ECC Talk #7 – Revenue Models and Sales Channels – How you get to customers and make money

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Sales are the life blood of a company. Without sales no startup can survive long term. With the value proposition tested and the customers willing to purchase your product, you need to decide how you will get in front of them. There lots of sales channels that you can use to get in front of potential customers, all of which can be divided in to two camps, either direct or indirect. Direct channels keep the sales responsibility in-house, along with the associated costs and management resources. Indirect channels outsource the sales responsibility to a 3rd party such as a retailer, wholesaler, or outsourced sales force. In the beginning, direct channels should be used to gain direct knowledge of the customers and learn as much about them and why they purchase as possible.

Every sales channel option has a set of costs and nuance. Costs like, retailer discounts, inventory buyback, shelf space, shipping, distribution, storage, marketing, sales commissions. Regardless of the channel used, you must be able to drive awareness of your offerings to customers, help your customers understand the value you are delivering to them, make is easy for customers to make a purchase, and deliver good after sales support. The sales channel or channels used need to be selected based on the targeted customer. For example, if your targeting businesses, a retail sales channel will not be a very effective way to reach them but a direct sales team or large distributor might be very effective. Select the right channel for both your product and your customer and make sure every party in that sales channel can make money supporting that sale. In the end, a product with better distribution will win, even if it is a bad product.

The right revenue model can mean the difference between success and burning through all of your money. Simply put, a revenue model is how you make money from your product or service. There are several revenue models to choose from and they can be combined to create endless variations. When choosing a revenue model its best to look first at the competition. The competition has trained customers to accept a certain revenue model and way of paying for their product or service. Customers might not be ready for a new revenue model for the industry or it could be a major part of your strategy or value for the customer. Ensure that the revenue model used adds value for the end customer and makes it incredibly easy to use your product.

Regardless of the revenue model used, to be successful and grow, the revenue model needs to scale with value and volume. In other words, you need to be able to handle a growing number of customers for each person added to the sales force or each dollar spent. If you can only add 20 customers for every sales person, you are not scaling but growing linearly. If you add 20 customers when you add one sales person and then add another 45 with the next sales person, you are scaling fast which will have a large impact on your bottom line.

Avoid faking it until you make it, building products for non-paying customers, and failing to engage early customers. Early customers and early adopters are essential to a company and can make it or break it. Handle them personally and with care.

 

ECC Talk #8 – Partners, Strategy, and Cost Structure

 

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