Different revenue models for B2B companies - which work best in sports, media and entertainment?
When we are pitched by different companies, we see a huge variety of revenue models. Normally, you can predict which types of company will opt for which revenue model. A B2B company is more likely to be a SaaS business or take a share of transactions (especially with something like ticketing) whilst a B2C company might be more focused on subscription revenues or in-app purchases.
I wanted to use this blog to look at the different types of revenue models that we are seeing, and what is working best for B2B technology companies selling into the sports, media and entertainment vertical. But also which revenue models are most appropriate for selling into an industry with its own structures (eg varying length of seasons and individual competition formats) and organisations with different levels of reliance on TV rights, sponsorship, ticketing as well as different perspectives on social media and direct-to-consumer models. So what are the most prevalent models:
1. Recurring SaaS revenue + customer success
This is the model used by over half of the companies at Sports Loft. Customers pay a recurring monthly fee with additional support available if needed and flexibility can be built in with tiered pricing such as “gold”, “silver” and “bronze” models. It enables a very obvious link between an increase in the number of customers and an increase in revenue, along with a greater ability to be able to predict revenue growth without the big jumps or dips associated with one-off payments. This means it easily fits into financial models and comparative metrics such as ARR, making it easier to assess for potential investors.
A SaaS model really requires that the customer should be able to use a lot of the functionality themselves, even if some initial setup is required. This could mean that the customer may have to hire somebody or use an agency, so the total cost of ownership can be different to the monthly SaaS fee. We sometimes see a perceived mis-match between the sports industry and a SaaS model around timing – most commonly if the season is only a few months long (ie NFL, cricket etc ..) or an event only last for a few days or weeks, how does this fit with a pricing structure based on at least a year of recurring payments?
However, the biggest debate for founders adopting a SaaS based approach, often comes around the “customer success” element of the model:
· How much support should be provided in order to get the customer setup and using the product? If you don’t do it, the risk is that the customer might not get the most out of the product and therefore cancel at the end of their contract (ie churn).
· Can you charge for “customer success”? If you think you can, what do you deliver for free as the base service and what is charged for?
· If you’ve got access to data that your clients don’t have (or are not using even if they have access to it) how do you present that back to them? Especially if it would help them get more out of your product. Can you charge for that?
Overall, I like this model. The predictability of revenues and the link to growth is a strong plus, and rather than being an issue, when “customer success” is done well, it can lead to great case studies and loyal customers (look at Tagboard, Satisfi and Slate as examples). Plus I think any perceived mis-alignment between shot term events in the sports industry and recurring payments inherent in the SaaS model can be overcome, especially as teams and leagues increasingly move to more of an “always-on” model.
2. Consulting plus product
The founders of start-up companies often have very direct expertise of the pain points of the people that they are selling to and a strong vision of where the market is going. So it’s not uncommon for those founders to be asked to provide consultancy to their potential clients – and often it's a much easier thing for potential clients to buy (especially in the sports and media industry which is very used to buying from agencies rather than skilling-up internally). This is also a great way to use the knowledge gained from these customers to develop the product to meet their needs – you just need to make sure that it’s a need that others will have as well!
However, this model doesn’t scale well. If the clients are asking for consultancy from the founder, then it becomes very reliant on the individual when the intention was to build a product-based company, not a consultancy firm with the infrastructure to deliver projects for clients. As the founder, at what point do you extricate yourself and focus on building your product?
This model works best when the companies are building trust with clients, and are identifying where their solution fits best alongside the rest of a clients’ tech stack. In the sports industry, where a product adds the most value to a client can be different every time so this approach really helps to identify product opportunities. It’s a great way to gather use cases and in some cases, bring in much needed additional revenue, but you’re not proving to potential investors that you can build and deliver a product.
3. Build and maintenance
This is a model that is pretty rare amongst member companies at Sports Loft, but is one we often see from companies who are pitching to us. In many ways, it is much more akin to a web development route where you are paid to build the product, which can often be on quite a bespoke basis, then charge an amount to keep it looked after for the client – eg $25k to build the “experiences” and then $1k per month to keep it maintained.
Whilst you do get some recurring revenue, it’s a much smaller proportion than the upfront development fees and inevitably leads to always having to find new business, with less of a base to build from. It also means that as you are often starting each project from scratch, you have less data to learn and refine your commercial model. But it can work well in the sports / media industry as these can then be self-contained projects such as a kit launch, a sponsorship activation or fan engagement around an event that only lasts a short period of time.
I don’t like this model as much as the others. The revenues can be much harder to predict and you are always reliant on finding new business. Whilst it can work well in the sports / media vertical, it’s a harder way to build a big business – but it can work as a stepping stone for companies to get to a more SaaS based model.
4. Revenue Share
The “go big or go home” model. Of all the models we see, this is normally the one where there is the fastest growth rates and the largest growth potential – but it really needs to tap into a large existing market, or ones that are developing quickly. In theory, this should be the easiest to sell-in to potential clients as they have minimal downside with no / minimal upfront costs (although if they invested nothing in the product upfront, then they often have minimal incentive to make it a success).
One question that often comes up with this model, is that if you do a revenue share, is that % added on top of the cost to the end customer? Or something that is taken out of the seller’s revenue? The other question is at what point do the shared revenues increase to such a stage that the client looks to move a fixed price model, because even though they are making money, the client doesn’t like paying out an increasingly large sum as a revenue share, even if it is only a small % of the overall money they are making.
This model is great if you have a product where you can clearly define the success and attribute it to the technology, as well as having a large market with lots of transactions and / or high value transactions. At Sports Loft, FEVO is an excellent example of this and in such cases it can lead to fast growth and a large business. However, it’s less good when it is a model adopted primarily as route aimed at reducing the objections to customer adoption.
The biggest debate for founders adopting a SaaS based approach, often comes around the “customer success” element of the model.