Since monetization can take on different meanings depending on the context, your business model, or a variety of other factors; let’s first agree to its definition. Monetization means to convert something (product, service, creation, intellectual property, your brand, etc.) into revenue-generating activities, services, or assets – in other words, cash. Typically, most people think of monetization as deriving revenue from the users of their products and services. While this is true, it’s not the only way to monetize your offerings. And as the world changes, it’s not uncommon that the monetization strategy you choose today could change over time.
For example, website owners can sell ad space to businesses, sell digital products, offer paid memberships, publish sponsored posts or product reviews, place premium content behind paywalls, improve existing websites and flip them, and even ask for donations. Video-sharing websites like YouTube collect user data across their platforms. Then they use the data to target advertising and sell user data to companies that bid for the opportunity to display their ads to users matching their target market buyer personas. For our last example, software companies can achieve monetization through paid advertising or by bundling third-party applications (adware) with either freeware or shareware applications.
Choosing A Monetization Strategy: An Overview
When it comes to determining the monetization strategy that yields the most revenue, it’s important to start the process by considering several things. Think about your business model, where your company is (start-up, enterprise or in between), the products and services you sell, the lifecycle stages of your products and services and your customer buyer persona just to name a few.
Now that you have a baseline, let’s look at five of the most common monetization strategies.
1) Subscription-based strategies
This monetization model encompasses a variety of pricing strategies, including flat-rate, tiered pricing, per user/per unit, and freemium. The subscription pricing model provides you with a steady and predictable revenue stream and enables you to align price with value.
2) Consumption-based strategies
Consumption-based billing gives you the flexibility to develop innovative pricing schemes based on the usage of your products or services such as application programming interface (API) calls, downloads, seats, text messages, minutes, bandwidth, water, electricity, gas usage, etc. Common consumption-based monetization strategies include pay-as-you-go, tiered pricing, and volume pricing.
3) Dynamic-based strategies
Whether formula-based pricing, time-based pricing, demand-based pricing, or event-based pricing, this monetization model gives you nearly unlimited flexibility in pricing and packaging your offerings. For example, we all know that airfare will vary – sometimes substantially – depending on the flight time of day/day of the week, demand for certain flights, and busy seasons such as the holidays.
4) Hybrid-based strategies
When none of the monetization strategies meet your unique needs, hybrid pricing enables you to combine a variety of pricing models such as flat-rate, recurring, subscription, consumption-based and a la carte pricing models to create differentiated packages and bundles.
5) Recurring-based strategies
Whether you’re selling hardware, services, maintenance, etc., your monetization strategy should encompass a combination of recurring services with usage or consumption-based aspects. For instance, charge by skill set (project, time and materials, milestones, hourly, etc.), charge by service – one-time, recurring, or usage-based such as installation, recurring maintenance, and customer care hours consumed, or charge by asset by either selling the asset outright or leasing.
It’s important to remember that each monetization strategy has advantages and disadvantages. For example, freemium models enable users to try before they buy aiding in the sales process. However, revenue can be lost on freemium users that don’t convert to a paying pricing model. Given its predictive revenue stream, the subscription-based strategy is an extremely popular and growing pricing model, but for this strategy to deliver long-term monetization the focus needs to be on customer retention rather than acquisition.
The monetization strategies above are just a sampling, and the only thing standing between finding the right monetization strategy for your unique business requirements is innovation. Check out this free white paper on Monetization Models: The Definitive Guide to Modern Billing Models to dig a bit deeper.
Monetize Any Revenue Opportunity
While each monetization strategy is unique, the one thing they all have in common is in requiring an agile monetization platform (AMP). For your monetization strategy to succeed, you need a system that:
- Allows you to pivot in real-time
- Conforms to your business model
- Captures new revenue streams faster than the competition
- Enhances front office functions by providing faster time to market, monetization of products/services, and improved customer retention
The right AMP provides the flexibility to quickly turn ideas into revenue by supporting any business model and any combination of monetization strategies on a single platform. BillingPlatform’s cloud-based system seamlessly integrates to your other systems to support the entire monetization lifecycle. With unmatched flexibility, it encompasses the full prospect to disclosure process, including product development, CPQ, billing and rating, charging, collections, revenue recognition, and customer renewal. Ready to learn more about our industry-leading solution? Contact our experts today.
