- Learn about different ways to make money for your app
- Calculate how much revenue your business will make over 5 years
These are the activities for this lesson:
REVENUE MODEL
By now, you have a pretty good idea of your business model and how you will market your product.
Now, it’s time to figure out how your business will make money.
Nonprofits and social enterprises still need to make money to pay for all of their expenses.
PROFIT
[Revenue] - [Operating Costs] = [Profit]
[Revenue] – how much money your business earns
[Operating Costs] – how much it costs to run your business
[Profit] – how much money you have left over once you have paid for all of your expenses
CHOOSING A REVENUE MODEL
For mobile apps and AI inventions, there are three main ways to earn revenue, outlined below. Keep in mind that you can use a combination of the three, like having in-app ads and paid features.
You can include banner or pop-up advertising in your app. You get paid each time someone clicks on an ad.
CALCULATING REVENUE
Once you decide on a revenue model, you can calculate potential revenue for your business. The process is:
- Calculate your market size, or how many people could download your app.
- Calculate your market opportunity, or the number of people who you can reasonably expect to download your app.
Let’s look at an example to see how the process works. Click on the arrows to move through the process from year to year.
BE REALISTIC
It may be tempting to overestimate your revenue, but that is not a good way to get people to believe in your product. Reasonable, well explained, and well researched numbers will help you make a great case for why your product will succeed.
WHAT ABOUT NONPROFITS?
If you are a nonprofit, you might not plan on selling anything. However, you will still need money to develop and maintain your product. Here are ways that nonprofits can do that.
REVENUE
You can still earn money through the different revenue models listed previously. The difference is that nonprofits don’t keep the profit like you would with a social enterprise or a for-profit company.
GRANTS
Organizations or governments sometimes give grants to support projects for social good.
A grant is money that someone gives you that does not need to be repaid.
DONATIONS
A donation is similar to a grant but usually given by an individual. Donations are given with no expectation of anything in return.
ACTIVITY: CALCULATE REVENUE
Calculate revenue for years 1-5 of your business
- Choose a revenue model (or a combination).
- Plan ahead! How will you get more users for your app each year?
- Fill out the Revenue section of the worksheet, following the HSBC example above. You will need to do some research and possibly survey your target audience to make the best estimate possible.
- Do not complete startup capital and operating costs sections in the worksheet. You'll do that in the next unit.
REFLECTION
Your revenue model will be an essential part of your pitch and will support your solution.
If you are serious about creating a sustainable product and business, you must research and plan how you’ll get people to download and continue engaging with your app each year.
Make sure to document this. You will need it when you write your business plan and record your pitch video.
REVIEW OF KEY TERMS
- Revenue – total amount of money your business earns
- Operating costs – the cost of running your business
- Profit – difference between amount earned and spent in a business
- Revenue Model – a plan on how to make money
- Market Size – how many people there are who could use your app
- Market Opportunity – how many people you estimate will actually use your app or AI invention
- Grant – money given to companies or organizations from governments or other organizations to support public services and social projects
- Donation – money given to organizations, usually by individuals, to support their work
ADDITIONAL RESOURCES
This video provides more information on different revenue models for apps.
