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Choosing a revenue model that fits you perfectly isn’t easy. As the framework of how a startup will generate income, a proper revenue model needs to consider prices, revenue sources, income and expense statements, and many other elements. It’s crucial to get this right, too, because a perfect match needs to help your business out in those diverse aspects. From sales to growth, choosing the right revenue model is especially vital for long term projections. It’s just central to any business model! To help your final choice, we put together the best 5 steps to a revenue model for startups. We hope these aid in making the right kind of difference for your company to make positive game-changing decisions.
Said plainly for a startup, a revenue model means understanding how the company will make money. In other words, a revenue model is a map out of important business aspects in earning a startup valuable revenue. It’s not the same as a business model, though it’s a significant part of it.
Popular revenue models provide different benefits. We just need to pick the one that’s best suited for our company. In that sense, even a revenue model template can be a great way to find the model that’s just right for our business. Because, as we said, choosing the right revenue model is critical. That’s primarily the case because picking the wrong one can equal a company failing overall. And we certainly live to avoid that.
Remember, a revenue model is all about know-how. We should thus start writing revenue models by doing research. And aim it at knowing how to make money. So, combine the inquiry of other companies with the experience and knowledge you’ve gained about our own businesses.
For that, we’ll need critical pieces of information, which are the ones that constitute a robust revenue model.
Let’s define some of the essential pieces of information to start writing a revenue model. First, get all of your sales data along with income and expense statements. Just in case, you can know these by other names, as well. They go by a statement of earnings, for example, a profit and loss statement (P&L for short), and even as a statement of operations.
In short, the above are documents that reflect your income and expenses, of course. Yet, in the income one, you’ll list revenues from your business offer sales before you subtract any top-line expenses, for instance. This should include net income (or loss) over a specific timeframe. And, contrary to a balance sheet, these don’t just focus on a single moment of your startup’s trajectory.
Anyways, once those financial documents are handy, you’ll also need to understand the market in which you’re operating and to which you’re inserting. Seek a clear idea of how many customers exist who are likely consumers of your services and products. As this is also a big side topic, we’ll leave you with our Go To Market Strategy Presentation Structure as reference for later, in case you need it.
Note that the more thorough job you do in gathering all this information, the better your backup will be. And that’s just the kind of support we’re looking to create, to choose the most accurate revenue model that’s right for your startup.
Once you’ve gathered the above data, make a list of revenue models. Filter them by those you can actually use. What’s important here is that primary and secondary models will matter and come in handy if you offer different services and products. You might quickly need a different model for each product or service offer.
We’ll now make the steps to writing a solid revenue model for your startup clearer in the following section.
Without further ado, here are the best 5 steps to a revenue model for startups:
Consider your background. And value your strong points. In the end, choose something that helps your development. Use a revenue projection template, if you can. It can be quite useful. And bear in mind that your revenue model should also show your uniqueness and the services you provide.
Look for knowledgeable people in your area of expertise. Think of the long term project you’re building. And consider other sources of income that aren’t necessarily the main ones bringing money in or keeping the business afloat. These might eventually surprise you as significant areas to your business.
Create a page for each revenue source, and detail how you’ll achieve goals for each. These projections are vital to give to investors and help them understand when you expect to have a sizable income.
Revenue models are continually evolving. Over time, business circumstances, areas, and situations might change. Keep your eye out for what’s working and what’s just isn’t anymore. Check accordingly and use other models if that’s the case.
Understand the variables that come into play for your company and processes. Figure out what affects your revenue the most and learn how to mitigate that. Don’t hide from risk, but seek to be prepared for most incidentals.
To learn how to develop a revenue model that’s right for you, there are also webinars and a step-by-step modeling tutorial to integrate. These tools include an easily downloadable and customized financial model spreadsheet you can count in with that. Coupled with more literature on building a financial model for a SaaS Business or our financial model insight webpage, the more resources you can check, the better. They’ll all enable you more and more to extract the best out of your upcoming efforts.