Startuplet financial model, revenues
October 21, 2008 – 10:03 pm
Image via WikipediaNow about a simple revenue model we’re using for our startuplets.
The first line of “Revenue” tab lists all our potential sources of revenue:
- Premium users
- AdSense
- Lead generation - some other, more niche revenue stream that depends on number of ad impressions but pays better than AdSense
To be able to speculate about these sources of income over the future 24 months, we have to create a bit more elaborated userbase model. More about this later.
From the userbase model we deduce two numbers:
- total number of ad impressions and
- number of premium users
For those we add three hypotheses:
- AdSense revenue for 1K impressions
- Lead generation revenue for 1K impressions
- Average revenue per user per month (ARPU)
This allows us to speculate about the revenue numbers for our planning horizon.
If you’d pick a ‘Users’ tab, you’ll see that we intend to start with 120 visitors at first month, which would pop to 1′200 visitor the next month (e.g. we’ll announce that we’ve launched our startuplet) and will grow 50% each month until saturation at 6th month at steady 9K-something visitors per month. Don’t ask where I’ve got these numbers - they’ve totally made up 
To get a number of regular and premium users, we add two more hypotheses:
- conversion of visitors to regular users
- conversion of regular users to premium users.
The total number of impressions, finally, depends on the number of impressions that makes each group of users:
- visitors
- regular users
- paid users
In this example we guess that visitors will check only couple pages on the site and then desert.
Finally, the expenses and revenues are put together on the first tab of the spreadsheet and we have two nice lines of profit: expected and discounted expected.
BTW, I’ve made the discount rate much more aggressive, since I was told that VS use discount rates up to 90% annual to discuss company valuations.
So now you can play with the hypotheses we’ve put in and the expected visitor flow to guess about Net Present Value of your startuplet. That way you can easily see that the startuplet to achieve positive NPV in first year, given the speculated visitor flow and defined conversion rates, regular user has to see about 145 ad impressions and premium user - slightly more than 190.
In the presented startuplet NPV model the founder (or CxO) can influence or measure directly nearly every guess we’ve made, except the important one:
Where we would get the visitors with the desired conversion rates?
I’ll blog about more extended userbase model in the future post.
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