Choosing Revenue Streams For Your Minimum Viable Product
Let’s clear up a common revenue misconception right away. Choosing a revenue stream and settling on pricing are two completely different exercises. The latter is what our customers are going to pay. The former, and what I want to talk about in this post, is what our customers are paying for.
Critical mistakes happen when we entrepreneurs confuse these two processes, or worst of all, use one to provide rationale for the other. For example: “My revenue stream is advertising, therefore the price of my product will be free.”
The arc of figuring out one or more revenue streams starts early, during the MVP phase. The decision includes determining justification of the charge, defining the value of the product or the service, and selecting the delivery mechanism. Actually, it includes a ton of other stuff, but these are the big three we have to nail.
How do we do that? Even though every business is unique, revenue streams usually aren’t. And they almost always start with the same question.
“Who is going to pay for this?”
The Myth of Advertising as a Plug-In Revenue Stream
If the answer to that question is anyone other than the customer, we’re already in trouble. Because that’s all advertising really is, shifting the costs of our product or service to a third party and annoying our customers while we do it.
I’ve had several conversations over the past year with a number of early-stage entrepreneurs who I’ve had to advise against counting on their primary revenue stream coming from running ads through their product.
I’m not here to debate the merits of modern day advertising. But I can state emphatically that in this modern age, the merits of advertising as a primary revenue stream have all but disappeared. Yes, ads can be served and money can be made, but you have to be willing to produce a perfectly-tuned ad-spitting machine.
You also have to sell ads. It doesn’t matter if you’re going door-to-door or plugging any one of the dozens of ad-serving widgets into your app or website (although, come on, it’s Google or…