Setup Revenue Model

Jan 12, 2022

In this section, you will learn how to structure the tool to align with your unique revenue model. Startup Virtue supports three basic revenue model types that can be combined to reflect the way your company makes money:

  • Transactions - This revenue model includes one-time transactions or virtual services for which there is no manufacturing or inventory involved. Examples include, in-app purchases, online gambling, ebooks, online courses, consulting, etc. The Transactions model also includes any online marketplace such as Uber, eBay, UpWork, Fiverr, Door Dash, etc.

  • Physical Goods - This revenue model includes the sale of physical products where you need to account for some combination or manufacturing, inventory, fulfillment and/or returns.

  • Subscriptions - This revenue model includes the sale of goods or services in exchange for monthly or annual recurring payments. The most common example is Software-as-a-Service (SaaS) but this could also include subscription boxes, or recurring membership fees.

Navigate to the "Choose Your Business Model(s) and Name Your Product or Service" section in the Assumptions tab to set up your model.

  1. Choose Your Business Model(s) and Name Your Product or Service

Use the drop-down menus to select "Yes" for one or more business models that apply. In the "Combine Business Models" section, you will be able to link multiple business models together. For example, if you operate an Internet-of-Things (IoT) business, select Physical Goods and Subscriptions. If you operate a SaaS company that also sells one-time in-app purchases, select Subscriptions and Transactions.

If you operate a marketplace where you charge a listing or transaction fee, select Transactions. If your marketplace includes subscription pricing for some users, DO NOT also select the Subscriptions model. Subscription offerings within your marketplace are handled in the Marketplace Module of the model.

After you select your business models, customize the name of the product or service. In the blue fields, enter the name of a single transaction (ex. ebook, course, template), service (ex. project, consultation, session) or product (ex. device, unit, widget). Subscriptions are always called "subscriptions" in this model so you don't have the option to change it.

The column to the right will automatically generate the plural form of the product or service name. For example, "transactions" becomes "transactions". Feel free to manually input the plural name if this doesn't look right. Spreadsheet formulas can only do so much.

  1. Define Your Primary Business Model

Once you select your business model(s), you will notice each model is defined as Primary or Secondary by default. The Primary business model is where your sales funnels will drive customers to directly. The Secondary business model is driven by customers who pass through the Primary business model. In the "Combine Business Models" section, you will have the option to customize how sales from your Primary model drive sales to your Secondary model. For now, select the Primary business model from the dropdown to tell the model where your sales funnels will drive customers to first.

When you set up your sales funnel strategy in a later section, your sales will be directed first to your Primary business model and then to your Secondary business model. More on that later.

  1. Activate Marketplace Business Model

If you have a Marketplace, check the box next to the question, "Is this a Marketplace Business Model?" and customize the name of your user groups. This could simply be "Sellers" and "Buyers" or if, for example, you run a freelance marketplace like Fiverr or UpWork, you can enter "Freelancers" and "Clients". Another example is a ride-share app like Uber where buyers are called "Riders" and sellers are called "Drivers". You can go back and change these names at any point.

  1. Monetizing with Ads or Data Sales

Some companies rely on website or in-app ads or data sales to drive revenue. If this is part of your monetization strategy, activate this module by checking the box in column D. Set the start month for activating ads or data sales. The model will automatically calculate the number of customers and web/app users you will generate by the time you start selling ads or data. These values are calculated based on assumptions in the Bottom-Up sales funnel section.

Set the average monthly revenue per customer and website visitor. For example, by entering $0.80 as the Average Monthly Revenue per Customer, your company will generate $0.80 of revenue for each new and repeat customer calculated in the sales funnel section of the model. By entering $0.11 as the Average Monthly Revenue per Website Visitor, your company will generate $0.11 of revenue for each monthly website visitor (regardless of whether they convert into customers).

  1. Combining Business Models

If you have more than one business model active, you can customize how (and to what extent) customers from your Primary business model interact with your Secondary business model. Let's use the example of an IoT company selling video doorbells along with an optional subscription (Ex. Ring). We want Devices to be the Primary business model with Subscriptions as the secondary offering because customers can only become subscribers after they purchase a device.

Under "Drive Secondary Business Model(s) with Primary Business Model", scroll down to the fields that are available for editing. Only applicable fields will be available for editing. All others will be greyed-out. We want to make changes to how our Device customers interact with our Subscription offering. Check the box to set whether or not device customers go on to purchase subscriptions. Then input the percent of device customers who convert to become subscribers each month. You can change the monthly conversion rate for each year.

Scroll down to see a Sales Funnel Visualization describing how your sales funnels drive customers to your Primary and Secondary business models.

Next, decide whether you want repeat customers to engage with your Secondary business model. The checking the box next to "Convert New Customers Once (Repeat Customers Don't Convert)" causes only new customers from your Primary business model to convert to your Secondary business model.

For example, in our fictitious IoT business, we expect ten percent of new device customers to become premium subscribers. However, if some of our new device customers become repeat customers by purchasing a second device, we would not expect them to get a second subscription. In other words, they only convert to our Secondary offering once (not again and again). Therefore, we want to check this box.

As a counter example, let's say you run a SaaS business where users have the option to make one-time, in-app purchases. You would expect both new and renewing subscribers to make in-app purchases. In this case, you would leave the box unchecked.

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Now it's time to set up pricing for your active business models. Follow the link for your Primary or Secondary business model: