The Startup Glossary: Revenue Models
The revenue models stage is where startups plan how they will generate revenue and establish a foothold in their market. Successful startups then analyze the potential sources of their revenue and attempt to effectively address their customers’ needs.
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Accounts Payable (AP) — The amount of money a company owes to suppliers or creditors after services or supplies have been delivered and used.
Accounts Receivable (AR) — Amount of money owed by customers after a product has been delivered.
Accrual Basis — A type of accounting that reports income when earned and expenses when spent. Companies are responsible for accurately recognizing their own income and expenses.
Active Buyer — Customer whose most recent purchase was made in the last 12 months.
Active Users — Measurable amount of users taking action on a product or platform. (see How to Create a Basic Financial Model: An Entrepreneur’s Guide)
Average Order Volume (AOV) — Measures the size of each product order.
Average Revenue Per User (ARPU) — Total revenue divided by number of users.
Balance Sheet — A document that details a company’s assets, revenue, and expenses.
Bottom Line — A comparison of net income versus net expenses, resulting in net profit. The word “bottom” refers to the fact that the net profit often appears at the bottom of financial reports. Also referred to as Net Income or Net Profit.
Burn Rate — The rate at which cash is decreasing. (see If You Don’t Run Your Company Based on Metrics, Here’s How You Can)
Capital Expenditures (CapEx) — Any items purchased by a company with the expectation of future benefits.
Cash Basis — Type of accounting that reports all revenue and expenditures when payments are sent. This form of accounting is optimal for startups and companies with small inventories.
Cash Flow — Net amount of cash moving into and out of a business. Positive cash flow indicates that a company’s liquid assets are increasing while negative cash flow indicates the opposite.
Churn — A general term for any quantifiable loss. This can be attached to customers, cohorts, or revenue in order to measure the retracting of business.
Cost of Goods Sold (COGS) — The expense required to produce the goods sold by a company. Oftentimes, this means the cost of raw materials plus the cost of labor. (see If You Don’t Run Your Company Based on Metrics, Here’s How You Can)
Credit — An accounting entry that either decreases total assets or increases liability.
Current Assets (CA) — Assets that will be used within one year.
Current Liabilities — Debts that are payable within one year.
Customer Acquisition Cost (CAC) — The full cost required to acquire a customer.
Daily Active Users (DAU) — The amount of users of a service or product in a 24 hour period.
Debit — An accounting entry that increases assets or reduces liability.
Debt — Loans that must be repaid over time.
Double Entry — A form of accounting where each entry requires a corresponding entry in a different account. This is done in order to ensure that no errors occur and no expenditure or revenue goes missing.
E-commerce — Any transaction that involves the transfer of information across the internet.
Expenses — Costs that a business incurs from all sources. (see How to Create a Basic Financial Model: An Entrepreneur’s Guide)
Financial Model — An abstract — and often quantitative — representation of a real financial situation, used to represent a business’s portfolio or project.
Fixed Assets (FA) — Long-term assets that benefit companies for longer than one year.
Fixed Costs — A cost that does not change with increases or decreases in volume of sales.
Forecasting — A planning tool designed to eliminate uncertainty over the future, relying upon past data to reveal persistent trends. (see Does Your Startup Have Potential?: An Investor’s POV)
Future Value — The possible value of an asset in the future.
Generally Accepted Accounting Principles (GAAP) — An established set of rules created by the accounting industry which must be followed when reporting financial information.
General Ledger — A comprehensive and complete record of all financial transactions spanning the lifetime of a company.
Gross Margin — A percentage metric for how much revenue a company keeps after subtracting the cost of all production-related expenses. Higher percentages are generally better. (see If You Don’t Run Your Company Based on Metrics, Here’s How You Can)
Gross Profit — A measure of the profitability of a revenue stream. This statistic is essentially all revenue generated by a product subtracted by the cost of production, support, and delivery. (see If You Don’t Run Your Company Based on Metrics, Here’s How You Can)
Hockey Stick — The informal term for a upward growth trend.
Hourly Active Users (HAU) — The amount of users of a service or product in a 60 minute period.
In-App Purchases — Sales coming from current users via an application.
Income Statement — Sales, expenses, and net profit over a particular period of time. (see How to Create a Basic Financial Model: An Entrepreneur’s Guide)
Liabilities — The debts and financial obligations of a company. (see 50 Bootstrapping Hacks for Every Stage of Your Startup)
Licensing — A business agreement wherein one company grants another company permission to manufacture its product for an agreed payment.
Lifetime Value of Customer (LTV) — Net profit a single customer will provide to the business.
Long Term Liabilities — Debts payable over a period of time exceeding one year.
Month-over-Month (MoM) Growth — Changes in user, revenue, expense, or profit levels compared to the previous month.
Monthly Active Users (MAU) — The amount of users of a service or product in a month-long period.
Operating Margin — Margin ratio measuring a company’s pricing strategy and operational effeciency.
Profit and Loss (P&L) — A financial statement summarizing a company’s revenue, expenses, and profit during a particular period with the intention of indicating a company’s performance.
Present Value — The current value of a future sum of money, as that money could be more effective in the short-term. (see the math)
Ramen Profitable — A company that is profitable enough to cover expenses of all the employees’ basic living requirements.
Recurring Revenue — A measurement of revenue streams that are recurring. This excludes one-time fees and professional service fees.
Revenue — The amount of money generated. (see How to Create a Basic Financial Model: An Entrepreneur’s Guide)
Revenue Model — A framework for creating revenue, detailing pricing and the intended customer. (see How to Create a Basic Financial Model: An Entrepreneur’s Guide)
Return on Investment (ROI) — A metric to gauge company performance versus amount of money invested. It is calculated by dividing net profit by the cost of the investment, and is often expressed as a percentage.
Run Rate — Annual recurring revenue without factoring in churn. (see If You Don’t Run Your Company Based on Metrics, Here’s How You Can)
Steps to Revenue — A revenue roadmap detailing the exact steps a company must take in order to begin generating revenue.
Subscription Model — Payment model requiring a monthly or yearly charge in order to fully utilize a product.
Unit Economics — Direct revenue and costs associated with a certain business model expressed on a per unit basis.
Variable Costs — The opposite of fixed costs, variable costs fluctuate depending on what a company is producing. Therefore, variable costs are difficult to predict.
Vendor — A supplier required to create a product. (see How to Choose a Vendor for Your Startup)
Weekly Active Users (WAU) — The amount of users of a service or product in a seven day period.
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By Drew Zias
Originally published at fi.co.