Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
Lecture Notes
Chapter 10: Creating Revenue Models
Learning Objectives
• Define a revenue model and distinguish it from the business model.
• Illustrate the nine most popular revenue models being used by entrepreneurs.
Notable Quote
• “Remind people that profit is the difference between revenue and expense. This makes
you look smart.”
Revenue and Revenue Model
• Revenue is the income gained from sales of goods or services.
Questions to Ask
• How much are customers willing to pay?
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
10 Popular Revenue Models
• Unit Sales
• Advertising
• Data
Notes:
The revenue model is a framework for identifying where and how a venture generates income.
10 Popular Revenue Models
• Unit Sales Revenue Model: the amount of revenue generated by the number of items
(units) sold by a company.
• Advertising Revenue Model: the amount of revenue gained through advertising
products and services.
• 5. Licensing Revenue: earning revenue by giving permission to other parties to use
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
• 7. Subscription Revenue Model: charging customers payment to gain continuous access
to a product or service.
Generating Revenue from “FREE”
• Three Free Financial Models
Ideas for Direct Cross-Subsides
• Give away services, sell products
• Give away products, sell services
• Give away software, sell hardware
Critical Thinking Questions
• Do you believe there should be an ethical boundary on the percent of profit a company should
get? If so, who would decide on the boundary and how would it be enforced?
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
Ideas for Multi-Party Markets
Notes:
C. Anderson’s book Free: The Future of a Radical Price. Hachette Books, 2009.
Freemium Ideas
Notes:
C. Anderson’s book Free: The Future of a Radical Price. Hachette Books, 2009.
Four Key Revenue Drivers
Notes:
As illustrated in Figure 10.3, the first key revenue driver is your customers. How many
customers will come into your coffee shop? How much are they willing to pay to stay? How will
you attract customers to your location?
The second key driver is frequency. How often will your customers come into your coffee shop?
What incentives can you offer to keep them coming back?
The third driver is selling process. How much time will you be able to sell? What kind of
Cost Drivers
• Cost of good sold (COGS)
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
Income Statement
(Profit & Loss Statement)
Making Decisions on Pricing and Freemium Products
• If free products are not attracting enough new customers, then the features need to be
improved.
Critical Thinking Questions
• What do you see as the benefits and disadvantages to the freemium business model?
Common Pricing Strategies
• Competition-led Pricing
• Customer-led Pricing
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
Pricing Strategies
Notes:
Calculating Prices
• Cost-Led Pricing: Price based on all costs associated with producing and adding an