Every successful startup has a revenue model that is clearly defined within the parameters of feasibility and scalability. A sound revenue model will ensure that your business maintains the capability to grow and expand its offerings in the long run, and will also enable you to present a more convincing pitch to your investors. Here are six questions to consider while determining your revenue model:
1. Is your idea unique? One way to know this is to study your product offering and analyze whether it sets you apart from the competition. Think of one unique feature, benefit or value addition that you can promote for your product and that will give your business more clarity – a vital ingredient for business success and a foundation stone for a strong revenue model.
2. Who is your customer? Analyzing your audience is very important, as is proper segmentation. Once you gain an in-depth perspective of your customers, you will be in a better position to decide how you can drive sales and in turn, revenue from them.
Knowing how your customers prefer to pay for services in the industry that you are part of will also help for e.g. whether they prefer annual subscriptions, installment, pay-as-you-go or prepaid services. Once you find out their preferences it will be easier to work on your own payment model for your product.
3. What are your major costs? Clarity on the major areas that your company is spending will help you define your costs, and come up with a strategy on how to recover them.
It will also help you understand whether you need to cut down on any unnecessary costs or spend more in a particular area. Base your revenue model around recovering costs and having a margin that is optimum for you to break even, as well as leave room for some more.
4. What will be the payment method? A major part of determining your revenue model involves deciding how your customers will pay. It depends on your product and your finances – you could charge an annual subscription, or have a premium version of your product with features that users would want to pay for. If your product is an app you could offer value-additions in the form of in-app sales.
Bear in mind that you will also have to keep in mind the nature of cash flows into your company to determine a suitable way to get payments.
5. Do you have a marketing strategy that will sell? Your revenue model needs to be convincing both to your customers as well as to your investors. Hence it is important to be able to justify it, and market it so that it is positioned to get you good results. In the long run, your cash flows and the economic environment will also affect how you generate revenue and so the revenue model requires adequate planning and marketing.
Figuring out a revenue model is one of the most crucial decisions you could take for your business. If you manage to find concrete answers to all the above questions, you will be able to develop a model that is sustainable, scalable and usable in the long run.