Financial assumptions

Step 1: Sales

12/09/2013

Azèle Mathieu Rodolphe d’Udekem d’Acoz

Business & Finance Advisors @ BEA

Step 1: Sales

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Sales?

What?

cfr. Value Proposition

When? How much? Price?

Cfr. Revenue streams

How?

Cfr. Channels

Step 1: Sales – How much?

• Total Addressable Market (TAM)

– Bottom-up from primary market research

– Validate top down: Economy > Industry > Market > Segment > … > Your business

• Market share?

– Top-down : TAM x market share

– Bottom-up : Resources x ‘Usage’ (preferred approach)

Combine both approaches

• Growth rate?

• One-off/recurring/bundled sales?

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Step 1: Sales – How much? TAM

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TAM: 750M€

Identified similar customers: 40

Initial 10 customers potential: 15M€

Life Sciences Devices: 350B€

FCM: 1,5B€

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(a) 1 million people 1.000.000

(b) restaurant 2.000

(c) restaurant / 1 million people 2.000

(d) 25% target (25-40) 25%

(e) 2 orders per month 2

(f) orders / months 500.000 (a x d x e)

(g) orders / month / shoes shop 250 (f / b)

(h) order average 25 €

(i) margin 12%

(j) Tageted market share 30%

(k) Targeted orders / month / shoes shop

75 (g x j)

Can you really make it?

Step 1: Sales – How much? Top down approach

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2013 2014 2015

Sales Volume

Number of sales representatives

0 1 3

Number of restaurants 100 300 900

Daily Orders per restaurant (Orders)

3

3

3

Total Daily Orders (Orders)

300

900

2.700

Total Monthly Orders (Orders)

9.000

27.000

81.000

Total Annual Orders (Orders)

109.500

328.500

985.500

Will they achieve it? Still profitable?

Step 1: Sales – How much? Bottom up approach: what can you really achieve?

Step 1: Sales – Price?

• Pricing of alternative solutions

• How much is the customer ready/willing to pay?

Quantified value proposition

• Price:

– Not too low

– Not too high

– Coherent

• Evolution of the selling prices?

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8 MBA BP 2013 – Business Planning (for

entrepreneurial ventures) INTEGRATIVE COURSE - 6.0 ECTS

Step 1: Sales – Price? Quantified value proposition

Step 1: Sales – How?

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• Sales map process

– Sales channels:

• Direct?

• Indirect?

– Impact on the cost of customer acquisition (COCA)

Step 1: Sales – How?

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Alpha C

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Target

Calls

Meetings

First sale

€?

Step 1: Sales – How? Cost of Customer Acquisition

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Month 1 Month 2 Month 3 Month 4 Month 5

# calls/day 10 10 10 10 10

# days 10 10 10 10 10

# calls/month 100 100 100 100 100

% met persons 20% 20% 20% 20% 20%

# met persons 20 20 20 20 20

% acquired customers 10% 10% 10% 10% 10%

acquired customers 0 2 2 2 2

time to close a deal 1 month

customer base 0 2 4 6 8

churn rate 25%

customer leaving 0 0 1 1,5 2

net customer base 0 2 3 4,5 6

Step 1: Sales – How? Cost of Customer Acquisition (COCA)

• How much resources (time, €, HR) does it require?

• Includes unsuccessful prospects

• To be taken into account in your P&L, CF

• Essential step for your sales assumptions

• Choice of channel financially sustainable?

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Step 1: Sales – How? COCA

Step 1: Sales – How? COCA & Life time value of an acquired customer

• Cost of Customer Acquisition (COCA)

• Life time value of an acquired customer (LTVOAC)

Compute

Monitor over time

Impact on:

‒ Business model (VP, distribution channel,…)

‒ Cost structure

‒ Pricing decisions

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COCA = Sales & Marketing Costs / Customers

LTVOAC = revenue over life time x gross margin

• Lifetime value of a gym member who spends €20 every month for 3 years?

• €20 X 12 months X 3 years = €720 in total revenue (or €240 per year)

Allowable acquisition cost?

How to optimize LTVOAC?

Discount while managing CF

…

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Step 1: Sales – Price? LTVOAC: example

Source: www.entrepreneur.com

• Rule of thumb*

• Depending on the industry and the period

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LTVOAC > 2 COCA

Step 1: Sales – How? Link between LTVOAC & COCA

(a) order average 25 €

(b) margin 12%

(c) targeted orders / month / restaurant 75

(d) Restaurant Acquisition Cost € 500

(e) Restaurant Lifetime value (5 years) € 13.500 (a) x (b) x (c) x 12 x 5

Step 1: Sales

• Probably one of the most important parameters … and certainly the most difficult to estimate !!

• Consider different (sub)categories of products and/or services

• Consider the volume of units (products/services) sold and the respective selling prices

• Outputs

– Per product (category)

– Per client / market / segment

– Per channel

– Combine ?

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Step 1: Sales

• Gross sales or Net sales (e.g. after commission, bad debts…)

• Consider the initial volumes and the growth rates for each line of products/services without forgetting potential seasonality and potential evolution of the selling prices

• Do not forget potential delays and lower (initial) volumes & growth rates than expected !

• Consider the sales without VAT (unless you do not recuperate it !)

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Step 1: Sales

• The sales data should be based on tangible elements and hypothesis directly linked to the business plan

• In no circumstances should the volume of sales be based on the costs …

« spontaneous sales creation » in order to achieve break even or benefit on paper does not help and could possibly endanger your credibility in the eyes of third parties

• To keep in mind:

– User friendliness, avoid too much items

– Internal logic : price, discount, cost of sales, payment conditions… & cycle

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