Changing Your Business Model Series — The Fee-For-Service to Reverse Razor Blade Model

In our last newsletter, we focused on the Wholesale, Reseller, Manufacturing, and Distribution Business Models. 

Today, we’re focusing on the Fee-For-Service, Product + Paid Support, Product + Paid Add-Ons, the Razor Blade, and the Reverse Razor Blade Business Models.

Here is the list of business model categories we provided at the start of this series for you to reference as you evaluate models that you might be considering changing your business to —

• B2B (Business-to-Business) — where companies sell their solution to other businesses or organizations.

• B2C (Business to Consumer) — companies that sell to individual end consumers and may use retailers or wholesalers to sell to their customers.

• DTC (Direct to Consumer) — companies that sell directly to individual, end consumers.

• B2B2C (Business to Business to Consumer) — companies that sell their solution to other businesses to help those other businesses sell to consumers.

• C2C (Consumer to Consumer) — companies facilitate consumers selling to other consumers.

• B2C2B (Business to Consumer to Business) — companies who sell to the employees of other businesses who then advocate for their employer to buy the original company’s solution.

• B2G (Business to Government, also Business to Public Administration or Business to Public Sector) — companies sell their solution to government entities.

• C2G (Consumer to Government) — companies facilitate consumers directly interacting with a government entity.

Today’s Business Models — Fee-For-Service, Product + Paid Support, Product + Paid Add-Ons, Razor Blade, & Reverse Razor Blade Model

The Fee-For-Service Model includes businesses that sell their service to their customers for a fee. This model type can fall under the B2B, B2B2C, B2C, DTC, B2C2B, and B2G categories.

The Product + Paid Support Model includes businesses that sell their products or services to customers, and, afterward, further support is provided at an additional price to those customers as they use the product (or benefit from the initial service provided). This model type can fall under the B2B, B2B2C, B2C, DTC, B2C2B, and B2G categories.

The Product + Paid Add-Ons Model includes businesses that sell their product or service to customers, and additional add-on features or services are sold at a separate price. The business model type can fall under the B2B, B2C, B2B2C, B2C2B, and DTC categories.

The Razor Blade Business Model includes businesses that sell a product or service (sometimes at or below its cost to make it) and, afterward, sell disposables or consumables to their customers that are required to use the product or benefit from the initial service continuously. This model can fall under the B2B, B2C, B2B2C, and B2G categories.

The Reverse Razor Blade Model includes businesses that sell a high value (or high margin) product or service to customers upfront and low or free supportive (or companion) products or services are provided in order for the customer to fully use the product or get the most benefit from the initial service. This model can fall under the B2B, B2C, B2B2C, B2C2B, DTC, and B2G categories.

Mapping The Model: Fee-For-Service Model

If you mapped out the Fee-For-Service Model, it could look something like the following —

Let’s look into our example for this model.

Fee-For-Service Model Example

Industrial Light & Magic (ILM) is an Academy Award-winning, industry-leading VFX and animation company that has set the standard for visual effects since 1975.

The company focuses on providing Visual Development, StageCraft, Visual Effects, Feature Animation, and Experiences through 2000 employees across 5 worldwide studios to the Motion Picture, Television, Streaming, Commercial, and Attraction industries. They are known for providing their VFX services consistently "beyond expectations, on budget, and on time”. The incredible quality of their services has garnered them 50 Academy Award nominations with 16 Awards, 13 Emmy nominations with 8 Awards, 37 BAFTA nominations with 17 Awards, 119 VES nominations with 36 Awards, and 36 Academy SciTEch Awards. They have one of the most comprehensive and advanced digital effects production pipelines in the entertainment industry and they use their collective creative brain trust in their services to help storytellers bring their visions to life. 

Up next is…

Mapping The Model: Product + Paid Support Model

If you mapped out the Product + Paid Support Model, it could look something like the following —

Our example for this model is: HP.

Product + Paid Support Model Example

Hewlett-Packard (HP) is a technology company that sells a product and service portfolio of personal systems, printers, and 3D printer solutions.

They use a few different business models for their revenue streams. They use the Product + Paid Support model for the personal systems they sell, like PCs and printers for example. If a customer purchases an HP PC, they have the option to purchase HP SmartFriend. SmartFriend is friendly tech support from an on-call, personal IT expert who will answer all of a customer’s tech questions for their device through the following offerings: a monthly fee to assist with one primary device they own, a one-time service fee to solve their problem through a one-time question, or a customer can purchase a family plan that supports their entire family’s devices (up to four) for a monthly recurring fee. This Support service includes help with internet connection, device setup or installation, operating system or software updates, device performance, document & data backup, and email setup & support. They also allow customers to purchase an HP Care Pack to extend their PCs 1 year coverage to 3 years in case they have an accident with their device or need theft protection. 

For their printers, HP provides an HP All-In Plan so customers can experience hassle-free printing. If a customer purchases a plan, they are eligible for a new printer every 2 years, automatic ink delivery when their printer detects low levels of ink, and continuous 24/7 printer coverage if there’s ever an issue with their printer (including having Support ship a replacement printer if they aren’t able to solve the issue).

Mapping The Model: Product + Paid Add-Ons Model

If you mapped out the Product + Paid Add-Ons Model, it could look something like the following —

Product + Paid Add-Ons Model Example

DJI is a drone, camera systems, and videography support products manufacturer. They have a heavy focus on flying and camera stabilization systems to help visionary and talented creators bring their ideas to life. They utilize the Product + Pay For Add-On Model in the following ways —

If a customer is interested in buying a DJI Mavic 3 Pro drone, they could start with the first level package where they get the Mavic 3 Pro, the DJI RC remote control, 1 intelligent flight battery, 3 low-noise propellers, 1 portable charger, a drone cover, and a pair of DJI RC controller spare controller sticks. 

Or maybe, the customer decides they want to upgrade the package they are thinking of purchasing so they have access to additional add-on products that further improve their experience while using the Mavic 3 drone. They decide to purchase the package a few steps up that includes the drone, DJI RC Pro remote, a pair of replacment controller sticks, 3 batteries, 6 pairs of low-noise propellers, a 100W USB-C power adapter AC power cable, a 100W USB-C power adapter, 2 USB-C to USB-C cables, a 3 battery charging hub, the drone storage cover, a set of ND Filters, and a shoulder bag. Phew! They’ve got it all and are set to fly! Many of the items chosen in this example were not included in the original package and are obtainable through the higher-priced bundle. Customers can also buy a multitude of add-on products outside of what’s provided in any of the Mavic 3 Pro bundles on an individual basis to further improve their user experience when using their drones for videography.

Next is…

Mapping The Model: Razor Blade Model

If you mapped out the Razor Blade Model, it could look something like the following —

Razor Blade Model Example

Xbox is Microsoft’s video game console and video game brand. Microsoft manufactures its series of game consoles and their accessories (like controllers, headsets, and hard drives). It also designs and publishes video games (for the Xbox as well as PC and mobile games) through Xbox Game Studios and its 23 partner game development studios.

An important note (that’s maybe surprising for some) is that Microsoft’s series of consoles have always been sold to end consumers at a loss on purpose. Depending on the version of console being launched and sold at a given time, they would experience a loss of $100 - $200 per unit. They would then make back the loss and achieve profit from the sale of Xbox video games, content, and Xbox accessories. 

Our last model for today is the…

Mapping The Model: Reverse Razor Blade Model

If you mapped out the Razor Blade Model, it could look something like the following —

Reverse Razor Blade Model Example

Apple is a global technology company that manufactures consumer electronics, designs software, and provides services for its products to its end customers. Some of their products include the iPhone, iPad, Mac, iPod, Apple Watch, Apple TV, and accessories for the use of their products. 

Apple sells its products — like its iPhone — to customers at a high or premium price point and then provides free or low-priced companion products for its customers to use the device. These companion products include the various free apps provided on the iPhone at the initial purchase as well as apps that can be purchased via the App Store app on the phone. They also include various headphones they’ve designed, phone cases, charging blocks, and charging cords. One of the companion service they provide is AppleCare — a one-stop service for technical support, Apple hardware service, and software support. Customers can get their iPhone repaired or replaced if it damaged or lost.

Key Notes About About The Fee-For-Service, Product + Paid Support, Product + Paid Add-Ons, Razor Blade Model, and Reverse Razor Blade Models

Today’s models and the example companies were examples of how companies can choose a business model and revenue models to establish the type of customer experience they’d like their customers to have. 

If you research Industrial Lights & Magic more, you’ll find that their Service-For-A-Fee business model reflects the level of commitment and passion for the work they do within their industries of focus. This has led to them having almost a golden reputation because the services they provide at a premium price are inclusive of additional services and attention to customers that other companies do not invest in providing or are not able to invest in their relationship with their customers in the same way. They are able to provide a customer experience that’s beyond. They set the bar.

HP & DJI use the Product + Paid Support and Product + Paid Add-Ons Models respectively to make it even more convenient for their customers to use their products more quickly and to the fullest extent they choose. The customer experience DJI consumers have is customized to an extent by customers for customers and has led to a shared community of consumers who are raving fans and share in their love of DJI product’s capabilities. 

And Xbox and Apple both utilize versions of the Razor Model (the Razor Blade and the Reverse Razor Blade Model respectively) to provide consumers with immediate access to the experience of playing their desired video games (and being a part of the gaming world) or creating, being connected, or bettering their daily lives by using an Apple product like the iPhone to help them enhance & navigate their lives better and as they desire. 

Would any of these models allow your company to create a better experience for your customers AND your business?

Next Steps

We’re continuing our review of the business model categories and types mentioned in our first newsletter to help those brainstorming about changing your business model find a better fit for your business case.

If you’d like LUSID to help you work through your business model change and strategize around which business model is most appropriate for your company vision, you can set up a free call with us here. We’re excited to learn more about you and your company!

And feel free to reach out with any questions, comments, or additional thoughts you may have at [email protected]. We love connecting with visionary Founders, CEOs, and executive leadership teams working on impactful ventures.

Let’s Make Your Vision Your Reality.    

www.getlusid.com