Understanding customers means understanding how revenues can be generated in standard (e.g. payment per software license) and non-standard ways. A common downfall of many software startups (and indeed all startups) is that they were formed on the basis of only one potential revenue stream.
Work out a single commercial model that includes at least three different ways of generating revenue
By having more than one revenue stream planned for your business you will create a stable business that is able to weather economic fluctuations and the ups and downs of your target market.
All of your revenue streams will be related and will be targeted more or less towards the same users and customers. This ensures that you don’t fragment your brand or confuse your customers. A company that sells fitness apps with a sideline in used cars doesn’t quite add up. A company that sells fitness apps with revenue streams in online fitness education and 1:1 health coaching makes more sense. Each revenue stream will strengthen the brand image and company stability rather than confusing it.
Revenue streams for software startups
Many software startups have contrived innovative ways of deriving revenue, often deploying three or more revenue ‘angles’ in order to maximise returns. These include but are not restricted to:
- Freemium models
- Responsible resale of customer lead data
- Partner advertising/content
- Transaction fees
- Software reseller partnerships
- Support contracts
Potential investors will want to see that customers and users have been fully understood before you make any proposals about revenue models.
By keeping your revenue streams strictly within the framework of a coherent strategy, you can display to potential investors (and ultimately your customers) that your business proposition is inherently solid.