How to Determine Your Startup Revenue Model


Software as a Service is a very alluring business strategy for a mobile web startup. In this model customers are dependent on the system, and tracking usage statistics is easy. It’s cheaper to add features than in the client-side model, and the all important code remains securely on private servers.

It’s also well-suited for mobile development, saving time and development costs. Responsive web design ensures service availability on a broad variety of devices, eliminating the necessity of developing apps for every device used to access the service.

As appealing as the model is, before providing even basic specifications to a team of app developers, it’s extremely important to have a well-defined startup revenue model. In order of increasing complexity, here are the most prominent revenue models for software as a service:


Advertisement is the simplest way to monetize a website. This model requires little back-end development; it’s unnecessary to keep a persistent database with personal information about customers. This method can also be used in conjunction with others to maximize return on investment.

On the other hand, advertisements can dilute branding and can distract customers from a site’s content. If there isn’t already a guaranteed user base, this may affect customer acquisition negatively.


This model allows the sale of memberships to a service. For enterprise applications with high demand, a business may be able to set the price of premium memberships at a level that will allow it to recoup costs and make a profit. In conjunction with the advertising-based model, it can provide an opportunity to expand profits by offering tiered service.
The development overhead for this model consists of a system for customers to create new accounts, a system to authenticate user identities securely, and a system for accepting payment.


This model is essentially Premium, but with recurring payments. SaaS is very well-suited to this model, since customers need authenticated access to the service to use its features.

This model requires further back-end web development: the application database must track payment schedules and the business logic must include methods for expiry and cancellation of user accounts.

Customer acquisition will be more difficult with this model, especially for a startup, but may be more successful if the pre-launch strategy includes a well-received marketing campaign.

In-app Sales

This model allows the sale of goods or services, virtual or actual. In-app sales can be a cash cow… if that’s how the app was designed from the beginning.

In-app sales require a system for tracking what a user has purchased, and depending on what the application sells, can require additional infrastructure for new features.

Be Prepared

Choosing a revenue model should be a web entrepreneur’s top priority: putting off this crucial step or making last-minute changes can drive up costs and prolong development, miring a project in development hell. The revenue model defines how an application tracks its customers, and is therefore one of the first questions that needs to be answered.

The explosive proliferation of mobile devices and the growing demand for SaaS present a unique opportunity for mobile startups. The mobile startups that take full advantage of this opportunity maximize profits and minimize development time by choosing a revenue model before writing a single line of code.

Why You Should Take All Early Startup Revenue–Even When It’s Off Target

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I dropped this tweet recently which got a lot of attention:


I honestly believe this goes hand in hand with the true discipline of the Customer Development Process. The idea here is really simple: don’t start a company around something you think is a good idea. Rather start it around something that someone else indicates he or she will pay you for. That’s the true essence of the MVP — it’s the least product someone will pay you for right now.

Where I’ve tripped myself up in this equation is around the standard logic that you have to go into business doing something you are passionate about. I’m just not sure about that. It makes for great online courses from authors and gurus, but I’ve done it and at least in my case it didn’t pay off. There are a few reasons for this.

Hello, visionary Chief Sales Officer.

As the startup founder you probably have the product vision and are the most adept at selling that vision. If you ever intend to make money you are going to have to sell a lot of what you know because you’re the one who really gets it. Therein lies the problem — if you are spending all your time selling, who exactly is spending all of his or her time on the doing, making, performing or whatever else it is that your company gets paid for?

You can’t do both at the same time. It’s very hard to strike the appropriate balance because when you land your first big client you don’t have the money to hire anyone else and you spend all your time delivering on that first sale. When you do that your pipeline dries up. Then your first client pays on Net 30 or Net 45. You deliver, you wait for cash, you get back into selling and you face a nasty cash gap.

The point is that you won’t really get to do what you are passionate about, at least not for awhile, because you have to sell what you are passionate about before you get to do it. Whenever you are doing it you don’t get to sell it (as much; there’s the art of the upsell that I will discuss at some other point).

You are not the customer!

Now, I don’t think you should hate what you are starting a business around, but you just aren’t the customer. You might be solving a problem or set of problems you had or have but that still doesn’t make you the customer. The customer is the person (hopefully many persons) who pays you money to solve her problem. It doesn’t matter if you think you’d pay you to solve your problem.

Make money to stay alive.

My opinion differs from many people at this point. I agree that hardcore focus is important in the early stages of a company. I also agree one should not get distracted “chasing” revenue. However, I disagree with the notion that one should not accept any revenue that in some manner validates some manual or grossly inefficient manifestation of the startup’s MVP. A lot of times that’s some kind of consulting that sort of, kind of, looks like what you intend to do later. I’m not saying hang out a big marketing banner about it, but if the opportunity presents itself to make some cash I think you should take it.

Mind you I’m not saying make that part of your business vision or even mission, but rather use that cash as a way to keep doing what you are doing for as long as possible so you can keep bootstrapping. If you are like 90% of businesses you will get no angel investment*. If you are like 97%+ you will get no VC investment*. That’s why I think you should take the money!

If you can rework your early business model around making early revenue then DO IT. Stay in business. Live to fight another day. As a friend and colleague from my first startup said while addressing the rest of the team (in our garage-office), “No margin, no mission.”

Agree or disagree?

* I’m estimating here and not using references. These numbers are based on conversations I’ve had with academics and investors, not based on research.