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

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.

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”

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.

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?

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

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

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

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 = $937.50 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 .

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)

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

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…

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.