Business Planning & Revenue Shan-Hung Wu CS, NTHU We get some - - PowerPoint PPT Presentation

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Business Planning & Revenue Shan-Hung Wu CS, NTHU We get some - - PowerPoint PPT Presentation

Dec 17, 2023 35 likes •322 views

Business Planning & Revenue Shan-Hung Wu CS, NTHU We get some satisfactory users after 8 months. Do we have PMF? 2 Whats PMF? 10% 20% % 5 4 0 % 0.1% PMF = Satisfactory Customer Gen. Rate (e.g., 100/mo) 3 A startup is

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Business Planning & Revenue

Shan-Hung Wu CS, NTHU

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We get some satisfactory users after 8 months. Do we have PMF?

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What’s PMF?

  • PMF =

Satisfactory Customer

  • Gen. Rate (e.g., 100/mo)

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10% 4 % 20% 5 % 0.1%

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“A startup is an organization formed to search for a repeatable and scalable business model.”

  • Steve Blank,

author of The Four Steps to the Epiphany

You make $, or get out!

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Battle 3: Repeatable Business Model

  • You should have a

business plan since day 1

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Outline

  • Business Planning
  • Execution
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Outline

  • Business Planning
  • Execution
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Common Business Models

  • Types:

– Direct B2C (e.g., Amazon) or B2B (e.g., AWS) – Multi-sided (e.g., Google, Facebook) – Marketplace (e.g., App Store, Airbnb)

  • If possible, start from a direct model

– Other models require a critical mass – High burn rate: ROI = (R – C – OE) / I

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  • I:

– Ads – Recurring fees

  • II:

– Per-tx fee – Discounts for recurrence

  • III:

– Paid app or one-time fee

  • IV:

– Upselling – Discounts for referral

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App Engagement: The Matrix Reloaded, by Flurry, Oct 2012

Common Pay Methods

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How to Know If My Idea Works?

  • Don’t write a 100 pages BP doc
  • Challenges:

– You don’t have users – You don’t even have a product yet

  • Hacks:

– Use Fermi’s Notebook method for sanity check – Use landing page to validate your business ideas

  • E.g., “Buy It Now,” “Contact Sales”

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Fermi’s Notebook Method

  • Input: very few data
  • Output: estimate in order of magnitude

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Enrico Fermi

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Exercise: How Many Piano Tuners in Chicago?

  • #people? 100K, 1M, 10M

– 1M people

  • Piano rate? 1/10, 1/100, 1/1000

– 1M * 1/100 = 10K pianos

  • #pianos tuned by a tuner / year? 100, 1000

– 10K / 100 = 100 tuners

  • Correct answer: 81 in 2016

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How Many Users to Acquire?

  • User lifetime? 1w, 1mo, 1yr

– 1mo (most app users churn in 3Ms)

  • Satisfactory revenue/mo? $1K, $10K, $100K

– $10K (2 founders: $4K, servers: $0.5K, ads: $5.5K)

  • User lifetime value (LTV)? $1, $10, $100

– $1

  • #customers@scale: $10K / $1 = 10K
  • #customers@pmf: 10K / 10 = 1K

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How Many Users to Acquire?

  • User/customer conversion rate? 0.1, 0.01, 0.001

– 0.01

  • #customers@spf: 1
  • #potential users@spf: 100

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How to Set Price?

  • Customer LTV: $1
  • PMF goal: 1K customers/mo
  • User/customer conversion rate: 0.01
  • PMF goal: 100K users/mo (possible?)
  • What if LTV = $10?
  • PMF goal: 10K users/mo
  • Should take into account competitors’ pricing

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Outline

  • Business Planning
  • Execution
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What’s PMF?

  • PMF =

Satisfactory Customer

  • Gen. Rate (e.g., 100/mo)

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10% 4 % 20% 5 % 0.1%

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Lean Iterations

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? ?

5 Whys

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Vanity Metrics

  • #customers
  • Total revenue
  • All go up as time passes by

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KPIs

  • MR/AR (monthly/annual revenue)
  • ARPPU (average revenue per paying user)
  • ARPU (average revenue per user)

– Do more users create more value (and sells)?

  • Recurrent revenue is more important than
  • ne-time revenue

– MRR/ARR (monthly/annual recurrent revenue)

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Detailed Revenue Metrics

  • Don’t just track MRs/MRRs over time
  • Group revenue readings by

– Cohorts (v2 better than v1?) – Segments (Girls pay more than boys?) – Pricing tiers (Item A sells better than B?)

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Lean Iterations

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?

MR, MRR, ARPU, ARPPU 5 Whys

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Common Ways to Improvement

  • Increasing revenue
  • Reducing cost

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“From now on, we charge 3% fee in every tx…”

  • Customer conversion rate ↑

– Funnel: users à customers

  • Churn rate of users ↓

– Some users may be annoyed by your sales tactics

  • Luckily, they are not necessarily a tradeoff!

– Make it optional (e.g., “pro” features) – Creative use of money – Psychological shortcuts (in next lecture)

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Flora Price

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Unit Economics

  • Cost of Google/Facebook ads:

– CPM (cost per mille/thousand impressions) – CPC (cost per click), – CPA (cost per acquisition/action)

  • How much should I bid?

– Track unit economics

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CLV (or LTV)

  • Customer lifetime ~ 1 / churn rate

– Assuming fixed #customers – 1*C + 2*(1-C)*C + 3*(1-C)2*C + …

  • CLV = (ARPPU * gross margin) / churn rate
  • Successful SASS companies:

– CLV > 3 * CAC (Cost to Acquire a Customer) – Months to recover CAC < 12 months

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Bonus

  • Your MVP should be designed to include

– Retention engine – Revenue engine – Growth engine

  • Design your revenue engine
  • Make it as part of your final presentation to

get (at most) 10 bonus

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