Customer Financing Models: Five Ways to Be Paid First.
Customer financing models are ways to get money from buyers before your product exists. John Mullins, who teaches at London Business School, split them into five types in 2014. In all five, nobody assesses you, because somebody simply wants something and pays for it.
The five types Mullins described.
First comes the matchmaker business model, where you connect buyers and sellers without owning the goods. For example, Airbnb owns no flats, yet it takes a cut of each booking. Then there is pay-in-advance, where customers pay before they receive anything. Also there is the subscription, a regular fee paid before the period starts.
The fourth is scarcity, because buyers act now when there will be no more later. Finally, service-to-product means selling custom work first, then turning repeated requests into a product.
Which customer financing models you can use this week.
Two of the five belong to later chapters of the book. Subscription waits for chapter six, and service-to-product waits for chapter eight. However, three remain open to you today. So you could put any of them in front of a real person before the week ends. These are your ways to get paid upfront, and none of them needs an investor.
What every model has in common.
Nobody reviews your plan or checks your credit in any of them. Also, nobody asks how much of your own money you have put in. Instead, somebody wants a thing and pays for it, and that is the whole mechanism. In short, customer financing models have been available to you the whole time.
Try customer financing models tonight.
Pick one of the three models you can use now: matchmaker, pay-in-advance or scarcity.
Write the name of one person who could pay you this week under that model.
From the book.
Look at what all five have in common. In none of them does anybody assess you. Nobody reviews your plan, checks your credit, asks how much of your own money you've put in, or decides whether you're the sort of person who ought to be allowed to do this. Somebody just wants something and pays for it. That is the entire mechanism, and it's been available to you the whole time.
I Want to Start a Business but I Don't Have Money, chapter 4: Customers are better investors than vcs
Questions about customer financing models.
Who described the five customer financing models?
John Mullins, who teaches entrepreneurship at London Business School, published a book about them in 2014. He broke the idea of selling first into five types.
Why does pay-in-advance matter most here?
Because customers pay before receiving goods or services, so they fund you before you build. The rest of the chapter focuses on it.
Does anyone judge you under these models?
No. Nobody checks your credit or your plan, since somebody just wants something and pays for it.
Read the whole chapter.
This lesson covers one section of chapter 4, “Customers are better investors than vcs”. The book goes further, with the full evidence, the stories and every exercise.
Lessons in this chapter.
- 01 Customer Financing Models: Five Ways to Be Paid First.
- 02 Customer Deposits to Start a Business: Gupta's Million.
- 03 How to Write a Pre-Sale Offer: Three Lines That Sell.
- 04 Pre-Order Failed to Deliver: Why Prepayment Is a Debt.
- 05 Affordable Loss Research: What the Evidence Shows.
- 06 Nobody Wants to Pay Upfront: Four Reasons and Fixes.
- 07 First Customer Paid Upfront: The Piñata Lesson.