UCSF Life Science

Lean LaunchPad

Diagnostics Track

Class 5Revenue Streams

How Do You Make Money?

Todd Morrill

Revenue Streams

How do you Make Money?

© 2012 Steve Blank

Big Ideas

• Each Customer Segment will have its own Revenue Model (although some may overlap)

• Pricing is a small portion of the overall revenue model

• Timing of payment is more important than you think

• “Regent/rental” is a common structure (but a misleading description)

Key Revenue Model Questions

• What are my customers paying for? (value received)– Value to them:

economic, social, emotional, flexibility, temporal, etc.

• How much will they pay for it? (price)– How much will they pay. Not “want to pay” or “could pay”

• In what form will they pay? (currency)– Usually cash in Dx markets (!)

• How will they receive it? (structure)– “Asset purchase”, subscription, rent, license, etc.

– Reagent rental

• When will they pay? (timing)– Up front, 30 days [or more],

Reagent rental

• Capital equipment is bundled with a multi-year contract for consumables purchases

• One purchase order is created (i.e. one sale)

• Financing / cost of capital is a key part of the transaction– Vendor, customer or 3rd party may ‘carry’

the financing costs and risks

• Significant effect on cash flows, build costs, servicing, etc.!

Year 1

Year 2

Year 3

Pricing

How do I price the product?

• Competitive pricing

• Volume pricing

• Value pricing

• Portfolio pricing

• “Razor/razor blade” model

• Subscription

• Time/Hourly Billing

• Leasing

Additional components of pricing

• Exclusive vs. non-exclusive

• What do you price? What do you give away for free?

• How does cost vary at different production levels?

• Price decay with time

• Competition / alternatives

Is minimum caloric intake a good way to plan a party?

Is audible threshold a good way to

play music?

Is ground level a good place to

fly your plane?

Is cost a good way to calculate pricing?NOT UNLESS YOU HAVE TO

When you might have to:

1. Commodity product

2. Competitive pressure

3. Customer familiar with costs

4. Customer dominant

None of these should apply to you...

Your Revenue Model Calculations(all of which are first guesses)

for each customer segment…

…based on the VALUE you provide…

…What is your best guess at the PRICE you will sell at?

Hancmarginisexiguitas non caperetvectigalia.

Does it add up?

1. Is revenue adequate to cover costs in the short term?

2.Are you confident revenue will growmaterially if not dramatically over time?

3.Does profitability improve as the revenues get bigger?

Next week

• Slides as per the syllabus

• In addition:– Updated slide on reimbursement

– Updated slide on ecosystem [every week from now on]