all right in this video we're going to
be talking about what we call
revenue drivers now revenue drivers
simply are
things that drive revenue so the
variables
that dictate how much money we can earn
now there are four specific revenue
drivers that we're going to talk about
in this video
now the important thing to remember
about these is that as a business we
can't necessarily
affect these variables directly but we
can try and influence them
because these are the things that are
going to affect
how much top line revenue you can
generate from a particular business idea
so for starters let's explore revenue
now this is going to be a pretty basic
discussion on revenue because for the
most part chances are if you're watching
this video
you're familiar with the concept of
revenue but just to be
a little bit uh more thorough revenue is
basically what a business brings in
from selling goods or services right so
if you're a coffee shop
the money you generate from selling
lattes and
other espresso-based beverages from food
and whatever the case is
that constitutes revenue right it's
money that you bring in
if you're a technology company and you
offer a service as a subscription
then revenue for you is the subscription
fees that you generate obviously
multiplied by the number of subscribers
you have right that would be your total
revenue so every business has some sort
of mechanism for earning revenue
assuming it has a revenue model which it
definitely should have a revenue model
so assuming that it has those things we
want to explore
what are the things that we want to
think about that have a direct
influence on the amount of money that we
can generate
so the first thing we're going to think
through is our customer
now our customer is very important if
you've listened to any other
of my lectures you'll know that um
customers are really the starting point
for
for any business and a business's
ability to understand
their customers on a deeper level uh
directly influences their ability to
create
products that are valuable to market to
price to do all of those different
things
and so our customer is extremely
important which is why it is a variable
that we want to consider
so some of the things we might think
about with our customer a couple of
things that you probably want to think
through
is first how many customers do we have
so the number of customers this is
important because
you know you're not going to be able to
sell more goods and services
to more people that exceed this number
right so having an accurate
understanding
of what's our potential uh is a great
way for figuring out revenue potential
as well it's a direct related to the
number of customers you have
in a given area if you're a physical
business
or if you're an e-commerce business the
number of people that are searching for
specific keywords that you're trying to
target
right that influences your number of
customers the other thing you want to
think about
is ultimately what's their willing what
are they willing to pay
so willingness
to pay now this is a direct influence on
ultimately what the problem is right
depending upon the problem it's if it's
extremely severe
you might find that people are willing
to pay and hold off a lot
if there's a lot of competition in your
space then
that might peg you to a certain price
point so you might not be able to
deviate all that much
if you have a lot of competitors that
are offering very similar services or
products to you
you know unless you're providing more
value somehow
it's going to be really difficult to
deviate from that kind of range in terms
of prices
so for starters understanding who your
customer how many are there
and ultimately their willingness to pay
that's a really good place to start when
trying to figure out
revenue potential all right the next
thing that we're going to focus on
the next thing we're going to focus on
is what we call frequency
and this one should be pretty
self-explanatory but just to be thorough
our frequency is ultimately how many
times people are willing to purchase in
a given period of time
okay so ultimately how many times
people will purchase
and this is largely dependent upon your
product right if it's a
subscription-based business
you're offering a music service online
well then people are willing to pay
regularly right because if they stop
paying then they
obviously forego the ability to use the
service
so the frequency would be really high if
you're selling something
more expensive like a barbecue the
frequency for that is
not as much right generally speaking
you're not going to you know drop money
on a barbecue every single month or
hopefully
not even every year you're going to use
it for a period of time same thing with
a vehicle
or another capital good like that the
frequency is
is much less if you're selling coffee
like i do
the frequency for that is a little bit
higher right because people consume it
over a period of time and they need to
replenish
so they have something to brew in the
morning so your frequency is another
driver of revenue
if you can encourage people to purchase
more frequently
then that obviously has a direct benefit
to you
likewise if there are competing products
if there's a lot of options available
that might influence your frequency
or if it's a product that's designed to
be used over a long useful life
then that obviously will limit your
frequency and of course your revenue
potential as well
the next area
the third variable or the third driver
for revenue
is your price and this one here is well
documented so what we
charge to the customer obviously
directly influence our prices now
one of the things that many young
entrepreneurs
feel is they have direct control over
what they price
and that is true to an extent right
price is a very easy thing to set but
it's a very
hard thing to dial in because while the
business
does set their pricing it is largely
dictated
by what a customer is willing to pay and
regardless of what anyone will tell you
price and setting an effective price is
really a trial and error process
right you you never really know if that
is the right price but you have to test
it
right and what you're trying to figure
out is typically
what's the quantity purchased
and so you can charge a array of
different prices and businesses do this
all the time and split
test pricing to figure out you know what
ultimately leads to more revenue
many times people think that volume is
the end goal right to sell the most
number of units possible and that is not
necessarily the goal
the goal is to maximize total revenue
so if you're only selling five units but
you're selling each unit for a hundred
thousand dollars
well that's great right that's five
hundred thousand dollars
likewise you can flip it and say well
i'm selling my units for five and i've
gotta sell
a hundred thousand well you go to you
get to the same number right you get to
five hundred thousand in revenue which i
i guess
you know is great but it's you're
working so much
harder to get there right and if you're
a physical goods producing company right
that creates customer service inquiries
and uh questions and returns
and all those different things that add
to the cost
of running a business so don't think in
terms of well my goal
is to sell as many units as possible
your goals
to sell the highest total is to achieve
the total the highest revenue figure
so you might be able to charge more
in turn your volume might decrease
so you might sell less units but the
increase in price per unit
might be enough to offset it and it
might actually work in your favor
so again that's something that you want
to test on a regular basis
what i would encourage also is don't get
so
fixated on the end number a lot of
people particularly younger
entrepreneurs
are always fixated on price i want to be
the lowest priced business around
right and the challenge with that of
course is
you're generally competing against
established businesses
that have a must much better cost
structure than you do
right so on a particular item doesn't
matter what it is
but let's say the normal rate is 15
per unit and you're trying to charge you
know 13 right so you want to be the
lowest price person
well you're assuming that your cost
structure is the exact same
right so let's say you're the
competition is 15
and you want to compete at 13.
well the reality is is that the other
businesses
might actually just be paying eight
dollars
which means they're generating seven
dollars on every unit
and as a new business your cost
structure you might be paying 10
which means you're only generating three
so don't get fixated so much
on competing based upon price what i
always encourage people to think about
is think in terms of value how much are
you worth
it might be that you're offering more
services than the other competitors
so if that's the case why are you trying
to undercut them on price
instead maybe charge a premium that's
going to do a couple things one it's
better for your margins right which
means you're going to operate a
healthier business
you'd be you'll break even much sooner
which is great the other thing is
is that sometimes there's a
psychological effect when you see
something that is priced higher
you kind of assume that it's better now
it might not
right and that's what ultimately that
has to come to fruition as well
but if you're priced higher than a
competitor then you might be getting a
benefit by people assuming that it's a
better product
and if it is in fact a better product
you should certainly be commanding more
from the market you don't want to
necessarily be charging the same or less
and giving away more unless you really
could
you really have some belief that that is
going to work out
in the long run uh and that's that's
another conversation for
another time so so far we've talked
about the importance of the customer
frequency and our pricing as revenue
drivers
the last thing that we're going to talk
about that's a driver for our revenue
is what we call our selling process
and your selling process is very
specific to kind of the distribution
like the way that
people actually purchase your product
and the way that it gets to them
and every selling process is different
so i'm just going to use one
i'm going to assume that we're an
e-commerce based business right so we
don't have a brick-and-mortar location
we've got a website
people purchase on our website and then
we ship directly to them or do local
delivery or
some other means like that so that would
be our selling process
so your selling process could be
complementary
to your revenue and could drive further
revenue
so for example on an e-commerce website
you might have an upselling strategy
so when people are on your website and
they're looking at products
when they get close to checkout and i'm
sure you've seen this before
the system might say hey you're buying
this why don't you buy
a you know bigger bag of coffee
and it'll last you longer and it's a
little bit you get a little bit of a
discount right that's an upsell strategy
right that's a unique part of the
selling process that might help you grow
revenue
the other strategy is what we call a
cross-selling strategy
so cross selling is when you're actually
promoting
uh kind of related products and so if i
was selling
coffee online and you were checking out
with a bag of coffee
i might recommend like hey maybe check
out this
like pour over kit you can brew better
coffee right that's that's cross-selling
so i'm trying to find something that is
somewhat related to what you're buying
because if it's related you're more
likely to purchase it right if i
recommend something that's completely
unrelated you're unlikely to convert
and my strategy is unlikely to be
successful but with cross-selling
right you're again you're promoting
something that is somewhat in the
vicinity
of what people are actually buying so if
you purchase a new brewer i might
recommend hey
do you need some filters for the brewer
or do you need a grinder
or you know whatever the case may be so
depending upon your selling process
you might be able to incorporate
additional things
that can help drive revenue so when
you're looking at
what revenue model you want to pick for
your business
think about these four drivers and
ultimately
how you can utilize them to try to
maximize your revenue