Revenue Streams

[MrMonster]

Hi all,

I'm researching a startup at present but i'm unfamiliar with the names of different streams of income in order to research and make sure my financials are accurate, if I briefly describe them, could you put some insight into what they may be called and if you have experience with them and what sort of percentages/numbers you achieved?

The business idea is replicating another business in the same industry, but different sector so it's a proven model, i'm just struggling to identify exactly how they make money. A credit check on the business shows nearly £1,000,000 in shareholder funds so it's doing well to say the least.

The idea is a group of businesses, of which i'll utilise the buying power of all businesses to negotiate much better terms and prices for all aspects of their small business to help them save money. A buying group, or group purchasing business.

The way i'm looking to monetise is;

• Selling advertising space on email campaigns to the members

• Membership fee for both supplier and customers

• Rebate/Kickback on spend from members with suppliers who are involved in the scheme

• Affiliate sales from emails/website deals, how do I track these to ensure the suppliers are paying for spend of my members?

• Spend targets, ie if the members spend X amount, we will get additional rebate and split this amongst all members (plus ourselves as administrative charges

Is there anything else I could be missing that would benefit the business and it's members? Of course, the main incentive is to ensure the members are saving enough on their purchases to warrant the membership, but it also needs to be profitable for the amount of effort required to achieve the savings.

Thanks in advance

 

[kulture]

It doesn’t matter what you call an income stream. It is also irrelevant that a different established business in a different field is doing well. If you are struggling to see how they are making money then you are asking the wrong question and doing the wrong research.

If you want to create a buying group and profit from it you will need to establish whether you can get enough members to make it worthwhile and whether you can negotiate sufficient discounts from suppliers to make it worthwhile.

But most of all you need to establish trust with both members and suppliers that you know what you are doing and you know the market.

The basic question is why should a supplier pay you and additionally give bigger discounts to your members ? Would they not buy from the supplier anyway?

 

[MBE2017]

Agree with kulture above, unless you can convince both suppliers and clients it is in their interest, no one is likely to bite. Why would your buying group be preferred over another, let’s face it, more established one?

I wish you well but this is one party you do not want to be joining late.

 

[MOIC]

It’s an old method and is very difficult to set up these days. It was common in Italy 40 years ago. This was based on normal consumer products.

Kickback from suppliers is a no no, you’re expected to find the best suppliers and the best prices. If members find out, they’ll not be happy. You have to be honest and transparent in the contract you’ll be offering to members.

Alibaba has made it very easy to check prices on products, although it has its (many) flaws.

In the UK, most businesses will be very sceptical nowadays of using such a scheme, irrespective of the ‘advertised’ benefits.

 

[Mark T Jones]

I am aware that buyers groups operate successfully in specific wholesale trades- ultimately its all about volume most of your anticipated income streams are pipe dreams, particularly if you expect to run them together.

I'm assuming the company you refer to publishes full accounts? If so, these might give some insight to where their revenue comes from.

Ultimately, as others have pointed out, it's all about why your prospects will use you - and you will need to convert PDQ to get the volumes you need

 

[Deleted member 335660]

Just because it has a £1m shareholder fund does not mean it’s doing well. The money is probably required to set up the infrastructure to handle it all.

We are a retailer and belong to several portals that offer a range of products from suppliers. We do not pay any membership fees, they make their money on the prices they sell them at.

In some cases their prices are higher than if we bought direct from the supplier, but they offer smaller minimum quantities, credit and cover international tariff fees etc. In other cases they help smaller suppliers get off the ground.

I cannot see companies paying membership fees unless there are real benefits in a specialist area.

 

[Financial-Modeller]

Two considerations @MrMonster :

Your prospective customers will see you as an additional supplier, with additional logistics, admin, and headaches if you don't deliver what you said you would, when you said you would. Try to concentrate on reducing these to provide more value and less aggravation.

Have you considered how the goods that you order will be paid for? You don't want to just become a bank to everyone else.

 

[MrMonster]

Thank you all for the replies. I've done plenty of research but without giving the idea away on an open forum it's difficult for me to go into too much detail.

It's in an industry where volume is ultimately the be all and end all of pricing. If you spend 5k a month you'll get x price, if you spend 500k a month you'll get X price. My idea is to joining all these small 5ks into the 500k so everyone makes a saving and then this is an easy sell to the suppliers. I'll bring you 500k worth of revenue but this is what we want to pay. I might add I'm in the industry so I know this pricing structure well.

My biggest issue is to administrate the orders etc without the customers buying via the buying groups account which would create issues for cash flow.

I've identified the revenue streams of the larger company, 50+m turnover, in my sector but not in the exact area I'll be launching mine so they shouldn't be a threat but could brcome competition if we do well. I just don't know the exact names for the revenue streams they useN, mentioned in the original post, so I can do more research into them before I dive in.

 

[Washington]

Thank you all for the replies. I've done plenty of research but without giving the idea away on an open forum it's difficult for me to go into too much detail.

It's in an industry where volume is ultimately the be all and end all of pricing. If you spend 5k a month you'll get x price, if you spend 500k a month you'll get X price. My idea is to joining all these small 5ks into the 500k so everyone makes a saving and then this is an easy sell to the suppliers. I'll bring you 500k worth of revenue but this is what we want to pay. I might add I'm in the industry so I know this pricing structure well.

My biggest issue is to administrate the orders etc without the customers buying via the buying groups account which would create issues for cash flow.

I've identified the revenue streams of the larger company, 50+m turnover, in my sector but not in the exact area I'll be launching mine so they shouldn't be a threat but could brcome competition if we do well. I just don't know the exact names for the revenue streams they useN, mentioned in the original post, so I can do more research into them before I dive in.

I used to be in a buying group. The group I was in was 'not for profit'....it was not charity.... it was commerce, however, it was a band of businesses buying together for their mutual benefit.

The members paid a membership fee (say £2k for the sake of this example)

The group (or you in this case) negotiate a settlement discount for the member, so if paid on time the member benefits from the additional discount

The buying group runs exhibitions for the members to attend where the suppliers show products and/or services, and products are offered at the exhibitions at special prices or with exclusivity or both.

The buying group makes revenue to pay the costs of the group from selling exhibition space to potential suppliers (the lure of focussed buyers should entice them to exhibit).

The buying group (or you in this case) negotiate a percentage levy on all turnover from the suppliers (say 2% in this case). This is paid to you on the date(s) you agree which could be every 3month/6month/12month. The levy is for accredited suppliers, not just exhibitors, so members should focus on buying goods and services from accredited suppliers.

The amount of levy is negotiated by you (the buying group) and the suppliers. The levy is returned to the member as a rebate on a set date every year.

If a members turnover was £500k, you would get £10k back to give them as a rebate, so £8k + their £2k membership returned.

So what happened above was that the member got all their £2k membership back plus an extra £8k. The only stipulation that was made in the group was that if the staff costs and running costs of the buying group were not covered by the exhibition revenue, that the buying group would be able to tap into the rebate (proportionately of course from all members) to pay the running costs of the group. If I remember correctly, in my time in the group, everyone got at least their membership money back every year, many got tens of thousands of pounds in rebate, it all depended on their turnover. The admin costs were always covered by exhibition revenue. The buying group was lean, it had 3-4 employees and a management committee with elected members on the board

As I stated earlier, the above example was a group of businesses with a common aim and the buying group was owned by all members, and not owned by a 'for profit' business structure. The group was built on simplicity and was not a central invoicing organisation...that takes on a whole different level of complications

If you set up such a group, you could possibly take a percentage of the levy and the exhibition costs plus some of the initiatives you mention in your opening post, however you would have to be very open on how you take your revenue with the members. These types of organisations are built on mutual trust.

If you can get enough members in the group, you will be able to get the attention of suppliers and make your group difficult to ignore.

Just a friendly word of warning. Smaller independent businesses are sometimes 'independent' for a reason... they like to be in control of their own destiny and make their own decisions. It is a great skill in getting a group of independents to act as one and buy as a group, actually sometimes it is like hearding cats, if you can do this, you deserve your money !!

Good luck in your endeavours !

 

[Washington]

My biggest issue is to administrate the orders etc without the customers buying via the buying groups account which would create issues for cash flow.

Regarding this, you could ask the supplier to give you a quarterly return showing the turnover of the member (this is the basis on which they would pay your levy)

When you rebate the levy back to the member you give them a turnover report from the supplier which shows the annual turnover. The member checks to confirm the turnover is the same as the supplier has reported, if it is different, they let you know.

This way, you totally take yourself away from an enormous amount of administration and just let the orders flow between the member and the supplier.

It is not a science as not every member will forensically check the statements but most will. There will also be slight differences based on invoicing/accounting periods

 

[Washington]

Agree with kulture above, unless you can convince both suppliers and clients it is in their interest, no one is likely to bite. Why would your buying group be preferred over another, let’s face it, more established one?

I wish you well but this is one party you do not want to be joining late.

Not all buying groups let everyone applicant join. Some members join to get exclusive territories to gain an advantage over their competitors, so if you have two good businesses in the same area, there could still be a good business outside of a buying group who may be interested to join a group.

Actually, a more established group could have members with agreed historic territory exclusivity that could be bad for the group as new dynamic businesses start up and begin to thrive in the same areas as some of the older existing businesses can get too comfortable and don't want to grow. I have seen it first hand.

The OP should write into a membership agreement that the directors of the buying group have the right to accept or vote in new members above any exclusivity agreements

 

[WaveJumper]

I noticed in you thread the line - "The idea is a group of businesses, of which i'll utilise the buying power of all businesses to negotiate much better terms and prices for all aspects of their small business to help them save money".

If and I am just assuming perhaps you may mean, waste collection, energy usage or the many other items small business's use on a regular basis you may want to take a look at many of the town centre management groups around the country who have already set these type of schemes up.

 

[The Byre]

I'm researching a startup at present but i'm unfamiliar with the names of different streams of income in order to research and make sure my financials are accurate, if I briefly describe them, could you put some insight into what they may be called

Your first question is easy - it's called a wholesaler. Whether it is formed by a group of businesses for their mutual benefit or is an independent business in its own right, it looks mightily like a wholesaler to me!

and if you have experience with them and what sort of percentages/numbers you achieved?

It is known as a mixed calculation - some lines get just 10% markup. some you double your money. You may even lose money on some lines. Everything depends on which market you are in and it is vital that you know and understand that market very thoroughly.

 

[MBE2017]

Rather than a wholesaler, I think it is a buying group model personally, where members group ordering power together, but can still either order direct or through the group.