Sectors

Selecting Revenue Models

There are 9 active Revenue Models. Models can be used in any combination, to reflect businesses with multiple revenue streams or alternatively by using a combination of models creating a particular type of revenue stream. The revenue models can have a Cost of Sales built in a number of ways, for goods and services sold the COGS can either be calculated from the top down or bottom up.

By bottom up, we mean that the cost of sales is built up from the number of units sold, the cost and selling price per unit, which generates in turn the sales figure and the cost of those sales, whereas in the top down model, the number of units sold and costs are derived from the sales figure using a table to determine the mix of products that are sold. The Product Mix menu item will only appear if a top down COGS revenue model is selected and can’t be used in conjunction with the bottom up COGS sales model.

1: Products Target Model or Bottom Up COGS Sales Model

This works in conjunction with the Products Set up Menu and includes seasonality, new business, lead time, deposits, and debtors models. Sales and COGS are derived from the number of units sold of each product, ie from the bottom up.

Key Revenue Drivers:

Key Cost Drivers:

  • Customer Discounts
  • Unit Targets
  • Product Sales Price
  • Product Costs
  • Stock Turn Days

2: Manual Sales or Top Down COGS Model

Works in conjunction with the Products Set up Menu, and Product Mix Menu, the model also Includes seasonality, new business, lead time, deposits, and debtors models. Sales and COGS are derived from the mix of units sold of each product so that the gross sales figure is worked backwards to calculate the units sold, ie from the top down. This model is ideal when modelling for a start up or new division where there is little or no historical data.

3: Professional Services

Uses Fee Earners to create revenues but can work in conjunction with the products module to generate a cost of sales.

Key Revenue Drivers:

Key Cost Drivers:

  • Number of Fee Earners
  • Hourly Rates
  • Capacity/Availability in Hours per Annum
  • Utilisation/Yield
  • Fee Earners Salaries
  • % of Sales linked to the Sales of Products?
  • Direct Costs as a % of those Product Based Sales
  • Direct Costs as a % of Non Product Based Sales
  • Sales Commissions

4: Manufacturing

As many additional manufacturing processes as required can be added and assigned to either any Operating Cost Department, where costs are built up in the same way as all other cost centres.

The manufacturing model is an output driven models where the level of production is set by the product demand. The model can accommodate multiple input materials used in the processing and up to three outputs which are managed like a recipe. The first output is deemed to be the primary output and any secondary outputs are measured as a % of the output volume, this is done by entering the sales volume of each secondary output as a % of the primary output volume.

5: Licence or Franchise Fee Revenue Model

This model could be used for any business that earns revenue by the sale of licences or franchise fees. The model incorporates multiple tiers of licence or franchise fees and four data sets to build the forecast.

Key Revenue Drivers:

  • Average Customer Discount
  • The Customer Retention Rate
  • The Average Annual Licence Fee
  • The Number of Licences Sold per Annum

This model is used to forecast the revenues generated from the sale of licence or franchise fees. If the business operates a franchise model, the initial franchise fee sale is represented by this model but the ongoing franchise income generated by franchisees should be forecast by selecting and using the most appropriate revenue model. There is no factoring or invoice discounting option.

6: Capacity Yield Model

Can be used for any business that earns revenue from operating a business process which has a defined capacity and a known yield or utilisation. Hotels, Restaurants are examples of this type of business.

Key Revenue Drivers:

Key Cost Drivers:

  • Available Capacity
  • Revenue Per Unit
  • Utilisation or Yield
  • Product Sales Price
  • COGS – Cost Price
  • Direct Costs
  • Target Days Stockholding
  • Cost Price

The cost of sales (COGS) model to be used with this revenue model should be determined by allocation of the % of sales generated by the sale of products or services, if the sale of products occurs, ensure that the products module is enabled on the setup menu.

For each outlet or department there can be up to a total of seven services or processes, each service or product can have its own Cost of Goods (COGS).

7: Agency Sales

The agency model can work for a business that acts as a Principal or acts as a pure agency and the model includes the following options and automatically calculates any deferred revenues.

Key Revenue Drivers:

Key Cost Drivers:

  • Transaction or contract Type
  • Principal or Agent
  • Variable Commissions Received per Transaction
  • Product Value
  • Fixed Commissions Received per Transaction
  • Customers or Transactions per Month
  • Renewal Rates and Export Sales
  • Direct Costs incurred per Transaction
  • Customers or Transactions per Month
  • Product Costs

8: Box Office

This revenue model automatically creates and releases deferred revenues created by advance ticket sales and also automatically calculates any deferred costs which are subsequently recovered from artists.

The model creates scenarios for different types of events and profiling the ticketing process, so for some events, the ticket lead time may be brief, for others tickets can be sold up to a year in advance of the event. So a separate event would be created for each type of ticket profile required.

Key Revenue Drivers:

Key Cost Drivers:

  • Venue Capacity
  • Event Timetable
  • Average Revenue Per Ticket
  • Yield
  • Additional Product Sales
  • Direct Costs incurred per Transaction
  • Recovered Costs per Transaction
  • Product Costs

9: Sundry Income

Model enables any miscellaneous one off or repeat revenues to be entered manually such as the receipt of management charges, the revenue stream name can be customised for use in the income statements.

This allow the user to forecast sales and set targets for the commercial teams.

There are 3 different options to form the basis of these forecasts, Gross Margin, Per Sales Head and Marketing Spend.

Per Sales Head

Key Revenue Drivers:

Key Cost Drivers:

  • Number of Sales People
  • Revenue Target Per Sales Person
  • Commissions
  • % of Sales Linked to the Sale of Products
  • Direct Costs as a % of Product Based Sales
  • Direct Costs as a % of Non-product Based Sales

Gross Margin

Key Revenue Drivers:

Key Cost Drivers:

  • Number of Sales People
  • Gross Margin Target Per Sales Person
  • Commissions
  • % of Sales Linked to the Sale of Products
  • Direct Costs as a % of Product Based Sales
  • Direct Costs as a % of Non-product Based Sales

Marketing Spend

Key Revenue Drivers:

Key Cost Drivers:

  • Cost Per Lead
  • Marketing Spend
  • Average Order Value
  • Conversion Rate Sales to Orders
  • Commissions
  • % of Sales Linked to the Sale of Products
  • Direct Costs as a % of Product Based Sales
  • Direct Costs as a % of Non-product Based Sales