Step 1: Annual Revenue Target
Start with the end in mind.
Know how much you want to make in one year.
Step 2: R&D Solution
Think of painful problems that people would pay for you to solve.
Step 3: Adding Value
Create a product that’s actually useful, unique, relevant to potential customers and easy to use.
Step 4: Price
Come up with a price you’ll charge. Be reasonable.
Step 5: Annual Customer Value
Think about how much a frugal customer will spend on your product in one year.
Step 6: New Customers to Acquire
Divide your one year revenue target by the amount this “frugal customer” will spend. That’s the minimum number of annual users you’ll need to convert.
Step 7: Conversion Rate
Next, think about how many people (out of 100) would buy from you if they landed on your website or app install page. Be more conservative and pick a number between 1-5. In many cases, 5% conversion rate is above average for e-commerce websites.
Step 8: Click through Rate
Next, think about how many people will reasonably click on your advertisement when you advertise. (If you want to make money, you have to). A decent CTR is 2%.
Step 9: Reach
Lastly, think about how many people you have to initially reach to get them to click on your advertisements. (We’re going backwards in case you didn’t notice).
Step 10: Compute
Okay. Let’s use some examples. Pretend your annual revenue goal is $100,000, you’re charging customers $10, your frugal customer will only buy one product unit valuing the customer at $10 for the entire year, your conversion rate is 5%, click through rate is 2%. Let’s calculate.
At $10 Customer Value: $100,000 / $10 = 10,000 new customers to acquire per year.
At 5% CVR: 10,000 x (100/5) = 200,000 web visits needed per year.
At 2% CTR: 200,000 x (100/2) = 10,000,000
reach needed per year.
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