From the course: Creating a Business Plan

Determine your revenue model

From the course: Creating a Business Plan

Determine your revenue model

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- Your business plan has to spell out your revenue model for your product or service. This is a huge determinant of how successful your business is going to be. How are you going to make money at this? Is it going to be a one-time charge or are there recurring or subscription charges for your product? Are there going to be cross-sell or up sell opportunities? Are you going to sell add-ons that complement the product or service? How are similar products priced in the market? What do your competitors do? What's their revenue model if you're looking for ideas? Also, ask what are your customers willing to pay. Conduct some pricing market research or look at competitive offerings and how they're priced, then analyze the value of your product and the value it creates and price as a portion of that. Don't leave value on the table and your choice of a revenue model is going to determine how much of that value you're going to capture. For my business, we sell training courses. And I could price it two different ways: I could price based on how much is it for me to put an instructor on the podium for one day and then I'll add a markup on top of that as a profit margin for me. Now unfortunately, that revenue model leaves a lot of value on the table because if my client sends 10 people to class or if they send 30 people to class, they're still paying the same amount but everybody in that classroom is getting the benefit of that instruction. Instead, we have a revenue model where we price based on the participants in the class. Every participant gets value, therefore every participant pays. It's easy to measure, it's easy to charge for, and we're capturing a larger share of the value that's available. So when you articulate your revenue model, make sure you think through what's the value you're delivering and price accordingly.

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