Following the Money, Communicating Your Startup’s Revenue Model
Updated: Jun 18, 2021
From Linkedin 9/2020
After leaving a two-decade+ post with an established and consistently growing SaaS firm last year, I’ve found myself now involved in the startup arena. Meeting idealist visionaries with ideas to change the world is invigorating. I love hearing founders deliver their pitches.
Here’s the thing. Usually I have to ask what the revenue model is. How do they make or plan to make money? What is the go-to-market approach for generating early revenue?
A critical part of a company's success is the ability to grow and scale. Seems like these starters know that and even respond with thoughts on revenue economics, but they rarely volunteer details. Reminds me of that adage about fish not knowing what water is. Sometimes for an entrepreneur, aspects of their concepts are such givens, they forget not everyone knows what they are assuming. Specifying how your product or service will be sold and paid for will increase investor engagement right from the beginning.
You may not always be presenting this information, but try creating a slide showing how you make money. Include things such as:
Who is your economic buyer?
Cost per unit (ex. user, company, location)
Average annual revenue
Frequency of billing
% Recurring versus services revenue
Your go-to-market approach doesn't need to follow some formal methodology. Just in plain language, express how are you thinking about what you charge. And don't worry - your revenue model can change over time. In fact, it will. There will be learnings on what works and doesn’t, plus the need to adapt to market changes. Don’t let fear of wanting to make future changes stop you from being clear on how you get paid now.
What if pre-revenue? Share the unit economics expected, plus the metrics you are tracking that show that your activity is leading to success. Could be number of prospects, number of demos, and pipeline.
Of course having a market fit, a stellar team and a special value proposition are all important. But growth solves a whole lot when you are creating a business. Help others help you win by having them follow how the money is made.