Startup Financial Model for eCommerce [Template Included]
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- Опубліковано 4 лип 2024
- We learn how to build a simple startup financial model for an eCommerce business. Excel template included.
✅ Download the Excel template: bit.ly/ecomm-model
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In this video, I show you how to set up an eCommerce financial model, and how to think about these startups.
We break down the marketing and customer acquisition cost, unit economics and profitability of the product, orders, revenue, and a simple income statement.
Sections:
0:20 unit economics breakdown
4:32 marketing & orders projection (using CAC)
6:51 revenue & COGS projection
By the end of this video, you will understand how to build startup financial models for eCommerce businesses - I guarantee it!
If you have questions - leave a comment below and I'll try to help. Cheers!
#financialmodel #startups #ecommerce
Questions? Let me know in the comments happy to discuss.
💡 Also, if you want to learn how to systematically scale your startup without ending up as one of the 90% of startups that fail, check out my free training webinar ⇒ www.ericandrewsstartups.com/financeforstartups
This is just what is needed for a high level understanding of how the variables in an e-commerce business impact one another. Easy to modify for most business models.
I effing LOVEEE you man!!! you're such a brilliant teacher.
Thank you so much for posting this! This has been SUPER helpful and I learned a lot!
You got it!
Thank yo sooo much for this tutoriaaal!!!! Quite an intricate topic but easy with you, matee!!
My pleasure Arturo 🙏, cheers!!
thanks for the amazing content!!
you are very welcome!
Hey Eric -- I'm so stoked to find your channel! Your tutorials are going to help me manage the e-commerce division of my business immensely. I have a question: in this simple e-commerce model it looks like 100% of sales are attributed to advertising. But many of my customers find my site and purchase through organic/non-paid traffic. How should I include organics sales in Net revenue and only apply ad spend to sales from advertising?
Hi Eddie - glad to hear it. Yes I completely understand, this model is super simple mostly just to teach people the basics. For most businesses I basically build a paid orders stream and then create a ratio of say 1:1 where for 1 paid order (with a CAC) we have and 1 organic order ($0 CAC), or it can be whatever ratio you know to be true from google analytics. In addition, I'm launching a "finance for startups" course on Nov 15 where I basically go through the whole startups ecosystem (marketing, scaling, modeling, fundraising) and one of the big modules is deep dive about all the different types of e-commerce models and ways to build them. If you're interested jump on the waitlist: www.startupfinancecourse.com/early-access
I dont know why this channel is under rated.iam just in love with your videos simpLe and comprehensible concepts.Amazing! work keep going ..Eric.......love from INDIA
THANK YOU 🙏🙏🙏 lots more coming this year
Market Size small
Thanks alot Eric!
My pleasure!
Love the anti-credit card sentiment 😄 Great video Eric!
Makes me so mad!!!
Thank you for the video and your helpful explanations about each step along the way. Side note - had the same thought about hoping someone comes in to disrupt those credit card fees.
My pleasure glad it was helpful!
Credit cards fees are outrageous and will be disrupted eventually
Eric, thank you for the amazing videos. Do you have any video that includes how to model for bundles?
Yes I do the first 10 minutes of this video: ua-cam.com/video/9zx6xeQPKjg/v-deo.html
Hi man. Thanks for such an amazing video.l would like to understand how do break the unit economics if you have different products. As for the COGS, if you have different products, how did you come up with the product cost and also how did you come up with the fulfillment based on per product.
Yes if you have an eCommerce brand those are just your manufacturing costs, import duties, shipping, etc. You would have all that info and you just need to make sure that you price your product appropriately so that you have profit (often called "contribution margin" in eCommerce). You would have all those numbers available or could calculate them using your income statement, you can learn more about it here: ua-cam.com/video/aJzRMoFTdiQ/v-deo.html
well done
apppreciate it
Hi Eric. Is the COGS shown here the amount for ONE product?
Hey , superb, subscribed ..from India
Cheers 🙏
Hi Eric, great content and thank you for sharing. How do we calculate and evaluate price Offers for D2C products?
Just make sure you are calculating your unit economics (including estimating how CAC might go up or down in combination with a promo) so that you are still making your target contribution margin on each order. You can learn more about unit economics for e-commerce here: ua-cam.com/video/8xfPvprL5qE/v-deo.html
Hey Eric, great video. Wanted to ask when you're adding 10k every month to advertising, are you taking a cumulative of 10k every month, or are you assuming that the company will increase adspent by 10k every month?
Increase by $10K each month. Not cumulative. We're trying to scale up the business / revenue in this model!
Hi Eric, great videos. On one of your videos you mentioned some companies that offer financing for inventory but I cant find the video where you mentioned it, what is it called please?
Sure, clearco is the biggest company that finances inventory, I've worked with them a few times they are good if you are eligible. If you use my affiliate link you can get a $500 discount off the interest as well investor.clear.co/l/1ERICANDREW33/
Thanks, Eric. Is domestic shipping of the product to the end customer is included in COGS?
Yes absolutely
Hi Eric so I input OPEX so Net Income would be the Post Advertising GP minus OPEX or GP -OPEX? Can I move Advertising and place in OPEX?
of course!
GREAT CONTENT! Two questions: ¿where should I add the taxes? (VAT) ¿and the returns?
In the revenue section generally - those are deductions from gross to get to net revenue.
Hi Eric, thanks for another great video!
One question, when you forecast orders here, do you mean new customers or orders in total from existing and new customers? Because blended CAC means how much you spend (organically/free + paid ads) to acquire a new customer. So I assume the orders forecasted are only by new customers? Correct?
Yeah so usually CAC represents new customers or new orders but you can also use CAC to represent all orders in some situations...the definition is flexible. In this model I just used an overall blended cac for all orders just to make the model super simple and quick, but you could definitely use a new order blended cac and then do a repeat order forecast below it to get something a little more granular. Nice question and great understanding
@@eric_andrews Hey Eric, Thanks! Makes sense. How would I then do a repeat order forecast and integrate it with the existing model? For example, our company launched 3 months ago and our CAC is 66€ and LTV 110€, with a frequent purchase of 1.9. How can I use my existing data of repeat customers to add on top of this?
@@christiandale5392 hey christian - so there are a few ways to forecast this stuff. I'm teaching them all in depth my finance for startups course launching on Nov 14 if you are interested in doing a deep dive with me. But I think for your situation you could use a cohort retention model (similar to in my marketplace financial model video), or you could basically just take like a trailing 3 months sum of all orders and use a multiplier % to forecast forward. Does that make sense?
@@eric_andrews Hey Eric, Yes, I signed-up for the course. Hope to make the final cut :) I already use your retention model template and its great btw. In this case, Im still a bit lost how to add existing customers to the model. In the current model, I would forecast a revenue of 2,000€ last month but I know for a fact that it was 10,800€ because of existing customers making repeat purchases. I would therefore project much lower revenue to my investor in the future if I just use blended CAC and ignore repeat customers.
@@christiandale5392 Awesome - yes if you're on the waitlist I think you should be good! Ok so I guess as a starting point is your business a subscription business or not?
Great info and i actually started building out my financial plan for my up and coming business with it but i do have one question pertaining the example shown here and that question is how will an business be able to up their Advertising budget 10K every month if the company barely makes half what their monthly Ad budget would be in profit....wouldn't the companies profits after advertising need to be used to fund ad budget going into every month..that would be impossible to do based off of the example shown in video
dont start a business with no money to invest
🙏
in this excel file, Can I include Administration cost from Board of Director, Sale Manager, etc?.
Yeah you could just add that down below. This model gets you all the basic stuff calculated and then you can add operating expenses like that below!
Hi Eric it's all Gem
I'm struggling to understand how to calculate the CAC. I don't have a consistent stream of new customer sales nor do I invest a lot in marketing. Do things like vendor fees count for pop-up markets? Would I factor in the cost to maintain mail chimp or does that not get included because it's only for NEW customers?
That's a good problem to have if all your sales are basically organic. In that case, I would say your CAC is probably $0. So you will likely have to think of a different way to forecast new customers. Maybe your total organic audience, the growth each month, and some kind of conversion rate off of it? That could get you a new customer number.
Hei Eric, thanks for the great content, i still cannot believe you give us all this for free !! What if i have different products so different manufactoring costs ? Should i use Average Cost Method or Special Identification Method to calculate my COG per order ? Or what other method/formula
You are very welcome! Good question - just build out a different projection for each product line is best (exactly like this video, but just create a second or third projection below it, separate unit economics, etc). The reason is because if the sales mix changes between product lines you want to make sure you can see that info separately, so I wouldn't average anything. Then on a summary tab you can add all the revenues & costs together in your overall income statement.
@@eric_andrews Thanks a lot, i appreciate it
@@d.g135 happy to help
Where to add Rent and other Operating Cost
Hi, in case we have multiple products (how can we calculate it)
Sure, super easy. You just do the same exact model once for each product line (with the unique unit economics for each one) and then add the revenue and costs together as a "rollup"
I have an ecom company with high volume low margin supplements. Do you have info on the best margins?
Hard to say without information, but I will say that in general supplement companies have some of the highest margins (roughly 60-80% gross margins) because they are generally cheap to manufacture and cheap to fulfill because they are small/light. So if your margins are low I am imagine either manufacturing cost is high or your pricing is pretty low? In any scenario, many eComm businesses run successfully with low margins, just need to make sure you are tracking your LTV and CAC very closely so that you never turn upside down on LTV - CAC.
Superb explanation. What if we have an online store that sells gift items. A customer might buy 1 high end item from the store only one time but could be a loyal customer buying something like a candle regularly. Lets say the running cost of the online store per month is $3000. How can we setup a financial model that will help us calculate how many new gift items should we launch online and at what price per month to cover the running cost of the online store and to attract promiscuous consumers.
Awesome. So if I'm understanding you correctly, you are just trying to figure out how many one-time customers you would need to generate $3,000 in profit per month to cover all the expenses of the store. I think you could just use this model and try to get it to 3,000 a month in post-marketing profit, right? You would just put in the numbers for your specific product in the unit economics, and then play around with the advertising until you get to the right profit target. Is that what you mean?
@@eric_andrews Thank you for the quick reply and will try to calculate as recommended.
Eric, when I'm doing product cost, do I need to include the tax or not ?
Yes I would break out duties/VAT as its own cost if that's what you're referring to
You can learn more about e-commerce unit economics here ua-cam.com/video/aJzRMoFTdiQ/v-deo.html
Thanks! Another question, is there any way to calculate a pre-launch for e-commerce brand which is going to work with influencers and performance marketing?
@@hayrullahtaip8587 Pre-launch models are possible. You can have people pre-pay, pre-pay a deposit, or even register to have their credit cards charged when you launch (but don't pay). Lot's of different ways to approach it.
In terms of forecasting, usually, you would have some sort of email list and you would estimate a conversion rate off the list.
Thanks, where can I download Excel file?
Sure thing, right there in the description. First link.
HI can you please provide a google sheet for this template?
Just download the Excel, drop into a google drive, and open as a google sheet!
Average order value= total order value/ total quantity order?. Example : in the sep/2021, 1000 sales order is sold, total value is 1 million usd.
Exactly, it is just revenue / orders. So, AOV x orders = revenue.
Can I use this model for an online clothing boutique ?
Absolutely
@@eric_andrews great. I want to put in a breakdown of expenses such as internet, supplies, electricity etc. Where do I put this?
@@hannahthomas6831 you can create another section below the gross profit called "operating expenses", and then put all that stuff in there
What is Fulfillment cost?
So these businesses usually have a bunch of products stored in a warehouse, and you pay a fulfillment company to basically rent space in their warehouse and also pack your packages and send them out for each purchase. So the fulfillment cost is the cost you pay for the warehousing and then for them to pack each unique order. Usually it is a flat rate that you negotiate with the fulfillment company.
The tutorial is good but you forgot to capture the returns % which takes away the profit of e-commerce.
It's a good point, thanks for adding that. On that subject - one strategy I've been seeing work really well (for businesses) during promos recently is for the sale periods doing buy 1 get 1 free but "no returns", which can make the unit economics really strong. For one company I work with they make more gross profit per order giving 2 units of their product with no returns, than 1 unit with return. The math is pretty interesting.
Really appreciate the video man, I've been in ecommerce for a while, but I'm realizing how little I understand about financials, so these ecom-specific businesses are GREAT! I'm missing something though, can you explain why we're subtracting per-unit COGs from average order value, when the average order is more than one product? Does that make sense?
Glad to hear it !! Yes good catch, I said "per unit" but I meant "per order". Honestly if you want to go much deeper on eCommerce financial models check out my new subscription box series we talk a ton about strategy, subscriptions, balance sheet, cash flow...like a little mini eComm MBA or something
ua-cam.com/video/ZkOr_xy1rgY/v-deo.htmlsi=1igzB6ocXcTKaXJZ
Also have a playlist on eCommerce worth checking out
@@eric_andrews Sweet I'll make sure to check it out! Does it talk about how to calculate COGS per average order, or is that simpler to do than I think? COGS per order seems like it would be complex