04 May How to Determine Revenue Streams the Easy Way
One of the core areas of a business model canvas is the revenue stream. It is absolutely crucial to operating long term. But before you consider the revenue stream, you should spend time defining your Value Proposition, Customer Segment, Channels and Customer Relationships – in this order. These are the beginning stages of the business model canvas.
Then, determine your revenue streams so that you can keep providing value to your loyal customers!
How to Determine Revenue Streams in 4 Steps
In order to find your revenue streams, you need to know two things:
- What are your customers willing to pay?
- How much cash flow do you need to successfully operate your business?
Earlier in the process of setting up your business model canvas, you’ll have approximated what your customer’s average income level appears to be. You will also have made a targeted guess as to what their need/investment is in your product. This will help you figure out the answer to question number one above.
As for cash flow, make sure you understand what you need to keep your key partners and key activities rolling. Once you have determined these two things, you need to figure out what it looks like to reach that goal! This is the focus of question number two above.
The reality is that there are a myriad of ways to generate cash. But you need to consider which ways align with the rest of your business model. Also consider which methods will actually be successful.
For example: If you own a technology business and only accept cash, you may be missing an opportunity to generate more income by accepting credit cards. Similarly, if your target audience is senior citizens, you are probably making a mistake by only offering Paypal.
After finishing step one, you need to consider what and how your customers are currently paying.
Cash and check? Good. It’s probably time to invest in a card reader. Tech-savvy customers? Then consider a tablet with Square or PayAnywhere. Are you taking orders over the phone? Maybe it’s time to consider eCommerce.
Next, it’s important to know your Point of Sale (POS)?
When you go to a restaurant, you pay immediately. But what if your POS is online? Or what if you charge a monthly, quarterly, or annual subscription cost? A big consideration today is if you will have one-time transactions or recurring transactions.
One of the most successful business models on the internet today is the subscription service. Basically, this is a recurring cost that automatically gets charged to your card every so often – monthly or yearly usually. It’s not only great for generating cash, but for maintaining healthy cash flow as well.
It’s time to consider how big each revenue stream is.
Can it grow? Do you have more than one customer segment calling for different revenue streams?
Maybe one group is more interested in flipping real estate while another is more interested in renting. What additional, specific products or services could you offer to each segment individually?
Your Business Model Canvas definitely needs the Revenue Stream section filled out in order to be successful. Hopefully these considerations will help your small business start generating cash!
Have questions about the Business Model Canvas or Revenue Streams? Ask in the comment section below!