Let's talk about how all this relates to revenue.
I'm sure that's an issue of obvious and immediate importance to.
The key variable for this is surprise, surprise,
the relationship between your customer segments and your value propositions,
and what does that mean specifically with regard to revenue?
What it means is that,
by understanding who cares about what and what they ascribe importance to,
you can focus the way that you price,
meaning what you charge for,
when you charge for it,
how you charge for it,
and of course how much you charge for it.
Your pricing strategy will differ a lot depending on the type of business this is,
and the type of customers you're serving.
But I think it's always good to start from the simplest possible point of view.
And I would say for example,
if we think about the plumber,
when he or she comes and fixes something,
you pay them for how much time they were there.
And, if you could buy a garbage disposal that breaks half as much or last twice as long,
then you would pay more for that, right?
Because the plumber doesn't have to come as often.
And so I think it's always good to just make sure you're
not over complicating or overthinking your pricing,
you're focused, you're either, you're one or two things,
either very focused on what the customers ascribed importance to,
what value propositions, or you're focused
on learning about that so you can focus your pricing.
A good example of how this might work in practice is that,
this is Hootsuite A online product,
SAS software product for automating social media feeds,
and they have their free,
their pro, and their enterprise plan,
and these all include various amounts of these various features, or service things.
And presumably, and certainly the way that I would approach this is to really
understand what's important to these different customer segments or personas within them,
and make sure that I'm really pricing on a few key things rather than
just annoying the pro person with a bunch things that I'm not including,
that they really wouldn't otherwise pay for an upgrade to an enterprise plan,
same thing with free.
And doing that requires,
going out, learning about customers, understanding them intimately.
Another really good focal tool I find for revenue drivers and revenue streams,
is this idea of engines of growth,
and this is something that was in the lean startup book.
In fact, the idea is that there are these three engines of growth.
The first one is paid,
and this is a relatively traditional model of growth.
The idea is that over here on the cost side,
which I've mostly left out here,
we pay for let's say Google adwords ad, we pay X,
and then we have a certain lifetime value of earning this customer,
a certain amount of profit or that we earn over time,
and then we're hoping that our lifetime value
of having this customer is greater than our cost.
Because we're having to pay for this on a completely variable basis, let's say.
That is one engine of growth,
and if that's your engine of growth,
you want to make sure you have a nice tight linkage here that
you're buying media and delivering messaging,
that's relevant to those things so that you can minimize
the cost and maximize the throughput of that advertising.
The next engine of growth is the sticky engine of growth, and this is where,
if you're a company like Zappos for example the online shoe,
and I think maybe a clothing retailer.
They're famous for spending a lot of energy,
and presuming money on really good customer service.
And one of the reasons they do this is they believe that,
if the customer journey is really good,
then the customer will return to them and buy more things,
and that drives their revenue.
So rather than spending another dollar acquiring a new customer,
if we were let's say focus on the paid engine of growth,
we focus on retaining the customers we have,
and maximizing the value of that relationship.
And finally the viral engine of growth is where through the customer journey
our users or customers have a propensity to do our advertising for us,
share about how much they love the product on say social media, or a blog,
or by emailing people,
but very often in social media.
Here we're really looking at why do people do that?. When do they do it?
And how do we maximize the kind of without being annoying to them,
the prompts that we create throughout the customer journey
to increase their propensity to actually do this,
and then to encourage them to share things that actually
result in new visitors coming in and visiting our site.
Those are just three kind of focal points that you can think about,
think about which one is important,
or at least which one you want to principly test for your particular business model.
Those are some ideas on how to focus your revenue, maximize it,
and link it to the bigger picture of what you've learned,
and what you're learning on an ongoing basis.
These are a few ideas about just the mechanics of how you might charge,
and I included three focal questions that I think are good to just
loop back to periodically as you're looking at this.
First is, remember where we are providing value?
What does the customer really ascribe importance to?
What value propositions?
And how are we learning about that,
and refining our understanding of that,
and improving that fit?
Two, let's not try to do all this at one time necessarily.
How does our customers perception of value change over time?
Because we may be a lot better off charging them a little,
and then having them cross selling them or upselling them to something else,
as they learn more about why they like our product,
and when, and how they want to use it.
So we want to make sure we think about this over time,
over the customer journey.
And finally, there's just a basic practical element of let's
not make our revenue model administratively complex,
if we can possibly avoid it.
However we're charging them,
and however they're understanding what they're being charged,
how do we keep that is simple and as painless as possible?
Because if we make it painful and unpleasant for them to understand their bill,
and or pay it, that's going to hurt us on the revenue side.
So those some ideas about how to drive revenue and
focus it around the most important things in your business model.
Alex CowanFaculty & Batten Fellow
