The document outlines various revenue models for startups and provides guidance on how to select the appropriate one based on customer segments and value propositions. It emphasizes the importance of solving a pain point and testing hypotheses regarding customer willingness to pay before finalizing a revenue model. The document also suggests that startups may need to adapt their business models over time and includes steps for defending the chosen model during presentations.

1. Choose Your Startup’s Revenue Model
By Ken Leaver
February 2014
@Kenontek
www.kenontek.com

2. Chapter 1: What is a Revenue Model
Chapter 2: Overview of revenue models
Chapter 3: How to choose the right one (to start with)?
Chapter 4: Experiment & Iterate
Chapter 5: Defending your revenue model

4. Revenue streams connect to your value
proposition & customer segments
•
You should match your revenue streams to the specific value you add to each
customer segment you’re targeting

5. Chapter 1: What is a Revenue Model
Chapter 2: Overview of revenue models
Chapter 3: How to choose the right one (to start with)?
Chapter 4: Experiment & Iterate
Chapter 5: Defending your revenue model

6. Selling goods
Selling physical goods
•
•
Do you have access to unique
products?
Better price than others?
Selling digital goods
•
•
Do you have unique content people
are willing to pay for?
Mobile apps typically sell virtual
goods that help speed the game up
or make it more fun

7. Media / Community Access
•
•
Build a community and then charge for access
Often need to create or attract quality content

8. Subscription
Plain subscription
Subscription based on Usage
Colibri.io
•
•
•
•
Most SAAS companies use this
How determine price?
Competition pricing?
Free trial?
MixPanel.com
•
•
Will usage naturally go up with time?
Value goes up with increased data?

9. Advertising
•
•
Need high traffic
• If B2C then don’t bother if you don’t have 50k+
visits/day
Higher purchase intent = higher price of ads

10. Commission for service
xxx
•
•
Enabling transactions for other merchants
Typically need to sign up lots of partners/merchants (eg. Square,
AirBnB, Booking.com, etc.)

11. Marketplace
Kabanchik.com.ua
•
•
•
•
Chicken & Egg Problem: need buyers and sellers
Ratings often very important
Lots of user generated content
One player typically wins

12. Affiliates
•
•
•
•
Do you have a lot of traffic?
What products is your content related to?
You choose the ads that will work best for your audience
If CPA, you need to advertise products/sites with good
conversion

13. Freemium
•
•
Similar to usage-based but with a large amount of free
usage
User gets to feel the value before paying

14. Chapter 1: What is a Revenue Model
Chapter 2: Overview of revenue models
Chapter 3: How to choose the right one (to start with)?
Chapter 4: Experiment & Iterate
Chapter 5: Defending your revenue model

15. Advice 1: Focus first on solving a pain
point
Retention is the best indication of this. Don’t worry about making money
until you have users staying.

16. Advice 2: Make sure your pain point is
something people will pay for
Are you a vitamin or a pain killer?
Vitamins require very high traffic
Not sure you’re a pain killer?
The best way to test is to get someone to pay.
Do this test as early as possible

17. Advice 3: Make sure what they are willing to
pay can one day be less than your customer
acquisition cost

18. Chapter 1: What is a Revenue Model
Chapter 2: Overview of revenue models
Chapter 3: How to choose the right one (to start with)?
Chapter 4: Experiment & Iterate
Chapter 5: Defending your revenue model

19. No matter which model you start with
remember that is just a….
You may and likely will change your business model.
Probably several times.
And you will optimize it many more times.

20. How do you test?
1. Make a hypothesis: “I think customers will be willing to pay a
service charge”
2. Test it by building this into the product and throwing 1000 visitors
at it (eg. at $0.10/visitor).
3. Look at the conversion (eg. 1%) and revenue per customer (eg.
$5).
4. Compare cost of acquisition ($100) vs. Revenue earned ($50)
5. Optimize or try a different model. Or do both.
6. Repeat until the equation is positive.

21. You don’t have to lock yourself into one
model
Manufacturer revenue from
sales of phone
30% margin on all app sales
and in-app purchases
% commission on contracts from
telecom providers
Retailer margin from sales in
Apple Stores
Selling ads through iAds
But…. Try to get one model working well first before having
multiple ones.

22. Measure and track each experiment

23. Chapter 1: What is a Revenue Model
Chapter 2: Overview of revenue models
Chapter 3: How to choose the right one (to start with)?
Chapter 4: Experiment & Iterate
Chapter 5: Defending your revenue model

24. Now its time for you to defend your
business model
1. We will split into 2 groups (1 mentor each / 3 teams per group)
2. Team presents:
• Idea & Pain Point (1min)
• Business model & why you chose that one (2min)
• Your estimate of Cost of User Acquisition & Revenue from Customer
(2min) – Be sure to explain your assumptions and give numbers!!!
• eg. cost of visitor = $0.10 x 1% (conversion) = $10. Revenue/user =
$15/subscription. I think people would be willing to pay $15 because
XXX…
3. Mentor & other teams challenge the business model with questions (5 min)
4. Next team is up
5. After all 3 teams presented we will switch the mentors in the groups and
repeat.