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REVENUE MODEL
REVENUE MODEL
At this point, you have a pretty good idea of what your business will be and how you will do some marketing for your product. Now, it’s time to figure out how your business will make money. Remember, even nonprofits and social enterprises need to make money so that they can pay for all of their expenses.
In this lesson, you’ll calculate your revenue, which is how much money your business earns. In the next entrepreneurship lesson, you will figure out how much it costs to run your business, which is called the operating cost. Then you will calculate your profit, or how much money you have left over once you have paid for all of your expenses.
[Revenue] - [Operating Costs] = [Profit]
CHOOSING A REVENUE MODEL
Revenue is the money that a business earns, usually from selling products and services to customers. For mobile apps, there are three main ways to earn revenue. Keep in mind that you can use a combination of the three, like having in-app ads and paid features.
One-Time Fee
Charge a one time fee to download an app providing a unique service.
In-App Purchases and Subscriptions
Selling goods, services, or special features. Also known as 'freemium', where consumers pay extra fees to access special features.
In-App Ads
Banner or pop-up advertising. You get paid each time someone clicks on an ad.
1. Calculating your market size
You can complete the activity "Choose a Revenue Model" below as you learn about this information.
To calculate your revenue, you first need to estimate your market size, or how many people could download your app or purchase your AI invention. For example, let’s say we are making an app that will help high school students apply to college in the United States. Our market size would be the number of high school seniors in the United States. We found that 3.1 million students graduated high school in 2019 and around 66% of them went to college. So, our potential market size is huge: 2.05 million students!
3.1 million high school seniors x 66% going to college = 2.05 million potential users
We don’t really expect that 2.05 million students will download our app, and there are many reasons for this. They may not want to use our app, or they may already use one of our competitors. They also won’t know about it, or may not have mobile phones. To determine the number of people who you could reasonably expect to be interested in your app, you’ll need to calculate the market opportunity.
2. Calculating your market opportunity
You can complete the activity "Increasing Revenue over Time" below as you calculate your market opportunity.
The next step is to calculate your market opportunity, or the number of people who you can reasonably expect will download your app or purchase your AI invention. You may need to do some competitor research online or with user surveys to figure this out. Let's see how our friends at HSBC calculate year to year revenue with our college app
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