This document discusses revenue streams and how to determine a startup's revenue model, including how to estimate how many products or services will sell, where revenue will come from, how to set pricing, and whether the total revenue will cover costs and generate a profitable business. It provides examples of revenue models, pricing strategies, and considerations for forecasting revenue from new and existing markets. The goal is to help startups develop financial projections and determine if their business concept is viable.

1. The Lean LaunchPad
Lecture 6: Revenue Streams
Steve Blank
Jon Feiber
Jon Burke
http://i245.stanford.edu/

2. key activities value customer
proposition relationships
key customer
partners segments
cost revenue
structure key streams
resources channels
1
images by JAM

3. REVENUE STREAMS
what are customers really willing to pay for? how?
are you generating transactional or recurring revenues?

4. 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?

5. 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?

6. REVENUE MODEL =
the strategy the company uses to generate
cash from each customer segment

7. 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
 Referrals
Product
 Ancillary Sales:  Direct Sales
•Referral revenue  Products
•Affiliate revenue
•E-mail list rentals
 Service
Physical
•Back-end offers  Upsell/Next Sell
 Referrals
 Leasing

8. PRICING MODEL =
the tactics you use to set the price in each
customer segment

9. How do we price the product?
Pricing Model Choices

10. 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

11. How do we price the product?
Pricing Models – Web/Mobile/Cloud
• Product-based pricing
• Subscriptions
• Freemium
• Pay-per-use
• Virtual goods
• Advertising sales
10

12. Payment Flows
• Draw the diagram
• Put in Numbers

13. Multi-side Markets and Revenue
• Single-sided markets that care about revenues
• Web-based Multi-sided markets may care about
users first, revenues second

14. “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?

15. “Users First” Companies
If 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?

16. New Market Revenue Forecast
New Market Sales Curve

17. Existing Market Revenue Forecast
Existing Market

18. Resegmented Market Revenue Forecast

19. Other Issues
• Distribution Channel affects Revenue Streams
• Market Type affects Revenue Streams
• Demand curve affects Revenue
• Consider Lifetime Value
18

20. 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 M
Price per package: $150
COGS Operating Expenses Profit
$60 per unit $90 per unit
19

21. 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

22. 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