Having a great business offering is pointless if you can’t make any money from it. As a result, a business’ monetisation model is one of the keys to its success. This blog will show you how to create a monetising model for your business by teaching you my two step monetisation model process.
Let’s go!
Before we start, what is a monetisation model? A business monetisation model is how your business will make money (revenue) from its business activities. I have created a two step process that I follow when creating monetising models. The first is deciding what it is you’re going to sell (this first step isn’t always as clear cut as you might think). The second step is deciding on how you’re going to sell it. Let’s break it down.
For most businesses, this is typically a tangible product or service that they offer. However, products and services aren’t necessarily the only things a business can monetise; some companies even give certain products/services away for free with the intention to monetise a different element of their business such as advertising space.
Here is a list of different areas of your business you might be able to monetise:
These are some of the different elements of your business you might be able to monetise. Depending on the nature of your business some or all of them could at some point be relevant to your business.
By not utilising all your business’ monetising models you are leaving money on the table. This happened to me. My main monetising model was providing a lead generation service. I hadn’t considered licensing the technology I had developed to process and sell the leads automatically.
Some areas of a business can be monetised immediately, such as selling products and services. Other areas such as advertising space are harder to monetise out the gate as they require your business to have achieved a certain scale before they can be used. If you try to monetise a certain element of your business too early this can create barriers to people engaging with your business and limit growth.
Once you’ve identified all the different elements of your business that you can sell you then need to decide on a payment structure and how you’re going to charge for them. There are four primary payment structures: freemium, one-time payment, subscription and commission.
A freemium payment structure is where you give a product or a version of a product away for free, typically with the aim of either attracting users or upselling users to a paid version. It is more of a marketing tactic than it is a payment structure and most commonly used by technology/software companies. Here are three examples of how you can use a freemium payment structure:
Freemium is a popular way to attract new customers and then upsell them to premium features. LinkedIn is a great example of a company that uses a freemium payment structure as a key part of its monetising model; they make it free to create a basic profile to encourage users to sign up, then attempt to upsell users to a professional profile. Since growing a significant user base they also now sell advertising space on their platform.
A one time payment model is where you charge a one-off fee in return for providing a specified product or service (also known as pay-as-you-use). This is the most commonly used monetising method and often used by businesses that sell tangible products or provide one off services. For example, when you buy a new laptop you pay a one off-fee and in return receive the laptop you bought. Similarly, if you were to get a new bathroom fitted you’d pay a one-off fee to a bathroom fitter and they would install a new bathroom. Depending on the value and nature of the product or service, this one-off fee could be paid in instalments.
A subscription model is where you charge a customer a recurring fee in return for providing them a product/service at regular intervals throughout their subscription or for giving them access to use a service which they can consume as they please. This monetising method works best for products which are either consumables or for providing access to regularly updated content or software. Subscription is typically charged monthly; however, you can charge a subscription fee on both a usage basis or annual basis. This payment method is a popular way to monetise online businesses, such as streaming services, news websites and software platforms.
Before using a subscription payment structure it is important to consider whether you can provide enough value to your customers on a monthly basis. For example, if your business is a lead generation business and you’re at a stage where you cant guarantee you can provide your customers with a minimum number of leads every month, it is unlikely you’ll be providing your customers with the necessary value to warrant a subscription model. Likewise, if you charge a subscription and some months don’t provide any value to your subscription payers, it is unlikely they’ll hang about; you would be better off charging for the value you provide on a pay-as-you-use basis.
A commission model is where you charge a percentage of another transaction. It is usually used by businesses that act as an intermediary and help facilitate another transaction between two parties, such as a marketplace. A consideration before using this structure is working out how you will keep track of any transactions you facilitate. If the transactions take place on a platform you’ve created this is easy. However, if transactions take place off your platform (for example, you just introduce two people and they liaise directly), relying on trust doesn’t necessarily work. You need to workout how you can make sure you still get paid.
These are some of the most common payment structures. There is no right or wrong payment structure but often the type of product/service you offer will be a deciding factor. Experiment with different payment structures to find one that works for your business. You can even combine multiple different ones to maximise the revenue you receive. Just don’t make your payment structure too confusing as complex payment structures can confuse potential customers and put them off buying. Simple is often best.
Creating a successful monetisation model takes time and effort. Some businesses take years to workout the best way to monetise what they’ve created. An example is Facebook; Facebook only started to make money once it had grown a user base large enough to warrant selling advertising space on its platform.
What is important is that you find a lucrative monetising method before you run out of money. If you can’t find a suitable monetising model for your business, now or in the future you need to reconsider your business value proposition and go back to the drawing board; a monetising method is essential for any business that wants to be successful.
By following these two steps, you can create a monetisation model that will help your business grow and thrive. To make sure you don’t miss out on future blogs which are written to help you start and grow your business, subscribe to my weekly newsletter here.
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