Finance Flashcards
Direct revenue models:
- Freemium
- Sales
- Pay-per-uses
- Ads
- Subscriptions
Ancillary revenue models:
- Referrals
- Affiliates
- Email list
More revenue models:
- Asset sales
- Rental
- Usage fee
- Licensing
- Intermediation
(Value Proposition)
Why would anyone want to invest/innovate?
« To reduce costs.
« To increase revenue.
« To be exclusive, to enhance their reputation.
« To increase employee satisfaction.
« To reduce risk.
« To build a circular economy
7 key strategic financial questions?
- What are the costs of this investment?
- Who is financing it?
- Who runs, and pays for the operation?
- Who are we selling to?
- How do we calculate the benefits and costs of the investment?
- How do we price?
- How do we model the outcome?
Key financial indicators; Payback period
Accept: If calculated payback period is less than established criteria.
Reject: If calculated payback period is more than established criteria.
Key financial indicators; Net Present Value (NPV)
Accept: If NPV > 0
Reject: If NPV < 0
Key financial indicators; Profitability Index (PI)
Accept: If PI > 1
Reject: If PI < 1
Key financial indicators; Internal Rate of Return (IRR)
Accept: If IRR > WACC
Reject: If IRR < WACC
Key financial indicators; Breakeven
IRR = WACC
NPV = 0
Key financial indicators; WACC
WACC = (E/(E+D)Re) + (D/(E+D)Rd) * (1-Tc)
E = equity
D = debt
Re = return on equity
Rd = cost of debt
Tc = tax rate
Key financial indicators; for non-profit
Social discount rate (SDR) is the discount rate used in computing the value of funds spent on
social projects. EU commission recommends 5% for major projects. US recommends 7%. SDR
reflects the opportunity cost of capital that affects society.
Risk assessment; scenario planning
Make two scenarios: expected and breakeven and state your assumptions for both.
The difference between expected and breakeven = safety margin!
« Include in your forecast and analysis what underlying assumptions have been used.
« Adjusting these assumptions provides different scenarios
3 building blocks for viability analysis:
- Revenue
- Costs
- Investments
What do Revenue models do?
c
What is pricing?
Pricing is about how much you will charge your customers.
What is your target market?
Target market is about whom you are selling it to (TAM SAM SOM).
What is TAM?
Total Addressable Market (total market for your product)
What is SAM?
Serviceable Available Market (portion of the market you can acquire based on your business model)
SOM
Serviceable Obtainable Market (Percentage of SAM you can realistically capture
What is dynamic pricing?
- Negotiation
- Auctioning
- Concerned with real-time market forces
