sffi july 1st 2013 revenues, costs & profit: alejandro rivas- micoud
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Revenues, Costs & Profits
Financial Modeling
& Key Performance Metrics (KPIs)
Alejandro Rivas-Micoud
July 1st, 2013, San Francisco
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How does a model help?
• Highlights key assumptions and their sensitivity;
•
Cash required & timeline;• ROI;
• Reality check vs market size;
•Effects of scaling on cost structure;
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Assumptions Tab
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Multiple Assumption Tabs
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Monthly Results Tab
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The Fog of War
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Helmut von Moltke
• “ No battle plan survives contact with the enemy ”
• Helmut von Moltke
• “ No startup financial model survives contact with the
market ”
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KPIs
• Gross Margin;
• Fixed costs;
• Break Even Analysis;
• Cost of Customer/User Acquisition;
• Sales Cycle Length;
• Churn (explicit or implicit) & Customer Lifetime
Value;
• Cost of Customer Acquisition Payback Period;
• Working Capital as % of Sales;
• Burn Rate & Runway.
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Gross Margin
• Revenues minus variable costs;
• Should sales & marketing costs be included?
• What is an appropriate GM?
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Fixed Costs
• Can we variabilize them?
• Salaries the most important driver;
• Minimize until a repeatable and scalable sales model
has been proven
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Break Even Analysis
• Nº Units/Customers sold to cover fixed costs
• Fixed costs divided by GM Unit/Customer
• Sanity check, what % of market?
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Cost Customer Acquisition
• Cost per lead?
• Cost per lead conversion to customer? (Freemium paywall
% conversion, etc)
• Per customer segment & channel.
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Sales Cycle Length
• Who are the users?
• Who are the buyers/deciders/influencers?
•
How many/who of the above need to be onboardfor a decision?
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Churn & LV
• Subscription & recurring revenue; explicit
• One-off purchasers; implicit (% who do not repeat)
•
GM divided by churn; customer lifetime value
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Customer Acquisition Payback
• Customer acquisition cost divided by (1-monthly
churn %)
• Divided by monthly GM
• By customer segment & channel
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Working Capital as % Sales
• Working capital; inventory + receivables – payables;
• Negative working capital?
• Cost of capital? Cost of equity?
• Pricing/discounting decisions vs payment terms
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Example
• Discount for 3 month prepayment = negative GM;
• No inventory, negative working capital of 25% sales;
• If sales are increasing 10% every month, customers
are financing company to the tune of 2.5% sales;
• Loss (negative GM) financed when sales stabilize,
stop growing, when (hopefully), cost of equity is
lower
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Revenues, Costs & Profits
Financial Modeling
& Key Performance Metrics (KPIs)
Alejandro Rivas-MicoudJuly 1st, 2013, San Francisco