Four steps to new sources of income

Martin Egloff, what is Revenue Design?

We use Revenue Design to help companies discover new sources of income and to successfully place new revenue models on the market. A Revenue Design strategy (RDS) provides our customers with clear indicators for identifying, evaluating and efficiently operating revenue streams.

Every company is interested in opening up new sources of income. Why do many find this so difficult?

In many companies there is a lack of knowledge and understanding of new, profitable revenue models. In other words: The focus is on units sold, while potentially more lucrative service models or intelligent mechanisms for consumables remain alien. We continually hear statements like “Our sales people sell equipment, not services” or “Our customers are not yet ready”.

So introducing new sources of income, such as services, is a mindset problem?

To some extent, yes. While there is certainly awareness surrounding the possibilities of digitalisation and new services, many companies are uncertain as to how these can be realised and monetised profitably. In reality, however, the mindset or internal communication of innovations also acts as a barrier to the introduction of new revenue models. If sales and marketing don’t know what benefits – specifically, how much additional revenue and what customer value – a new service will offer, they also cannot promote it on the market.

Can you give us an example to show what it means to open up new sources of income?

Let’s take heat pumps: Manufacturers primarily make money today with the hardware, in other words the heat pumps. Added to this, if need be, are service contracts with fixed revenues each year. Meanwhile, the networking of the devices offers a whole new field of potential revenue streams. It is conceivable that different user groups – owners, service partners, property maintenance, etc. – will pay for new service models in the future. This extends to heat-as-a-service. For example, an apartment owner is willing to pay to ensure that a problem with the heating is not just discovered when the water in the shower is cold. The fascinating part now is to discover how much they are willing to pay for this service.

How does Revenue Design work?

A Revenue Design strategy proposes four steps. In the co-creation phase, we analyse the potential of existing and new, chargeable services. How much is the user willing to pay for added value? This is the key question here.

We then specify the new service in greater detail. We evaluate how much can be charged and test it if possible on the market with a simple proof of concept. We also conduct “make or buy” analyses.

In the implementation phase we realise the necessary components for the new revenue model and integrate them into the company’s IT environment, for example into the ERP system.

Finally, we help them to market the new service internally and externally. The buy-in of all participants is absolutely critical when launching new revenue models.

What makes Revenue Design different from other consulting strategies?

Revenue Design is a comprehensive consulting framework, which is unique in this form in Switzerland. It covers the entire product and service process – from establishing potential to evaluation through to implementation and marketing. A classic consulting company provides support for analysis and creation and a technology company supports implementation. At bbv we support our customers with both.

Even if, by the way, only part of a Revenue Design strategy is needed. For example, when a specific idea for a new revenue model exists but it has not yet been integrated into the business processes and into the system landscape.