Nice discussion yesterday with an entrepreneur trying to help him to improve the "contribution" of every client to his healthcare start-up. I am not at liberty of discussing the details of the business, but let's say it is a retail healthcare initiative where we try to sell a product for 100€ and then we charge a 25€ monthly fee to every user. To produce the product has a cost for us of 25€.

The question here (and in every healthcare initiative) is "where is the money"?

• In the sale of the product?
• In the recurrent revenues month after month?
  
• In services that we may sell in the future to this customers?

Business model #1: Sell at 100€ and charge 25€ monthly fee. Well, it certainly would work, but the price 100€ would obvioulsy detract some customers into buying, so we would have let's say a demand of 1000 customers. According to this, total value the first year would be:

(100-25)€*1.000 customers + 25€*12months*1.000 customers = 375.000€

Business model #2: What if we gave away products for free, focusing on generating revenues from monthly fees? We would sell at 0€ (with a loss of 25€) and then we would charge again 25€ per month. Giving away something for free usually generates more demand, let's say for the sake of the argument that with this new "free" strategy we sell 5.000 products instead of 1.000. Total value the first year would be:

(-25€)*5.000 customers + 25€*12months*5.000 cusotmers = 1.375.000€

So, yes, giving away the product for free is more interesting than charging 100€ for it. The question here is are we sure that we will get a demand of 5.000 if we give the product for free? If the answer is yes, then the decission is a no-brainer... give it for free!

Besides that, achieving a larger customer base is usually strategically more interesting because you may sell in the future more services to a larger community of customers, increasing therefore even more the revenues.

The point of this post is that business models depend at the end of the day on a bottomline, on a number... The more value we can get from any customer while having him/her happy, the better, so you need to fine-tune very carefully your business model in order to accomplish that.