Revenue appreciation: Introduction to finding a revenue model

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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.

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Revenue appreciation: Introduction to finding a revenue model

  1. 1. Prepared for directors of Hong Kong companies As of April 2014 REVENUE APPRECIATION: INTRODUCTION
  2. 2. www.futurebooks.com MY FAVOURITE DISH
  3. 3. www.futurebooks.com FAVOURITE BUSINESS MODEL Shop regularly on Etsy
  4. 4. www.futurebooks.com I MAKE STUFF Men’s leather clutch
  5. 5. www.futurebooks.com SECOND STARTUP @futureb00ks
  6. 6. www.futurebooks.com CLOUDIFY YOUR STARTUP REGISTER FUTUREBOOKS. COM
  7. 7. www.futurebooks.com CONTRACT TO THESE FIRMS
  8. 8. www.futurebooks.com HELP MICRO BRANDS Zelos fully funded via Kickstarter
  9. 9. www.futurebooks.com SPEAKER ENGAGEMENTS
  10. 10. ABOUT REVENUE
  11. 11. 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
  12. 12. www.futurebooks.com OVERVIEW 1. Market size 2. Who should pay? 3. Build revenue into tech 4. Price perception 5. Competitors
  13. 13. 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 counters Whatever
  14. 14. www.futurebooks.com CFO IS A POWERFUL + CREATIVE CHARACTER I love non- GAAP metrics
  15. 15. www.futurebooks.com CFO IS A POWERFUL + CREATIVE CHARACTER How should we account for revenue?
  16. 16. www.futurebooks.com.sg ERIC STUDIED MANUFACTURING
  17. 17. www.futurebooks.com WHO IS MAKING MONEY?
  18. 18. www.futurebooks.com WHO IS LOSING MONEY?
  19. 19. ESTIMATING MARKET SIZE
  20. 20. www.futurebooks.com 1% OF THE MARKET IS HUGE
  21. 21. www.futurebooks.com 3,000 BLOG STORES IN SINGAPORE Only 10 are addressable
  22. 22. www.futurebooks.com 3D PRINTER FOR DENTISTS Capital expenditure by a dentists
  23. 23. www.futurebooks.com LIMITS ON SCALABILITY Govt. regulation Customer behaviour
  24. 24. WHO PAYS?
  25. 25. 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.
  26. 26. 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
  27. 27. www.futurebooks.com Validate your customer’s spend per annum
  28. 28. 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
  29. 29. www.futurebooks.com SALES ORGANISATIONS ARE UNPREDICTABLE
  30. 30. www.futurebooks.com MORE TRANSACTIONAL THE REVENUE MODEL, THE LESS EXPOSURE
  31. 31. www.futurebooks.com PEOPLE CHANGE THE DYNAMICS OF A SALE
  32. 32. www.futurebooks.com ASK AN INTER- MEDIARY TO PAY
  33. 33. www.futurebooks.com INTERMEDIARIES Entire business built on intermediary called recruiters
  34. 34. 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
  35. 35. www.futurebooks.com VALUE CHAIN POSITION
  36. 36. 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.
  37. 37. www.futurebooks.com REPOSITION DIRECT TO CONSUMER
  38. 38. www.futurebooks.com UNDERSTAND Revenue Line item spend Trends and behaviour http://futurebooks.com.sg/blog/writing-business-plans-that-speak-to-investors/2308
  39. 39. BUILD REVENUE INTO THE PRODUCT
  40. 40. www.futurebooks.com LAST MINUTE BUSINESS PLAN The product Revenue model Sales projections
  41. 41. www.futurebooks.com INTEGRATED BUSINESS PLAN Revenue, product and sales integrated in one story
  42. 42. www.futurebooks.com THEY HAD NO REVENUE* TWITTER A SPECIAL CASE
  43. 43. www.futurebooks.com POSSIBLE REVENUE MODELS Advertising SMS sent to twitter Pay-per-tweet
  44. 44. www.futurebooks.com WHAT WOULD SUSHI EXPRESS DO?
  45. 45. www.futurebooks.com ? ? ? ? ?
  46. 46. www.futurebooks.com FREEMIUM Why make it free?
  47. 47. www.futurebooks.com Why educate?
  48. 48. www.futurebooks.com Why are dishes priced the same?
  49. 49. PRICE PERCEPTION + FREEMIUM
  50. 50. www.futurebooks.com.sg SHOULD WE MAKE IT FREE? Free now. Upsell later.
  51. 51. www.futurebooks.com.sg SHOULD WE MAKE IT FREE? Nightclubs replaced alcohol with water and energy drinks.
  52. 52. www.futurebooks.com HONDA MSX125 Saul Berman, Not for Free: Revenue Strategies for a New World Price rose in 2014
  53. 53. www.futurebooks.com WHAT EFFECT DOES PRICE HAVE? Qty $ Inelastic demand P2 P1 Q2 Q1 Qty $ P2 P1 Q2 Q1 Elastic demand demand demand
  54. 54. www.futurebooks.com GOOGLE DON’T MAKE FREE PRODUCTS   Intermediary market of sellers Mums and pop shops
  55. 55. www.futurebooks.com DISCOUNTS IN CONSULTING
  56. 56. 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
  57. 57. COMPETITORS
  58. 58. www.futurebooks.com WE ALL START WITH US$200K SEED
  59. 59. www.futurebooks.com STARTUPS ARE NOT CREATED EQUALLY
  60. 60. 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
  61. 61. www.futurebooks.com MAKE MISTAKES AT THE LOWEST COST. Use an eye dropper, not a bucket
  62. 62. 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
  63. 63. www.futurebooks.com.sg DO YOU REALLY NEED TO BUY IT? Buy items which contribute directly to revenue Think twice.
  64. 64. 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
  65. 65. 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 Revenue Revenue Revenu e lag Revenu e lag
  66. 66. 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
  67. 67. www.futurebooks.com INQUIRY@ FUTUREBOOKS. COM
  68. 68. 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: info@futurebooks.com.sg. 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.

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