Running a startup can feel like walking on a tightrope. On one side, you're balancing your dreams of building something meaningful. On the other side, you're facing the tough reality of making it profitable. But what if your revenue model—the plan that's supposed to keep your business running—is part of the problem?
A solid revenue strategy is more than just a way to make money. It’s like a safety net for your startup, guiding your decisions and helping you stay focused on growth. Still, many founders miss the signs when their revenue models start to break down. Sometimes it's because they're too optimistic, and other times it's just because they're too close to the problem to see it clearly.
In this post, we’ll go over five key signs that your startup’s revenue strategy needs a serious rethink. I'll also share some practical advice, easy-to-follow frameworks, and honest insights to help you fix these issues. By the end, you'll have a better understanding of how to take effective action and make your revenue model work for you.
1. Your Income Is Too Unpredictable
One of the biggest signs of a revenue problem is inconsistent income. If your revenue chart looks like a rollercoaster—up one month, down the next—that’s a big warning sign. Predictable income is essential for sustainable growth. Without it, you can’t plan for the future, attract investors, or scale with confidence.
Why This Happens: Startups often rely too much on one or two sources of income, which makes them vulnerable to sudden changes. For example, if most of your money comes from one client or product, even a small market change can leave you in trouble. This problem is even worse in industries where customer needs change fast or where there are seasonal sales spikes.
How to Spot It:
Overreliance on Key Accounts: If one client makes up more than 50% of your revenue, you’re taking a big risk. Losing that client could lead to a major drop in your income.
Seasonal Spikes: Are your sales high in some months and flat during others? This makes it hard to cover your expenses in the off-season.
Unrealistic Expectations: Are you betting on future revenue without solid plans to make it happen? Relying too much on optimistic forecasts can lead to financial trouble.
What to Do: Take a step back and analyze where your revenue is coming from. Break it into percentages to see if you’re too dependent on a single source. Diversifying your income doesn’t mean giving up what’s working—it means finding new streams that can add to your growth. For example, if you have a software startup, adding consulting services or training programs could help balance things out. You might also consider adding a subscription model for more predictable income. Partnering with other companies to bundle services can also help increase your overall value to customers.
2. You’re Spending Too Much to Make Too Little
We all know the saying, "You have to spend money to make money." But what if the numbers just don’t add up? If your costs are higher than your revenue—or if your customer acquisition costs (CAC) are sky-high—you’re burning through cash without seeing much return.
The Hidden Costs of Revenue It’s easy to focus on how much money is coming in while ignoring the costs it takes to get there. Marketing campaigns, team salaries, software subscriptions—these expenses add up fast. If your CAC is higher than your customer's lifetime value (LTV), your revenue model isn’t sustainable. Plus, there are often hidden costs, like time wasted on inefficient processes or tools that aren’t being fully used.
What to Watch For:
High CAC: Are you spending $200 to acquire customers who only bring in $100 in revenue? This kind of growth isn’t sustainable.
Slim Margins: Are you barely covering your costs, with little left to reinvest in growth? Thin margins mean even a small unexpected expense could be a big problem.
Missed Opportunities: Are there inefficiencies—like time-consuming manual tasks—that are eating away at your profits? These inefficiencies can drain resources without contributing to growth.
Actionable Steps: Figure out your CAC and compare it to your LTV. A good rule of thumb is to earn three times what you spend to get a customer. If your CAC is too high, focus on lower-cost marketing channels, like organic content or referrals. Automation can also help cut costs. For example, automating email campaigns or using self-serve tools for customer onboarding can save time and money. Revisit your pricing strategy—sometimes raising prices can be the easiest way to improve margins, especially if your customers see value in your product. You could also renegotiate contracts with suppliers or look at reducing software costs by consolidating tools.
3. Your Customers Don’t See the Value
Even if you have a great product, it won’t sell if customers don’t understand why it’s worth buying. If people are confused about what you’re offering or why it costs what it does, you need to rethink your approach. Often, this is a messaging problem—your product may be fantastic, but if you can't clearly explain why it’s worth the price, you’re losing potential customers.
Common Clues:
High Churn Rates: Are customers leaving after a short time because they don’t see long-term value? High churn is a sign that customers aren’t convinced your product is worth sticking with.
Frequent Questions About Pricing: Are prospects often asking, “Why is it so expensive?” or “What’s included?” This may mean your value proposition isn’t clear enough.
Low Conversion Rates: Are people visiting your site but not buying? This could mean your message isn’t connecting or the perceived value isn’t high enough.
Making the Fix: Simplify how you explain your product’s value. Focus on the benefits, not just the features. For example, instead of saying, “Our software includes automated reporting,” say, “Save 10 hours a week with automated reports.” Show your customers how your product solves their problems. Use testimonials and case studies to show real-life results and build trust. You could also create content like videos or webinars to explain complex features in simple terms. Make sure your pricing page is clear, with options for different types of customers, so there’s no confusion about what they’re getting.
4. You’re Following Trends, Not Solving Problems
In the fast-paced world of startups, it’s easy to jump on the latest trends. Everyone’s doing freemium models? You should too. Subscription services are booming? Why not? But following trends without thinking can take you away from what’s best for your business and your customers.
Why This Happens: Trends seem like shortcuts to success, but what works for one company might not work for yours. Your revenue strategy should reflect your unique value and the specific needs of your customers—not just what’s popular in the industry. Copying competitors or following trends without adapting them to your own business often leads to a disconnect between your product and your customers.
Warning Signs:
Constantly Changing Directions: If you’re always tweaking your strategy, you’re probably chasing trends instead of building a strong foundation. This can confuse your team and your customers.
Customer Disconnect: Are your customers confused about how your trendy model fits their needs? This often happens when you adopt popular ideas without making sure they work for your audience.
Short-Term Gains: Are you getting quick wins but no long-term growth? Chasing trends often leads to short bursts of success that don’t last.
How to Refocus: Get back to basics. Ask yourself, “What problem am I solving?” and “What’s the best way to deliver that value?” Once you’re clear on these questions, build a revenue model that aligns with your goals and your customers’ needs. Instead of chasing trends, talk to your customers to understand what they want. Building a strategy based on real customer needs is more effective than following the latest fad. Remember, mastering a simple, effective model is better than struggling with a complex one that doesn’t work.
5. You’re Not Ready to Scale
A lot of startups build revenue models that work when they’re small, but those models fall apart when it’s time to grow. If you’re not thinking about scaling, you might hit a ceiling sooner than you expect.
The Signs:
Flat Growth: Is your revenue staying the same even though you’re getting more customers? This could mean that your systems aren’t ready for growth.
Overworked Teams: Are manual processes slowing you down or stopping you from taking on more work? Relying too much on manual work can create bottlenecks and lead to burnout.
Outdated Pricing: Is your pricing model too rigid to attract different types of customers? If you don’t adjust your pricing to different market segments, you could miss opportunities for growth.
Steps to Take: Add scalable systems and consider tiered pricing. For example, offering basic, premium, and enterprise plans can help you reach more customers and grow your revenue. Automation is key—whether it’s billing, customer support, or marketing, automating processes will free up your team to focus on more important tasks. Use customer relationship management (CRM) tools to track interactions efficiently. Train your team so they can handle more customer inquiries, and consider forming partnerships to help extend your capabilities. Make sure your technology can handle more traffic or demand so growth doesn’t outpace your infrastructure.
A Framework Specific to TBHM: The “Revenue Health Check”
At The Brutally Honest Mentor, we believe in keeping it real. To help founders identify and fix revenue strategy problems, we’ve created a simple framework called the Revenue Health Check. This process helps you evaluate your business and make clear, data-driven decisions.
The Revenue Health Check:
Reality Check: Be honest about your numbers. Where is the money coming from, and where is it going? Track every dollar to see if your spending matches your growth goals.
Efficiency Check: Look at your costs and find inefficiencies. Are you spending too much to make money? Find ways to streamline or cut unnecessary expenses.
Value Check: Are you clearly communicating the value of what you’re selling? Make sure your customers understand the benefits of your product.
Problem Check: Is your revenue strategy solving a real problem for your customers, or are you just following trends? Make sure your revenue streams address real customer pain points.
Scale Check: Are your systems ready for growth, or are manual processes and outdated pricing holding you back? Introduce scalable solutions and flexible options to support your future growth.
This framework is practical and actionable, designed to help you find weak spots and make improvements right away. Use these checks regularly to keep your revenue model healthy and ready for growth.
Tools to Help You Move Forward
Finding the signs of a weak revenue model is just the beginning. If you’re ready to tackle these challenges, consider using a tool like the Self Diagnostic Tool I Revenue Model. It’s built for founders who want clarity and actionable guidance, and it walks you through six key steps to building a sustainable revenue model. Start with the free version to see what it can do, or dive into the full bundle for a more complete approach. You can also use analytics tools to monitor your revenue closely—knowing where the money comes from and why it changes will help you make better decisions.
What’s Next?
Improving your revenue strategy isn’t about being perfect—it’s about making progress. By finding weak spots, fixing them with proven methods, and staying focused on solving real problems, you’ll set your startup up for long-term success. The most successful businesses aren’t the ones that never make mistakes—they’re the ones that learn, adapt, and keep moving forward. Don’t be afraid to revisit your revenue model often and make adjustments as needed. Keep getting customer feedback, stay open to change, and your revenue strategy will grow along with your business.
