The Lean LaunchPadLecture 6: Revenue Streams Steve Blank Jon Feiber Jon Burke http://i245.stanford.edu/
key activities value customer proposition relationships key customerpartners segments cost revenuestructure key streams resources channels 1 images by JAM
REVENUE STREAMS what are customers really willing to pay for? how?are you generating transactional or recurring revenues?
Revenue Streams• How many will we sell?• Where/Who is the money coming from?• How do we price the product?• Does this add up to a business that’s worth doing?
How Many Will You Sell?• What was the Market size and estimate of market share?, – Translate into the anticipated number of customers (as in 10% of a million- person market=100,000 customers)• How many can your channel sell?• How much will the channel cost?• How many customer activations? – Revenue? Churn/Attrition rate? customers/?• How much will it cost to acquire a customer? – How many units will they buy from each of these efforts?
REVENUE MODEL =the strategy the company uses to generatecash from each customer segment
Where is the money coming from? Revenue Model Choices Channel Web Physical Direct Sales Products Direct Sales Subscription Bits Products Add-on services Subscription Upsell/Next Sell Upsell/Next Sell ReferralsProduct Ancillary Sales: Direct Sales •Referral revenue Products •Affiliate revenue •E-mail list rentals Service Physical •Back-end offers Upsell/Next Sell Referrals Leasing
PRICING MODEL =the tactics you use to set the price in eachcustomer segment
How do we price the product? Pricing Model Choices
How do we price the product? Pricing Models - Physical• Product-based pricing• Competitive pricing• Volume pricing• Value pricing• Portfolio pricing• The “razor/razor blade” model• Subscription• Time/Hourly Billing• Leasing 9
How do we price the product? Pricing Models – Web/Mobile/Cloud• Product-based pricing• Subscriptions• Freemium• Pay-per-use• Virtual goods• Advertising sales 10
Payment Flows• Draw the diagram• Put in Numbers
Multi-side Markets and Revenue• Single-sided markets that care about revenues• Web-based Multi-sided markets may care about users first, revenues second
“Revenue First” Companies• Time to doublings for monthly revenues• Key questions: – When will I get to $100k/month in revenues? – When will I get to $1M/month in revenues? – What assumptions about my business am I making when I reach these milestones?
“Users First” CompaniesIf you say your business is advertising based:• How do you get to 10M monthly users?• How do you become one of the top 5 websites visited?
New Market Revenue Forecast New Market Sales Curve
Existing Market Revenue Forecast Existing Market
Resegmented Market Revenue Forecast
Other Issues• Distribution Channel affects Revenue Streams• Market Type affects Revenue Streams• Demand curve affects Revenue• Consider Lifetime Value 18
Start with Key Assumptions• Target market Sales – USA market – 1.5 M patients Start in EU middle of year 3 – Europe – 2 M patients Start in USA end of year 4• Package Personnel – Reusable wrist watch Average salary $120 K – Disposable sensors / patch Load factor 1.5 – Access to patients data Headcount from 4 to 174 in• Product development year 8 – 4 people in the beginning Financing – $2 million Series A – $3 M – 1.5 years to develop (for BP) Series B – $10 MPrice per package: $150COGS Operating Expenses Profit $60 per unit $90 per unit 19
Does it add up?• Is the revenue adequate to cover costs in the short term;• Are you confident the revenue will grow materially if not dramatically over time; and• Does the profitability get better as the revenues get bigger? 20
Team Deliverable for Next Week• What’s your revenue model?• How will you price your products?• Draw the diagram of payment flows• What are your key financial metrics?• Test pricing 100 web customers 10/15 non web?• How do competitors price?• Assemble a rough income statement• Summarized in a 5 Minute PowerPoint Presentation