How to Build a Simple Revenue Model Before You Launch

All of those assumptions and research can sound pretty good until we add money to the equation. Most of the time, we’re right back to uncertainty. The model doesn’t have to be that sophisticated at this point. We just need something to answer a simple question: How does value translate into revenue? We can start by describing a single transaction. The customer has the problem. The customer finds our solution. The customer decides to buy our solution. The customer pays us for our solution. The customer gets the benefits of our solution. By going through this exercise, we should have an idea if our model should be transactional, subscription, etc.

A lot of people get caught up in the pricing aspect of revenue models. They feel like they can’t move forward without having the price nailed. Later on we can decide whether or not that was a good assumption, but for now, just pick a price. The price is a hypothesis. It can always be changed later. What we’re looking for is the justification for that price. What value is the customer getting compared to what they are paying for that value? If our solution solves a critical pain or saves them a ton of time, we may be able to charge a premium. If it’s just a convenience or mild enhancement, we may need to have a low cost of entry. We’re just looking for the right balance between cost and value.

The other thing to watch out for is focusing so much on the pricing aspect of the model and forgetting about the frequency. Customers can be willing to pay a small monthly fee than a large one-time fee even if that monthly fee adds up to more over time. Think about the frequency of the problem. Is it a one-time problem or an ongoing problem? If our revenue model mirrors that frequency, the model will feel more natural.

In addition to the exercises above, there’s one more thing you can do to help us work through our revenue model. Spend 15 minutes a day brainstorming different scenarios for this model. Then try and verbally explain each one. If you struggle or feel like you have to justify parts of the model, then it may not be right. And if you’re still unsure, put yourself in the customer’s shoes and ask which model seems like the simplest to understand and least risky to engage with.

Over time, we will refine our revenue model based on customer and market feedback, but getting a basic model together will help inform other aspects of our solution.