Economics of One Unit [EOU] Economics of One Unit Method used to - - PowerPoint PPT Presentation
Economics of One Unit [EOU] Economics of One Unit Method used to determine whether a business model can be successful (profitable), by calculating if an individual unit of the good or service would be profitable. For example, if you
model can be successful (profitable), by
service would be profitable.
Headphones, you need to calculate
and
headphone.
profitable.
two main categories: fixed costs and variable costs.
These remain constant throughout the relevant range and are usually considered sunk for the relevant range (not relevant to output decisions). Fixed costs often include rent, buildings, machinery, etc.
Generally variable costs increase at a constant rate relative to labor and capital. Variable costs may include wages, utilities, materials used in production, etc.
Total Fixed Cost Fixed Cost Per Unit
Units Units Rs Rs
Total Variable Cost Variable Cost Per Unit
Units Units Rs Rs
Cost Volume Profit Analysis (CVP) focuses on the following factors
produced and sold
Schedule of Units Sold, Costs and Revenues
$200 $300 $100
Contribution Margin Approach
variable cost per unit.
covering all other costs.
Gross profit = Price – Cost of Goods Sold
Average sale per customer – average cost of sale per customer Average gross profit per customer
COGS = cost of labor and materials required to make one additional unit COSS (cost of services sold) = cost of labor and materials required to provide one additional unit of service
profitable
business is likely to be profitable.
Selling price per unit – COGS per unit = Gross profit per unit
businesses
Result: The entrepreneur creates jobs and wealth.
Unit Economics: Basis for Financial Operating Plan by Calculating the Profitability of a Single Sale
the product/service?
change over time?
Unit Economics: Basis for Financial Operating Plan by Calculating the Profitability of a Single Sale
assumptions used.
project these costs?
You should plan to share the “m ost im portant” learning in the process and tie it to your Business Model.
W e w ant to prim arily hear about the custom er problem / need
You have about 8 min of talking time and 5 min of Q & A
Specifically we want to hear what you learned from the customers– what you heard, NOT just what you think.
This is a LESSONS LEARNED presentation.
You should be able to tell your story without slides
ALSO
You should be able to tell your story without describing your technology
Yes, you read that correctly! Focus on why you are doing something for a customer – what is the value?
WHY: CUSTOMER MOTIVATION A well defined market need HOW: BUSINESS MODEL How your solution reaches the customer and you make money WHAT: SOLUTION A viable product or service that coherently addresses the need WHERE: MARKET An interesting existing or new emerging market WHEN: TRENDS Why is this the right time to address this? WHO: TEAM The core execution expertise (both internal and advisors)
A product
around which you can build a profitable company and a net positive return to investors
Who is your customer? What can you do for a customer? How does your customer acquire your product? How do you scale your business? How do you design and build your product? How do make money off your product?
Persuasive Outline for the Product/Service
Begin with an attention-getter related to the customer’s needs Introduce the product, service, or idea and create interest by stating specific customer benefits Create desire to respond positively by presenting convincing evidence of the value to be gained Encourage action by making it easy and restating the main benefit A D I
A
“What we thought, what we did, what we learned, and what we plan to do next…” This is the “narrative arc” of your
what you did DURING the course and learned THROUGH the interview process.
How have you validated all the Customer information?
You must clearly indicate whether your statements are still untested hypotheses (guesses) or backed up evidence from your interviews
How have you validated the Value Propositions?
What Customer Discovery evidence backs it up?
End Users = ? Decision Makers = ? Others w ith a role in purchase = ? Others w ith NO role in purchase = ? Indicate who you spoke to...whether your customers are other organizations/businesses…and how many interviewees were partners, experts, regulators, etc,
Give Actual Information.
These can be on separate slides, but all MUST be insights about your Customer or
your technology/product/service.
Who is the primary customer? (Who will use your product? Who will decide to buy?) What is your product? (High level – avoid technical jargon.) Why would the customer use it? (What value does it offer over existing solutions.)
Explain your plan for continued business model discovery and validation. What will you do beyond this course? Do you intend to proceed further? How will you incorporate your findings from the course into that?
company/business in a single declarative sentence
are creating
and benefits emerging out of the venture
Building A New Business Opportunity Vision Access to Distinctive Capabilities of Resources Competencies the Team Innovation Business Industry
Strategy Context Novelty Talent Structure Processes Profitability
customer’s customer)
issue today
addressed
to make the customer’s life better
alternative)
primary differentiation
developing?
bringing?
terms:
Positioning Statement
Problem- Solution Fit
commitment
two years in terms of:
product/service category
possible
The Elements of the Business Story Background Describe the current situation, the characters, and the problem. Challenge Describe the challenges and conflicts that impede a coherent plan to solve the problem. Resolution Portray a solution to the challenges and the problem and how the venture will succeed by resolving the problem.
Set your development in the form of a real-life story
TAM SAM TM
How big is the universe? How many can I reach? Most likely buyers?
Market size potential: Rs 25 crore-Rs 100 crore Venture growth rate: 20% to 40% Market share: 10% to 25% Entry barrier: Timing and size
TAM Total Available Market Combined revenues of all companies that can theortically serve a market SAM Served Available Market The subset of the market that your sales team can address or that the product provides specific value TM Target Market – Beach-head The initial focused customer base that your product will reach
in terms of:
What could be the most difficult hurdles? How you will try to overcome them?
features, intellectual property)
customer
Five values offered to a customer
brand, selection, search, easy to use, safe
hand, easy to find, in a reasonable time
fun, intimacy, relationships, community
Product- Market Fit
portability etc.
the output? How is this different from existing solutions? What unique advantages does it offer?
Show actual product: Proof of Concept/Prototype/Simulation
Customer Value Proposition Technology and Operations Management Go-To-Market Strategy Profit Formula
Based on actual customer feedback.
Present summary of these statements here. Keep the detailed spreadsheets available for further discussions. Keep the inputs made to the financial model ready. Revenue streams Cost structure Financing/Funding
Year 1 Year 2 Year 3 Year 4 Year 5
Revenue Cost of Goods Sold Gross Profit Operating Expenses Operating Income Interest Net Income Before Taxes Taxes Net Income
funding size