Building Financial Models

Building Financial Models

Here’s what do you need to know about Building Startup Financial models before you get started:

  • What business model are you anticipating that you will use? For example:
    • Who will buy your product? A consumer or a business? Though the templates don’t reflect a different layout, there are some things you should consider in your assumptions.
      • Consumer or B2C
        • Consumers will likely have a smaller price point
        • Expect more churn with early customers
        • With B2C you can likely buy advertising to get consumers to your site. Keep in mind you’ll need to closely monitor things like bounce rate and conversion ratios.
        • If the product is ready to purchase today (still an MVP) you will likely frustrate customers, that can be OK as long as you capture email or contact information to fulfill later.
      • Business or B2B
        • Your MVP will likely need a more full-feature set before they can purchase your product
        • Time to close for B2B sales will need to be estimated. It’s likely that you will be the sales person on the first few customers. The sales process should go down over time, however, don’t underestimate the time required or your financial model will be significantly¬†off in the future.
        • With B2B you’re likely to buy a list that will need to be marketed to in the form of outbound sales calls.
    • If you have a more traditional business (vs an Internet business) you can use one of the two downloadable templates:
      • Transaction Fee model as a base template. It assumes you will still use the Internet to drive traffic to your site. It then assumes a percentage of margin on product sale.
      • Productize a service has the product and service combinations. For example, it assumes a service component with Gross Margin plus a form of product sale
  • What are the inputs that you will need to fill in the model?
    • Product – when will it ship – in the spreadsheet, this will be in what month
    • Price – what’s the selling price
    • Returns or Churn – what sort of return rate¬†do you expect
    • Headcount expenses:
      • Who will you hire and when?
      • What are current market rates, or the rate required to contract the talent.
    • General & Administrative expense
      • Office space, Internet service provider, insurance, etc.

If you know which Financial Model Template you need, go to the Shop to purchase a Financial Model Template.

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