Financial Modeling

What it is

The financial model tells the story of your forecast. It's how the business expects to grow and operate over the next few years. Some people really care and dig into the numbers (notably an investor perhaps). That's not why we care about the financial model. Being right is the wrong goal for us. The process is what we really care about.

We look at it to understand how our clients think about growth. It helps us analyze technology and design considerations, as well as for roadmapping feature releases. It also informs us how the entrepreneur has budgeted their business, and if they are spending too much of their overall budget on technology alone.

Reasons and Scenarios to Use it

Any new business that is not an internal business application. If it is an internal business application, there still might be a need to perform this activity if client is considering "productizing."

This tends to be one of the more subjective activities as figuring out the ins and outs of a financial model are littered with assumptions. That said, the value for the client is not just understanding the business potential, but in the context of the Lean Product Discovery Workshop, it is a way of defining a customer segment. That is critical in figuring out who we want to interview during discovery.

How to do it

There are a set of assumptions that all financial models are based on. Here are the questions you need to ask yourself (specifically for a SaaS product)
What is your user growth rate per month?
How much does it cost you to get those new users?
How much do you make from each user?
How many users churn out per month?
What are your ongoing operational costs (salaries, infrastructure, etc.)?
Fill in the spreadsheet
Iterate on this a lot! You will constantly be learning new things about your business. Make sure to keep your model up to date.

Time required

3-4 hours. Ongoing work to update assumptions.

Sample Template

https://docs.google.com/a/launchpadlab.com/spreads....