Steve Blank

Jon Feiber

Jon Burke

http://i245.stanford.edu/

The Lean LaunchPad

Lecture 6: Revenue Streams

2images by JAM

customer segments

key partners

cost structure

revenue streams

channels

customer relationships

key activities

key resources

value proposition

REVENUE STREAMS

what are customers really willing to pay for? how? are you generating transactional or recurring

revenues?

Revenue Streams

• How many will we sell?• Where/Who is the money coming from?• How do we price the product?• Does this add up to a business that’s worth doing?

How Many Will You Sell?

• What was the Market size and estimate of market share?,– Translate into the anticipated number of customers (as in 10% of a million-

person market=100,000 customers)

• How many can your channel sell?• How much will the channel cost?• How many customer activations?

– Revenue? Churn/Attrition rate? customers/?

• How much will it cost to acquire a customer?– How many units will they buy from each of these efforts?

REVENUE MODEL =

the strategy the company uses to generate cash from each customer segment

Where is the money coming from?

Revenue Model Choices

Bits

Physical

Product

Web Physical

Channel

Direct Sales Products Subscription Upsell/Next Sell

Ancillary Sales:• Referral revenue • Affiliate revenue• E-mail list rentals• Back-end offers

Direct Sales Products Service Upsell/Next Sell

Referrals Leasing

Direct Sales Products Subscription Add-on services Upsell/Next Sell

Referrals

PRICING MODEL =

the tactics you use to set the price in each customer segment

How do we price the product?

Pricing Model Choices

How do we price the product?

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• Product-based pricing• Competitive pricing• Volume pricing• Value pricing• Portfolio pricing• The “razor/razor blade” model• Subscription• Time/Hourly Billing• Leasing

Pricing Models - Physical

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How do we price the product?

• Product-based pricing• Subscriptions• Freemium• Pay-per-use• Virtual goods• Advertising sales

Pricing Models – Web/Mobile/Cloud

Payment Flows

• Draw the diagram• Put in Numbers

ACOG

ACS

Doctor specialty

committee

Hospital Administrati

on

Patient

Technician

Insurance

Radiologist

Mammography

PCPOB/GYN

MammOptics

Sales representatives

Demand Creation

CUSTOM

ER

Teste

dTe

sting

Need to

test

In progress

Teste

d

Need to

test

Need to

test

In progress

In progress

Less mammography

New claims Mammography is a loss

Breast cancer specialists lose

Job loss

Improve healthcare

Attract patients

New costs

Revenue

Better care

More patientsRevenue

Multi-side Markets and Revenue

• Single-sided markets that care about revenues

• Web-based Multi-sided markets may care about users first, revenues second

“Revenue First” Companies

• Time to doublings for monthly revenues• Key questions:

– When will I get to $100k/month in revenues?

– When will I get to $1M/month in revenues?– What assumptions about my business am I making when I

reach these milestones?

“Users First” Companies

If you say your business is advertising based:

• How do you get to 10M monthly users?• How do you become one of the top 5 websites visited?

New Market Revenue Forecast

New Market Sales Curve

Existing Market Revenue Forecast

Existing Market

Resegmented Market Revenue Forecast

Other Issues

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• Distribution Channel affects Revenue Streams • Market Type affects Revenue Streams • Demand curve affects Revenue • Consider Lifetime Value

Start with Key Assumptions

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• Target market– USA market – 1.5 M patients– Europe – 2 M patients

• Package– Reusable wrist watch– Disposable sensors / patch– Access to patients data

• Product development– 4 people in the beginning– $2 million– 1.5 years to develop (for BP)

Sales Start in EU middle of year 3 Start in USA end of year 4

Personnel Average salary $120 K Load factor 1.5 Headcount from 4 to 174 in

year 8 Financing

Series A – $3 M Series B – $10 M

Price per package: $150COGS Profit

$60 per unit $90 per unit

Operating Expenses

Does it add up?

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• Is the revenue adequate to cover costs in the short term;• Are you confident the revenue will grow materially if not

dramatically over time; and• Does the profitability get better as the revenues get

bigger?

Team Deliverable for Next Week

• What’s your revenue  model?   • How will you price your products?    • Draw the diagram of payment flows   • What are your key financial metrics?        • Test pricing 100 web customers 10/15 non web?    • How do competitors price? • Assemble a rough income statement     • Summarized in a 5 Minute PowerPoint Presentation