Financial Models for Startups

Updated: Feb 14, 2019


A financial model is a translation of your business plan into numbers; this can represent your operating budget, your current forecast or your five year plan.


The financial model represents an understanding of your business model and the economics which drives your sales, expenses and ultimately your profits.





Business Model


Revenues


Your revenues are typically driven by both price and quantity - how much would you sell it for and how many.


Determine what type of business model you will use to make sales:

  • Licensing

  • Subscription

  • Advertising

  • Direct Sales

  • Freemium

Determine your Customer:


Business to Business (B2B)

Pros:

  • More willing to pay for a product or service.

  • The size of the order is larger than single consumer.

Con:

  • Making a sale is much more time consuming.

  • Difficulty getting in front of decision maker.

Business to Consumer (B2C)

Pros:

  • The Market is more accessible.

  • The potential pool of customers is endless.

Con:

  • Individual people generally do not want to pay.

  • Consumers are much more price sensitive than businesses.

Variable Costs and Contribution Margin


For each quantity sold there is also a cost associated, this is called a variable cost. The selling price minus the variable cost is considered the contribution margin.


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