Revenue analysis

March 2019 Didier.Certain@dcc-marketing.com 1
OPPORTUNITY RECOGNITION
March 22, 2019
Revenues analysis (fin2)
A few beacons in the turbulent world of entrepreneurial finance
1

What is business?
Business is an activity in which we want both
maximization of profit for enterprises
maximization of satisfaction for clients

My
Project
My Business model
My

My Business model
My
Project
Customer
A
Customer
B
€
Product / Service defined by 4 P
and defined by the value
provided to customers and users
P as Product
P as Placement
P as Promotion
P as Price policy
My marketing mix

Provider 2
Social org.
Pension funds
My
Project
Customer
A
Customer
B
Compe-
titors
€
€
Regulatory
agencies,
legacy
Tax
services
€
Provider 1
P
/
S
€ €
Users
€
€
Surrounding:
education,
cultures,ethics
Human
Ressources
My Business model Flow chart
description

Writing my Business Plan
1. Executive summary
2. Business model of enterprise
3. The product or the service
4. The market
1. Surrounding
2. Demand
3. Competitors
4. Positionning of Product x Market
5. Strategy of development
1. Road map of product / service
2. Marketing plan
3. Pricing and financial plan
6. Overall project planning
7. Previsional Profit and Loss
8. Previsional needs of funding
9. Conclusion

The Profit and Loss Statement (P&L)
• Additions to wealth: i.e. Revenues, incomes, …
• Deductions to wealth: i.e. Expenses, charges, …
on a predetermined period of time
A few beacons in the turbulent world
of entrepreneurial finance

Expenses Revenues
OPEX (operational expenses)
Including
Salaries (wages and related
costs)
Turnover A
Turnover B
CAPEX (capital expenses) Non current incomes
Financial charges
(interests, taxes, …)
Financial incomes
(interests, …)
Total Expenses
Net income =
Total Revenues
Revenues – Expenses
(earning > 0 or loss < 0)
PnL

Revenues and incomes
are shared in 3 types
• Revenues related to operating cycle
whatever is earned as part of production process
(for product or service)
• Incomes related to non current assets
whatever has a lifetime longer than the period of an
operating cycle (for product or service)
e.g. selling of building, machine, patent, etc.
• Incomes related to financial cycle (bank interest)
P&L Statement

P&L Statement can be used in order to
• Forecast the business activities
(week per week, month per month, year per year)
• Compute funding needs
Then later
• Verify the reality of business vs. forecast
• Present the enterprise results to tax administration
• Present the enterprise results to shareholders
P&L Statement

P&L shows all
• Additions to wealth: i.e. Revenues, incomes, …
• Deductions to wealth: i.e. Expenses, charges, …
On short term, net income can be negative
(Revenues & Incomes) < (Expenses & Charges)
On medium / long term, net income must be positive
(Revenues & Incomes) > (Expenses & Charges)
P&L Statement
Accounting equation
Net income = (Revenues & Incomes) – (Expenses & Charges)

P&L: example of forecast
Year 1 Year 2 Year 3
€
Cumulative forecast
of Revenues
Cumulative forecast
of Expenses

€
Cumulative
Revenues
Cumulative
Expenses
Loss
Gain
Funding needs
Break even
P&L: example of forecast

P&L: Reality versus Forecast
€
Cumulative forecast
of Revenues
Cumulative forecast
of Expenses
Cumulative real
Expenses
Cumulative real
Revenues

Several explainations
• Revenues are lower than expected
• Revenues are later than expected
• Expenses are greater than expected
• Expenses are earlier than expected
Forecasting is the art of saying
what will happen . . .
. . .and then explaining why
it didn't happen exactly.

2 examples of forecast revenues
€
Cumulative forecast
Revenues #1
Cumulative forecast
Revenues #2

2 examples of forecast revenues
€
Cumulative forecast Revenues #1
Cumulative forecast Revenues #2
The only difference between the 2 curves
is the delay of #2 versus #1

Same thing for forecast expenses
€
Cumulative forecast Expenses #2
Cumulative forecast Expenses #1
The only difference between the 2 curves
is the advance of #2 versus #1

Rules of thumb
• Customers decide later than expected
• Customers pay later than expected
• Banks lend later than expected
• Providers send invoices earlier than expected
• Investments are more expensive than expected
• Banks ask reimbursements earlier than expected

Choice of a time scale for budgeting
• Roughly: year per year
• Medium: month per month
• Accurate: week per week
Writing my Business plan
• first iteration: year per year
• then: month per month

First iteration: year per year
• FR(i) = Forecast revenues for year i
• FE(i) = Forecast expenses for year i
FP (i) = Forecast profit = FR(i) – FE(i)
At the end of the year i,
Equity(i) = Equity(i-1) + FP(i)
Unit = k€ Year 0 Year 1 Year 2 Year 3
FR (i) 100 140 200
FE (i) 120 150 170
FP (i) - 20 - 10 + 30
Equity (i) 0 - 20 - 30 0
Revenues
Expenses
Profit

Needs of funding
We need Equity > 0 in order to run the business
• Independence, freedom, . . .
Even if we borrow some extra funds
FR (i) 100 140 200
FE (i) 120 150 170
FP (i) - 20 - 10 + 30
Equity (i) 30 + 10 0 + 30
Revenues
Expenses
Profit

FR (i) 100 140 200
FE (i) 120 150 170
FP (i) - 20 - 10 + 30
Equity (i) 30 + 10 0 + 30
Needs of funding
We need Equity > 0 in order to run the business
• Independence, freedom, . . .
Even if we borrow some extra funds
Revenues
Expenses
Profit

Standard: budgeting month per month
Unit
= 1 k€
M
0
M
1
M
2
M
3
M
4
M
5
M
6
M
7
M
8
M
9
M
10
M
11
M
12
FR (i) 0 0 0 0 0 0 0 10 15 20 25 30
FE (i) 10 10 10 10 10 10 10 10 10 10 10 10
FP (i) - 10 - 10 - 10 - 10 - 10 - 10 - 10 0 + 5 + 10 + 15 + 20
Equity (i) 30 + 20 + 10 0 - 10 -- 20 -- 30 - 40 - 40 - 35 - 25 - 10 + 10
min
Negative equity
Needs of extra funding > + 40

Rule of thumb « Business funnel » of revenues
• prospectable customers (100%)
• identified customers
• prospected customers
• contacted customers
• interested customers
• customers who ordered
• invoiced customers
• customers who paid (x %)
And it takes time!
T

Forecast for my cumulative PnL
€
Cumulative forecast
of Revenues
Cumulative forecast
of Expenses
Cumulative forecast
of Profit
Break even
Loss
Gain
Minimum
T

Rules of thumb
• A forecast within 20% is better
that no prediction at all
• Define a cone of uncertainty
The more distant, the less confident
• Think about Plan A (optimistic)
and Plan B (pessimistic)

Price policy
Let’s talk about price
Price policy is the 4th P of 4P

My
Project
Customer
A
Customer
B
€
Product / Service defined by 4 P
and defined by the value
provided to customers and users
P as Product
P as Placement
P as Promotion
P as Price policy
My marketing mix

Price policy (1/9)
• policy which determines the wholesale price and
retail prices for our products or services.
Price policy is based on price strategy.
i.e. finding a product’s optimum price,
typically including overall marketing objectives,
consumer demand, product attributes,
competitors' pricing, and market trends.
Price policy could be
• one-price policy (same price offered to every customer)
• one-to-one policy (specific price offered to every customer)

Price policy (2/9)
• ‘One shot’ e.g. computer, car, house, . . .
o Sell once a product / service
No recurrency, no fidelity
Need to renew ‘one shot’ offer
Need creativity and innovation
‘One shot’ revenues Renewed ‘one shot’ revenues

Price policy (3/9)
• ‘Subscription’ e.g. telco, software license, . . .
o Sell monthly service on a long term contract
Recurrency & fidelity
Need to keep customers and avoid churn
‘Subscription’ revenues
with churn
Time
Real ‘subscription’ revenues

Price policy (4/9)
• ‘Gillette’ Hooking then addiction
o Sell once a product (a razor)
o Then sell recurrent service (razor blades)
Recurrency & fidelity
- Sell once a printer
- Then sell recurrent cartridges

Price policy (5/9)
• ‘de luxe’ or ‘premium’
o Sell few products / services (but more expensive)
Recurrency & fidelity based on brand advantages
Brand must be well known
It takes time to build a brand
• ‘utilities’ e.g. paper, USB keys, data storage, . . .
o Sell lots of products / services (but cheap)
Recurrency & fidelity based on low prices
Risk of ‘me too’

Price policy (6/9)
• ‘2-sided platform’ e.g. Uber, Booking, Meetic, . . .
o Sell a product / service on both side
o Take recurrent percentage on cash flow
Platform brand must be well known
It takes time to build a brand
Possibility of one-to-one price policy
e.g. yield management
in transportation and hospitality fields

Price policy (7/9)
• ‘Advertising’ e.g. Google, FB, on-line media, . . .
o Sell traffic flow to advertisers
Must produce attractive matter to keep visitors
Efficient only if there is enough traffic
Must generate mass customization
e.g. RTB (Real Time Bidding)
It takes time to build a attractive place to be.
now
1998

Price policy (8/9)
• ‘Behavioral data ’ e.g. FB, Youtube, Slideshare, . . .
o Sell behavioral data to advertisers or third party
Must attract and fidelize users.
Then must help easy exchanges on the network
Must increase mass customization
Efficient only if data quality is high level
Data could be sub-product of main activity.
e.g. AWS (Amazon Web Services)

Price policy (9/9)
Move of prices (decreasing step by step)
T
€

Price policy
History is not yet written.
Everything could be invented from now.

For My Project,
1) I have estimated roughly forecast charges (in k€),
month per month, during the first three years.
2) I can explain my price policy
and estimate roughly my forecast revenues (in k€),
month per month, during the first three years.
3) I can compare my forecast revenues and
my forecast charges during the first three years.
4) I can forecast roughly when will be the break even.

Prepare the Final Pitch of your project
(10 slides max, 12 minutes max)
REQUIREMENTS
• Must have: your name, your project name
• Should have: your market
• Should have: your business model
• Should have: your marketing mix
• Should have: your competitors
• Should have: your distinctive value
• Could have: your price policy
• Could have: your forecast of break even

42
Thank you for your attention…

This training material is part of the FogGuru project that has received funding from the European Union’s
Horizon 2020 research and innovation programme under the Marie Skłodowska-Curie grant agreement
No 765452. The information and views set out in this material are those of the author(s) and do not
necessarily reflect the official opinion of the European Union. Neither the European Union institutions and
bodies nor any person acting on their behalf may be held responsible for the use which may be made of
the information contained therein.

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