How do we make money, distribute our product, scale, and generate recurring revenues with healthy margins?
Your business model is the foundation of your company and explains why it is (or will become) a viable business. This slide can be tricky depending on how straightforward your business model is.
Investors are mainly interested in understanding your recurring net revenue generation before overheads and the cost implications. They are drawn to scalable ventures yielding a high Monthly Recurring Revenue (MRR) - a model typically found in 90% of all Software-as-a-Service (SaaS) venture investments.
As a B2B or B2C Software-as-a-Service platform, showcase scalable business models like freemium, free trials, and varied pricing structures (subscription or usage-based) to appeal to investors. Enhance your appeal with a gross margin exceeding 80%, indicating robust profitability.
The business model, featuring a marketplace solution, is highly scalable. Its commission-based revenues are charged on the platform's Gross Merchandise Revenue, supplemented by advertising revenue. The success of this model is dependent on creating Network Effects akin to Amazon, Airbnb, Uber, and eBay, where every new participant enhances the platform's value.
The model should also detail potential costs, such as fees paid to resellers or affiliates for directing traffic to the site or costs for goods sold and supplier royalties.
Investors need to grasp your PxQ quickly (Products X Quantity) or, simply put, how many units you must sell to achieve $1m net revenue, accounting for your COGS (Cost of Goods and Services).
Detail the resources and activities required to generate revenue. This includes explaining your conversion rate (e.g., how many customers are gained per 100 leads) and the resources needed to generate these leads.
How to Design Your Slide:
Create a concise diagram illustrating your business operations, showcasing the money flow from customers to your bank account, and highlighting key activities.
Elaborate on the following factors:
- Sales/Distribution Channels: Specify whether your sales occur directly or through partnerships.
- Sales Activities: Outline your lead-generation approach, including outbound and inbound strategies.
- Primary and Secondary Customers: Identify and categorize your main customer segments.
- Revenue Streams: Clarify diverse income sources such as subscriptions, transaction fees, usage-fees, one-off fees, sales prices, and services.
- Cost of Goods & Services (COGS): Break down the costs of producing goods or delivering services to determine Gross Margin and Net Revenue.
- Resources Needed: Detail essential resources like marketing and sales teams, tools, and content.
Additionally, basic overheads provide insights into the unit-of-sales volume required to achieve break-even. This knowledge is crucial, even for growth-focused startups, as it offers a roadmap to fundamental profitability.
For the health therapy app, the business model should clarify payment for sessions, coverage by insurance/government, patient fees, revenue sharing, advertising costs, gross margin, necessary session volume to break even, and anticipated repeat business.
How do you fit all of this into a Business Model Slide?
Transforming the above into a single slide can pose a challenge. Consider the essentials - "What would be the investors' key questions?" For instance, Airbnb's business model slide focused solely on showcasing its revenue model.
Questions investors may ask:
- How do you plan to make money? Clearly outline your primary revenue streams.
- What is your pricing model? Explain how you've determined your pricing strategy and how it aligns with the value you provide.
- What are your major costs and expenses? Detail the key components of your cost structure.
- What is your go-to-market strategy? Explain how you plan to launch and scale your product or service in the market.
- What are your sales and marketing strategies, and what is the associated cost? Provide insight into your planned expenses for sales and marketing efforts.
- Are there any key partnerships or collaborations that enhance your business model? Highlight any strategic partnerships that contribute to your success.
- How scalable is your business model? Discuss how your business can grow and scale over time.
- What key performance indicators (KPIs) will you use to measure success? Identify the metrics that will gauge the performance and effectiveness of your business model and go-to-market strategy
