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FinanceTask 3
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Step 1: Identify Your Revenue Model
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Revenue Models
• Production Model– Ex. Lemonade Stand, sold to directly to customers
or to a business.
• Subscription Model– Ex. Rogers cellphone contracts use a subscription
models, the customer pays a monthly fee to use the Rogers mobile service.
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Revenue Models Cont.
• Licensing Model– Disney licenses their ideas such as Mickey Mouse,
to other companies that create Mickey Mouse toys and collect a small portion or the revenue on the sale of each toy.
• Advertising Model– Twitter and Facebook sell advertising space on
website that targets users of the site to generate revenue.
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Step 2: Determine Your Materials
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Materials• Create a list• Determine supplier• Bring a prototype of
your product to the final judging day
• Lemonade Stand• Lemons• Sugar• Cups
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Step 3: Sales Forecast
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How many units/services you will sell in the first year?
• Look at past history or market research• New Companyo Market research
Internet research Informal surveys Talking to business people
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Step 4: Budget/Cost
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Estimate Total Units/Services• Sales Forecast
• Ex)– 1200 Lemons – 600 Cherries – 1200 Cups – 1200 Straws
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Separating Your Costs
• Variable Cost:– Costs that vary depending on a company's
production volume; they rise as production increases and fall as production decreases
– Ie. Materials: Lemons, Cherries, Cups• Fixed Cost: – Expenses that do not change as a function of the
activity of a business, within the relevant period– Ie. Utitlities, Rent etc.
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Variable CostsMaterials Units Cost per
UnitUnit x Cost
Lemons 1200 $0.20 $240
Cherries 600 $0.10 $60
Cups 1200 $0.15 $180
Straws 1200 $0.05 $60
Total Variable Costs $540
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Fixed CostsOther Costs (Items) Costs
Lemonade Stand Costs $550Employee Costs $700Transportation Costs $500Website + Maintenance Costs $350Promotional and Advertising Costs $750
Total Fixed Costs $2850
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Budget• Budget = Total Material Costs + Other Costs
• Ex)o $540 Material Costso $2,025 Other Costs
$540 + $2,850 = $3,390
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Step 5: Price
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Price• What will you charge for your product or
service?• Things to Consider:o Target Marketo Cost per Unito Competitiono Profit
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Step 6: Profit
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Calculating Profit
• Make $2,000 in profit• Selling Price = Profit/Total Units + Unit Cost
o 2,000/7,500 + $0.47 = $0.74• Profit Margin = Selling Price – Unit Cost
o $0.74 - $0.47 = $0.27
• What are you going to do with your profit?
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Good Luck!