Revenue Model

• Revenue Is the amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the "top line" or "gross income" figure from which costs are subtracted to determine net income.

Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold.

• Assess the potential sources of revenue– franchise/co-branding/referral fees– focussed advertising– specific content sales– fees from e-commerce transactions, etc. – direct sales

Revenue Model

Pricing strategy for each source of revenue– What is the pricing strategy of the direct or indirect

competitors? – What level of gross margins would be reasonable?

(revenue less cost of the product/service)– How should the pricing of the competitors be monitored? – How does the pricing reflect the brand image of the

product/service?

Factors affecting Price

• Costs & Expenses incurred.

• The market (Demand & Offer) السوق قوى• Product Value.

• Customer Need.

• Customer bargaining power.

• Completion level.

• Substitute products.

Pricing Strategies

• Skimming strategy.

• Barrier to entry strategy.

• Penetration strategy.

For new products,

the pricing objective often is either:

1. to maximize profit margin

2. to maximize quantity (market share)

Market share: is the portion or percentage of sales of a particular product or service in a given region that are controlled by a company.

If, for example, there are 100 Trucks sold in a country and company XYZ sells 43 of them, then company XYZ has a 43% market share. You can also calculate market share using revenue instead of units sold).

To meet these objectives, you need to follow a pricing strategy.

price elasticity of demand

an important aspect of a product’s demand curve and it is how much the quantity demanded changes when the price changes. The economic measure of this response is the price elasticity of demand.

Basic ways to improve Market Share

• Improve quality.

• Reduce price.• Marketing and distribution

strategy (Free Ridding, 3 for the price of 2).

• Promotion campaign.

• Return on investment (ROI): performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio. 

Project Costs and Financial Plan

• The budget, financing requirements and potential revenue generation. – Define the actual amount of money needed to

set-up the business operation (capital costs) – and the amount needed to keep it going

(operating costs)

• Capital costs should include – all initial development costs

• personnel, technology, legal/professional services, and marketing

Project Costs and Financial Plan• Forecasts of the different sources for meeting these

capital costs• Pro-forma income projections (profit and loss

statement) and pro-forma cash flow projections• A Latin term meaning "for the sake of form". In the

investing world, it describes a method of calculating financial results in order to emphasize either current or projected figures – based on revenue generation and cost assumptions– income statement and cash flow projections should cover

up to 5 years of operations

• A pro forma income statement is similar to a historical income statement, except it projects the future rather than tracks the past. Pro forma income statements are an important tool for planning future business operations. If the projections predict a downturn in profitability, you can make operational changes such as increasing prices or decreasing costs before these projections become reality.

If you are: You Need to know:

Going after a new target market

Your sales forecast (see your text for techniques, but back up your methods!

Estimated expenses (are you advertising, hiring new sales people?)

Gross Margin on the sales. Note your Gross Margin often varies by type of customer or type of product.

Forecasting increased Sales in Existing Markets:

Justify those increases with sound assumptions and data.

Clearly show the additional costs of increased sales-- more advertising, more sales people?

• A pro forma cash flow is created to predict inflow and outflow of cash to your business. It is particularly valuable in predicting when your business may experience a cash shortage. This allows you to determine in advance whether or not you will need to cover your cash shortage by borrowing money, selling more stock in the business, or taking other steps, such as cutting expenses, to improve your cash position

Management and Staffing

• What Staff Resources (including senior management) will be needed and at what cost?

• What should be the backgrounds of the senior team and what expertise should they have?

• What are the plans for hiring and training personnel? Any incentives?

The Team

• Where possible list key management and staff by name

• Include previous accomplishments to show these are people with a record of success

• Summarize number of years of experience in this field

Execution/Roll out

• The steps necessary for a successful implementation of the business– How should the development of the business

be phased? – What are the key milestones and their timing?– What are the critical success factors?

Potential Risks• Key risks of the plan

• Details on mitigating factors( مخففه to (عواملthese potential risks– staffing, budget/financing, marketing,

service/product focus.

• What is the window of opportunity?

• What are the foreseeableمنظور legal and regulatory roadblockعوائق?

• What other vulnerabilities الضعف ?exist نقاط

Key Issues

• Near Term– Isolate key decisions and issues that need

immediate or near-term resolution

• Long Term– Isolate issues needing long-term resolution– State consequences of decision

postponementتأجيل

Business Plan Financials

What is the Purpose of

Your Business

Plan Financials?

Business Plan Financials

• Helps you:– test various potential business models– isolate critical assumptions– determine whether this is a viable business

opportunity– determine how much money you’ll need– persuade investors to invest

Business Plan Financials

• Helps potential investors: – test the viability of your business model– evaluate your critical assumptions

• Are they credible?• Do you understand your business?

– evaluate you as someone who understands how business works from a financial perspective

– determine whether the investment is potentially attractive

– evaluate your true financial needs

“The Taste Test”

Can you taste the revenues?

Is the revenue scenario credible or will you have to achieve miracles to hit your forecast numbers?

So, how do you convince someone that your revenue scenarios are

credible?

Tips for Credibility

Show your assumptions and be able to back them up with FACTS based on market research

and/or some compellingمّل ح

rationale جوهري سبب

Showing a Potential Market

Enterprize, Inc.Market share required to achieve Revenue Goals

Gizmo Unit Sales Price 2,500$ 25% of competitor price; greater value

Market Opportunity in Units 150000 According to Gartner Group;

Market Opportunity in Revenue to Enterprize 375$ $ million

Yr Yr Yr Yr Yr1 2 3 4 5

Enterprise, Inc. Yearly Objectives ($ millions) 3.50$ 7.00$ 14.00$ 28.00$ 56.00$ Growth Rate 100% 100% 100% 100%Required Unit Sales 1400 2800 5600 11200 22400Required Market Share to Achieve Objective 0.93% 1.87% 3.73% 7.47% 14.93%

Note: Enterprise will achieve this required market share because of:1) Partnership with xyz will yield . . .2) ajsadfjkdfsajkl adfjkldsfkl, etc.

Mistakes to Avoid

• Assumptions you can’t justify– Too high a market share

• Too much detail

• Too little detail

• Not enough growth

• Too much profit (in later years)