Tuesday, January 17, 2006

It Matters How You Make Money

It may seem obvious, but it matters how you make money from your product. That is, when you are researching, defining, and developing your product, you can't dedicate all your effort to solving problems that your prospective customers face (no matter how urgent and pervasive those problems may be). If you want to make any money from your product, you have to formulate a profitable business model.

One key part of formulating your business model is understanding how your customers will pay. Sometimes your paying customers are users of the product; sometimes the "customers" are third parties such as advertisers or partners. Besides deciding on who will pay, you also must research them to understand:

  1. How much they will pay. How much money do they have? How much money do they make? If confronted with a real buying scenario, will they pull the trigger?
  2. How they will pay. Do they have access to on-line payment systems (e.g. PayPal)? Do they require CFO sign-off? Do they have and use credit cards? What do they use to pay for similar products?
As you can see, market research isn't just important for understanding users, but also for understanding the other stakeholders that play a role in the payment process.

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