Tuesday, November

th
24
 Warm Up: What are you grateful for? Put it on the
board!
 Please get out pen/paper to take notes … we’re
going to talk about finance!
Finance Introduction

 Finance answers some extremely important
questions:
 What will it cost to run my business?
 How much money can I expect to make?
 Will my business be profitable?
 Two Major Components:
 Revenue Streams
 Cost Structures
 Each aspect will have several components
Revenue Streams

 revenue model
 Pricing
 customer lifetime values
 revenue
 gross margin
Revenue

 The amount of money that a company actually
receives during a specific period, including discounts
and deductions for returned merchandise. It is the
"top line" or "gross income" figure from which costs
are subtracted to determine net income.
 DON’T confuse Revenue with Income
What is the Revenue
Model?

 A revenue model describes how a business generates
revenue from its products and services (FYI, also
called “revenue stream”)
 It is one of the key components of the business
model
 There are many kinds of revenue models …. You’ll
read an article to determine the one that fits your
business best
Nine Categories of
Revenue Models

 divided the revenue models to nine major categories:
 A. Commerce and retail
B. Subscriptions and usage fees
C. Licensing
D. Auctions and bids
E. Advertising
F. Data
G. Transactions/Intermediation
H. Freemium
I. Revenue model types common in financial services
industry
Focus ONLY on your revenue model
Now What?





Create a document in your google drive
Title it “finance”
Create the following sections:
Revenue Streams





revenue model
pricing
customer lifetime value
revenue
gross margin
 Create a paragraph under “revenue model” that explains your
business’ revenue model. ASSUME the reader doesn’t know
what a revenue model is and is NOT familiar with your
revenue model
Monday, November

th
30
 Warm Up: Mr. Reck just walked into the room.
Explain to him what a revenue model is and why it’s
important to be able to explain it for your business.
 Today … PRICING
How do you determine
price?

 What should I charge for my products/services?
 Many factors to consider …





Competition
What kind of customers you want
DON’T low ball
What are your costs?
Value of your product
 There’s no right or wrong answer (boo!)
Pricing

 Read the article on pricing and determine pricing for
your product/service
 KEEP TRACK OF YOUR calculations, put them right
into the finance document under the pricing section
(see next slide)
 It’s likely you may go back and adjust your prices
 I recognize that you don’t know your costs at this
point … that’s one reason you will likely adjust these
numbers!
Pricing Calculation
Example One

 Home Cleaning Service
 Reviewed three competitors and what they charge:
 ABC, charges $40/hour, 2 hour minimum
 DEF, charges flat rate of $120 for first cleaning,
$100/monthly cleaning, $80/every two weeks cleaning,
$65/every week cleaning
 GHI, charges $45/hour, no minimum
 Looked at economics for Livingston County
 I’m going to offer something special for customers: NO
pre-cleaning prior to my professional cleaning!
 Decided on: $45/hour, no minimum, will estimate for
each cleaning job
Pricing Calculation
Example Two

 New type of insulated cup, competes with Tervis
 Pricing of Tervis cups: $17.99 small, $24.99 for large
 Looked at other brands of insulated cups
 ABC: $12.99 one size only, small
 DEC: $18.99 large
 There are cheap versions of cups you can customize on
websites like Shutterfly. You pay a premium price, $22.99
but get a low quality item.
 Need to break into this market as an unknown
 My unique value proposition is you can put your own
logo/photo on my insulated cup
 Pricing: one size, large, $22.99
Tuesday, December

st
1
 Warm Up: Check yourself …. You should now have
two sections of your finance document complete:
 Revenue Model
 Pricing
 FYI: Mrs. H is BEHIND on grading, will be plowing
through all your work turned in before break and
yesterday this evening ….
 Today: customer lifetime value
Customer Lifetime
Value

 Answers many questions…
 How much is every customer “worth” to my
business?
 How much repeat business can I expect? – which
then leads into:
 How much am I willing to “pay” to gain a customer?
 How much will my customers spend on my
product/service each time?
LTV Formula

 Write this down!

(Average Value of a Sale) X (Number of Repeat
Transactions) X (Average Retention Time in Months or
Years for a Typical Customer)
 Average Value of a Sale = every time a customer uses
your product/service, how much will you PROFIT?
 Number of repeat transactions = how OFTEN will your
customer use your product/service in a given time
frame? (week, month, year)
 Average Retention Time = how long will your customer
stay with you?
Your job …

 Read BOTH articles
 TAKE notes
 Begin to calculate your LTV
 Take very detailed notes for every component
 Put your THINKING into the LTV section of your
finance document
 Trust me, you will REVISE this number
 Meanwhile, I’m going to come around, see your
revenue model and pricing
Wednesday, December
nd
2

 TWO WARM UPS:
 Log in and check your grades, they are updated
 Second, calculate the LTV for the following scenario:
 Donut shop
 Average customer purchase: $5
 Profit: 30% of sales
 Frequency: twice a month
 Length I’ll have a customer: 2 years
LTV Formula
Clarification

 Write this down!

(Average Value of a Sale) X (Number of Repeat Transactions) X
(Average Retention Time in Months or Years for a Typical
Customer)
 Average Value of a Sale = every time a customer uses your
product/service, how much will you PROFIT?
 Number of repeat transactions = how OFTEN will your
customer use your product/service in a given time frame?
(week, month, year)
 Average Retention Time = how long will your customer stay
with you?
Today

 Complete your Life Time Value calculations, making
notes in your document for EVERY detail
 Make sure your Life Time Value notes are up to date
as well, expect to be tested on this finance
vocabulary!!!
Thursday, December

rd
3
 Warm Up: Get an income statement from the table
for “Company A”. Read it an answer these
questions:
 What’s the difference between revenue and income?
 Is this company profitable? How do you know?
 Today: Calculating revenue
Important Notes

 Revenue vs Sales vs Income
 Revenue – Expenses = Income
 Revenue – expenses directly associated with selling
the product/service = GROSS profit
Revenue

 You already have pricing, now we need VOLUME
 Start by calculating for a given period of time – a
day, a week, a month … whatever makes sense
 Conservatively estimate sales
 For example, if the hot dog vendor across the street
sells 100 hot dogs per day, it would be unreasonable
to project sales of 1,000 hot dogs per day on your
side of the street.
Calculate

 Determine what the best-case scenario is and
calculate your sales to be a percentage of that figure.
 Professionals generally use approximately 33 percent
of the best-case scenario.
Example

 Donut shop
 Daily Sales:
 Ideal: 50 dozen (600 donuts)
 600* .33 = 200 donuts sold in one day
 200 * $1.50 (avg price for 1 donut) = $300/day
 Open 6 days a week
 $300 * 6 = $1800 revenue per week
 Open 52 weeks a year
 $1800 * 52 = $93600 revenue per year
Blank Template

 Weekly Deliveries:
 Ideal: _________________________
 ___________* .33 = __________ deliveries in one week
 ______ * $_________ (avg cost/delivery) =
$____/week
 Open 52 weeks a year
 $______________ * 52 = _______revenue per year
Your Job

 First, find an article online that talks about
calculating revenue for your type of business
 Read it
 Cite it in the Revenue section of your finance
document
 Take a few notes, summarize what you learned
 Second, calculate your revenue for one year
 Show your work!!!!!!
Friday, December

th
4
 Warm Up: Go to my website, read the finance article for
today. Take notes on the seven definitions.
 NOTE: Even DECA district students should do this, great
terms to know. When done, work on your practice test
for DECA
 Today:
 DECA test day information
 Complete your revenue for one year and document the
article related to your specific revenue model in your
finance document
Monday, December

th
7
 Warm Ups:
 First, check your grades. They are all updated!!!
 Second, open your notes from Friday’s article about the
seven definitions. ONLY have your notes in front of you,
a piece of paper and a pen or pencil.




Today:
POP formative quiz
Discuss finance terms
Gross margin
Finance Terms Pop

1. What’s the “bottom line”?
2. What’s the difference between fixed and variable
costs?
3. What does it mean if my business is highly
leveraged?
4. Give three examples of capital expenditures.
Finance Terms

 From article: Finance Terms Every Serious
Entrepreneur Should Know
 http://venturebeat.com/2013/06/08/startupsfinancial-terms/
Bottom Line

 Net Earnings
 Net Income
 Overall Profit
Gross Margin

 Sales Revenue – Cost of producing goods/services
 Expressed as a percentage
 Gross Margin / Sales Revenue
 How much of every dollar will the company keep to
pay it’s operating expenses (and for profit)
Gross Margin Example

 Pencil Sales
 Revenue: $100
 Cost $40
 Revenue – Cost of goods sold= Gross Profit
 100 – 40 = $60
 Gross Margin: Gross Profit/Revenue = Gross Margin
 60/100 = .60 or 60%
 Which means, for every dollar in sales, 40 cents goes to
pay for the item you sold and 60 cents is available to
pay your other expenses and for profit
Fixed vs Variable costs

 Fixed: cost doesn’t vary with volume of
goods/services
 Variable costs: vary depending volume
 Which is related to Gross Margin?
Equity vs Debt

 Equity: money you have received from investors
(including yourself) to run your business
 Investors get a piece of ownership for this
 Debt: money you borrow from a lender that must be
repaid
 Accounting equation:
 Assets = liabilities + (Owners) Equity
Leverage

 Amount of money you borrowed to start your
business.
 If you have more debt than equity, you’re considered
“highly leveraged” – and that means very risky
Capital Expenditures

 Items your business purchases that create future
benefits
 PHYSICAL goods and services
 Machinery
 Computers
 Office furniture
 It’s unfortunately NOT IT costs (so NOT the cost of
creating your app, for example)
Concentration

 How much of your business comes from any given
customer?
 Costco Example
 Michigan Rehab example
 “Are you putting all your eggs in one basket?”
Now … Gross Margin

 How much does it cost me to provide these
goods/services for you to sell?
 Think VARIABLE costs
 As you research, take excellent, detailed notes!!!
Wednesday, December

th
9
 Warm Up: Check your finance document. You
should have five complete sections:





revenue model
Pricing
customer lifetime values
revenue
gross margin
 Make sure they are all present, the document is in
your shared folder. You’re turning in a draft version
of the Revenue Model today




Today …

Finalize Revenue Model
Review practice finance terms quiz
Next practice quiz tomorrow
Quiz Tuesday






revenue model
Pricing
customer lifetime values
revenue
gross margin
All seven finance terms
 See next page …
Customer Acquisition
Costs

 Read article on CAC on my website
 Answer, in writing, these three questions:
 What is CAC ?
 How you can measure CAC?
 What steps can you take to improve CAC?