14. Revenue Models

Question 1

What is a revenue model?

Answer 1

A revenue model is the strategy a company uses to generate cash from each customer segment.

Question 2

What is a pricing model?

Answer 2

A pricing model is a tactic within a revenue model that a company uses to set the price for the value it delivers to each customer segment.

Question 3

How many will you sell?

Answer 3

What’s the TAM, SAM, and Target Market?

How many can your channel sell?

How much will the channel cost?

How many customer activations? Activation rate? Churn rate?

How much will it cost to acquire a customer? How many units will they buy?

Question 4

Types of revenue models

Answer 4

• Asset sale
• Subscription fee
• Usage fee
• Renting
• Licensing
• Intermediation fee
• Advertising

Question 5

Three important clocks - reflect the efficiency of your business - how fast you can turn inventory into cash

Answer 5

• Days of payment outstanding (DPO) - how long until you have to pay?
• Days of inventory outstanding (DIO) - how long until you sell everything you have?
• Days of sales outstanding (DSO) - how long until you get paid?

operating cycle = dio + dso

the quicker this happens, the more likely your business can operate on smaller gross margins and so you need less working capital.

working capital = current assets - current liabilities

Question 6

What is the Cash Conversion Cycle (CCC)

Answer 6

CCC = DIO + DSO - DPO

Your goal is a small CCC.

If CCC > 0, you owe before you make $$, which means you need working capital (money in the bank).

If CCC < 0, you make $$ before you owe.