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



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;



Assumptions Tab



Multiple Assumption Tabs



Monthly Results Tab



The Fog of War



Helmut von Moltke

• “ No battle plan survives contact with the enemy ”

• Helmut von Moltke

• “ No startup financial model survives contact with the

market ”



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.



Gross Margin

• Revenues minus variable costs;

• Should sales & marketing costs be included?

• What is an appropriate GM?



Fixed Costs

• Can we variabilize them?

• Salaries the most important driver;

• Minimize until a repeatable and scalable sales model

has been proven



Break Even Analysis

• Nº Units/Customers sold to cover fixed costs

• Fixed costs divided by GM Unit/Customer

• Sanity check, what % of market?



Cost Customer Acquisition

• Cost per lead?

• Cost per lead conversion to customer? (Freemium paywall

% conversion, etc)

• Per customer segment & channel.



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?



Churn & LV

• Subscription & recurring revenue; explicit

• One-off purchasers; implicit (% who do not repeat)

•

GM divided by churn; customer lifetime value



Customer Acquisition Payback

• Customer acquisition cost divided by (1-monthly

churn %)

• Divided by monthly GM

• By customer segment & channel



Working Capital as % Sales

• Working capital; inventory + receivables – payables;

• Negative working capital?

• Cost of capital? Cost of equity?

• Pricing/discounting decisions vs payment terms



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



Revenues, Costs & Profits

Financial Modeling

& Key Performance Metrics (KPIs)

Alejandro Rivas-MicoudJuly 1st, 2013, San Francisco

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SFFI July 1st 2013 Revenues, Costs & Profit: Alejandro Rivas- Micoud