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) ‫قوى السوق‬
• 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:

Your sales forecast (see your text for

Going after a new target market 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 Justify those increases with sound

Markets: 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(‫ )عوامل مخففه‬to
these potential risks
– staffing, budget/financing, marketing,
service/product focus.
• What is the window of opportunity?
• What are the foreseeable‫ منظور‬legal and
regulatory roadblock‫?عوائق‬
• What other vulnerabilities‫ نقاط الضعف‬exist?
 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 compelling‫مّلح‬
rationale‫سبب جوهري‬
 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 Yr
1 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 22400
Required 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)