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Welcome to our flashy new results interface. Part 2 – the What If? tool
In the first installment of the welcome to the new benchmarking results interface we looked at the graphs in the Annual Report cluster. In this post we’re going to look at how you can use the data from the last 12 months to help you make plans for the future.
It is not unusual for entrepreneurs to wake up sweating at 3am with questions of ‘what would happen if we lost a key client and therefore 30% of our turnover?’ but don’t have the tools to hand to look at the implications.
Success can be equally stressful as it tends to overstretch your resources. Having an idea of how much extra business you need to win in order to be able to invest the profits in new staff, R&D etc would also be a way not only to put your mind at rest but to set quantitative targets for growth as the year progresses.
So, wouldn’t it be useful if you could easily and quickly use last year’s figures as the basis for exploring scenarios for your future without having to struggle with excel spreadsheets on a Sunday evening? Here’s how you can:
Stage 1 – last year’s data is entered and approved and now you can view it in the results section:
Stage 2 – play with the sliders to see how the figures change:
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version 1: a 30% growth in sales… see the extra net profit and consider whether you’d need more staff, higher production costs, more marketing etc in order to reach it:
Having adjusted some of your costs, see whether this 30% growth would really fund them all? By way of example we’ve increased raw materials by 20% and labour by 20% in the above example. This means that the profit would actually drop from £45k to £39k! So clearly if you were to increase sales by 30% you’d still need to be careful on the allocation of resources to ensure that what was coming in wasn’t just going out immediately!
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version 2: a 30% drop in sales … perhaps losing a key client.
How long can you continue with your current overheads and staffing costs? What would you cut first – people, production costs or overheads? Evidence demonstrates that companies never cut costs soon enough … this is in part because when you’re faced with the need to make painful cuts people tend to put off decisions which, unless they win new business very swiftly, tends to make the situation worse not better. Evidence also demonstrates that those companies who have thought about this sort of thing in advance, worked out what the key points are for making such decisions tend to make them sooner and more confidently than those who do not plan for this sort of thing.
So, in summary the What If? tool allows you to test out scenarios quickly and consider what you would do if these became reality. This makes for useful discussions with senior management and is helpful in planning your next 6-12 months.
Welcome to our flashy new results interface. Part 1 – the annual report
We’ve been working with Nothingrinder for the past couple of months to bring you a much improved benchmark results interface within MyCake. Here’s a preview of what’s now possible.
The annual report
The annual report set of graphs shows you your Profit & Loss sheet as a bar chart. It starts with the top level of information … income, cost of sales, profit, indirect costs and profit.
From this page you can either benchmark your company at this level or you can drill down to more detail on each of these key areas.
Benchmark top level – net profit
… in this example you can see that the top quartile (best 25%) have a net profit of some 54.5%. In this example you can see that the users’ net profit of 31.2% is at least above the average of 22.8% … so in the top half but not the top 25% asks the question of whether they could do better?
Benchmark detail – income
If the questions are “how am I doing and how can I do better?” then we probably need to drill down to more detail. In this example we’ve picked the income line to look at and see how it splits out into the main sales income, any grants received and ‘other’ income (typically expenses charged to clients, non-core products, interest on bank deposits etc).
Some sections of the P&L have more drill down levels than others so at each stage you’re asked if you want to benchmark at this level or drill down further. You know you’ve reached the deepest darkest level when you’re only given a benchmark!
We thought this ability to benchmark at a top level as well as in great detail would be useful for the times when you just need a rough answer to the question of what do others do and how do you stack up? Of course if you’re looking at ways of making cost savings for example you may well want to drill down into just one line of indirect costs … to see what others spend as a proportion of income on an area like travel.
So what might you do as a result of reading this … try this:
- pick a completed year of data (say 2008 or 2009)
- look at what your split of income was across sales:grants:other
- see how these ratios compare to the best, worst, average and top quartile for the whole of the MyCake user base
- sit down with a cup of tea and have a think about what ratio would be good for you to aim for in the rest of the year and 3-5 things that you’ll do differently to help you make this shift (perhaps charging more expenses to clients, finding ways to add some new products into people’s standard orders etc).
In the next instalment we’ll walk you through the What If? calculator to show you how you can use past information to help you plan for the future.
Investor Series – what is your productivity like and what you should aim for
One of the criticisms levelled against the Creative Industries is that productivity levels are too low.
Let’s be clear about this, I’m not talking about how hard you work, the hours you put in or even the daily rates charged. There is no doubt that the inputs are there. However, in more mature sectors companies become expert not only in creating intellectual property but also in developing multiple income streams using the same property.
What do we mean by this?
A good example of multiple income streams would be the way that an agent no longer just sorts out a book publishing deal but separately sells film rights, merchandising rights etc etc. So the £billions that have resulted from the Harry Potter franchise could not have been achieved if the only income stream was from book sales. In the same way TV companies sell their productions not just to the first organisation that commissioned it but also to other TV channels elsewhere in the world. Furthermore channel owners such as The Guardian and Channel 4 use their route to audiences to cross sell products … all those Guardian book shop special offers or products for sale on Channel 4 related websites. By comparison small product design firms often struggle to leverage the IP inherent in a product into other areas and their growth is limited by the funds they have available to produce and sell the product themselves.
So, a successful example of multiple income streams from a single idea or concept would be Matthias Megyeri’s Sweet Dream Security which apart from being a product range which has been licensed internationally it has another life as a set of exhibition installations (seen in the Design Museum and MOMA to name but two) and has resulted in residencies and other developmental opportunities. These are still fairly labour intensive income streams so they won’t massively improve the net profit overall but they do make sure that maximum return on the idea is achieved. Contrast this to the Wattson which whilst achieving international distribution has not yet moved into other areas and you’ll start to see what we mean by the difference between single and multiple income streams from the same piece of intellectual property.
Why do investors care?
Put bluntly this is about maximum return from each £ invested. Creatively driven folk, on the other hand, tend to want to move on to the next idea fairly quickly as they tend to be creators not managers; they are less interested in the cash cows of a business than they are in the rising stars. So where an investor would be pleased to see a whole herd of cash cows but relatively few rising stars a creative will want to see the heavens full of stars but might as well be vegetarian for all their interest in the cattle!
What difference will it make to the company’s profitability?
Well frankly, without multiple income streams there is a strong risk that the profitability of the company will go down as the income goes up!
MyCake data shows that the 1-2 person firms where the individuals are still working in the business rather than on the business will be doing very well if they achieve profits of about 50% for serviced based and 30% for product based businesses (lets ignore for the moment the totally lifestyle one person outfits, these are simply not investable as there won’t be an exit strategy for an investor). The challenge is that the ratio of people to income tends to remain the same as the company grows. So a 10-20 person design firm could see a drop in it’s profits to say 15-30% as more of the income is being spent on things like rent, insurance, servers, marketing etc and the company is no longer as lean as it was when it was two people in a garage working on their laptops. If it feels like you’re running to stand still and that for every project or order you win there’s still the same amount of work to do then you’re probably in this situation. Take a look at your profit % not just the £ to find out.
What can you do about it if you’re looking for investment?
Well you should expect that one of the things any investor will do when they work with you is to look at your range of products or services and look for ways to increase the income from them (ie with little to no additional investment in the product/service but by upping sales, reducing production costs etc).
If you haven’t started developing multiple income streams then clearly you’re not about to magic them up overnight just because it would make you more attractive to investors. However you certainly could sit down and cook up some ideas for new markets for the existing range, opportunities to leverage the IP through other channels, versions of IP that could be licensed to other companies etc so that you can show the potential to increase income and thus productivity without substantially increasing your cost base. Looking at it from the other side: a one trick pony is unlikely to be an appealing investment … too much risk, too few chances for success. The ideal message here is a focussed area of expertise (a tight creative core, unique capabilities and broad exploitation). You may not have General Purpose Technology (like the combustion engine or the internet) but a unicycle is probably not going to take you far and wide.
If you can develop these ideas far enough to have a decent stab at what they might be worth to you in income over the next 3-5 years and can therefore build this into your mid to long term forecasts then you’ll be starting to get into interesting territory for VC’s. You could also consider hiring someone whose sole focus is to exploit existing properties whether that’s through licensing deals … if you do this make sure that they don’t get sucked into existing client management! Such a person might also be brought in to new projects not to contribute to the main development of the product or service but to consider early on what the additional revenue streams might be so that these are built in at the start not retro-fitted afterwards.
Other reading on this topic:
Will Hutton has quite a bit to say on the subject of general purpose technologies and The Work Foundation has a short piece worth reading on productivity in the Creative Industries called Innovative by Nature final.
Cockpit Arts: The Pricing Decision 2: Price and the Market
Ahead of this week’s Cockpit Arts Finance workshop with MyCake on Wedensday, 11th August 2010: Financial Planning for Growth we have some more Top Tips by Ellen O’Hara, Head of Business Development at Cockpit Arts.
There’s no doubt that getting your pricing right is a crucial part of your marketing and business strategy as a designer-maker.
As part of the Pricing Decision series I am looking at three key areas: Cost, Market and Value, as well as how different pricing strategies fit with the overall goals, for your practice and business.
My last post looked at the relationship between price and cost with cost-plus pricing. This week I will explain how the market affects the pricing decision.
Price and The Market
Market based pricing methods depend on having an accurate picture of what’s going on in your marketplace. For example: Are you selling to craft collectors? The mainstream gift market? Or high end fashion? And what are the current trends in these market sub-sections?
In the larger, mainstream markets, prices will tend to be dervied from two key factors:
- What competitors are charging
- What customers are willing to pay
Who are your compeitiors and what are they charging?
If you don’t feel there are any direct competitors out there, try and pick out a few other makers or brands that:
- Are making similar work
- Are aiming at a similar customer base
- Who are at a similar stage in their career and have a similar profile
How do your prices compare? Are you competitive, or potentially over or under pricing yourself?
What are customers willing to pay?
- Research other companies’ prices online, in stores and in galleries. Pick a broad range of products so that you can compare the going rate for different types of products in your field. For instance as a designer-maker jeweller, you could look at a combination of mass produced high-street designer jewellery and high end fashion jewellery, as well as other makers.
- Look at the overall price range that other companies offer (minimum and maximum), how different work is priced differently, whether discounts are offered etc.
Use all of this information together to inform your own pricing decisions.
The Advantages
The advantages of following a market-based approach are that it tends to keep you price competitive in the eyes of your customers, so it’s important to consider who you’d like to be compared with and sit alongside in terms of price.
The Disadvantages
The disadvantages of this method are that the market price may not provide you with the profit margin that you want (and need!). You may actually have a very different business model to the people you are comparing yourself with, who may be able to produce and sell work at very different costs.
New and Unique Work
Your work may be so new and unique that there is no solid market-based price to compare with. So you have be the price setter yourself. If this is the case, it’s likely that your operating at the niche end of your market, where the percieved value of your work bears more influence on price than what others might be producing and charging. We’ll explore this in more detail next week with The Pricing Decision # 3: Price and Perceived value.
Let us know how you get on by leaving a comment on your experiences in making your own pricing decisions.
See more top-tips on finance from Ellen and other industry experts.
Or check our resources section for a worksheet on Calculating Your Costs and Budgeting.
And if your doing some financial planning this summer, come along to our workshop: Financial Planning for Growth on 11 August.
Tax doesn’t have to be taxing…Part Two
from Cockpit Arts Making It Blog:
By Dean Shepherd
This is the second part of two posts by Dean Shepherd. Click here to see part one
If you are attempting to complete your own tax return then it really is imperative that you use HMRC’s online filing system to do so. There are a number of reasons why. Firstly, there are many built in checks to ensure that you do not inadvertently enter incorrect information into any of the boxes. This may be as simple as checking your columns all add up or maybe something more intricate such as the ability to make certain claims and elections relevant to your circumstances.
Secondly, your tax bill will be calculated instantly on screen so you immediately know how much has to be paid and by when. No need to wait for a paper return to be processed and a tax calculation to be sent to you. Finally, you get longer to submit your return. The filing deadline for paper tax returns is 31st October whereas online returns do not have to be filed until three months later on 31st January. Further point: In order to use the online filing system you need to register your details and HMRC will provide you with an activation code through the post. It may therefore take a couple of weeks to set up and cannot be done the night before the filing deadline!
Business Payment Support Service
In the November 2008 pre-budget report the government announced a new Business Payment Support Service whereby businesses experiencing cash-flow difficulties could postpone certain payments of tax and set up instalment plans to spread the cost. This service is still in operation and is very useful for businesses wanting to pay their various tax bills via instalments. Most taxes are covered: Self Assessment, VAT, PAYE and Corporation Tax. All you need to do is call the helpline (0845 302 1435) prior to the tax liability falling due and agree an instalment plan over the phone. This service has been used very successfully by many of my clients.
Further point: You must call prior to the due date and if you go to them with an instalment plan in mind (e.g. tax to be paid in equal instalments over the next six months) then they are more likely to give you an immediate decision over the phone.
About the author:
Dean is an accountant and founder of Tax By Design, a firm specialising in helping small businesses in the creative sector. He is a member of the Chartered Institute of Taxation and holds a 1st class honours degree in Multimedia Design. He will be running Free Tax Surgeries over the summer in both Holborn and Deptford studios and will be giving a Tax Return Made Easy seminar in January for anybody that has left their Tax Return to the last minute! To find out about our workshops and the other events and services we offer join our mailing list.
I hope you find the above links useful. If you have any of your own to add then please leave a comment for others to read below.
Cockpit Arts Top Tips: The Pricing Decision Series
Ahead of Cockpit Arts Finance workshop with MyCake on 11th August 2010: Financial Planning for Growth we’re featuring Top Tips by Ellen O’Hara, Head of Business Development at Cockpit Arts.
The question that I’m asked more than any other in my role at Cockpit is ‘how should I price my work?!’
There’s no doubt that getting your pricing right is a crucial part of your marketing and business strategy. So what is there to consider when making the pricing decision?
In the workshop The Price is Right, which is part of our rolling programme of Making It Workshops, we look at three key areas: Cost, Market and Value, as well as how different pricing strategies fit with the overall goals for your practice and business.
Over the next few weeks, I’ll be posting a series of top tips, looking at pricing from these four different perspectives:
The Pricing Decision # 1: Price and Cost
Your first consideration when setting prices will usually involve looking at what costs are involved when producing your work. The ‘Cost-plus’ approach to pricing involves setting price by starting with the cost of creating a product, and then adding a mark-up. The mark-up provides you with your profit margin and so the cost-plus approach almost guarantees that you will not sell at a loss.
Mark-ups can be based on industry standards, individual expert opinions, or widely accepted rules of thumb. I usually advise makers to try and double their cost price to arrive at their wholesale price. In other words, add a mark up of 100% or x 2. And then add a mark up of around 2.5 on the wholesale price to arrive at the retail price. This is equal to multiplying your cost price by 5 to arrive at your retail price, or adding a mark up of 400%. This should ensure that there’s enough profit to cover some of the other costs associated with running your business.
The disadvantage of this approach is that if costs increase, the price of the product must also increase. The price of each product is therefore dependent on how many costs it creates.
The key to using this approach effectively is to be as accurate as possible about actual costs. So what should you include?
- Firstly there are the costs that directly relate to the production of the work such as materials, the cost of outworkers and packaging. These costs will tend to vary as the volume of work you produce and sell changes and can be refered to as variable direct costs.
- Then there is the cost of your time (if you produce the work yourself) which will be based on your hourly rate.
- Finally you also need to think about making a contribution to the day to day running costs of your business, or overheads (also refered to as fixed costs). This will include things like studio rent, day to day administration costs, PAYE staff costs and marketing. Some makers build this into their hourly rate.
A cost-plus figure generally provides a basis for the lowest price acceptable, but should not be the only consideration. It takes into account the cost and profit side of buying and selling, but it neglects demand for your work and what is going on in your market.
Another way of using costs to determined price is ‘target pricing’ where are a target price is made, and then costs are adjusted so that that price can be achieved. However, this is often very difficult to achieve for designer-makers who produce in small batches because costs are less flexible.
Next we’ll be looking at Price and Market in The Pricing Decision # 2.
For guidance on calculating your costs, try our Calculaing Your Costs and Budgeting worksheet which can be found in the Resources section of the blog. Or see the other posts on the blog that advise on finance from me and other industry experts. Let us know how you get on!
And if you’d like to attend our next Finance workshop: Financial Planning for Growth see details and book here.
Financial planning for growth workshop
MyCake is giving advice at Cockpit Arts’ financial planning for growth workshop on Wednesday 11th August 2010. We invite you to come and explore how to use your own financial information to make more informed decisions about your business.
You’ll look at the pros and cons of different record- keeping systems and which approach is best suited to you and your business. Through practical group exercises, you’ll cover budgeting, financial planning and how to improve your cash flow on a day-to-day basis.
You will also look at improving profitability and using designer-maker case studies, you’ll be taken through a profit and loss forecast and show you how to interpret your own figures to make better decisions about your business.
What you’ll get:
- Guidance on setting up a record system that works for you
- Improved financial literacy and confidence in financial planning
- A clearer understanding of your own business model and how to develop this to improve cash flow and profitability
Wednesday, 11th August 2010 from 10:00am to 12:00 noon.
The cost is £10 and open to studio and non-studio members. Book here
Tax doesn’t have to be taxing… part one
from Cockpit Arts Making It Blog:
….unless of course you have better things to do with your time than read through the pages and pages of manuals, help sheets, leaflets and guidance notes on the HM Revenue & Customs website. The help sheets on completing your tax return alone stand at more than a thousand pages and they include nothing about VAT, National Insurance, PAYE or any of the other tax issues that small businesses face. That said, if you know where to look, there can be some very useful gems on the website and I have outlined some of the better ones below:
Working from Home:
Just because you rent a studio it does not mean that you cannot claim for business use of your own home. Many studios are not suitable for storing all the important financial paperwork which means the business is effectively operated from home. In the good old days accountants, like myself, used to advise clients to estimate the additional costs they incur from having to operate their businesses from home. This may have been an extra £5 or £10 per week, depending on the type of business, but relatively small amounts in terms of tax savings. However, when HMRC were forced to publish all their internal guidance manuals, we discovered a list of examples that are much more generous. HMRC have inadvertently confirmed that all businesses operating from home should claim a proportion of their rent, rates, service charges, mortgage interest, council tax, gas, electric, repairs and insurances. Some accountants to this day argue over whether council tax should be included but it is listed in black and white within HMRC’s own guidance and anyone not claiming is paying too much tax. Make sure you make that claim.
The Employment Status Indicator Tool:
Rather than take on members of staff and deal with the administrative burden that comes with being an employer, many small businesses will use freelancers and sub-contractors to take up the slack when things are busy. This is all well and good but what happens if HMRC come along and say that you should have put them on the books and deducted tax and national insurance contributions at source. Well, if you are unsure whether someone should be treated as an employee or a freelancer then use HMRC’s Employment Status Indicator Tool. You work through a series of questions and the tool then tells you whether they should be an employee or whether they can be paid as a freelancer. Nothing gets sent to HMRC and you do not give any personal details. However, a reference number is generated so if HMRC ever question your decision then you can state that you used their ESI Tool and present them with the reference number as evidence. Further point: The ESI Tool is not 100% accurate so if you disagree with its outcome then it is best to discuss your concerns with an accountant.
Read more tax advice in part two published soon…
About the author: Dean is an accountant and founder of Tax By Design, a firm specialising in helping small businesses in the creative sector. He is a member of the Chartered Institute of Taxation and holds a 1st class honours degree in Multimedia Design. He will be running Free Tax Surgeries over the summer in both Holborn and Deptford studios and will be giving a Tax Return Made Easy seminar in January for anybody that has left their Tax Return to the last minute!
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Should I bet the house?
First of all let’s make a distinction between gambling the equity in your house unwittingly vs. agreeing with a bank that your house is security on a loan.
In the case of the former I’ve seen examples of entrepreneurs using either their credit cards to fund the business or telling themselves that they are making an investment in the business when they write cheques against their mortgage to cover costs of a loss making enterprise. Many do the first example and recover; the latter is more dangerous as you are increasing your debt but have a reducing capacity to pay it back.
But what about knowingly using your house? I’d like to look at how you evaluate the decision as to whether to use your house as security against a bank loan…
Under what circumstances would you be asked to use your house as security?
Well if you want a loan rather than an overdraft from a bank it is not uncommon for them to want security against the monies lent. The most common form of security is a ‘personal guarantee’ which essentially means that any assets you have could be seized by the bank to pay back the debt should you default on the loan.
If you are seeking venture capital investment then investors like to see you have some ’skin in the game’ ie investing some monies into the development of the business at the same time as they are providing the main funds (your previous investments don’t count at this stage as these are essentially sunk costs that have already been accounted for in the growth to date and the valuation of the company). However these sums are likely to be less than 5% of the total funds raised and VC’s know they are asking for a ‘gesture’ rather than a significant investment. It is much less common for VC’s to ask for a personal guarantee.
Is your business worth the risk?
Well at the end of the day we can’t answer this for you but here are a few things to consider….
- if you have a clear budget as to how much income you need to payback the loan and you’ve already accounted for the ‘what if’ scenarios of increased cost but reduced income and you can still see how it will be paid then these are indications that the business is likely to be able to pay back the loan.
- if you are in need of working capital to develop the business to a point whereby the income will start to be able to payback the loan but at the moment you can’t see what the revenue stream or scale of income would be that would have this capacity then you are considering taking on a debt without a route to payback and this is more risky.
- if you have other sources of income and or savings and investments that you could use to payback the loan if the business was not able to then whilst you are still incurring the risk of losing the monies you put into the business but you do at least have a backup plan.
You might also look at the stage of development of the company/product. One key question when considering any investment into the business is whether or not it is sufficient funds to get you to market (and thus achieve income to pay off the investment). Typically entrepreneurs invest at the very earliest stages when the ability to achieve revenues from products and services sold are at their lowest ie when the risks are greatest; furthermore it is all too easy to under-estimate the cost and time involved in getting to market so inevitably there are stressful patches when you need to progress faster than funds will allow.
It is at these points that you need to take a bit of care … as you are likely to feel that ‘if only we had x,y,z’ then everything would be ok … you risk making non-rational decisions based instead on your emotional involvement. To help avoid this scenario again the answer is a budget looking 12 to 36 months ahead where you can see where the pinch points will come and therefore can make plans ahead of time as to how to resolve this … asking for credit from suppliers or for early payments from clients are both ways to avoid seeking loans or equity investment when you are at your most vulnerable!
If you have a partner or other source of income into the household then again whilst you are risking the money you may be able to avoid not losing the roof over your head!
Can you afford to be free?
There’s a lot of talk about ‘freemium’ business models, particularly when it comes to internet businesses so we thought we’d do a piece looking at a few of the considerations that matter if you’re trying to work out whether freemium would work for you or not.
When do businesses offer their main product for free?
- when they can offer the cut down or lite version for free but charge for increased functionality e.g. many of the software as a service (SAAS) offers such as huddle.net … so really the free version is to entice you to use it regularly at which point you’ll need the paid for version to meet your increased needs
- when use of the free product gathers data that the company can sell on
- when the free product leads to sufficient site traffic to enable them to make substantial revenues from online advertising.
Can you afford to be free?
- Let’s be clear on this – you need to achieve a sustainable income stream for your business at some point (otherwise it’s not a business, nor is it social enterprise, it’s altruism)
- Many of the companies who started out giving their product away either had financial backing or a very low cost of production at the start
- Plus if you’re smart you’ll have either a fully worked up plan as to what you’ll charge for or at least a plan to work out what you can charge for once you get going! You’d be daft to do freemium on a ‘suck it and see’ basis
- Do care about attracting a user base early (ie do be in the market early, particularly if is an online offer) as this will keep you pushing the company to develop. But do consider users as customers not just a marketing route ie don’t only look at user figures and site usage, have income in there as a key performance indicator (KPI) … this means that even if you’re not charging for it consider what you would charge and calculate the ongoing cost of the opportunity ie if they were paying this user base would now be worth £X/month (make some assumptions about what proportion of the user base would pay and be conservative in this figure) … looking at the income you’re not getting is one way to see the cost of your chosen path and set levels at which you trigger launching other (paid) versions.
Do you need to be free?
- The one time in particular where being free has been shown to be utterly crucial is in order to do a ‘land grab’ in the marketplace when the market is expanding and changing rapidly and when, once the market has set up, the barriers to entry will rise dramatically e.g. Amazon or Lovefilm where the cost of establishing the distribution centres was very high but resulted in close to a monopoly position in the market a couple of years down the line
- If you are moving faster than the market is developing (and this looks set to continue) then a land grab probably isn’t necessary. If the market will remain a fragmented one again a land grab has little to offer
- If your market is on the cusp of rapid expansion and you could get left behind then a land grab may be a sensible thing to consider (assuming you can raise the finance to support it which will in turn depend on the profits to be made in an expanded market).
If you’re free to start with will you convert people to paying later?
- Businesses that offer a free version tend to be pretty clear on what they will charge for even it if takes a few years to develop the user base to a point where they value it highly enough
- You need to be able to demonstrate to yourself (and to others) that what you offer is valuable enough to pay for ie there is a need and it’s more than just a nice to have.
And as a last point to consider … why put off revenues until tomorrow if you can have them today (and thus use them to fund your growth)? That is to say just because the big guys do freemium doesn’t mean that it’s a market entry requirement universally nor does it mean that you’re more grown up than the other SME’s around you!
In summary – see if the market will demand it of you and if it doesn’t think hard about whether foregoing revenues helps or hinders your growth plans.
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