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Finance Task 3. Step 1: Identify Your Revenue Model.

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Presentation on theme: "Finance Task 3. Step 1: Identify Your Revenue Model."— Presentation transcript:

1 Finance Task 3

2 Step 1: Identify Your Revenue Model

3 Revenue Models Production Model – Ex. Lemonade Stand, sold to directly to customers or to a business. Subscription Model – Ex. Rogers cellphone contracts use a subscription models, the customer pays a monthly fee to use the Rogers mobile service.

4 Revenue Models Cont. Licensing Model – Disney licenses their ideas such as Mickey Mouse, to other companies that create Mickey Mouse toys and collect a small portion or the revenue on the sale of each toy. Advertising Model – Twitter and Facebook sell advertising space on website that targets users of the site to generate revenue.

5 Step 2: Determine Your Materials

6 Materials Create a list Determine supplier Bring a prototype of your product to the final judging day Lemonade Stand Lemons Sugar Cups

7 Step 3: Sales Forecast

8 How many units/services you will sell in the first year? Look at past history or market research New Company o Market research  Internet research  Informal surveys  Talking to business people

9 Step 4: Budget/Cost

10 Estimate Total Units/Services Sales Forecast Ex) – 1200 Lemons – 600 Cherries – 1200 Cups – 1200 Straws

11 Separating Your Costs Variable Cost: – Costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases – Ie. Materials: Lemons, Cherries, Cups Fixed Cost: – Expenses that do not change as a function of the activity of a business, within the relevant period – Ie. Utitlities, Rent etc.

12 Variable Costs MaterialsUnits Cost per Unit Unit x Cost Lemons1200$0.20$240 Cherries600$0.10$60 Cups1200$0.15$180 Straws1200$0.05$60 Total Variable Costs$540

13 Fixed Costs Other Costs (Items)Costs Lemonade Stand Costs$550 Employee Costs$700 Transportation Costs$500 Website + Maintenance Costs$350 Promotional and Advertising Costs$750 Total Fixed Costs$2850

14 Budget Budget = Total Material Costs + Other Costs Ex) o $540 Material Costs o $2,025 Other Costs $540 + $2,850 = $3,390

15 Step 5: Price

16 Price What will you charge for your product or service? Things to Consider: o Target Market o Cost per Unit o Competition o Profit

17 Step 6: Profit

18 Calculating Profit Make $2,000 in profit Selling Price = Profit/Total Units + Unit Cost o 2,000/7,500 + $0.47 = $0.74 Profit Margin = Selling Price – Unit Cost o $0.74 - $0.47 = $0.27 What are you going to do with your profit?

19 Good Luck!

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