- Your revenue model explains how you make money.
You need to determine how to charge for the services
you're offering and what services you'll charge for.
There's a big difference between
a fee for service consulting model,
a project-based model, and per unit pricing models.
Fee-for-service gets you an hourly rate.
The upside of this model, is you get paid for your time
so if the project expands, you get paid more money.
The downside is there's pretty much a cap
on what you can charge per hour.
You get no benefit from being more efficient.
For project-based revenue models,
there's a one-time fee for the entire project.
The upside of this model is,
if you're more efficient, you're more profitable.
But the downside is,
if the scope of that project creeps,
your economics on that project could be terrible.
For unit-based pricing models,
you get paid per unit of output.
I run a leadership training firm.
We charge on a per participant basis.
Every additional person in the classroom we make more money.
This enables us to do value-based pricing,
which can help exceed the hourly rate
we might otherwise charge.
Plus, we get paid for doing more work,
and there's benefits to being more efficient.
There are also additional revenue opportunities
that can add to your top line.
There are things like content licensing,
where you can give your clients the right
to use your work for a one-time,
or even an ongoing licensing fee.
That can be good passive income.
But, it carries intellectual property risk,
and it can make some of your core services irrelevant,
or even cannibalize your revenue.
We have one client where we license
some of our coursework to the client.
We charged an annual fee and it was great
getting that money sitting at home,
charging the license fee.
But, the client was conducting a lot of classes.
If we hadn't licensed that content to the client,
there's a possibility we could
have conducted those classes instead.
We needed to understand that trade-off.
Other fees you can charge are referral fees.
You can get that from directing work
to other consulting firms, or to some of your clients.
It's good passive income, but it can be hard to track.
You can also make money from ancillary material sales,
things like books, subscriptions, or webinars,
are good add-on revenue.
Those can also be costly to manage
because you have to think through the logistics
of running those material sales
and those logistics can distract you
from selling your more profitable core services.
For example, my firm has a lot of authors.
Our publishers always want us to push the books.
We make like a dollar per copy of book that we sell.
Now, it's worth it.
It gets our work out there,
but that's taking time away
from selling our more profitable classroom work.
Clearly define your revenue model from the start.
Be willing to adjust it, based on your business performs.
Be open to new revenue sources
but understand the opportunity cost
that comes from pursuing them.
The better a sense you have of how you make money,
the higher the likelihood
that your economics are going to be favorable.