A Profitable Revenue Stream is a method of generating revenue that generates more money than it costs to create. It is the fundamental unit of an operating business.
To be a profitable revenue stream the Customer Acquisition Cost (CAC) must be less than the Gross Profit of the customer’s stream of purchases.
For a DTC business it's better if the CAC is less than the Gross Profit on the first purchase - a brand is built on high repeat purchases but you’re spending too much in a particular channel if you can’t be at least break even on the first purchase.
For a subscription business the CAC should be less than the Lifetime Value (LTV). LTV is Gross Profit divided by (1 - Repeat Purchase Rate).
Beware of Other Variable Overheads
Examples we’ve participated in
Some companies need to write a lot of software before they can generate revenue
Some companies are founded on a profitable revenue stream
Some companies convince investors they don’t need to be profitable for a long time
- Uber - massive market share game
- Amazon - leveraged working capital surplus to keep investing unprofitably
If there’s a good revenue stream, then it can be made profitable quickly
- 📝General Assembly - each campus could be contribution positive long before the entire company.
- 📝Robin Healthcare - became profitable on each practice it served every week.
Sole proprietor service businesses can be created quickly
- Sam Kaplan & SHKFinancial.com