Revenue model is the most critical part of any business or startup. It is about how an organization generates income and profitability, what are the sources of income.
Revenue sources fall under 4 major categories;
- Margins from Sale or Distribution of Products
- Margins from Sale or Offering of services
- From interest from deposits
Debate these aspects to build in a Solid Revenue Model;
- Is your value proposition strong enough; Are your customers seeing the value? Willing to buy your product / service by paying the price you tag to it? Don’t know the answer yet? Go back to your potential customers and ask. Do a research. It makes sense to delay your launch than to stay in the hollow cast value proposition. A marketing research exposes where your offerings stand in the mind of the customer. No intelligence can beat to understand what Customers say can what customers do…Take the feedback.
- Get your numbers right; Before you develop that app or create that product, get your projections right. It also means getting your product / service right through a diligent market research. Questioning the numbers will surface the flaws in the models.
- What’s your plan; Get your gestation timelines clearly estimated. When will your sales start and cash flow begins? The investment you have put in, will it last till the money comes in from customers.
- Multiple Streams; It always makes sense to have a primary and secondary stream of business or even multiple streams of revenues. Revenue models have to be dynamic in nature due to changing market scenario, competition and customer preferences.
- Timelines and critical reviews; Build in a reasonable timeline on when to effect the course corrections. Get the backup plans built in the model.
- Mitigating risks; Any business / revenue model should take into account the risks of various types. Markets being so volatile you would have to accommodate for risks (regulatory, customer preferences, competition, pricing, value propositions and more)
- 3rd party Validation; Throw up your Revenue plan to a few experts who will play devil’s advocate. Answering them to the last detail will give you more clarity, with various perspectives coming from their knowledge and experience. Also shall help you for course correction and answer the VCs, Investors when you raise investments. This will also correct the Revenue Model Myopia.
- Question yourself; Do you have unit profitability? If not when will you achieve it?
Reduce the Uncertainty, by doing a thorough validation of your revenue model. Remember it’s as simple as; Successful business = Strong Revenue model.