This document discusses choosing a startup's revenue model. It begins with an overview of common revenue models such as selling goods, subscriptions, advertising, commissions, marketplaces, and affiliates. It then provides advice on focusing first on solving customer pain points, ensuring the solution is worth paying for, and that acquisition costs can be covered. The document emphasizes testing revenue models through experiments and being open to changing the model over time based on what works best.

1. Choose Your Startup’s Revenue Model
www.solomonkitumba.com
By Kitumba Solomon
December 2015
@solomonalvink

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

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

6. Selling goods
Selling physical goods Selling digital goods
• Do you have access to unique
products?
• Better price than others?
• 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
• Most SAAS companies use this
• How determine price?
• Competition pricing?
• Free trial?
• Will usage naturally go up with time?
• Value goes up with increased data?
Colibri.io MixPanel.com

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

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

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
But…. Try to get one model working well first before having
multiple ones.
Manufacturer revenue from
sales of phone
Retailer margin from sales in
Apple Stores
30% margin on all app sales
and in-app purchases
Selling ads through iAds
% commission on contracts from
telecom providers

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