How to create a Revenue Model for your business
The goal of every business is to make money. Otherwise, it's not a business, rather a hobby. That's why you need to start thinking about ways to monetize your business or your revenue model.
What is The Revenue Model?
The revenue model is simply how the business makes money. A business can have multiple revenue streams. That's why a revenue model should explain the following:
Who you are charging
How you are charging
How much you are charging
Why is The Revenue Model important?
In some instances, the revenue model is clear, in others it still needs to be figured out and is only a hypothesis. Since every business needs to generate revenues and be profitable, it's good to start thinking about monetization early on. Additionally, this will show investors you have a path to revenues and increases your chances of raising funds later on.
How to create a Revenue Model?
As a rule of thumb, your company is creating value. That value enables you to charge a certain price for this value. Therefore, you first need to understand for whom your company creates value, and how much you can charge for it. You can look at it from different perspectives, depending on your type of business (unfortunately, there is no one-size fits all solution here).
How much does the problem you are solving cost your target customer? A customer will be willing to pay to avoid that loss if the payment is significantly lower than the loss.
Whom, how and how much do your competitors charge?
How much are your target customers ready to pay for the additional value you bring?
To get some inspiration you can visit the Business Model Navigator which provides patterns on possible revenue models. Finally, you might have different revenue models for different types of customers. Keep in mind that your users are not necessarily your customers (the ones paying).
Supporting Tools & Additional Resources
Revenue Model patterns: Business Model Navigator
Remember, the revenue model is most likely an assumption at this stage. It can evolve, change and grow over time.