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This is a bottom-up technique for predicting during your planning stage how much revenue your company will make. It works by you stating certain assumptions about how you obtain and retain customers, and about how much revenue you will make per customer. Once you start leading your company, you will refine these assumptions so you can obtain a more accurate understanding of expected revenues.
Fundamental to understanding how this revenue-prediction technique works is understanding that revenue growth can occur in only three ways:
Every company will have components of all three growth models. When you plan your company, you will make assumptions about how all three growth models work by defining values for key assumptions as follows:
How changing each item on this screen affects values on the income statement?
If you are unhappy with values on the income statement, here is how changing each of the numbers on this screen will affect numbers on the income statement:
How can I achieve other effects on the income statement?
You may be unhappy with values on the income statement, but none of the above seem to have the right effect. Here are some other ideas:
How can I have customers but no revenues?
Three possible reasons: Price could be zero, Average Order Size could be zero, or Periodicity could be indicating that current customers do not purchase every month.
Why are my marketing and sales expenses so high when I use this sales model?
This usually occurs when you combine commissions with viral sales! You are paying commissions on all sales, yet a large percent of your revenues are probably coming from referrals for which the sales people are doing much less work. On the other hand, perhaps they do deserve commission for these sales because they did work to get the initial seed customer in the door. Our suggestion is that you lower your commission rate or eliminate it altogether when using this sales model.
Other Related Questions:
What is a sustainable growth engine?
How can I model the paid growth engine?
How can I model the sticky growth engine?
How can I model the viral growth engine?
Why can't I find an expense type on the drop down list?
How does Offtoa compute customers, revenues, number of units sold and revenues by product from my assumptions?
Are commissions used in calculating customer acquisition cost (CAC)?
How do I change assumptions when I pivot?
How can I drive revenue growth via paid marketing and sales?
How can I drive revenue growth via sticky strategies?
How can I drive revenue growth via viral strategies?
How do I show a different AOS each year??
How do I add a market to the sales model?
Why are my revenues 5.5 (or 6) times higher than what I think they should be during the first year?
Why are my revenues 5.5 (or 4.6) times higher than what I think they should be during the first year?
Why are my revenues 6.5 times higher than what I think they should be during the first year?
Why are my revenues 12 times higher than what I think they should be?
Why are my revenues 92% lower than what I think they should be?
How do I change sales models?