Having a clearly defined revenue growth strategy is critical for any startup looking to raise capital or scale efficiently. Investors want to know how your business intends to make money, grow revenue over time and eventually reach profitability,
This guide provides startup founders with a practical framework to understand, select and optimise revenue models, align customer acquisition strategies and measure key financial metrics like the Customer Lifetime Value (CLV) to Customer Acquisition Cost (CAC) ratio.
What is a Revenue Model and Why it Matters
Arevenue model is the blueprint for how a startup earns income from its services or products. It outlines pricing structures, sales channels, and different revenue streams. A solid revenue model serves as both an operational roadmap and a communication tool to investors and internal teams.
It answers fundamental questions such as:
Who is paying?
How are they paying?
How much are they paying, and how often?
Startups should regularly review their revenue models to adapt to market shifts, customer behaviour or scaling opportunities.
Top Revenue Models for Startups Explained
Selecting the right revenue model depends on your solution, target market, and value proposition. Below are common models used by high-growth startups.
Subscription-based Model: Pros, Cons and Examples
In this model, customers pay a recurring fee, usually monthly or annually, to access a product or service.
Popular in: SaaS, content platforms, financial tools.
Pros:
Recurring, predictable source of revenue
High customer lifetime value
Easier upselling and cross-selling
Cons:
Requires strong customer retention strategies
High upfront acquisition costs
Vulnerable to churn if value drops
Examples: Sendmarc (email protection), Planet42 (car subscriptions) and Giraffe (recruitment).
Freemium Model: How to Attract and Convert Users
A base version of a product is offered for free, while premium features are paywalled.
Popular in: EdTech, productivity apps, mobile tools.
Pros:
Low barrier for entry
Encourages user growth and engagement
Creates a funnel for upselling
Cons:
Low conversion from free to paid
Costs associated with supporting free users
Churn risk if value is not clear
Examples: Siyavula (EdTech), Kena Health (Health-tech) and Wamly (HRTech).
Advertising Model: Monetise Your Audience
Revenue is generated by displaying ads to users. This model works well for platforms with large audiences or high engagement.
Popular in: Media, social platforms, free mobile apps
Pros:
Low user acquisition cost
Revenue scales with audience size
Enables data monetisation
Cons:
Ad fatigue can reduce user engagement
Difficult to scale with a niche audience
Requires ongoing investment in ad technology and compliance
E-commerce Model: Sell Products or Services Online
Startups can earn revenue by selling goods and services directly through digital platforms such as websites or mobile apps.
Popular in: Retail tech, consumer goods, marketplaces
Pros:
Direct control over pricing and margins
Personalisation through customer data
Flexible product offerings
Cons:
High competition from established players
Requires investment in logistics and security
Operational complexity increases with scale
Examples: Takealot, Jumia, and Zando.
Customer Acquisition Strategies for Startups
Once you have chosen your revenue model, the next critical step is customer acquisition. Investors want to see how you’ll bring in customers, not just that you have a great product.
One of the most efficient ways to scale customer acquisition in the early stages is through growth hacking.
Growth hacking is the use of low-cost, high-impact strategies to rapidly grow your user base. It’s particularly valuable for startups with limited budgets.
Segment your users based on these parameters to run targeted marketing campaigns, for example, re-engagement offers for inactive high-spending customers.
6.Use Employee Networks to Drive Brand Awareness
Encourage your employees to share content or product news with their networks. Reward them with bonuses, gift cards, or recognition to boost participation.
The LTV:CAC Ratio - Your Startup’s Health Check
One of the most important metrics for founders and investors is the Customer Lifetime Value (CLV or TLV) to Customer Acquisition Cost (CAC) ratio.
How to Calculate CLV
To calculate the CLV, you need:
Customer contribution margin (m) – Revenue per customer per year, minus the servicing costs
Customer lifetime (T) – How long, in years, the average customer pays
Formula:Lifetime Value (LTV) = m x T
How to Calculate CAC
You need:
Total marketing and sales cost over a period
Number of new customers acquired during the same period
Formula:CAC = Total Marketing Spend ÷ Number of Customers Acquired
CLV:CAC Ratio Formula
CLV ÷ CAC = LTV:CAC Ratio
A 3:1 ratio is considered healthy. That means for every Rand spent acquiring a customer, you earn R3 in return over their lifetime.
<1:1: You are losing money per customer
1:1 to 2:1: Unsustainable long-term
>5:1: Potential underinvestment in growth
Conclusion: Align Revenue Strategy with Growth Metrics
Revenue growth models are more than just financial jargon, they’re the foundation of your business’s long-term viability. Whether you choose subscriptions, freemium, ads or e-commerce, clarity and alignment with your customer acquisition strategy are critical.
Investors will always look at two things:
How you make money
How you keep customers
By clearly documenting your revenue model, aligning it with acquisition strategies, and tracking key metrics like LTV and CAC, you set your startup up for scalable, sustainable growth.
Lungile is the Digital Editor for Startup.Africa, with a knack for storytelling, technology and innovative ideas. Working with Startup.Africa, she takes simple ideas and turns them into amazing stories.
Lungile Msomi
