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ProjectionHub

Archives for May 2013

How to Add Custom Expenses to ProjectionHub

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If you are using ProjectionHub to create your financial projections and you ran into trouble with the Expenses page because our listing of expenses does not include an expense that you have, I want to show you an easy work around.

Soon we hope to update the application so that you can customize your expenses and add your own expenses right within the application, but for now I am going to show you a temporary way to work around the problem.

Let’s assume that you want to add an expense called “Security” for your security system expenses which costs $30 per month.  Unfortunately we don’t have an expense category called “Security” so for the time being our suggestion is to make one of the other rows your Custom Expense row.  Let’s assume that you don’t have any advertising expenses, so you take the advertising row and enter in the $30 per month for security expenses.

So now after you purchase and download your Excel file you will need to make one final quick change.  You simply need to go to the “Data” tab on your Excel file and change the title of “Advertising Expense” to “Security Expense” and the change will automatically flow through to all of your projected financial statements.  See what I mean below:

You can use this same process for as many of your expenses as you would like.  We know it is not a perfect solution, and we are working on our long term solution, but we hope this helps in the mean time.  Let me know if you have any questions by emailing adam@projectionhub.com

ProjectionHub Stats April 2013

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April was a strong month for us at ProjectionHub.  I just wanted to share some basic numbers with you to show some of the progress we have made over the last few months.  First of all, check out the graph below which shows an increasing number of signups for our tool in the month of April:

The month of April saw over 100% growth over the month of March in terms of number of signups with a total of 207 individual users signing up in April.

Startups vs. Existing Businesses

The other stat that we thought was interesting was the number of startups creating financial projections compared to existing businesses. We launched the startup version of our tool in late March, and since that time 76% of users have signed up to create projections for their startup, and only 24% have been for existing businesses.

We figured there would probably be more startups than existing businesses, but we were surprised that over three quarters of users are startups!

We have some exciting partnerships that we expect to announce before the end of May that we believe will take ProjectionHub to the next level.

Please let us know what kind of features you would like to see us add in the coming months.  Either leave a comment on this blog post, or email me at adam@projectionhub.com

“Measure” Your Lean Startup Early and Often with Financial Projections

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Build. Measure. Learn.  These are the principles that the Lean Startup lives by.  In this blog post I am going to outline in detail how I believe a lean startup should integrate financial projections between each step of the process.  I believe that financial projections can help you measure your potential for success from the very beginning and then as you continue to build, measure and learn you will hone in on developing a more accurate set of projections.

The reason I strongly believe in developing financial projections right from the get go is not because I think they will be accurate, it is because I think they might be able to uncover a fatal flaw in your business model sooner rather than later.  Each time you learn and gather more data, you will be able to tweak your assumptions in your financial projections and determine whether or not there is still potential for profit.  

Lean Startup Financial Projection Example

So now I want to go through an example of how an entrepreneur following the lean startup process might use financial projections to their benefit.  

Imagine a Business Model or Two

So you come up with a solution to a problem and you want to build a business around this solution.  In my humble opinion the first thing you should do is some simple back of a napkin type math and imagine what a business model might look like for this solution.  I am not suggesting a 30 tab spreadsheet financial model for the next 5 years of the business.  What I am suggesting is that you do 10 minutes of research and get a rough idea for the following data points:

  • How many customers might you be able to sell to?

  • How much might these customers be willing to pay?

  • How much will it cost you to produce this product or service?

The purpose of this exercise is to determine whether or not moving forward is worth your time.  If you conclude that your total market for this product or service might be $50,000 annually, then maybe you should spend your valuable time elsewhere.  Or maybe you realize that the technology just is not there yet, and it will cost you so much to produce the product that you would have to charge your customers an arm and a leg for the end product.  Maybe this is what happened with the Apple Newton.  The Apple Newton was a great idea, ahead of its time.  How do we know this?  Because of the success of the iPod, iPhone, and iPad, but the technology just wasn’t ready yet, and it cost too much for the limited functionality that it had.  

Build an MVP

Once you have passed the first test, and it looks like there is a business model that could be profitable, now build your minimum viable product.  Once you have a product or service for sale you can learn a number of details that will help you iterate on your financial projections.  

For example, let’s say you built a software application that you are selling.  Let’s also assume that it is NOT a recurring monthly or annual fee for the software.  The user purchased a license once and it is theirs forever.  

So you start out by selling it for $25 per license.  It is already built, so there aren’t really any cost of goods sold expenses.  In other words, you could sell 100 units or 1,000 units and your cost of goods sold would be the same.  With that in mind, then it is really all about customer acquisition costs.

You might start out selling your product primarily through advertising with Google Adwords.  You can test over a period of time and determine how much you pay in advertising for each unit you sell.  Let’s say you are paying $32 worth of advertising for each $25 sale.  It doesn’t take a rocket scientist to quickly determine that something must change.  So you can either work to optimize your advertising to lower your cost to acquire a customer, or you can increase your pricing.  

Adding New Features

As you add new features I think it is worth your time to create a quick financial projection for each feature.  For example, you might want to add live chat support to your software.  This is a slightly more complex projection, but a good example.  

The question is how do you know whether or not it might be worth adding the new feature before you spend the development time.

Let’s say you are going to use an out of the box live chat system like Olark.  You are also going to customize the integration a bit and you expect about 20 hours of development to be spent on implementation which will cost you about $1,000, along with $200 a month for the premium version of Olark.  The other thing to take into consideration is that you will need to hire live chat support.  Let’s say you pay $15 an hour and will have someone available 24 hours a day.  That is an additional $10,800 a month.

So in total we are looking at a $1,000 up front investment and $11,000 monthly expense.

Now the question is how will the addition of a live chat feature impact your sales?

If you think it could drastically increase sales, it might be worth moving forward, BUT before you hire a few people to man your live chat desk 24 hours a day, you need to Build, Measure, and Learn to determine whether the finances make sense.

So you could implement the most basic version of Olark’s live chat feature and test to see if your sales conversion rate increases.  Test it for a week.  With the addition of live chat do you convert 20% more website visitors into customers?  Now you can iterate on the financial projections again.  Is the 20% sales increase enough to justify the additional expense?

You could run this same experiment with each 8 hour shift.  Maybe it is profitable to have a live chat from 8 am to midnight, but not from midnight to 8 am.

With each cycle in the lean startup process I recommend a mini financial projection that can help you stay on the path toward a profitable business.

Let me know if you have any questions, I would love to chat.  Shoot me an email at adam@projectionhub.com

How to Come Up With Realistic Sales Projections for Your Startup

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When you are developing sales projections for a startup or small business, you shouldn’t just pull numbers out of thin air, you should have data driven sales assumptions that drive your projections.  I have had many people ask what I mean by that, so I thought I would provide 4 actual examples of sales assumptions for a startup or small business.

Sales Assumptions for a Startup Product Business

“Our sales assumptions are based on adding 1 more full-time sales person every six months.  We assume each sales person will make 100 calls per month, 20% of those calls will turn into meetings, and they will close on 25% of those meetings.  That is an average of 5 new sales per month, and the average customer will purchase 10 units per month every month.”

Sales Assumptions for a Startup Service Business

“Our sales assumptions for our video production startup are based on the actual financial results of two similar companies in other states.  We reached out to non-competitive, yet similar video production companies, and asked them for details about their sales during the first 24 months of business.  We then took the average of those two company’s sales and used those numbers as our sales projections.”

Sales Assumptions for an Existing Product Business

“Our sales assumptions for our software product are based on advertising results over the last 12 months. Currently, we purchase 1,000 visits a month through Google Adwords advertising and on average 25% of those visitors will sign up for a free trial.  Then 25% of those trial users will actually purchase a subscription to our product.  Each month 5% of users end their subscription with us.  Going forward we intend to increase our Google Adwords spend every 6 months and purchase an additional 500 visits a month.”

Sales Assumptions for an Existing Service Business

“Our sales assumptions for our web design service are primarily driven by our two strategic partnerships.  We are a preferred service provider for two major website hosting companies.  Each month 50,000 new domains are registered with each of these companies.  At the end of the process of registering your domain, the customer is sent to a page that recommends 3 web design companies, which includes our company.  Of the 100,000 new domains registered each month, approximately 1% of these customers visit our webpage.  That is 1,000 visits per month.  Approximately 20% of those visitors purchase a service from us, and the average customer is billed for 5 hours of work.  We anticipate adding a third strategic partner in month 6 which will increase our sales by at least fifty percent.”

Of course you can go into much greater depth as you do more research to back up your assumptions, but these are a good starting point for how you should develop your sales projections from the ground up with realistic, data driven assumptions.