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  • You know what business people really like to talk about?

  • Money.

  • Profit, revenue, income, assets, cash flow -- all these words mean money, but they all

  • have specific uses.

  • In business, money is important to us and we want to describe it as accurately as possible.

  • That can make it confusing for new entrepreneurs to talk about the money flowing into their

  • business, and it seems like we need a translator for all the jargon!

  • But, really, making money comes down to understanding a few basic terms and setting up some sales

  • structures that let customers make purchases in a way that works for them.

  • I'm Anna Akana, and this is Crash Course Business: Entrepreneurship.

  • [Theme Music Plays]

  • Money can be an awkward subject, I get it.

  • But to make a living, have an impact, and be taken seriously at decision-making tables,

  • we entrepreneurs need to know the ins-and-outs of our business, including the money stuff.

  • And we believe that one step to making the world more equal is making money less of a

  • mystery.

  • So let's get rolling.

  • If we consult ourFinance to EnglishDictionary, we can see that revenue is the

  • amount of money a customer hands to us when they buy a product or service.

  • To calculate it, revenue is the number of things sold times the price of each item.

  • But that's not the whole story, right?

  • Making a product or offering a service costs money upfront, so we can't ignore expenses

  • or operating costs.

  • That's money spent on operations to generate revenue, like for employees, supplies, or

  • equipment.

  • So profit is the money we make if our revenue is greater than our expenses.

  • To calculate it, profit is just revenue minus expenses.

  • If you reported a million dollars in revenue last month, but spent $999,999 making your

  • product, you only made one dollar in profit.

  • Revenue, expenses, and profit are the three basic concepts we need to decide how well

  • our business is doing financially.

  • When it comes to other financial business-speak, Investopedia or Accounting Coach are great

  • resources.

  • Lots of words might sound fancy, but the concepts are usually pretty simple.

  • Now that we speak the language, we can ask an important question: how do we actually

  • generate revenue?

  • Gotta make that money!

  • Last episode we learned how to be persuasive and hone our sales pitch, but we also care

  • about how customer sales can be structured, known as our revenue streams.

  • Basically, revenue streams are decided by what we're selling and how we want to sell

  • it.

  • Like how small water streams feed into big rivers, our revenue streams make up our whole

  • revenue.

  • If you have a physical product, a product sale or asset sale is a natural revenue stream.

  • There's a transfer of ownership rights, so the customer gets a physical product and

  • you get money.

  • As long as there have been civilizations trading, there's been some form of the product sale.

  • For example, a hardware store sells hardware.

  • A bookstore sells books.

  • Target sellswell

  • SO many things the dollar section is a dangerous place, my friends.

  • But maybe complete ownership isn't the goal at all.

  • In some cases, you could charge a usage fee, where customers pay based on how much they

  • use a thing you own.

  • Utility companies charge based on how much you leave the lights on.

  • Buying a whole power grid would be impossible!

  • And your cell phone carrier charges based on how much data you've used -- you're

  • not buying satellites.

  • Next, there's renting or leasing, which is slightly different.

  • You charge a fee to grant someone the exclusive rights to use a thing you own for a fixed

  • time period.

  • Here it doesn't matter how much they use it, but how long.

  • You get a recurring revenue stream, and the renter doesn't have to pay for the full

  • cost and responsibility of ownership.

  • Anyone who's moved can appreciate renting a moving truck for a few hours to haul your

  • boxes of stuff.

  • Seriously, where does it all come from??

  • It's also possible to rent places to live, or a lot of other specialty equipment, like

  • tractors or industrial mixers.

  • And licensing is like renting but for ideas -- basically, it's giving customers permission

  • to use protected intellectual property in exchange for a fee.

  • Licensing is especially common in the tech and media industries.

  • Patent-holders can grant other people the right to use their technology for a fee, or

  • creators can copyright their IP and sell licenses for other people to use it.

  • For example, Marmoset music supports emerging artists by licensing their music to large

  • corporate brands for storytelling, like in campaigns for the Academy Awards.

  • A popular revenue stream in the brave new world of TV and music streaming is charging

  • a subscription fee to sell continuous access to a service.

  • If you're a student, you can pay one convenient fee each month to get unlimited Hulu access

  • and ad-free music with Spotify.

  • It's like they don't even want you to study!

  • But there are offline subscriptions too, from meal-kit services like HelloFresh to boxes

  • of new clothes from Stitch Fix and Trunk Club, or even gym memberships.

  • Then, there are revenue streams if you're a middleman, like if customers are looking

  • for someone to act as a go-between during a negotiation or a transaction.

  • You can charge them a brokerage fee for brokering, or arranging, the deal.

  • Real estate agents earn their money this way, by getting a commission each time they successfully

  • match a buyer and seller.

  • And finally, you might move away from generating revenue directly from customers with advertising

  • -- promoting products, services, or brands from other companies for a fee.

  • Manyfreemiumservices, like mobile apps or YouTube, earn money this way -- by

  • showing ads to their free users.

  • Even the mighty Google generates revenue with advertising, by letting websites pay to appear

  • in the first two or three results slots in a search.

  • So there are a lot of options for revenue streams, and you don't have to pick just

  • one.

  • Let's explore this through an example in the Thought Bubble.

  • GoldieBlox is taking the toy industry by storm, and they're especially targeting gendered

  • marketing stereotypes for engineering toys.

  • They sell physical toy sets with a storybook paired with a construction kit, have two mobile

  • apps with activities focused on creating, and make original videos aimed at empowering

  • young women.

  • Their most obvious revenue stream is their product sales.

  • Customers can buy their six toy sets both in toy stores and online, and these sales

  • generate revenue.

  • The popularity of their toy sets was enough validation to show there's a customer demand,

  • so GoldieBlox expanded beyond toys to books.

  • They've published and sold four chapter books in bookstores and on Amazon.

  • GoldieBlox also looked for other businesses in the girl empowerment community to partner

  • with, and they created special kits for the Girl Scouts of America.

  • These were additional product sales that generated revenue, but instead of selling to individual

  • customers, they sold to other businesses.

  • And through their YouTube channel, where they release DIY videos to encourage youngmakers”,

  • GoldieBlox earns advertising revenue.

  • Advertisers pay YouTube for ad space, and YouTube pays creators depending on a handful

  • of factors, like how many views their videos get and how long people are watching.

  • But GoldieBlox is still looking for new ways to inspire young women and add more revenue

  • streams.

  • According to press releases, an animated show is in the works, which will likely generate

  • more revenue from an existing network like Disney or Netflix.

  • Or if they decide to go all-in and create their own content platform, maybe they'd

  • have a subscription fee.

  • So GoldieBlox is growing, but they started by focusing on just one natural revenue stream.

  • Thanks, Thought Bubble!

  • While you ultimately want to diversify, you don't have to do it all at once!

  • GoldieBlox matched revenue streams to their key activities and partners,

  • which makes sense because successful businesses stay focused on their value propositions.

  • If you're still having trouble deciding on revenue streams, look around to see what

  • your competitors are doing.

  • If what they've chosen seems successful and you like it, feel free to give those money-making

  • things a try.

  • And revenue streams change a lot, or a business might use multiple versions of the same stream,

  • so don't feel like you're stuck forever.

  • Like, if I wanted to be, oh I don't know... a YouTuber, writing and filming YouTube videos

  • would be some of my key activities, and YouTube would be one of my key partners.

  • So advertising would be one of my revenue streams, whether on the platform or by finding

  • sponsors.

  • But lots of successful YouTubers have expanded beyond YouTube, so maybe I decide to write

  • a book, or start my own line of merch.

  • These would add a couple product sale revenue streams.

  • Once I've built up an audience, I might form some relationships with other businesses

  • (like with Crash Course!).

  • Or I might pivot to other kinds of entertainment, like headlining concerts or starring in movies.

  • All of these give new revenue streams I can add to my overall revenue.

  • No matter the revenue stream, a big part of making money is setting prices that customers

  • can afford and let us keep our business running successfully.

  • Start by looking at costs and the competition.

  • How much do we need to charge to make at least a small profit?

  • What is our competition charging, and can we estimate their costs and calculate about

  • how much profit they're making?

  • Is that how much money we need or want to be bringing in?

  • Like we said before, it's common to underprice your products in the beginning, but that's

  • not a sound strategy in the long run.

  • You still don't want to charge $100 for that pizza when everyone else prices it at

  • $10!

  • As you become established, you can try out different pricing strategies.

  • The international consulting firm McKinsey stresses four of these:

  • A margin expander changes prices according to a competitive edge or offers different

  • things at different prices for different people.

  • This works well in markets with a lot of competition, because it helps you stand out.

  • Next, a pricing disruptor completely throws out the previous model they (or their competition)

  • has established to differentiate themselves or address a customer complaint.

  • Maybe your rideshare charges by the minute instead of by the mile, factor in risk, or

  • share profits with customers like REI's dividend distribution.

  • Third, a revenue driver uses prices to acquire new customers or bundles additional products

  • at good deals to get more out of existing customers.

  • Freemiummodels where you let customers try your product for free for a limited time

  • have become super popular.

  • And finally, a pricing pioneer is bold.

  • It's radical.

  • It's a pricing disruptor and a revenue driver all in one.

  • These entrepreneurs completely change up their pricing model, but they also introduce new

  • products or services to get more value for them and the customer.

  • No matter what, re-evaluating prices means listening to feedback from your customers

  • about what they like and needwhile also paying attention to the competition and your

  • costs.

  • The bottom line is: don't be intimidated by the vocab, and pick revenue streams that

  • are natural for your business and what your customers want.

  • Next time, we'll talk about costs and how to make sure you're planning for expenses

  • and making logical choices so you don't get hit with surprise bills.

  • Thanks for watching Crash Course Business, which is sponsored by Google.

  • And thanks to Thought Cafe for the beautiful graphics.

  • If you want to help keep Crash Course free for everybody, forever, you can join our community

  • on Patreon.

  • And if you want to learn even more about revenue, check out Crash Course Economics:

You know what business people really like to talk about?

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B1 CrashCourse revenue fee product profit pricing

Revenue Streams: Crash Course Entrepreneurship #13

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    林宜悉 posted on 2020/03/30
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