The other night one of our founders talked about his revenue goal: a million a year. It could be less, it could be a lot more, but it’s a good milestone to focus on.
Getting there is the trick. Let’s assume that the monthly target is about $80,000 and that’s constant–it’s the target monthly revenue.
BREAKING IT DOWN
There are 20 to 22 work days in each month. For my math sanity, let’s use 20, and break that monthly number down to a daily number: $80,000/20 = $4000.
So you need $4000/day for 250 days to hit a million/year.
So how do we get there?
It’s a subscription model, so you don’t have to sell $4,000 every day, but it’s kind of like that: you need to get to enough monthly customers so it averages out to that. You’ll build to that level, but you’ll have to methodically bring on more and more customers over time.
Let’s say the average monthly charge is $25 (arbitrarily), so we need to get to 3200 customers. Math check: 3200 customers * 12 months * $25/month =$960,000/year (about a million, just shy because of choosing more convenient numbers).
3200 customers is substantial. So how do we get there?
GETTING TO 1%
Start with 32, or 1%: how do we get 32 customers paying $25/month? This is where the daily grind of work comes in: you have to do the small daily tasks.
Let’s assume a generous close rate; when I left Mission Research we were at 30%, which is pretty amazing, and highly dependent on referrals. When you’re just starting, you don’t have the benefit of great word of mouth and referrals, so “generous” is a lot less.
That’s still generous given nobody knows who you are. So your stuff really has to work well, and your startup voice has to be very likable, and if you’re smart you’ll have a free version that people grow to love.
So 32 is 5% of 640 leads. How are you going to get leads? Again, more work. Don’t assume that just because you built it, people will show up and pay for it, or that your online marketing or networks will generate huge word of mouth.
Here are some ways, and don’t grimace when you see the offline methods–they still work:
- Google Adwords (expensive)
- SEO (early on it’s unlikely to really help, but you have to do some of it)
- Referrals (no customers, no referrals, but try to turn every new customer into a source of referrals or into an evangelist for your cause)
- Articles: PR is a cheap and effective way of developing interest–it’s really key and can be very powerful if you’re ready for it.
- Blog posts at relevant sites–can you be a guest blogger?
- Comments at blogs: the more you contribute useful, authentic comments at relevant blogs and media sites, the more traffic you’ll drive.
- Email marketing: still works, but you have to develop highly relevant lists and really track everything ( try Listrak.com )
- Cold calling: ouch. It still works, but you have to diligently make the calls and follow up. This is still an important way of communicating with customers.
- Direct mail: I’ve never had success with this. We tried all kinds of tracking, packaging, offers, etc. And I can say we never had a great success that justified all the work
- Speaking: this seems like a great way to get customers, but it’s really not. It really depends on your product, target market, and speaking ability. It can support PR efforts though.
- etc, etc (I didn’t mention trade shows because it’s such a mixed bag).
Offer the product for free for a year if they take your call and join the “Pioneers” group (or a better name”)
So I would say keep building up the free user base, let’s say to 1,000. You’ll close 50 of those, given you almost double your first 1%, or at least get enough referrals that close.
That’s not enough to pay the bills but it’s a good start and enough to base your future marketing decisions on–you’ll have learned a ton and created a base of active users to learn from.
- Paid support, annual up front
- Paid service (tougher; it’s hard to serve both the product and services for the product without investment, unless the service contracts are long enough and big enough)
- “Pro” (or whatever)–the upsell.
- Capacity–depends on your app, but more storage, more bandwidth, etc
And at 12 months, if I have 1,000 active free customers who just ran out of freedom, I’ll have at least 800 customers converted, plus 100 from referrals. That’s just under 1/3 of the 3200 I need to hit a million a year.
Please feel free to point out the flaws (including leaps of faith) in this–there’s a lot of missing stuff and a ton of work involved, but this has been my experience establishing a base of customers.