Salaries
Shipping
Bank Fees
Payroll
March
Total
1st
Quarter
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Cost Structure
Economies of Scale: Cost advantage due
to expanding output average cost per
unit falls as output rises companies with
large fixed costs, e.g. IC manufacturers
Economies of Scope: Cost advantage due
to producing more than one product
same marketing or distribution channel
may support multiple products
STEM Path to the MBA
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Cost Structure
What are the most important costs
inherent in our business model?
Manufacturing of product
Research and Development of software
Marketing and promotion of product
Website Development & Hosting
Technical Support
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Upcoming Events
Next Class (9/28)
Key Resources, Key Activities & Key
Partnerships, O&P pages 34-39
Interview Results Customer
Segments/Value Proposition, updated
Business Model Canvas
Project Alpha Work Session
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