Most entrepreneurs will say they started with an idea or a passion for something, usually a solution to a problem. But having solutions or filling a need that isn’t currently met, doesn’t necessarily mean you’ll be profitable if you attempt to make a business out of it.
For starters, people may want something, but might not value it enough to pay for it (or pay what it is worth). Or perhaps you want to sell something that consumers are used to getting for free, such as information that is readily available online by simply searching. While this is stating the obvious, there needs to be a lot of thought around the best way(s) to generate revenue once you’ve decided on an idea you wish to pursue. Here are some questions you can ask yourself to help you define your revenue model.
1. Does your passion or interest convert better into a product or a service?
Although simple on the surface, this question requires a lot of thought. Most of us start out by wanting to help people, so would you be more helpful creating a product to solve a problem, or providing a service?
Scalability is almost always easier with a product, but you can create a service-based business to be scalable if you are willing to view yourself as the one to build it, rather than the one performing the service yourself. You need to be willing to hire others, who ideally are better at that service than you, which will allow you to build a growing clientele. Your skill must be in the ability to manage and inspire others and run the overall business, as well as build relationships with potential customers, build your brand, and sell the services of your company.
2. Do you want to sell a generic product to a lot of people, or a specialized product to a few people?
There is no right or wrong answer on this, but you need to decide which direction to take, and then own it. Some people will travel to five different grocery stores to get the best prices on each item they buy, while others are willing to spend twice as much money for food that is locally grown, organic, or environmentally-friendly, because they value those principles.
While it is easy to think of selling a product that is inexpensive and appeals to the masses, that may or may not be the platform for you. It’s scary to think of selling an expensive item that most people may not buy, but as long as there is a small market for what you want to sell, and it’s valued enough that people will pay what it is worth, and you can be profitable (run the numbers, first!), you may find that specializing is actually easier than selling a mass-marketed product. It’s easier to connect with your target market, and you are offering a product (or service) that is more unique, with less competition.
3. Ask yourself what it is that you are really selling, and is there a more profitable alternative?
This is probably one of the hardest questions to answer, because sometimes what you think you are selling, isn’t really what you are selling, and there is a better alternative that can be more profitable that will still accomplish the overall purpose. For example, suppose you have an idea that you want to help people become more organized. So you decide that you are going to become a life coach, and sell your services to individuals who can hire you to teach them organizational skills.
While this is an option, another would be taking your knowledge about this topic (which hopefully you have if you want to start a business about it), and instead of becoming a life coach working with individuals, maybe you create a software product that can help people become more organized. You have now moved from a model of selling your time and consultation services, to a model of creating a product that you can sell online with an infinite potential for sales.
4. How can you optimize your revenue stream?
Several years ago, consumers who wanted to buy an Adobe product would purchase the software and install it on their computer. Now, Adobe no longer sells their software, but instead, people like myself spend anywhere form $10 to $50 per month for the right to use their software. If we stop paying, we no longer get to use it. While the consumer in me wishes I could just buy it, I recognize this is a great business model, and one that many are now practicing.
Going with our example of selling organizational software, could you make it a membership-based product? Could you add enough functionality to it to add this kind of value? Perhaps you could add a component of adding virtual assistant services? Create an app that integrates with the software? Can you team up with another successful software product where you can sell as a packaged deal, where your two products compliment each other? The point is to think outside of the box on how you can optimize your revenue stream.
5. Do you want to have primarily active or passive income?
If you’re in business, you’ll most likely always need to actively manage your business, but some revenue models require more hands-on work, while others require more work in the initial development phase, then scalability takes over and revenue is earned more passively.
Writing a book is a good example of passive income. A lot of work to write it, market it and publish it, but once it’s written, it can bring in revenue without any additional work. Real estate investment, software, and e-commerce sites might also be a source of passive income. Whereas consulting or service-based companies will be more active. Perhaps having a combination of both, is best.
6. Are you going to be a B2B or B2C company?
This is important to really think about, because the differences are huge. Knowing exactly where you are on this, will determine everything from your marketing strategies to your potential revenue. Decide who who prefer to work with, whether it be those in business or consumers, and then figure out how your idea can become a business for that market. Many assume they will sell to consumers, but B2B may be a better fit. Take the time to think about the differences in the two environments, and in which platform do you feel is a better fit for you and what you are hoping to achieve.