Entrepreneur's Handbook
INCOME SOURCES
For a business idea to survive in the long term, it must have a healthy income model. It can be managed to some extent with the resources and investments of the founders, but if there is no cash flow in the long run, the company is doomed to close. The revenue model is so important that it is sometimes seen as the whole business model. As a result, even if it is not the most important building block, it is located above.
For which of the values we provide, our customers are ready to pay? To whom, for what, how much do they pay now? Learning the answers to such questions is an important step and can determine the future of the company. Some of the income models that we will describe below can be similar or combined. Our goal is for you to become familiar with the terms and get used to thinking in different ways.
4.1. Sales
Selling a product or service. It is the oldest source of income. It is an easy-to-understand source of income that has existed since trade began to be made for money from the exchange period. On the other hand, the determination of the price, which has a very important place in sales, is problematic. Prices, according to the most common view, should be based on cost. Even if it does not go down to the cost level, it is often possible to come across the opinion that a certain rate above cost will be an appropriate pricing model. The validity of this view may be valid for environments where competition is high and which are described as perfect competition conditions in economics, but it remains weak in other conditions.
Production cost constitutes a base for a product that should not be subjected to in the long run. The monetary value of our customers' benefit from using our product or service constitutes a ceiling that should not be exceeded. Determining the value of this benefit is sometimes easy, as with a product that reduces electricity consumption, but is often more complex and difficult.
In any case, the relative bargaining power of the parties will determine how to achieve the balance between the floor price and the ceiling price. If there are many sellers and the bargaining power of buyers is high, the equilibrium price will be close to the floor. If there are few sellers and the bargaining power of the sellers is high, the equilibrium price will be closer to the ceiling this time.
4.2. Leasing
As an alternative to purchasing, you only get the right to use a product for a period of time. As the lessee , you get the right to use the product for a period of time by paying a smaller price instead of paying the full price and taking the risk. If you wish, you can increase the rental period or cut it short. The lessor earns more money than it would get from the sale by leasing one or more people during the life of the asset, and can also exit by selling later if desired. The rental model is a common model in buildings, cars and machines, and the rental contract periods can be very different.
4.3. Pay As You Go
Pay As You Go is often used in the marketing of services and turns the fee into a variable cost by tying the amount of usage. It is also considered as a fairer model because less user pays more and more users pay more. In areas such as cargo, hotel management and Telecom, charges per package carried, per night stay and per time / capacity used are widely used, respectively. Today, it appears as an alternative to purchasing assets in sharing economy projects (Über, Zipcar Airbnb, Aracla.com, Secure Drive, etc.) Sometimes even technological innovations can only succeed when there is innovation in the income model. For example, when Xerox tried to develop and sell the first copier in 1958, it failed because the machine was too expensive and people were not sure yet if they needed such a machine. They succeeded in persuading corporate executives who did not want to take risks, rather than selling the machine directly, rather than marketing it on a pay-as-you-go model.
4.4. Subscription
Subscription grants the right to use or access a service or product for a certain period of time. It sells some products or services as a subscription package, which can usually be sold individually or separately. Subscriptions can be limited or unlimited. There are many examples such as cable TV, Netflix, gyms, web-based games. Newspapers and magazines were the first to use the subscription system, and nowadays some are trying to use this model on Internet sites.
4.5. Freemium
Free and Premium (Freemium) income model has become very popular especially in digital products. In this model, a basic product can be given to customers for free, while a superior or featured product can be given for a fee. In Chris Anderson's opinion, since the marginal cost of digital products is close to zero, even if you give most of your product for free, you can have a profitable business model if you can sell a certain part (5-10%) for a fee (Anderson, 2010). Skype makes calls between computers free of charge, but if you want to call a mobile or home phone from the computer, it charges a small fee. Dropbox offers seamless backup service in the cloud for anyone who wants it for free, but if you want more space, you can switch to the paid version (1TB for 100USD per year).
4.6. Software as a Service (SaaS)
Software as a Service (SaaS) model is to use the service provided by the software on a cloud-based "pay as you go", "subscription" or similar charges, instead of purchasing and installing and using the software on your computer. These streams of income are generally loved as they continue at regular intervals as the service continues to be used. Nowadays it is possible to use office programs (word processing, spreadsheet) as SaaS, as long as you have a solid Internet connection! Microsoft Office 365 or Google Apps allows you to do your work from anywhere, even with very cheap computers. Paraşüt pre-accounting, on the other hand, enables micro enterprises to easily follow up their Income-Expense, Invoice and Receivables as SaaS at a very low cost.
4.7. Direct Selling
The Direct Selling model is also known as “door-to-door sales”. In such jobs, there is a need for a serious employment of salespeople and the infrastructure to support them. Face-to-face sales are more likely for skilled vendors, but it is an expensive method due to the time and energy spent on the road. Examples of direct selling companies include Avon cosmetics, Amway household products, Tupperware storage containers, Rainbow vacuum cleaners, or various cookware vendors.
4.8. Ad Supported
There are many companies that earn some or all of their income from advertising. Newspapers, magazines and television channels come first. Some of these earn most of their revenue from advertisers, even if they earn money from subscriptions or sales. However, the number of readers / viewers and their characteristics determine how often and at what prices advertisers will advertise. Apart from these, many websites and smartphone applications also benefit from advertisements. Projects or companies such as Google search engine, Gmail and Facebook were able to give their products for free and rise to very high values with ad support. They have achieved all of this by giving advertisers (their real customers) access to their users (that is, actually their products).
4.9. Market place
Marketplaces earn income by bringing sellers and buyers together and often taking commission. For example, Yemeksepeti brings together people who are hungry and restaurants and receives commissions on orders. While Dügün.com gets membership fee as a marketplace in the marriage vertical, Armut.com prefers to be a marketplace for all kinds of services and to receive commissions. While Yemeksepeti, Düğün.com and Armut.com generally operate in B2C, ie Business to Consumer, other marketplaces such as sahibinden.com and letgo are predominantly C2C, that is, Consumer to Consumer. Apart from these, we can show Alibaba, one of the largest in the world, as an example for B2B, that is, business-to-business. Generally, marketplaces earn income by selling advertisements or additional features in addition to commission or membership fees.
4.10. Bait and Fishing Rod
The Bait and Fishing Rod income model is to attract the customer with a cheaply sold product (bait), making them caught in the fishing line and convince them that they can no longer escape and then have to buy another expensive complementary product from you. As the company that applies this model best, Gillette company and its razor blades are usually given as an example, sometimes even called the razor blade model. First they have to convince you with commercials how good Gillette razors are and how handsome you will be if you use them. They sell the razor's quality handle and two razors for a reasonable price when you decide to give it a try. When the blades become blunt and you return to buy a new one, you are faced with a shocking price, but you cannot use a cheaper blade because of the patented connection mechanism in the handle. You are caught in the fishing rod and will continue to pay high money for the razor at regular intervals. You can see this bait and fishing rod model in inkjet printers and some coffee machines. Nestle's Nespresso and later Tchibo's Cafissimo coffee machines are sold at relatively cheap prices and can make good coffee with cartridges with virtually no maintenance and cleaning required. The coffee cartridges required to use the machines fit only those machines and are sold at a high price. In addition, since these cartridges are only sold in their own shops or Internet sites, there are no intermediaries and the company leaves more profit from the sale price.