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.