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Considering your Revenue Model

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by Startacus Admin

Considering your Revenue Model? Here's some handy thoughts and tips that might just help!

Last month Startacus member Ghilaine Chan guest wrote for Startacus on her experience on the ABC (and D,E and F) of Business Networking

Now she's back and writes for Startacus from her experience on considering your Revenue Model. Over to Ghilaine to explain all...

revenue model"You have a thingamajig* that you want to build a business around. Great news!

*thingamajig is the term I will use for your product, service, time, item, idea that you are planning to sell.

So how are you going to make money selling this thingamajig? And this is important!

You need to make money otherwise you are not a business. You can plough your profits into good causes etc., but ultimately, to be able to run the business, you need to cover your costs at the bare minimum. Interestingly, I come across a lot of people who don't talk in the language of how much money they make or need to make to enable them to serve their current customers or grow their customer base. 

In preparation for this, I thought I should check that I have a clear idea how many revenue models there are. So that I don't forget any and to make sure I use the right terms to remain coherent (yes, I know, so very tricky for me!) I consulted Wikipedia.

Isn't Wikipedia great? I am glad I checked, there are some that I thought could be the same, but no, they have their own title. If you want a clear breakdown of them and examples, I thoroughly recommend it as easy to consume and understand.

Anyway, onto the important matter of giving some advice on how to narrow down which revenue model or models to revenue modelchoose when you are looking at your business.

Before you can decide on a revenue model, you need to decide or define your business model which, in turn, is based around the market and customer you want to sell to or who will likely buy from you.

That it seems like a vicious circle is not lost on me. The joy of revenue models is that you can choose one or many. You are not limited, but you do need to choose the right one(s) for you, otherwise your marketing plan/strategy is less likely to be successful.

Whilst not exhaustive, I hope I have laid out some questions that may help you determine which model would be the right one for you. You can use these answers to guide you through the different models and create a pros and cons list for each one, then prioritise.

Your first focus should always be on the person that you want/need to pay for your product and their own buying or consuming habits. You may have a great product that fits them down to the ground, but if they can't pay for it in the way that makes it affordable for them, they won't buy. For example, a business may want a single invoice once a year, an individual may want to spread the cost across a year. It may be that individuals don't want to pay but companies want the exposure to that demographic. It is your job to determine where your business or thingamajig fits and to have a clear detailed picture of who your customers are. 

We all have an ideal customer, and often, the best thing to do is shape what you do around them. This means you stand out in a busy marketplace and can focus on doing a great job for that niche.

Your company ethos and how you want to treat your customers will and should play a big part in the way that you want them to pay for your services. In my mind, the values you hold are important to you, they will be important to the right customers and will guide you in a way that market forces, revenue models, investment plans and business models don't.

revenue modelAs a business, how do you need to manage your cash flow or income?

Do you like predictability or are you someone who likes big risks and big wins (I would always recommend the former, but that is why I am not a trader at a bank). Will it make it easier to assess your delivery margins, profit per thingamajig, days per month, hours per day if you have consistent limited offerings or do you want to be bespoke? Understanding the reasons for these choices is more important than the choice itself. This will enable you to manage your business and adjust behaviour/resources etc. according to these variables.
 

What does the money need to cover, what are the overheads for the business and the thingamajig that you are selling? This is extremely important and often not quantified easily. You can't tell how much profit each thingamajig makes if you can't determine how much it costs to make. These are both direct and indirect costs.

You need to identify how many thingamajigs you can produce in a certain amount of time and then how much that time costs you.  If you sell time, there is only a finite amount of it, if you sell phones, you have a supply chain that will mean you cannot up production overnight (which may fall into a great marketing strategy, but I digress). 

You cannot understand your overall profitability without understanding your costs. 

You need to determine how much you can charge your customer, will the market bear the price you need to charge to cover your costs? How can you make sure that you can? If you can't, can you save money with optimisation? If you can't bring down the costs, are you really selling something that people need? 

In the simplest form, you need to know your break-even point and how long it will take to get there. Once you have defined your revenue stream/model you need to ensure that you have the chance to grow with that model (or others) in the future. Can you increase the price, increase your market etc.? 

The Revenue model options that result are the choices you have after answering these questions. Your marketing strategy will target how to get the customers you have defined and how you need to go about achieving your revenue."

Ghilaine helps people to run their businesses, making them more productive, efficient and customer focussed, by looking at what isn't working and getting it to run more smoothly.

She helps to save time and money, increase motivation and improve customer relationships, by working to do more with what you already have and spend money wisely to promote growth. She connects ideas and people to solve complex or difficult problems. She likes to make others’ lives easier.

www.ghilaine.co.uk | www.weareexponential.com

@LadyGhilaine 


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Published on: 13th September 2015

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