This definition is an extension of one of the simplest statements we’ve come across for what a revenue model is. ‘A presentation
’ from the Centre of Innovation and Entrepreneurship at Carnegie Mellon states:‘A revenue model is how a business makes money.’ And at the heart of it, that’s all it is.
Of course it gets steadily more intricate as you delve into the models themselves, but understanding the basics is a good foundation to begin your pricing journey. It’s going to be a long, but hopefully rewarding one.
Building a Recurring Revenue Model Based on Value
The end game of figuring out the right recurring revenue model is to facilitate a fair exchange of value between a business and its customers.
Many businesses unknowingly charge lower than they can. The other side of the spectrum is charging too much for something, which will lead to obvious results. Customers will use the product for a few months and when the price and value don’t match — they churn and find other solutions in the competitive SaaS market.
The best path to knowing if a fair exchange is happening, is to identify and align your recurring revenue model with a value metric. It will enable you to price your offerings optimally for you and your customers, resulting in a win-win for both in terms of growth.