Revenue Models and the Business Plan in E-Commerce

Revenue Models and the Business Plan in E-Commerce Back to Table of Contents

Chapter 8 Revenue Models and the Business Plan in E-Commerce Section 8 -1 E-Commerce Revenue Models 8 -2 Revenue Models E-Commerce Business Plan and the Business Plan in E-Commerce 2

Revenue Models and the Business Plan in E-Commerce Section 8 -1 Why It’s Important A revenue model determines how a company makes money and how the company functions. A well thought out model can mean the difference between success and failure. Understanding what revenue models entail can help you understand more about how companies operate. Section 8 -1 3

Revenue Models and the Business Plan in E-Commerce Section 8 -1 Key Terms revenue model e-zine blog Section 8 -1 affiliate program licensing 4

Revenue Models and the Business Plan in E-Commerce What Is a Revenue Model? The type of revenue model you choose will depend on the type of product or service you intend to sell. Section 8 -1 revenue model how a company generates income 5

Types of Revenue Models E-Commerce Models Online Applications Product Sales consumer goods, retail, wholesale Advertising search engines, Web portals, directory pages, commercial Web sites Service online fee-for-service, fee-for-transaction, subscriptions Inter-Organizational procurement, supply chain, distribution Third-Party e-malls, online auctions, online exchanges Licensing intellectual rights, patents, copyrighted material Section 8 -1 6

Revenue Models and the Business Plan in E-Commerce Types of Revenue Models The most basic revenue model involves selling one product or related product line to customers who use your Web site as they would a print catalog. Section 8 -1 7

Revenue Models and the Business Plan in E-Commerce Types of Revenue Models There are two types of products you can sell: products you make, which you should sell at a higher price than they cost to make products you buy, which you should sell at a higher price than you paid for them Section 8 -1 8

Revenue Models and the Business Plan in E-Commerce Types of Revenue Models A wholesale price is the price a supplier charges a business for a product. A retail price is the price a business charges customers. Section 8 -1 9

Revenue Models and the Business Plan in E-Commerce Types of Revenue Models Like magazines, TV stations, and other media outlets, Web sites can sell advertising space as a source of revenue. An online business must ensure that its ads will reach its target audience. Section 8 -1 10

Revenue Models and the Business Plan in E-Commerce Types of Revenue Models Most magazines, newspapers, and information services earn income by selling advertising and subscriptions. An e-zine can also generate revenue by selling subscriptions. Section 8 -1 e-zine electronic magazine 11

Revenue Models and the Business Plan in E-Commerce Types of Revenue Models A specialized type of e-zine is the weblog, or blog. Section 8 -1 blog a public online journal kept by a writer, or blogger; short for Weblog 12

Revenue Models and the Business Plan in E-Commerce Types of Revenue Models Another way to generate revenue is through an affiliate program. In exchange for bringing business to your affiliates, you receive a commission, or a percentage of the sales they make on that business. Section 8 -1 affiliate program a partnership through which an online business delivers customers to other online businesses 13

Revenue Models and the Business Plan in E-Commerce Types of Revenue Models The idea behind licensing is simple. Assume you have created a product. Companies would pay you a licensing fee for the right to market, copy, or use the product. Section 8 -1 licensing the granting of permission to use intellectual property, such as music, photos, software programs, and inventions 14

Revenue Models and the Business Plan in E-Commerce Types of Revenue Models In the case of musical compositions, licensing is a critical form of protection. Whenever a musical work is performed for the public—beyond family and friends—the performers must obtain a license. Section 8 -1 15

Revenue Models and the Business Plan in E-Commerce Section 8 -1 Review 1. What is a revenue model? What is a major factor in determining the type of revenue model to use? 2. Why is it important for advertisers to know about a company’s customers before advertising on a particular site? 3. What is the difference between wholesale and retail prices? 4. What is a blog? How can it generate income? Section 8 -1 16

Revenue Models and the Business Plan in E-Commerce Section 8 -2 Why It’s Important Creating a company is hard work, and entrepreneurs must have a clear path, or business plan, laid out when they begin and as they continue to operate their businesses. Knowing what a business plan contains will help you to understand more about what creating and running a business entails. Section 8 -2 17

Revenue Models and the Business Plan in E-Commerce Section 8 -2 Key Terms business plan forward-looking statements income statement Section 8 -2 balance sheet assets liabilities 18

Revenue Models and the Business Plan in E-Commerce What Is a Business Plan? Your business will be defined by your choices. When you have to make tough decisions, such as whether to offer a new product, you’ll be able to refer to your business plan for guidance. Section 8 -2 19

Revenue Models and the Business Plan in E-Commerce What Is a Business Plan? Your business plan will be used to show potential investors what you hope to accomplish and how you plan to get there. Section 8 -2 business plan a detailed description of a business’s objectives, products and services, operations, potential customers, and financial resources 20

Elements of a Business Plan Cover Page Market Analysis Title Page Competitive Analysis Table of Contents Marketing Plan Executive Summary Operations Plan Management Plan Organizational Plan Company Description Financial Plan Product and Service Plan Growth Plan Mission and Vision Statements Contingency Plan Industry Overview Supporting Documents Section 8 -2 21

Revenue Models and the Business Plan in E-Commerce Elements of a Business Plan The executive summary of your business plan is a brief but detailed description of the company’s mission, objectives, products, and competition. It is used to convince the reader that an operation is well-planned and has a good chance of success. Section 8 -2 22

Revenue Models and the Business Plan in E-Commerce Elements of a Business Plan Your business plan should include forward-looking statements. Section 8 -2 forward-looking statements the parts of a business plan that describe the future of a company in both the short and the long term 23

Revenue Models and the Business Plan in E-Commerce Elements of a Business Plan Investors will want to know about the demographics of your Web site. Demographics include information about a customer’s age, income level, and location. This information is used to identify a target market for a business. Section 8 -2 24

Revenue Models and the Business Plan in E-Commerce Elements of a Business Plan An income statementis an important financial statement. A balance sheet is another important financial statement. Section 8 -2 income statement summarizes a company’s revenue and expenses for a period of time and shows profits or losses balance sheet shows how much a business is worth at a specific time 25

Revenue Models and the Business Plan in E-Commerce Elements of a Business Plan A balance sheet lists all of a business’s assets and liabilities and shows the net worth, or actual value of the business. Section 8 -2 assets all of the things owned by a business liabilities debts or lawsuits 26

Revenue Models and the Business Plan in E-Commerce Elements of a Business Plan No matter how you choose to raise money, your business plan will serve as your primary set of credentials. If you don’t need to raise money, your plan will serve as a road map for success. Section 8 -2 27

Revenue Models and the Business Plan in E-Commerce Section 8 -2 Review 1. What is a business plan? Why is it important? 2. What is an executive summary? Why is it an important component of a business plan? 3. What does an income statement reveal about a business? Why is it important? 4. What are customer demographics? Why is this information important? Section 8 -2 28

Revenue Models and the Business Plan in E-Commerce 29

End of Revenue Models and the Business Plan in E-Commerce Back to Table of Contents