What is the revenue model?
Okay, i will make it simple for you.
Revenue model included way of Create, capture and how you deliver the value to they customers.
For making a revenue model you have to focus on several thing,
i divided this topic into 7 different point for easy understanding.
And they are-
- Understand your Revenue Model
- Fixed cost
- Variable Cost
- One Time Investment
- Investment Stage
you want to start your new business, but don’t know how then this ” How to start a business from scratch?” can help you.
1.Understand your Revenue Model
The first thing to understand what will be you revenue model.
In the revenue model, you have to make a list.
A list of all the sources from how you will make money.
For example, your business model is blogging,
So, you have to write down that you will make money from ad-sense.
And other example is, if you are thinking you will make money from affiliate marketing,
Also so you have to write down that you will make money from ad-sense and affiliate marketing.
If you have any recurring business model,
In which a person gives you a monthly or yearly subscription amount for your service
It might be the gym or anything so in that case you have to write a recurring revenue model.
And if you are thinking that you will make money from a transition,
In which you will get money from every product sale,
So, here you have to wisely on which revenue model you are working.
If your idea doesn’t have any revenue model so change the idea.
In starting these are high chances that you don’t know how this idea will make money.
But if you think you will be able to make money from this idea after 1 year,
Then, you can work on it but if it takes more than it then drop that idea.
As i personally don’t believe in external funding,
I always say that a person should invest his own money in starting only then e will put efforts and hard works.
So, till yet we have understood the revenue model .
So, i hope you will work on it for at least half an hour.
Now, in second place, you have to write what is your fixed cost?
Fixed cost means the cost you have to bear every even when your sale is zero.
Or, if you are doing blogging so no traffic will come to your website but still there be some expenses that you have to bear.
Fixed cost like rent, employees salary, bill, etc. which you have to pay every month at any cost.
Sit for atleast half an hour and write down all the fixed expenses doesn’t matter how small or big it is.
Now, next is a variable cost what is variable cost?
Variable cost means that cost which you have to pay at the time of every sale,
Without sales variable cost, will be zero.
For example, whenever i am selling a product,
So the real cost of that product is a variable cost for me.
Or whenever i manufacture large units so that cost will be also a variable cost.
If i am selling one product so the variable cost will be according to one single product.
But if i am selling 1000 products so the variable cost will be according to 1000 units.
Even electricity and wages also comes under the variable cost.
Because sometimes we use machines for long hours at peak season so the electricity bills increases .
Somewhere people give money to employees according to their work hours.
So, this is also a variable cost. Water can also come under the variable cost if the bill is not fixed.
Like in Delhi up to 4000 liters is free,
But if you use more than that then you have to pay per unit,
So, this cost also come under a variable cost.
If your internet connection is not unlimited so whenever you crossed the limit,
Then you have to pay price according to that.
So, it also comes under the variable cost.
One more cost that comes under the variable cost but we didn’t talk about that.
Is marketing cost, its also comes under the variable cost
So, we have to decide how much money i am ready to spend on marketing each month
And how much units will be sell.
4.One Time Investment
Now, next you have to write is One time investment.
One time investment means how much money do you need to start your business.
It might be 5000, 10,000, 1 crore or 5 crore, Now how we calculate this?
See, if you are taking a location on the rent so you have to deposit a security amount,
So, that amount will come under one time investment.
Along with that you will spend money on renovation or buy some assets like furniture, fridge etc.
You will also need some working capital,
To make some expenses on packaging, manufacturing, or trading of products which you are going to sell.
So, all these expenses will come under one time investment.
Again give at-least 10-15 minutes to write down all the one-time investment cost.
Now comes to the most important thing that is profitability.
Profitability means how much profit margin we will operate at.
Some people operate at 2-5% or some people will say they want to operate at 100% profit margin so it all depends on you.
Some people want the market to differentiate.
Or some people want to sell their products by lowering the product.
So, you have to decide your profit margin at this moment and do not fluctuate it later.
If you choose a 20% profit margin so you have to cover all of your expenses within that amount at any cost.
In starting let’s take 2% conversion rate,
So if you reach 100 people only two of them will buy your products.
So, you have to find out how many products will be sold from 2% conversion rate.
According to this, you have to decide the project sales.
Which means how many sales will be done in the first month, second month and so on.
After this you have to add up all the cost.
For example, X amount of sale will be done and then less all the cost related to fixed, variable, etc
To find out your profit or loss.
And then you have to analyze on which month your business will be at the
Break even point means no profit or loss.
In the starting days, your expenses will be more than your revenue.
Now let’s take an example, our fixed cost is 10,000
And our variable cost is we have to give 1,000 on every product sold
Or let’s say our operating at 100% profit margin.
100% profit margin
is the real cost of the product is 1,000 and i am selling that product or 2,000.
The real cost of the product includes all the fixed cost and the variable cost.
If i have to cover all the fixed cost, variable cost and the one-time-investment.
Many people don’t take one-time investment while calculating the cost.
But suppose if you couldn’t have that money
Then you will have to borrow from somebody and give interest rate.
So i will also add interest in my costing.
So, you have to identify from after how many months your business will be at the break even point.
By doing this you will get to know how much money do you need
To run your business until the break even point.
For example, you got to know that you have to suffer at-least 10,00,000 rupees.
And one time investment to run this business.
So, if you have only then validated this idea.
All the things that i am telling you are in-depth after understanding,
It you will get to know should you do this business or not.
Now let’s say after 10 months you have come to the break even point.
And now you looking for investment stage.
In starting you shouldn’t look for investment But after some time
To take your business to the next level, you can take investment .
There are so many business ideas that require investment to go to the next level.
But you have to decide how much money do you need
And how many equities you are ready to dilute.
This is what all you need to do,
To evaluate your whole idea like how much money do you need,
What will be your profit margin and every question related to finance
Will come to an end after analyzing this.
Because nobody knows you better about your ideas.
So, do research and keep moving forward.