FinanceTask 3

Step 1: Identify Your Revenue Model

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.

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.

Step 2: Determine Your Materials

Materials• Create a list• Determine supplier• Bring a prototype of

your product to the final judging day

• Lemonade Stand• Lemons• Sugar• Cups

Step 3: Sales Forecast

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

Step 4: Budget/Cost

Estimate Total Units/Services• Sales Forecast

• Ex)– 1200 Lemons – 600 Cherries – 1200 Cups – 1200 Straws

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.

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

Fixed CostsOther Costs (Items) Costs

Lemonade Stand Costs $550Employee Costs $700Transportation Costs $500Website + Maintenance Costs $350Promotional and Advertising Costs $750

Total Fixed Costs $2850

Budget• Budget = Total Material Costs + Other Costs

• Ex)o $540 Material Costso $2,025 Other Costs

$540 + $2,850 = $3,390

Step 5: Price

Price• What will you charge for your product or

service?• Things to Consider:o Target Marketo Cost per Unito Competitiono Profit

Step 6: Profit

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?

Good Luck!