1. Revenue Planning & Financial Business Modeling
Presented by:
Ryan D. Bretsch: Square One Mentor and Instructor
Financial Operations
Revenue Planning & Financial Business Modeling

2. The Purpose of Financial Modeling
Is NOT About: a Marketing Exercise.
NO - “Made-Up Revenue” Pitch to Woo Investors
NO - Financial Statement Filled with “Plug-In Numbers
NO - Revenue estimation task with no forethought in planning for how you will acquire customers and revenue.
IS About: About Truly Understanding Capability in Your Business.
YES - Thoughtful consideration for how you will acquire customers.
YES - Thoughtful organization for how you will manage costs to acquire those customers.
YES - Modeling is planning. Financial planning is a process centered around understanding and managing realistic potential.

3. Core Elements of the Financial Model
Revenue or Income
Sources Segmented by “Lines of Business”
COGS
“Cost of Goods Sold” or “Cost of Goods & Services”
SG&A
“Selling, General and Administrative Expenses”
EBITA
“Earnings Before Taxes, Interest and Amortization”
Also known as “Net Profit Before Taxes”

4. It’s Not Just About Revenue! COGS
Definition
Direct costs attributable to the production of the goods or services sold by a company.
Some Factors to Care For
Materials Cost
Shipping and Freight Cost
Direct Labor Costs
Why Is It Important?
Understand what the production costs are in your business.
Understand what your Gross Margin is before factoring in your company operating expenses.

5. It’s Not Just About Revenue! SG&A
Definition
Direct costs attributable to the running of the company itself.
Some Factors to Care For
Compensation
Marketing & Sales – Drives Revenue!
Professional Services – Cost
Office Space – Cost
And Many More…
Why Is It Important?
Understand what the expenses are to run your business.
Understand what commitments actually drive revenue in your business model and what constitutes unnecessary expense.
Do you know what is truly needed at what point in time?

6. It’s Not Just About Revenue!
“Everyone knows that financial models in St. Louis are not even remotely accurate. But investors need to see your model, so you just have to labor through putting it together. Just plug in estimates if you’re stuck.”
“Make sure you show as much revenue as possible so investors will be interested. You can figure out what the real numbers are once they have invested.”
- Anonymous Compilation Quote
A PLANNING TRUTH:
Inputs = Outputs

7. It’s Not Just About Revenue! Objectives
This really counts!

8. It’s Not Just About Revenue! Objectives
Rework and error means extra expense!

9. Understanding Sales Dynamics in Your Business Model
Customer Acquisition Cost (CAC)
Direct Sales Acquisition Cost / New Customers Acquired
$1.5M spent in acquisition /1,600 new customers = $ per customer
Lifetime Value (LTV)
Revenue Value of a Customer over “X” period of time.
Calculated Retention over “X” period of time.
Requirements Based Pricing
Understanding how price impacts both revenue production and the demand curve in your business model.
Ensuring proper markup exists to care for Gross Margin, Cost of Sales, SG&A and EBITA .

10. Elements of Predictable Revenue
Lead Generation
Understanding Factors Which Affect Lead Generation
Lead Quality
Lead Quantity
Operational Bandwidth
Sales Conversion
Lead Conversion (MQL & SQL)
Lifetime Value of Customer
Client Retention (as applicable)

11. The Price Is Right: Pricing Strategy
Markup is NOT Margin
Make sure you have the right markup to support the costs of your delivering your product/service and support the cost of running your business.
Factors To Consider when Pricing
Price Calculation
Competitive Evaluation of Price
Price Positioning
Price Presentation

12. Factors in Modeling Customer Acquisition
Lead Generation (Plan and Coordination)
Sales Cycle Length
Marketing Resources Needed to Deliver the Sale
Human Capital Resources Needed
Pricing and the Demand Curve
Market Segmentation
Cost of Sale
Operational Constraints
Churn Factors and more…

13. Understanding the Investment Conversation
MYTH #1
Financial models are never accurate. But we do need to have one in our back pocket in case we’re asked for it. But its not as important as our product or “story.”
MYTH #2
In a competitive funding world, investors need to see as much revenue as possible by year “x” So it is of primary importance to always show “hockey stick” level revenue.
MYTH #3
My PPT Presentation is the expression of my business story and the financials are a spreadsheet that speaks to the numbers behind that story.