Oct. 12, 2023

Show Me (How You Make) The Money: Conveying Your Revenue Model to Investors

Show Me (How You Make) The Money:  Conveying Your Revenue Model to Investors

This is part ten of "The Ultimate Pitch Deck Guide for Startups," a fundraising guide made in partnership with DECKO, a leading pitch deck development company that’s helped ~180 startups raise over $100M from investors.


Your Revenue Model incorporates one or more Revenue Streams and will shape the way you structure your operations, product, team, performance metrics, etc.

Investors rely on you to experiment and identify the right Revenue Model that maximizes growth and reduces overall risk at your company. Your role as a Founder is to effectively communicate your Revenue Model to Investors in a way that is approachable and inspires confidence.

Investors value simple and scalable Revenue Models that can expand to include multiple complementary Revenue Streams and become increasingly well-diversified.

In your pitch deck, the primary focus of your Revenue Model section is to ensure that Investors clearly understand it. If an Investor is confused about your Revenue Model, they are likely to pass on the opportunity to participate in your raise.

Additionally, design is especially important for these slides as they can play a major role in visualizing your model to Investors. If your Revenue Model includes a lot of flowcharts, arrows, and conditions, Investors will walk away believing that your Revenue Model is too complicated to scale quickly. Design your slides to make the Revenue Model as approachable as possible.

In this chapter of "The Ultimate Pitch Deck Guide for Startups," we'll review the most well-known Revenue Streams and explain how to incorporate them into a larger story around your Revenue Model.

Now, let's dive in:

Identifying Your Revenue Streams

Many Investors have specific criteria for the Revenue Models in which they invest. Additionally, most companies will incorporate multiple Revenue Streams into one larger, well-diversified Revenue Model.

Some common Revenue Streams include:

Recurring Revenue (SaaS, Subscription): Customers pay you on a consistent basis for access to your product/offering. Consumer-facing platforms like Netflix, Spotify, etc., generate recurring revenue through subscriptions, while professional-facing platforms like Salesforce, DocuSign, etc., charge recurring Software-as-a-Service (SaaS) fees.

Retail: You sell wholesale access to your product/offering to a retailer who makes it available to consumers. This is most popular with consumer products, food and beverage, and professional appliances you see on the shelves of Target, Staples, or your local grocery store.

Direct-to-Consumer (DTC): Rather than working through retailers, some companies choose to dedicate their own company resources to reach consumers directly by building their own storefronts, online presences, fulfillment, etc. Some notable direct-to-consumer companies include Warby Parker, Casper, Allbirds, and more.

Razor and Blade: Customers purchase initial access to your product/offering and then pay additional fees to continue using it. Food and beverage companies like Keurig or Nespresso sell their machines for a one-time fee and then make money on every pod you purchase to make coffee. Video game consoles like Nintendo, Xbox, PlayStation, etc., sell you the console for an initial fee and then make money on every game you purchase for it.

Marketplace/GMV: Customers purchase from third parties on your platform, and you collect a percentage of every sale. Marketplaces can apply to both B2B and B2C industries and are often custom-built to buy/sell specific products or services. Consumers buy products and experiences on marketplaces like Airbnb, eBay, TaskRabbit, etc., while businesses hire, buy/lease equipment, and more on marketplaces like Upwork, EquipmentShare, etc.

Transaction/Processing/Service Fees: Customers pay a small, often percentage-based fee every time they access your product/offering. This is particularly common on payment processing platforms like PayPal, Venmo, Square, and more.

Usage-Based: Customers pay based on how much of their product/offering they use. This is particularly popular with web-hosting platforms like Amazon Web Services, Microsoft Azure, Google Cloud, and more.

Service-Based: Customers purchase a service that your company completes with a combination of people and technology. Rideshare platforms like Uber or Lyft are excellent examples of service-based businesses, as customers purchase a ride through their platform for their network of drivers to complete. Customers pay these rideshare companies directly, and then the rideshare companies pay the drivers.

NOTE: At scale, these businesses can often be confused for marketplaces because they require connecting customers with individual people or teams to execute a service. The major difference is that the customer does not purchase the service directly from the people who fulfill it. Instead, they purchase the service from the company, and the company decides who executes it. It is the difference between calling an Uber and hiring a driver on TaskRabbit.

Advertising: The product/offering is built to develop an audience, user base, or community. Brands then pay to reach your audience, users, or community members. Common examples include the TV, social media, and print ads you see every day. Less recognizable examples may be favorable mentions in industry reports, higher rankings in online search/feed algorithms, or even product placement in movies.

Licensing: Companies purchase the right to use your intellectual property or proprietary technology for their own purposes. Google/Alphabet licenses Android to smartphone manufacturers around the world, who are then responsible for building their own hardware and marketing it to consumers. Research Frontiers (NASDAQ: REFR) harnesses the power of Suspended-Particle Devices to create windows that seamlessly transition from clear to dark in under 2 seconds. Rather than selling to consumers or even automotive companies like Mercedes directly, they license their technology to glass manufacturers who then work with their customers on specific use cases.

Weaving Your Revenue Streams Into a Revenue Model

It is common, and encouraged, for companies to generate revenue in a number of different ways. For example, Hulu charges a subscription to consumers but also generates revenue by displaying ads multiple times throughout every show or movie.

Investors prefer businesses with diversified Revenue Models because they have lower risks of any specific Revenue Stream failing and negatively impacting the overall business. However, businesses that are generating revenue from too many different places too early on may appear as if they don't know what their path to growth actually looks like. As a Founder, it is your responsibility to ensure Investors believe the former, and the way you convey it in your pitch deck will make all the difference.

#1 Focus on Your Primary Revenue Stream: Even though Hulu makes money through both subscriptions and ads (as well as many other Revenue Streams that are less overt), subscriptions are their primary revenue stream. As a result, metrics like subscribers and retention are likely more important than ad rates.

Identify which Revenue Stream is most important to your Revenue Model and make that the focus of your slide. From there, you can add an "Additional Revenue Streams" slide or section to your deck with more information on your other Revenue Streams.

#2 Explain How Your Revenue Streams Play Into Your Larger Revenue Model: Hulu is able to sell Ads to brands because they have so many Subscribers watching their movies and shows. Companies like Airbnb make most of their money through marketplace fees but can also sell add-on services to hosts because they want to attract more guests to their short-term rentals.

Showcase how each of your Revenue Streams supports each other to create a bulletproof, well-diversified Revenue Model.

#3 Show Investors the Present and Future: As your business matures, you may plan to launch new Revenue Streams and even transition between primary Revenue Streams. Clearly identify what Revenue Streams are live in your current Revenue Model and when you plan to launch your new Revenue Streams. From there, share a chart that breaks down your Revenue Model over time so Investors can understand how each of your Revenue Streams will impact your Revenue Model in the future.

As a Founder, you should always feel comfortable experimenting with new ways to generate revenue. All you need to focus on in your pitch deck is conveying it concisely. From there, Investors will have faith in you to continue fine-tuning the Revenue Model to drive growth.

That's all for this week. Check back next week when we talk about your Competition/Alternatives section.

If you need any further editing or have more content to review, please don't hesitate to ask.