Mohammad Zebian - Revenue Model Design

1. Designing Great
Revenue Models
Mohammad Zebian
Jan 2018

2. Where are you atToday
Idea Does It Solve
a Problem ?
What Is My
Solution
(Prototype) ?
HowWill I
Deliver
Value?

3. Where are you atToday

4. Where are you atToday

5. Revenue Model –What Is It
3 key parts of a revenue model
1. How you make money ?
2. How Much are customers willing to pay ?
3. What is your Revenue Potential and Profitability
(key to securing seed investors)

6. Revenue Model –What Is It
A key principle of success.
Revenue (LTV) > Cost (CAC)

7. Revenue Model –Why is it
Important
• Indicator of Cash flow stability….critical to
startups and investors.
Volatility is the enemy of investors
• A competitive advantage, even if you have
the exact same product (Sun Edison)

8. Some Key Points for Startups –
The Sales Funnel Trickle Down Effect
Generating revenue is part of a CustomerConversion process
that takes time http://startitup.co/guides/374/aarrr-startup-metrics

9. Some Key Points for Startups –
The Sales Funnel Trickle Down Effect
Conversion rate decreases the further you go in the Funnel.
This is part of CAC….you need to monitor it

10. Some Key Points for Startups –
The Sales Funnel Trickle Down Effect
Lack of Revenue is a symptom of an earlier problem

11. Some Key Points for Startups –
Activation and Retention
At this stage (MVP) you want to focus on Activation and Retention
• Activation tells you if you created something of value that people want
• Retention is King…if people like your product, they will keep coming back for
more and tell others

12. Some Key Points for Startups –
Activation and Retention
Tips forActivation
- Good website content (value proposition clear)
- One Step registration with email or Facebook
- Easy to download and use your app
Tips for Retention
- Loyalty campaigns (ex. Dropbox referrals)
- Push notifications (app is at the top of mind)
- Re-engagement adds (Amazon cookies)

13. CommonTypes of Revenue Models
See Monetization Cards in AIA Handbook
• Freemium (Spotify, Dropbox)
• Pay what you want / use
• Advertising (Metro News, Google tools)
• Marketplace (Supply and Demand driven) (AirBnB, Ebay)
• Flat rate (one time fee for a lifetime)
• Subscription (for a fixed period of time)
• Pay per use (Zipcar)

14. How Much Should Customers Pay?
Don’t ask the customer what they are willing to pay. TELLTHEM.
Set your price against
– Existing alternatives
– Cost savings your solution will provide
– Market conditions for customers
Example: Diabetic device

15. Strong Revenue Model
• Low CAC (customers act as your sales team)

16. Strong Revenue Model
• High LTV (high customer retention, recurring
revenue)
– The more you use Dropbox, the less likely you will switch
• Easily Scalable product / service
• Product and Revenue model provide a
competitive advantage
– More value than a hard drive (but not cheaper)

17. Weak Revenue Model
• High CAC
• Low LTV (low customer retention, expensive to
get customers, no recurring revenue)
• Not a Scalable product / service (ex. Restaurant)
• Product and Revenue model are similar to
existing solutions and competitors. Competing
solely on price.

18. What Investors Look for
Investors want a high revenue potential to mitigate the
risk of failure when investing with a startup.
• ExperiencedTeam
• Revenue Potential (Cash flow)
– Large Market size, clear competitive advantage
• Profitability. Good unit price economics
– LTV > CAC

19. What Investors Look for
• Scalability
– Ability to expand customer base with minimal cost
– Tech vs Non-Tech
• Recurring Revenue preferred (more stable revenues, lower
CAC, higher LTV)
• Customer lock-in features (Ex. Facebook)
• High Frequency of Purchases

20. Day 6 Task
Use the Revenue
Model DecisionTree
to define the best
revenue model for
your startup.
Use Monetization
Cards
to study different
revenue
models, and select
your write revenue
model.

21. ThankYou