by Page no: G107
Information
Revenue Steps
2021-03-12: by Ryan Micheletti
A simple guide that explains how to determine your “steps to revenue.”
When determining a revenue stream for your product, simple is always better, and the simplest revenue models require very few “steps to revenue” (steps that need to take place before your archetype customer pays you money).
To determine your steps to revenue, look at the example below:
Case Study: Riya
The slide above is the original steps to revenue model for Riya (the predecessor to Like.com), which was a tool that used face recognition to organize your photos. As you can probably tell, this very complex.
In order for this business to make money, all of the following steps need to happen:
STEP 1: Face recognition as a feature would get a lot of users.
STEP 2: These users would then need to upload a lot of photos to Riya.
STEP 3: These users would then need to tag these photos using Riya's face recognition technology.
STEP 4: The steps then branch (THIS IS BAD). These users would then need to either;
STEP 4a: Upload these photos to Flickr and other sites, which would then allow Riya to build a user generated version of Google images;
STEP 4b: Or, come back to Riya very often, making Riya a destination site for online photos;
STEP 5: Finally, Riya could then generate revenue from online advertising.
The model above is not impossible, but it is based on several key assumptions and would require tens of millions of users, a large amount of capital, and a very long time to execute.
Instead, Riya pivoted the product to Like.com, which has a much simpler step to revenue model:
Like.com, a visual search engine for soft goods, ended up generating significant revenues and was acquired by Google in 2010 for ~$100 million. For more information, watch this FI video from Munjal Shah (Founder of Like.com) (he talks about “steps to revenue” specifically starting at 4:54).
Calculate Your Steps to Revenue
To determine your steps to revenue, you need to analyze in detail all of the key steps that need to occur before you receive a payment in your bank account from your Archetype Customer. Follow these tips:
- Be extremely detail-oriented, and focus on very specific customer behavior when using your product.
- For each step, write the name of the step, the approximate timing, and a couple of sentences that describe what needs to happen for that step to be completed.
- Aim for the fewest number of steps and key assumptions.
- Avoid “branching” like in the Riya example above.