eCommerce Financial Model - For General Use - Up to 3 Revenue Drivers

I had been thinking of what kind of business logic to build and realized eCommerce was something I never explored directly. Many requests have come in for such financial models lately so here you go. There will be three main revenue drivers as well as all the bells and whistles I could think of in relation to starting up and running an eCommerce business. This can be used for drop-shipping, selling digital products, or selling product online that your company manufactured/acquired.



Pricing


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eCommerce just means selling products online, but what is the best way to model such activity? First, I put up to 10 categories to drive from. If you only need one, just zero the rest out. Their purpose is so you can plan by category (if you have 1,000's of skus but just want to group them into broad categories) or you may have 10 or less specific products that are being sold online and therefore that granularity is supported.

Here are the details in regards to each revenue driver:

  1. Ad spend - The first revenue driver lets the user input their monthly ad spend as well as a 'cost per sale' metric. Based on those two figures, a monthly sales count can be determined. From that, a selling price is applied in order to come to revenue.
  1. Partners - This could be through affiliate partners or larger corporate partners. The logic supports any style. The user will be able to define the starting partner count for each category and define a monthly growth of partners in each of the 5 years. Also, the user can define the average sales per partner over the 5 year period. A commission rate input allows for the cost of this to be realized.
  1. Oragnic - This would be word of mouth, web search, or anything that allows people to find what you are buying online (excluding items #1 and #2 above). The logic lets the user define starting organic sales and a monthly growth of those sales over 5 years.
The main reason I took the time to build out granular revenue assumptions is so that the user can better strategize how they think the business looks at the beginning and how that changes over time. For example, things may start off with a lot of ad spend and little partner/organic revenue, but over time the ad spend may drop while the organic / partner revenue go up. Or, the ad spend could get more efficient (with lower cost per sale as a result of better conversions).

The rest of the model is fairly standard as models go. I have operating expenses split out into Sales and Marketing, General and Administrative, Research and Development, as well as cost of goods sold. The cost of goods sold is based on a defined cost per unit and that may be zeroed out if not applicable.

The user can define the start month of all revenue categories, partners, and all expense categories. This allows for more dynamic strategy planning as well.

I did allow for the planning of investor funding if needed as well as debt financing. The model will look at all the startup costs / net burn to figure out the minimum amount of equity that is needed for the business to stay afloat. The user can then define how much of that equity comes from the owners vs. investors or debt. 

A discounted cash flow analysis is included for the project, investor, and owner/operator groups. That means you have a discount rate to enter, profit share to define if investors are involved, and you will be able to see a visual chart as well as the resulting NPV (net present value) accordingly. IRR and equity multiple/ROI is included for each group as well.

I put in a lot of visuals to better see the result of the assumptions.

You may also like this 3-statement financial model.