How does a venture choose a revenue model and price that captures the value it creates?
Select and justify a revenue model and pricing strategy that captures value and supports a viable business model.
How to choose a revenue model and pricing strategy that captures the value a venture creates, covering subscription, transaction and freemium models and cost-plus, value-based and competitive pricing.
Reviewed by: AI editorial process; not yet individually human-reviewed
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What this dot point is asking
You need to show you chose a revenue model and price that fit your customer segment and value proposition, and that the numbers can actually cover your costs.
Creating value versus capturing value
A venture creates value by solving a customer problem, but it only survives if it captures some of that value as revenue. The revenue streams block of the Business Model Canvas is where capture happens. A strong value proposition with no workable way to charge for it is not a business.
Common revenue models
- One-off transaction - the customer pays once per purchase. Simple, but you must keep winning new sales.
- Subscription - the customer pays a recurring fee for ongoing access. Predictable income and stronger customer relationships.
- Freemium - a free basic tier attracts users, with paid upgrades for advanced features.
- Licensing - others pay to use your product, design or intellectual property.
- Advertising or commission - a third party pays for access to your audience or transactions.
Many ventures combine models, for example a subscription plus a sponsorship fee.
Pricing strategies
- Cost-plus - add a target margin to your unit cost. Simple and safe, but ignores what customers will actually pay.
- Value-based - set price by the value the customer receives. Often allows higher prices when the benefit is large.
- Competitive - price relative to rivals, undercutting or matching them. Useful in crowded markets but can trigger price wars.
- Penetration and skimming - launch low to win share fast, or launch high to capture early adopters then lower the price.
Testing the price
Price is an assumption like any other and should be tested, not just calculated. Pre-sales, trials and willingness-to-pay questions reveal whether customers accept the price before you commit. Each price must clearly exceed variable cost per unit, or every sale loses money.
Linking forward
Your revenue model and price set the revenue streams block of the Business Model Canvas and drive the numbers in your break-even and cash flow forecasts. A clearly justified, tested pricing decision strengthens both the Business Growth Report and the external Business Plan.