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