Figuring out how to properly plan the expansion of your startup and which revenue model to apply is one of the toughest things one entrepreneur can face in his or her career. Putting the price tag on your product or service has never been trickier and the possible scenarios range from giving it away for free, to over-pricing due to the false market assessment. The impact of your decisions is huge and the future of your startup may be at stake, so let’s delve a little bit deeper into the most popular revenue models out there and see which expansion tactic might be the right one for your business on the rise.
Looking at the Big Picture right from the Start
Planning ahead is the key. As that brilliant line from “The Office” suggests:
Always think one step ahead, like a carpenter who makes stairs.
You never know what your future endeavors hold and what tomorrowland has in store for you. This is exactly why you need to implement just the right business and marketing strategy, for only then will you be able to attain your financial objectives and reap your rewards.
Of course, you must also be objective and make sure you have your both feet firmly on the ground. In order to do that, you need to examine and understand all the characteristics of the market and your target audience/customers. Make sure you come with a strategy that is consistent with the direction in which your startup company is headed.
Here we have some of the most common revenue models that seem to work just fine for many a startup around the globe. Bear in mind though, we are merely giving you the basics, you are the one who needs to figure out which one will work best for your business.
According to Martin Zwilling, the business executive, entrepreneur, and author at Angel Investment Network these are the revenue models to look out for:
1. Product or service is free, revenue from ads – Also known as the “Facebook Model”, this one is the most common one currently used by Internet startups around the globe. With this model, your service is free, while the revenue comes from click-through advertising, making it excellent for customers, and truth be told, a little less excellent for fresh startup companies that are on a tight budget.
2. Product is free, but you pay for services – If you opt for this model, your product will be given away free of charge, but the users will be paying for installation, customization, training or other additional services.
This is a good model for getting your foot in the door, but be aware that this is basically a services business with the product as a marketing cost – Martin warns.
3. Freemium model – This model is famous for being used by LinkedIn, currently the most popular business/social platform. With the Freemium Model your basic services are not being charged for, however, the premium services are available if the user pays for them through additional fees. This model is a bit tricky as it requires large investments to reach your target audience, and hard work and heavy planning in order to convert free users to paying customers.
4. Subscription Model – Last, but certainly not least important revenue model we are covering is Subscription based strategy. This is definitely one of the most popular models Internet services are relying on today as it uses monthly or yearly low payments, rather than one value or cost-based price.
Startup advantages include a more stable revenue stream, easier customer retention, and increasing customer investment over time. The customer advantage is a lower entry cost. – says Martin
Choosing the right revenue model for your business is not an easy thing to do, especially with so many people confusing it with the marketing model. Although the two are indeed closely related, make sure you know how to differentiate between these two concepts. A good marketing plan is crucial if you want to get visible, but revenue model takes care of your money in the long run.
A key challenge for every entrepreneur seeking funding is to convince potential investors that the marketing model will substantiate your positive revenue model, customers will buy the offering, and you have a viable business model.
Once you choose the right revenue model , it is time to think about expansion.
3 Expansion Tactics to Consider
The need to expand your business is an excellent proof your business is blossoming. New challenges and opportunities are right behind the corner, but this is also the period in which your business can go south by taking a wrong turn. This is why you need to make sure you choose the right expansion strategy before you make the big leap. Here are some of the tactics that proved viable for startups thus far.
1. Boosting Product Sales in Existing Markets – If your tactic is playing it safe, this is the one for you. “This is the foolproof and the easiest way to expand,” says Dan Radak, a web hosting security professional.
The risks are low and you only need a bigger location, altered pricing strategies and better marketing techniques. The good side is that you are dealing with a familiar customer group, the one who already knows your products or services, so you will know if you take the wrong turn.
2. Assembling a New Product Line – First, you will need a killer product that you know will be successful and that it is going to sell well. In order to have such a product you need to collect all the crucial data, customer feedback and reviews about your services thus far, as only then will you be able to start developing your new product line that will top your last one.
3. Finding a Worthy Partner – Merging with another aspiring startup company that is also looking to expand has many benefits. This strategy can do wonders to increasing your customer base and will combine only the best of the two businesses joining forces.
Not only does it increase the customer base, but in also expands intellectual capital and operational effectiveness. However, you must know that big partners expect high performance. – says Radak.
Expansion is always a logical step forward for any successful startup company, but your house of cards can easily topple over should you make a couple of wrong decisions. Thread carefully.
(Also, all your expansion efforts may be in vain if your SEO tactics are out of date, so make sure you check out this cool infographic providing you all the necessary tips on how to improve your on-site SEO. It will definitely be worth your while.)