What builds a Revenue Model of your Startup

Startups that want to stay in the game must have a well-thought-out plan in place from the very start. With increasing competition, it is crucial to take informed decisions so as to not put the company’s success at stake.

While planning, most entrepreneurs confuse the terms business model and revenue model. Simply put, your business model gives a more holistic view of your strategies and incorporates elements like target segment, sales strategy and marketing. Revenue model on the other hand, is focused only on how you plan to make money through your business, including your revenue channels.

Revenue model should be strategically developed by startups so that they have a fair idea of the possible revenue streams and future milestones. Revenue model is useful for entrepreneurs and investors alike, simply because it deals with one of the most important aspects of the business. Here are some points to keep in mind while developing your revenue model:

Customers will always remain the backbone of any business. Before you start developing your revenue model, you must be able to identify those people who will buy your product. Knowledge of your entire target market not enough because it includes even those individuals who may not be able to afford your product. You should have precise information about the segment that can benefit from your product and has the means to buy it. 

Customer acquisition requires the use of both money and effort, hence, it is a good idea to narrow your focus to those clients who have a better chance of adding to your sales and revenue. 

Once you have your product or service in place and have a fair idea of your target audience, you need to think about all those ways it can make money. You can generate revenue through different sources, such as subscription fee, advertisements and licensing content to third parties. You should consider every possible stream before shortlisting the most appropriate ones. Narrowing down to a few streams is also important because time and cost are involved in setting them up. 

Thus, after proper evaluation, you will know the most efficient revenue streams for your startup.

Once you have a thorough understanding of your potential revenue streams, you should start focussing on pricing your product or service. Pricing is extremely crucial because although you want to have decent margins, you cannot set the bar so high that some consumers are unable to afford it. 

You can also gather inputs from prospective customers while conducting your market validation process. You can specifically ask them how much they will be willing to pay for your product. While setting the price point, you must also keep in mind your long term revenue targets and cost structure. You should also be open to adjustments once you enter the market and start getting feedback. 

Your revenue model should also include your financial projections. Computing figures for the future is not an easy task because variables are uncertain and sometimes unknown. You should try and incorporate all aspects while making your projections and ensure that they are not too ambitious.

Financial projections are crucial because they help you and your team set appropriate targets while giving investors an idea about your growth potential.

While making your business plans, you must give adequate attention to your revenue model. It will set the tone for your present and future incomes. Startups that have proper plans in place will find it far easier to carry out their tasks and make a place for themselves in the market.