A recent Fast Company magazine article suggests that an often overlooked way for a company to reinvent its business can be found in the revenue model.¹ A company's revenue model is the way it makes money by doing business with customers. This subject has implications for a company's sales organization - both the types of selling done by its sales people and the incentive compensation plan used to reward sales success. The purpose of this short is to provide an example to illustrate those implications.
TYPES OF REVENUE MODELS
The Fast Company article suggests that there are eight types of revenue models which we have summarized in the table below:
These are interesting distinctions and, no doubt when a company is considering industry disruption (for example, think Apple in the music industry), these models suggest new alternatives. Our experience, however, suggests that companies don't think first about the revenue model; they think about the value proposition that will be attractive to customers. The revenue model logically follows from it. And, if a sales force is involved with
¹ "Want to Upend an Entire Industry? Change its Revenue Stream", Fast Company, October 20, 2011
selling the value proposition to the customers, the revenue model must be operationalized in a manner that benefits all three - the customer, the company and the seller.
SALES ROLES AND INCENTIVE
COMPENSATION MEASURES
Our experience shows that revenue models, for the purpose of sales performance and incentive compensation, are reflected in three measurement and sales crediting categories:
- Booking, i.e., acceptance of customer's business
- Billing, i.e., invoicing of customer's purchase
- Payment, i.e., receipt of customer's purchase payment
A company's desire to drive usage of its product or service is typically reflected in the billing metric. Four of the revenue models (Advertising, Utility, Subscription, and License fees) are impacted by usage, i.e., the greater the usage the larger the billings. Realizing revenue through customer usage is top priority in many companies. With that is mind, how one company defined selling, roles and incentive compensation metrics to emphasize that priority is illustrated below:
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