sdfi fall 2014 revenue tsao
DESCRIPTION
RevenueTRANSCRIPT
Revenue Models
The Founder Ins-tute
Revenue Model
Jay Tsao Mentor
San Diego 2015
Revenue Model
• Revenue model is a system by which a business mone-zes or derives financial gain from its products, services, technologies, and solu-ons.
• A cri-cal component of the business model where it defines the way the enterprise makes money or establishes economic sustainability.
• Describes revenue stream and extrapolates financial gain from the value that it creates for customers.
Importance of a Strong RM
• Creates clear cut direc-on for financial sustainability. • Sharpens business objec-ves and direc-on. • Determine business viability, strength of business
model, and pivot points. • Examine and understand unit economics. • Derives valua-on, cash flow forecast and ROI metrics
for internal and external (investor) purposes.
Revenue Model Rules
• “Shortest distance between points is a straight line.” – Ensure the path between you and your customers (money & value flow) is as fric%onless as possible.
• KISS – “Keep It Simple Stupid” – Make sure revenue genera-on methods are simple and easy to understand by you and, more importantly, investors.
*Over-‐complica-on creates a barrier to money for any org in both the front-‐end and back-‐end!
Revenue Models
Revenue Types PlaAorms
Subscrip-on Contract services, Membership, Lead gen
_aaS, Recurring service
Adver-sing Ad network Ad publishing
Transac-on Markup, POS fees, Lis-ng fees, Commission, Razor-‐blade
E-‐commerce, brokerages, marketplaces, brick-‐and-‐mortar, produc-on
Licensing Content distribu-on, IP commercializa-on pass-‐through
Distribu-ve systems, Media outlets, Technology usage
Other Freemium, Razorblade, Tip Jar, Crowdfunding, Affiliate/Referral, Third-‐party
Subscrip-on
Adver-sing
Transac-on
Licensing
Revenue Drivers
R = C x P x T x F – Customers (Number of Customers) – Price (Sales Price) – Transac-on (Avg. Volume or Transac-on Size) – Frequency (Rate of Purchase)
What strategies do you derive and implement to impact these variables to affect R?
Profit Maximiza-on
• Two ways to maximize profits according to fundamental economic theory: – Lower cost (FC, VC, MC) – Increase price (TR, MR)
Revenue Model
• Many ways of cost control and managing unit economics.
• Trick is to understand and increase customer’s Willingness-‐to-‐Pay (WTP) through value crea-on.
• Revenue modeling dictates your pricing strategy. – Helps define target customers – Determines product posi-oning
Customer Value Equa-on
Value =
Short Term Customer Satisfaction
Relevance of Tangible Attributes of Brand/Service to Consumer
Relevance of Intangible Aspects of Brand/Service to Consumer
Customer's Feeling of Being Treated With Respect
Customer's Feeling of Supporting a Socially Responsible/Ethical Company
Tangible Costs: Monetary, Time, and Other Transaction Costs
Intangible Costs/Risks: - Social: Customer’s concern about how others will view him/her with your product. - Psychological: Customer’s concern about how s/he’ll think of him/herself. - Functional: Customer’s concern as to whether your product will work.
Quality
Price _______
Service Support Needs of Customer
Relevance of the Product/Service to the Customer’s Direct Operations
Relevance to Helping the Customer Deliver Value to Their Customers
Customer's Feeling of Being Treated With Respect
Helping Customer Deliver CSR Value to Their Customers and Supply Chain
Tangible Costs: Monetary, Time, and Other Transaction Costs
Intangible Costs/Risks: - Reputational: Effect on Customer’s reputation in doing business with you. - Morale: Effect on your customer’s company morale in doing business with you. - Functional: Your customer’s concern that your product will do what you say it will do.
End Customer Value (B-‐2-‐C) Business Customer Value (B-‐2-‐B)
Defining the Customer
• Things to consider: – What your users want and value?
• Convenience, vanity, support a cause, fit in, exclusivity – What problem or pain point are you solving? – How do you heighten the perceived value to increase their willingness to pay?
– What are the switching costs (Dropbox)
• Must align your value proposi-on and customer segment with the revenue model(s).
Unit Economics
• Analysis of the inflows & ou^lows of a business unit to understand contribu-on margins and ROI metrics.
(BE) Breakeven = (FC) Fixed Cost . (SP) Sales Price – (VC) Variable Cost
– Contribu-on Margin (MC) = SP -‐ VC – Ou^lows (CapEx, CAC, OpEx) vs. Inflows (Rev, CLTV)
CAC vs. CLTV
Forecas-ng
• Projec-ng revenue is important (even if pre-‐rev): 1. Manage cash and burn rate. 2. Determine financing needs and -me horizons. 3. Conduct sensi-vity analysis. 4. Op-mize the revenue model.
• Methods – Top-‐down – Bofom-‐up – Exponen-al Smoothing
Forecas-ng
Forecas-ng
Forecas-ng
Revenue Modeling
Do you think your users could feel uncomfortable if all their
friends know that they use your product/service ?
Are your users able to start over from scratch every time
they use your product/service?
Can the user receive a higher status by using the product?
1. Early Exit
2.Tip jar/donation3. Barter
4. Freemium
6. Vanity/Reputation
7. Loss/Aversion
8. Privacy/Anonymity
9. Mystery/Surprises
15. Affiliate/Referral
16. Data Resell
20. Leasing 21. Pay-per-use
5. Pay-what-you-want
10. Convenience/ Shortcuts
11. Helping peers/ Gifts
12. Exclusivity/ Limited Availability
22. FractionalOwnership
Free!For the user.
Paid!The user = Client
Third partypays the bills
Monetization driver(How to cash in)
18. Flat rate (one-time-fee)
19. Subscription (time related)
13. Get one - Give one
14. Advertising
Do you want to offer a product/service to people
that can't afford it?
Would users value the possibility to share the product with their peers?
Would the status only be relevant amongst the user base of your product?
Hmmm...Making money on your product seems to be a tough one.
Get out of your comfort zone! It's innovate or die.
Do you want the users of your product to open-up their wallet for you?
Will users have to give their personal details in order to use
your product/service?
Is it your goal to have direct revenue from this
product/service?
Do you believe other companies would have interest in targeting
your customer base?
Do you generate user-data relevant for others?
Are there any complementary services/products to your offer
that your customers expect?
Is the variabel cost per extra user non-existent or negligible?
Can you think of features that only part of your user base would pay for?
Does your product need a critical amount of users to show it's value?
Do your users have non monetary resources the company (or other
users) normally would have to pay for?
Did you develop a feature/product significantly more convenient than
the best alternative users have?
What about offering a box without telling
what's inside?
#Awesome! You have some options that your users
might be willing to pay for.
23. Crowdfunding
Do you want the user to own the product once they pay?
Would you like proof of interest from your customers
before you launch?
Do you think the user might have trouble paying the entire
product at once?
24. Add-ons
Do your users want to pay every time they use your product/service?
Do allowusers tospend all
their money!
Yes!
Damn right about that!
We will launch anyway!
Yes!
Yes!
Will the user have the exclusive right to use
this product?
Not nessecarely!
Not really!
Nope!Yes!
No, let's give it for free!Yes!
Maybe
It's not about the ability to pay. I'm just not sure if everyone will pay!
In fact, yes!Not at all, they already use everything they have!
Exactly!
Check!
Ads, are you crazy?
Not really...
Shht... user data is our competitive
advantage!
No!
My product is all they need!
Yes!
It's not about the money!
Of course!
Definitely!
Nope, no critical mass needed!
That's why we make software!
Yes!
We do have some extra costs...
But what if everyone chooses to use it for free?
Didn't I say I don't want them to pay?
No!
Of course! How can I let them pay otherwise?
Not relevant for my product!
Obviously...
Not relevant!
They would bedevastated if their user data
was lost!
Nope!Absolutely!
No! Amongst everyone!
Yes, they would love it!
No, it would lower the value!
No...
Hell yeah!
Not knowing what's coming is always kind of exciting!
Sounds like gambling!F*ck off!
That's how it works!
Nothing better than the smell of fresh money in the morning...
Close...but yet so far...
25. Razor-blade
Do you want more than one contact moment with your
customer?
Not necessary!
Yes, that would be useful!
Seriously? We are not living in the
Middle Ages anymore!
Charity? No thanks!
17. Matchmaking platformWhat do you choose? An
integrated solution that seems to be your own offering or just a referral to a trusted partner?
Advice to trusted partner is fine!
IntegratedSolution
Harder, better, faster, stronger!
You can probably make even more
money on this! Just give it a try!
Ever played Monopoly? Go back to start!
High chance that you'll find more reasons for customers to pay!
No!
Don't forgetto check this one as well!
Can one product be shared amongst
different users?Yes!
Could you introduce consumables to be used
together with the product?Nope!
No!
Goodidea!
Crowdfunding is only the beginning...
Do allowusers tospend all
their money!
Cool! You just teleported
yourself here!
Your journey requires a teleportation! Find
the exit...
Remember:You can only walk this road once!
Also offering a service next to that product?
Go here as well!
How to cash in on your new idea? Start here!
What about these colours?
One Laptop Per Child
Always come togetherAlways come together
Revenue Mantra
Revenue Requires Regular Review, Revision, and Refinement.
Revenue Model
Jay Tsao Mentor
San Diego 2015