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.
What is a revenue model?
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.
How do you make a revenue model?
Just like building a house needs a blueprint, your business needs a money plan. It's called a "revenue model," and it's all about how your business makes money.
Whether you're starting or running a business, a clear revenue model is super important. It's like your financial map, showing where your money comes from, how much you can charge, and how many sales you might make.
Here, we'll make it simple with four easy steps. These steps will help you understand your business, set prices, and predict how much money you can make.
1. Understand Your Business:
- Begin by gaining a deep understanding of your business, its purpose, and the value it provides. What problem does your business solve? Who are your potential customers, and what do they need?
- Identify your unique selling points (USPs) or what makes your business stand out from competitors.
- Consider your business's strengths and weaknesses, as well as external factors like market trends and competition.
2. Find Income Sources:
- Determine all the possible ways your business can generate income. Common income sources include:
- Selling physical products: If you sell items, think about the types of products, their prices, and the sales volume you expect.
- Offering services: If your business provides services, identify the different services you can offer and how much you can charge for each.
- Subscriptions or memberships: Explore options for recurring income from subscription-based services or membership programs.
- Licensing or royalties: If you own intellectual property like patents or copyrights, consider licensing them to others for a fee.
- Each income source should align with your business's core strengths and customer needs.
3. Set Prices and Predict Sales:
- Determine the prices for your products or services. It's crucial to find a balance between covering your costs and providing value to your customers.
- Estimate how many units of your product or hours of service you can sell within a specific period. This involves forecasting your sales volume.
- Consider factors that can influence your sales, such as marketing efforts, market demand, and seasonality.
- Create different scenarios, like best-case and worst-case, to prepare for different outcomes.
4. Monitor and Adjust:
- Once your business is up and running, closely monitor your revenue and expenses. Track your actual income against your initial predictions.
- Be ready to adjust your revenue model if necessary. If your sales aren't meeting expectations, you might need to revisit your pricing strategy or marketing tactics.
- Continuously analyze market conditions and customer feedback to stay adaptable. A successful revenue model often evolves as your business grows.
Remember that creating a revenue model is an ongoing process. Regularly review and refine your approach to ensure it remains aligned with your business goals and market dynamics.
All these assumptions and more can be solved and monitored using any of the Slidebean Financial Model Templates
Key information to write a 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.
Revenue model webinar and other useful tools
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.
Financial Modeling Consultants
At Slidebean, we understand the importance of having a solid financial model for your business. That's why we launched this comprehensive course, tailored to empower you with the tools and techniques you need to create accurate and effective financial models for your startup.
In today's competitive startup world, having a strong financial model can give you a significant edge. And what better way to gain that edge than by learning from experts in the field? Our workshop is designed to teach you the tools and techniques needed to create financial models that will help you make informed business decisions and secure funding.
Don't miss this opportunity to take your financial modeling skills to the next level and give your business the boost it needs. Sign up for our workshop today and let's work together to take your startup to the next level.
At Slidebean, we are committed to helping startup founders like you succeed. So, don't wait any longer, register for the Financial Modeling Workshop now and let's get started on building a solid financial foundation for your business.