You may be generating revenue, but that doesn't mean the economics of your business are optimized. To prepare for substantial growth, you need to optimize your revenue model to acquire the most users while generating a profit.
There are several questions you should answer when optimizing your revenue model:
Example: Instead of a direct sale of a single product, maybe a free/premium (often called "freemium") model makes sense. Maybe you can sell a perpetual use license, or maybe you should setup a subscription or membership model.
Don’t just test how much you charge, test how you package your price for best results.
Startups often pull their initial prices out of thin air.
My friend, Marjory Wildcraft, priced her eBook at $7 in order to be priced safely below lengthier books on the same topic. But in testing, she found that the conversion rate only dropped 0.2% when the price was increased to $37.
If your customer is happy to pay the higher
The only way to know what customers are willing to
Delivering a high-value/low-cost solution that wows your customers and delivers lifetime value is a great goal. Just make sure you maintain enough margin to deliver great support, a fantastic buying experience, and to secure revenue for continuous improvement and growth.
Operational revenue and growth capital is critical to success.
A startup is much like a jetliner; it takes momentum before there is enough lift to take off. Your company's economics
The profits you seek are in the clouds; they are not the runway itself.
Your goal is to find the economics that will generate enough momentum to launch your product skyward before you run out of runway (capital).
How much of a runway do you need?
This depends on your product, your market, and your customer's current buying habits. The key is to create enough momentum to achieve liftoff.
You need to be able to sustain your business at its current level in order to divert profits toward building your runway. All you really need to find is a revenue model that starts to take off.
From there you can likely attract the help you need (accelerators, incubators, venture capitalists) to take your business to the next phase of growth.
Where are you going to find customers? Not just a few customers either, enough customers to fuel a viable business.
NOT KNOWING HOW TO REACH CUSTOMERS IS THE #1 STARTUP KILLER.
Warning: Don’t lazily make a list of channels you think will lead to customers. It’s very easy to assume that you’ll find customers on Adwords, through word of mouth, or at trade shows. But have you successfully gained ten customers through each of these channels?
Validate the cost of customer acquisition (COCA) for each of your key channels to determine whether or not you can deliver customers at scale. Once a successful customer conversion ratio has been found, try scaling up
Just because you find a model that works doesn't mean you've found the most profitable model. Keep testing multiple approaches and iterate to improve. Up to this point, metrics have not mattered much. But, now that we're searching for product/market fit, and traction in the market, metrics are vital!
Dave McClure created a SlideShare that has received almost half a million views. It’s called "Startup Metrics for Pirates."
Here are key metrics adapted from Dave McClure that we feel are critical in managing your revenue:
Take a step.
Create your first Business Model Canvas and go talk to customers. Right Now!
Not sure how to take your first steps? Stop guessing and find help.
Help can come in the form of a mentor, a co-founder, or a coach.
Lean is about reducing risk, eliminating uncertainty, and identifying a low friction, repeatable path to happy customers. Once your startup is competent in these areas, you're ready to think about scaling into the market. If you’ve never launched a lean startup before, you’ll benefit from a mentor who can walk you through this journey.
If you’re new to launching a startup with these principles, but you're comfortable with the concepts in this book, just get started.
A lot of startups now are creating an advisory board from other startup founders. They meet regularly and discuss status, strategies for improvement, and reciprocate with each other. Networking with other founders can be a gold mine of advice and experience.
Maintain a method to the madness. Prioritize quality ideas and turn them into actionable next steps, avoiding bias, and turn your failures into momentum by understanding why they failed.
Develop a process for every idea, every experiment, and every release.
Most startups have gaps because they're high on work, strapped for cash, and low on talent.
When you have strategic, creative, and marketing gaps, they inevitably lead to performance gaps at your startup. You can endeavor to build your own internal team for developing your online brand experience and marketing. But startups can often hire an agency, like Lean Labs, to supply the needed talent and experience for marketing and brand experience at a fraction of the cost of hiring full-time employees.