VRBTM Financial Modeling | Week XIII
What we know, what we don’t, and trying to make sense of it all.
Not sure what this is, start here with our README, or catch up on last week, VRBTM Making It Up | Week XII.
As I left it last week, I decided to get the Standard Financial Model made by Taylor Davidson from Foresight.is rather than develop our model from scratch. I figured there’d be some logic in the template that I wasn’t aware of, and ultimately it would save time in getting to where we needed to be.
One thing I also brought up was that we need to find a balance in our model so it’s not too basic that it doesn’t help us, but also not be so involved that we get caught up on the numbers. Especially as these are only assumed projections at this point. After putting everything in I think the Standard Model as a whole is probably a bit much currently. So now it’s a matter of pulling out what we need and tracking from that — knowing we have the full model available to us when the time comes.
To get some clarity out of the model I’m going to pull the numbers out and go month-by-month looking at the assumptions to see what we can figure out.
Things To Note
- We’re only going to look at the first 18 months. Anything past that is truly baseless.
- We’re not including our salaries in the model yet. This is only looking at the business expenses and revenues.
- We have three pricing tiers: Solo $10, Studio $15, Agency $25 / month / per seat.
- We anticipate a: 25% Solo, 50% Studio, 25% Agency subscription breakdown.
- Cost Of Goods Sold (COGS): $2.50 Solo, $2.50 Studio, $3.00 Agency / month / per seat.
- We’ll be utilizing these services to scale VRBTM: Meteor Galaxy, mLab, FileStack, SendGrid, MailChimp, Amazon S3, and GitHub.
- Other costs considered are: Business Development (field sales), Twitter Ads, Zendesk, and Credit Card Processing (stripe).
- Admin services will include: G Suite, Slack, Creative Cloud, Office 365, Xero, and Baremetrics,
- 555 paying users, at the end of 18 months would put us at ~$100k Annual Recurring Revenue (ARR), and feels like a moderate projection.
- From our connections and the interest of the platform I assume having 70 Beta Testers in months 4, 5, and 6, in lead up to our public launch in month 7.
Ok, let’s look at this month-by-month.
Months 1 to 6 is our development and beta stage. Costs here will be kept low and only start to scale when we start adding beta testers in Months 4, 5, and 6.
Users: 25 BETA
Costs: ($115 + $120 for BetaList) $235
Users: 55 (+30) BETA
Users: 70 (+15) BETA
Here’s when the model really starts to kick in as we go from a free beta, to a paid platform. Because of that we can’t expect all 70 of our beta testers to stick around and pay for the service. To adjust for this we are assuming a 25% conversion rate that increases 2% every month until reaching 50%. This increase will be due to our sales materials becoming more tailored to our target demo the more we interact with them. We’re also assuming that we’ll see 70 new people viewing the platform per month, which will grow by 2% increasing by 1% every month up to a 5% organic growth rate. The thinking here is that over time more people will become familiar with the platform through organic searches or from the nature of the platform as it requires two or more people to work. Meaning a VRBTM user could send a VRBTM to a non-user who then converts. We’re also going to assume our direct business development efforts and how many new users we can convert each month. These coming from sales pitches, product demos, and really doing all that we can to get this in front of people and selling. I’ve made some assumptions around time of year as to why this number rises and falls. We also have a 2% Churn Rate of lost subscribers.
(Organic: +18, BizDev: +20)
Revenue: $617.5 MRR
(Organic: +19, BizDev: +20, Churned: -1)
Revenue: $1,235 MRR
(Organic: +19, BizDev: +20, Churned: -2)
Revenue: $1,852.5 MRR
(Organic: +20, BizDev: +30, Churned: -2)
Revenue: $2,616.5 MRR
(Organic: +21, BizDev: +30, Churned: -3)
Revenue: $3,396.25 MRR
(Organic: +22, BizDev: +40, Churned: -4)
Revenue: $4,388.75 MRR
(Organic: +23, BizDev: +50, Churned: -5)
Revenue: $5,443.75 MRR
(Organic: +24, BizDev: +30, Churned: -7)
Revenue: $6,207.5 MRR
(Organic: +25, BizDev: +20, Churned: -8)
Revenue: $6,808.75 MRR
(Organic: +26, BizDev: +50, Churned: -8)
Revenue: $7,913.75 MRR
(Organic: +27, BizDev: +50, Churned: -10)
Revenue: $9,002.5 MRR
(Organic: +28, BizDev: +40, Churned: -11)
Revenue: $9,928.75 MRR
I’m not sure if I made myself more confused going through this exercise or less so. Some things jumped out, while others were much more muddled. I do think at this time it’ll be much easier with a simpler model that I can make in Google Sheets. That said, I wouldn’t of been able to know what we should be looking at without going through the process of modeling everything.
The problem with models however, is that they all trend upward at an exponential rate. Making it appear that the business is destined for greatness. Which we of course want, but the one thing for sure is that the model is wrong. So there’s only so much we can take from this, and it’s knowing what’s important to take from it and what’s not at the moment.
What this model really shows is that it takes a considerable amount of paying users to get to a sustainable business. I haven’t included salaries or any physical expense like a WeWork space in here and when I put those in it changes everything about how we have to look at this. Either we need to raise capital, we have to be much more aggressive in our growth strategies, or we look at it as a time investment that we’ll have to make in getting to that point of sustaining ourselves. Each that has their pros and cons which we’ll have to make decisions about relatively shortly.
We’ve done a ton of work in the past few months and while it’s all documented here in our write ups, I need to spend some time collecting all of the relevant pieces and putting together our story. This will be to develop our sales materials for when it’s time to start pitching the platform to those outside of our immediate connections / those who are aware of the platform already.