Revenue modeling is a process of incorporating a sustainable financial model for revenue generation within a business model design. Revenue modeling can help to understand what options make more sense in creating a digital business from scratch; alternatively, it can help in analyzing existing digital businesses and reverse engineer them.
Contents
What is a business model?
What is a revenue model?
For the sake of this guide, we’ll look at a key distinction: symmetrical vs. asymmetrical in several contexts. Remember that all classification methods have flaws and we can only take them into account as long as they help us better tune an existing business model.
I decided to use this classification, but any alternative classification works as long as we are able to grasp and understand the possibilities we have in terms of business model design.
Symmetrical vs. Asymmetrical business models
Business models can be of various types. For that matter, there might be as many business models as the companies we have in the marketplace. In this guide, we’ll use as reference symmetry vs. asymmetry to distinguish across two main business models categories.
In this particular case, we’ll look at revenue modeling by keeping a key distinction between symmetry and asymmetry from three different perspectives.
Cash: who pays the bill?
In many cases, platform business models success depends upon two key players:
- Users: who don’t pay for some or all the services offered by a platform (on the user-side), but they help the platform build it’s a core asset
- Customers: who pay for the services offered (on the customer-side) to take advantage of the core asset of the platform
In such a business model, the platform assembles the anonymized data of its users who get a free service in exchange.
The assembled data gets processed (by the platform AI and algorithms) and it’s used to scale the platform, build a valuable core asset that can be financed by a set of customers willing to pay for it.
Asymmetrical: users ≠ customers
The asymmetry here stands in the fact that users and customers are two separate entities (asymmetrical cash model: users ≠ customers).
Think of how Google sells ads to companies, while its core products are all free to users.
Symmetrical: users = customers
Thus, in a cash symmetrical revenue model, users and customers are the same entity (symmetrical cash model: users = customers).
Think of how Netflix‘s users are also its customers.
Information: does the user know how the platform make money?
If there is information asymmetry it means there is one of the parties which knows more than the other side.
In a hidden revenue generation model, the users of the platform ignore how it makes money while the platform knows a lot about its users.
Symmetrical: revealed revenue generation
In a symmetrical model, revenue generation is revealed, thus enabling the customers to know what they get for the service paid.
Scale: does the platform retain its margins as it scales?
Scale is the ability of a company to grow exponentially while keeping its margins grow with the platform’s revenues.
Symmetrical and Linear: margins tighten as the platform scales
In a linear symmetrical revenue model as the platform scales its margins tighten up, thus reducing the profitability of the platform.
Asymmetrical and Non-linear: margins keep growing as the platform scales
In a non-linear asymmetrical revenue model as the platform scales margins keep growing, thus keeping the platform highly profitable.
Other business resources:
- What Is Business Model Innovation
- What Is a Business Model
- What Is A Heuristic
- What Is Bounded Rationality
- What Is Business Development
- What Is Business Strategy
- What is Blitzscaling
- What Is a Value Proposition
- What Is a Lean Startup Canvas
- What Is Market Segmentation
- What Is a Marketing Strategy
- What is Growth Hacking
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