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Chapter 10 Notes
Cornerstones Of Entrepreneurship And Innovation (Virginia Polytechnic Institute and
State University)
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Revenue: Income gained from sales of goods or services
Revenue Model:A key component of the business model and identifies how the company will
earn income and generate profits.
Food tours pro! Founder loved the journey and helping people, not the destination.
- Generated Revenue from food tasting tours and from business courses from other
people who wanted to replicate the business
10.2: Different Types of Revenue Models
Unit Sales Revenue Model: The amount of revenue generated by the number of items (units)
sold by a company
- Variations of this model is called razor-and-razor-blade model
Advertising Revenue Model: The amount of revenue gained through advertising products and
services
- Google does this, cost per click and cost per action
Data Revenue Model: A type of revenue model whereby companies generate revenue by
selling high-quality, exclusive, valuable information to other parties
Intermediation Revenue Model: The different methods by which third parties such as brokers
(or “middlemen”) can generate money
Brokers: The people who organize transactions between buyers and sellers
- Ex. Ebay, Airbnb
Licensing Revenue Model: A way of earning revenue by giving permission to other parties to
use protected intellectual property (patents, copyrights, trademarks) in exchange for fees.
Franchising Revenue Model: A type of revenue model whereby franchises are sold by an
existing business to allow another party to trade under the name of that business
Subscription Revenue Model: Involves charging customers to gain continuous access to a
product or service.
Professional Revenue Model: Provides professional services on a time and materials contract
Utility and Usage Revenue Model: Charges customers fees on the basis of how often goods
or services are used
- Hotels charge by the night, phone by the minute, rented car by the week/day
Freemium Revenue Model: A type of revenue model whereby free (mainly web-based) basic
services are mixed with premium or upgraded services
10.3: Generating Revenue From “Free”:
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The free newspaper Metro is a great example of a free business model that gives away a free
product yet still makes huge profits.
2 types of free models
Direct Cross-Subsidies: Refers to pricing a product or service above its market value to pay
for the loss of giving away a product or service for free or below its market value.
Multiparty Business: A type of free model that involves giving one party product or service
free, but charging the other party(s)
- Users get access, advertisers need to pay
10.4: Revenue and Cost Drivers
Cost of Goods Sold (COGS): The value of goods sold when a sale takes place
Operating Expenses: The costs of running your business, including your rent, utilities,
administration, marketing/advertising, employee salaries, and so on.
Income Statement (or profit and loss statement): A financial report that measures the
financial performance of your business on a monthly or annual basis.
- Subtracts the COGS expenses and expenses from the total revenue
10.5 Pricing Strategies
Different Types of Pricing Strategies
Competition-led Pricing:
- Prices are guided by other businesses selling the same or very similar products and
services.
Customer-Led Pricing:
- You ask customers how much they are willing to pay, and then offer it at that price
Loss Leader:
- The practice of offering a product or service at a below-cost price in an attempt to attract
more customers
Introductory Offer:
- Encourage people to try your new product by offering it for free or at a heavily
discounted price for a certain number of days.
Skimming:
- A from of high pricing, generally used for new products or services that face very little or
even no competition
Psychological Pricing:
- Intended to encourage customers to buy based on their belief that the product or service
is cheaper than it really is.
Fair Pricing:
- The degree to which both businesses and customers believe that the pricing is
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reasonable.
Bundled Pricing:
- Packaging a set of goods or services together; they are then sold for a lower price than if
they were to be sold separately.
10.6: Calculating Prices
Cost Led Pricing:
- Involves calculating all the costs involved in manufacturing or delivering the product or
service, plus all other expenses, and adding an expected profit or margin by predicting
your sales volume to get the approximate price
Target-Return Pricing:
- Involves setting your price based on the amount of investment you have put into your
business
Value-Based Pricing:
- Involves pricing your product based on how it benefits the customer. Your buyers have a
major influence over your pricing strategy
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