revenue appreciation: introduction to finding a revenue model
DESCRIPTION
On April 24, we conducted a two hour exploration of revenue and what it takes to make a 1 dollar. The session was designed to open thinking to possibilities of making revenue in a start-up, and pitfalls chasing particular models.TRANSCRIPT
Prepared for directors of
Hong Kong companies
As of April 2014
REVENUE
APPRECIATION:
INTRODUCTION
www.futurebooks.com
HELP MICRO BRANDS
Zelos fully
funded via
Kickstarter
ABOUT
REVENUE
www.futurebooks.com
ANSWER THE FUNDAMENTALS
Pain point
Value proposition
Revenue model
http://futurebooks.com.sg/blog/writing-business-plans-that-speak-to-investors/2308
www.futurebooks.com
OVERVIEW
1. Market size
2. Who should pay?
3. Build revenue into tech
4. Price perception
5. Competitors
www.futurebooks.com
ENTREPRENEURS HATE BOOKKEEPING
I have no
time for it.
I don’t
understand it.
It adds no
value.
I hate it.
It’s for bean
countersWhatever
www.futurebooks.com
CFO IS A POWERFUL + CREATIVE CHARACTER
I love non-
GAAP metrics
www.futurebooks.com
CFO IS A POWERFUL + CREATIVE CHARACTER
How should we
account for revenue?
www.futurebooks.com.sg
ERIC STUDIED MANUFACTURING
ESTIMATING
MARKET SIZE
www.futurebooks.com
3,000 BLOG STORES IN SINGAPORE
Only 10 are addressable
www.futurebooks.com
3D PRINTER FOR DENTISTS
Capital expenditure by a
dentists
www.futurebooks.com
LIMITS ON SCALABILITY
Govt. regulation
Customer behaviour
WHO PAYS?
www.futurebooks.com
WHO WILL PAY FOR IT?
End users / buyers
Sellers
Advertisers or sponsors
Govt subsidies (medical reliefs etc)
The end user doesn’t
always pick up the bill.
www.futurebooks.com
BEHAVIOURAL SEGMENTATION
Traditional segmentation has
historically relied on geography or
demographic traits.
Behavioral segmentation looks to the
customer to see how they use the
product, on what platforms or
through what channels.
Saul Berman, Not for
Free: Revenue Strategies
for a New World
www.futurebooks.com
HYPOTHETICAL F+B SPEND PER ANNUM
USD
Revenue 2,000,000
Annual expenditure
COGS 500,000
Equipment and maintenance 50,000
Salary 500,000
Rent 250,000
Public relations 20,000
Utilities 30,000
You are here
www.futurebooks.com
MORE TRANSACTIONAL THE REVENUE MODEL, THE LESS EXPOSURE
www.futurebooks.com
INTERMEDIARIES
Entire business built on
intermediary called
recruiters
www.futurebooks.com
HYPOTHETICAL RECRUITER SPEND PER ANNUM
USD
Revenue 5,000,000
Annual expenditure
Salary 750,000
Rent 150,000
Recruitment ads 75,000
Utilities 25,000
You are here
www.futurebooks.com
VALUE CHAIN
Translate a menu
Menulance
Embed menu
Menu Modo
Host a menu
Let’s Eat
Hottest part of the value
chain is here.
www.futurebooks.com
UNDERSTAND
Revenue
Line item spend
Trends and behaviour
http://futurebooks.com.sg/blog/writing-business-plans-that-speak-to-investors/2308
BUILD REVENUE
INTO THE
PRODUCT
www.futurebooks.com
LAST MINUTE BUSINESS PLAN
The product
Revenue model
Sales projections
www.futurebooks.com
INTEGRATED BUSINESS PLAN
Revenue, product
and sales integrated
in one story
www.futurebooks.com
POSSIBLE REVENUE MODELS
Advertising
SMS sent to twitter
Pay-per-tweet
PRICE
PERCEPTION +
FREEMIUM
www.futurebooks.com.sg
SHOULD WE MAKE IT FREE?
Free now. Upsell later.
www.futurebooks.com.sg
SHOULD WE MAKE IT FREE?
Nightclubs replaced
alcohol with water
and energy drinks.
www.futurebooks.com
HONDA MSX125
Saul Berman, Not for
Free: Revenue Strategies
for a New World
Price rose in
2014
www.futurebooks.com
WHAT EFFECT DOES PRICE HAVE?
Qty
$
Inelastic
demand
P2
P1
Q2 Q1 Qty
$
P2
P1
Q2 Q1
Elastic
demand
demand demand
www.futurebooks.com
GOOGLE DON’T MAKE FREE PRODUCTS
Intermediary
market of sellers
Mums and
pop shops
www.futurebooks.com
UNDERSTAND
Effects of free
Effects of a discount
When price can rise
http://futurebooks.com.sg/blog/writing-business-plans-that-speak-to-investors/2308
COMPETITORS
www.futurebooks.com
WRONG ASSUMPTIONS
$600 price point
$100 to acquire a customer
Marketing-focus
http://futurebooks.com.sg/blog/writing-business-plans-that-speak-to-investors/2308
www.futurebooks.com
MAKE MISTAKES AT THE LOWEST COST.
Use an eye
dropper, not a
bucket
www.futurebooks.com
IDENTIFY REVENUE DRIVERS
Director drawings
Travel allowance
iPad purchase
http://futurebooks.com.sg/blog/writing-business-plans-that-speak-to-investors/2308
www.futurebooks.com.sg
DO YOU REALLY NEED TO BUY IT?
Buy items which contribute
directly to revenue
Think twice.
www.futurebooks.com
WHICH CUSTOMER TO SPEND ON?
Customer acquisition
Cost of acquiring
Cost of conversion
from free to paid
Customer retention
Cost of maintaining
Life-time value
Upsell
An existing
customer is 3 times
more profitable
www.futurebooks.com
WHEN DO WE MAKE REVENUE?
New product, new marketFollow on product, existing
market
Rate of revenue
making (cash)
Rate of revenue
making
(accrual)
Time Time
Re
ve
nu
e
Re
ve
nu
e
Revenu
e
lag
Revenu
e
lag
www.futurebooks.com
UNDERSTAND
Revenue drivers
Test at lowest cost
Know the metrics
http://futurebooks.com.sg/blog/writing-business-plans-that-speak-to-investors/2308
www.futurebooks.com
TERMS OF USE
Restrictions on Use of Contents
1. Except as otherwise provided, the Contents of this
Document shall not be reproduced, republished, uploaded,
posted, transmitted or otherwise distributed in any way,
without the prior permission of FUTUREBOOKS PTE LTD.
To use any parts of the Contents of this Document, the
user must seek permission in writing, stating the c
Contents for use; intent of use; manner of use; time frame
of use and identity of the user. FUTUREBOOKS PTE LTD
reserves the right to refuse permission without declaring
reason(s); and/or if information submitted by user is
deemed insufficient.
2. You may view, download and print the Contents if:
(a) the Contents are used for non-commercial or personal
use only and will not be copied or posted on any network
computer or broadcast in any media, and
(b) no alterations, additions or modifications of the
Contents are made in any way
(c) due acknowledgement is given to “FUTUREBOOKS
PTE LTD” and citing the sources for the relevant data
extracted.
3. Modification of any of the Contents or use of the
Contents for any other purpose will be a violation of
FUTUREBOOKS PTE LTD ‘s copyright and other
intellectual property rights. Graphics and images on this
Document are protected by copyright and may not be
reproduced or appropriated in any manner without written
permission of FUTUREBOOKS PTE LTD.
4. Any request to otherwise reproduce the Contents from
this Web Site for publication or commercial use should be
addressed to: [email protected].
Disclaimer of Warranties and Liability
5. The Contents of this Document are provided on an “as
is” basis without warranties of any kind. To the fullest
extent permitted by law, FUTUREBOOKS PTE LTD does
not warrant and hereby disclaims any warranty:
(a) as to the accuracy, correctness, reliability, timeliness,
non-infringement, title, merchantability or fitness for any
particular purpose of the Contents of this Document;
(b) that the Contents available through this Document or
any functions associated therewith will be uninterrupted or
error-free, or that defects will be corrected or that this
Document and the server is and will be free of all viruses
and/or other harmful elements.
6. FUTUREBOOKS PTE LTD shall also not be liable for
any damage or loss of any kind caused as a result (direct
or indirect) of the use of the Document, including but not
limited to any damage or loss suffered as a result of
reliance on the Contents contained in or available from the
Document.