Finance Task 3 Step 1 Identify Your Revenue

Revenue Models • Production Model – Ex. Lemonade Stand, sold to directly to customers

Revenue Models Cont. • Licensing Model – Disney licenses their ideas such as Mickey

Materials • Lemonade Stand • Create a list • Lemons • Determine supplier •

How many units/services you will sell in the first year? • Look at past

Estimate Total Units/Services • Sales Forecast • Ex) – 1200 Lemons – 600 Cherries

Separating Your Costs • Variable Cost: – Costs that vary depending on a company's

Variable Costs Materials Units Cost per Unit Lemons 1200 $0. 20 $240 Cherries 600

Fixed Costs Other Costs (Items) Lemonade Stand Costs Employee Costs Transportation Costs Website +

Budget • Budget = Total Material Costs + Other Costs • Ex) o $540

Price • What will you charge for your product or service? • Things to

Calculating Profit • Make $2, 000 in profit • Selling Price = Profit/Total Units

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Finance Task 3

Step 1: Identify Your Revenue Model

Revenue Models • Production Model – Ex. Lemonade Stand, sold to directly to customers or to a business. • Subscription Model – Ex. Rogers cellphone contracts use a subscription models, the customer pays a monthly fee to use the Rogers mobile service.

Revenue Models Cont. • Licensing Model – Disney licenses their ideas such as Mickey Mouse, to other companies that create Mickey Mouse toys and collect a small portion or the revenue on the sale of each toy. • Advertising Model – Twitter and Facebook sell advertising space on website that targets users of the site to generate revenue.

Step 2: Determine Your Materials

Materials • Lemonade Stand • Create a list • Lemons • Determine supplier • Sugar • Bring a prototype of • Cups your product to the final judging day

Step 3: Sales Forecast

How many units/services you will sell in the first year? • Look at past history or market research • New Company o Market research § Internet research § Informal surveys § Talking to business people

Step 4: Budget/Cost

Estimate Total Units/Services • Sales Forecast • Ex) – 1200 Lemons – 600 Cherries – 1200 Cups – 1200 Straws

Separating Your Costs • Variable Cost: – Costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases – Ie. Materials: Lemons, Cherries, Cups • Fixed Cost: – Expenses that do not change as a function of the activity of a business, within the relevant period – Ie. Utitlities, Rent etc.

Variable Costs Materials Units Cost per Unit Lemons 1200 $0. 20 $240 Cherries 600 $0. 10 $60 Cups 1200 $0. 15 $180 Straws 1200 $0. 05 $60 Total Variable Costs Unit x Cost $540

Fixed Costs Other Costs (Items) Lemonade Stand Costs Employee Costs Transportation Costs Website + Maintenance Costs Promotional and Advertising Costs Total Fixed Costs $550 $700 $500 $350 $750 $2850

Budget • Budget = Total Material Costs + Other Costs • Ex) o $540 Material Costs o $2, 025 Other Costs $540 + $2, 850 = $3, 390

Step 5: Price

Price • What will you charge for your product or service? • Things to Consider: o Target Market o Cost per Unit o Competition o Profit

Step 6: Profit

Calculating Profit • Make $2, 000 in profit • Selling Price = Profit/Total Units + Unit Cost o 2, 000/7, 500 + $0. 47 = $0. 74 • Profit Margin = Selling Price – Unit Cost o $0. 74 - $0. 47 = $0. 27 • What are you going to do with your profit?

Good Luck!