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Guide to creating your own financial model and revenue projections



Why is a financial model important?

Setting expectations for customers – and then meeting them – is an important tenant of customer service. Don’t you deserve the same? Building a solid financial model will set expectations for your business and help you meet these expectations. Your model will objectively deliver realistic projections for your income and it will help you stay on track to achieve those projections.

Using your projections model together with an expense model will be important for you as you grow your business. This combined financial planning and tracking effort will be your most powerful self-management tool. Note: The expense model will be discussed in next week’s column.

What is a revenue projections model?

A revenue “model” uses basic assumptions about your business and how your business is conducted in order to project end financial results. In every business you can identify key areas of customer interactions that together all build up to a final closed sale. Your model defines each of these steps and projects how you progress from one to the next.

How do I build my model?

The first step in building a model is to identify each step of your sales process that can be explicitly measured/defined. Models can be very complicated, simple and everything in between. In our example we have developed a simple model for a real estate listing agent. Our model today uses a calendar quarter as a timeframe for measurement, but it is also common to measure by month.

You need to build your model in Microsoft Excel (or another spreadsheet software) and use dynamic formulas to generate your data. Dynamic data allows you to change any assumption in the model and have the rest of your projections automatically update accurately.

Step one: lead acquisition

The first step of our process in this example is the acquisition of a “lead.” From here, the customer lifecycle progresses as follows: a live conversation; a listing presentation; a listing contract; an accepted offer; a closed sale. Each of these steps is a measurable event as you progress towards a closed sale.

Step two: conversion

Next you need to use your experience to project a conversion rate as you progress from one step to the next. In our example we make the assumption that we convert 50% at each step of the process (i.e. 50% of leads turn into live conversations, 50% of conversations turn into listing presentations and so on).

Finally, plugWhen agents seek to own their own franchise, go independent or run a team on their own, what are the biggest challenges?
They just switched careers. Being someone who gets and gets rid of listings is a VERY different job than recruiting and retaining agents (and avoiding lawsuits – which is a brokers main job).
What are the biggest changes? (ex: less sleep, more liability, etc.)
See my answer to 1. Above. The brokerage business they were doing will stop. They will not be able to keep up with the demands of running a team that gets listings once they need agents to help pay their overhead.
What have you seen others fail at? (ex: agent gets broker’s license, sets up shop, has no idea how to generate leads even though she’s great at recruiting)
They are seldom great at recruiting. Most are awful at recruiting. If they were actually good at recruiting they could make the brokerage a success. It is about 10 – 20 times harder than it looks. Maybe 50 times harder?
Should brokers have more stringent educational (and other) requirements?
Depends on their business model.
Would you advise someone to try opening their own brokerage? Why or why not?
If they were a successful agent I would always advise them not to do it. But as most successful brokers WERE agents prior to being brokers it is just the successful agents I would advise against it. What it takes to be a good broker is completely different. in your initial assumption – in our case we believe that we will deliver 25 leads in the 4th quarter of 2011 (Q1 2011) and grow this number by 5 leads each quarter going forward. Once you enter your initial data your whole model will populate, and you will have your revenue projections.

Click to enlarge:

When you first develop your model, you can play with both the initial inputs and your conversion rates in order to accurately capture your business’ true behavior. It is important that you use accurate data and conversion assumptions though, and just don’t plug in numbers that give you your desired results. Only real numbers will give you a valuable management tool.

Changing your assumptions

As you progress you will have more experience and data. Some of your initial assumptions will be incorrect. As you get smarter and have access to this new hard data, update your model going forward. This will allow you to see how your revenue will be affected.

In the two below examples we use the exact same initial lead numbers for initial data. In one we decrease the conversion rate as we progress through steps to 40% and in the final we increase the conversion rate to 60% at each step. Note the dramatic difference!

Click to enlarge:

How do I use my model?

Your revenue model allows you to understand what you need to do in order to hit your financial goals. If you know that you will convert around 50% of your clients at each step of the sale process, and there isn’t much you can do to improve this number, then your model will tell you how many leads you will need to generate in order to grow the business and hit bigger and bigger revenue goals. From this model, though, it is clear that improving conversion rates will have a significant impact on revenue so you may decide to pour energy into improving your process to convert more clients at several steps of the sales lifecycle. If you have success increasing conversions here, update your model going forward and your projections will increase accordingly. The key though, is that you accurately capture what is happening in your business in the model. If you do, you won’t be in for any surprises and you’ll know exactly what you need to do in order to hit your projections.

If you have business partners (or investors) you can also use a model to set expectations for them – and track progress. At, we provide investors with a robust quarterly report package that includes detailed revenue and expense models as well as historical data on how well we’ve done against past projections (we’ve surpassed projections for four quarters running, btw). If you have a track record of hitting your projections in the past, you gain a lot more credibility when you make aggressive projections for the future.

I still say, though, that a financial model is most important for internal (or personal) planning. Didn’t you hear? Data is cool now!

Hoyt David Morgan is an entrepreneur, angel investor and business strategy leader. He is an investor and/or adviser to a handful of exciting and high growth companies, and has been a part of several high-value exits. He is passionate about customer experience, smart business and helping innovative companies grow... and sailing.

Business Finance

Will China’s new digital currency really compete with the US Dollar?

(BUSINESS FINANCE) It isn’t the first time that China has tried to compete with the dollar, but the release of a digital currency has lead some economists to raise red flags.



Man holding phone in one hand and credit card in other hand, handling digital currency.

For decades the US has been the world standard for foreign trade. As of 2019, 88% of all trades were being backed by that almighty dollar, making it the backbone of the world economy. However, China may be sneaking in something new for digital currency. 

In the last few months, over 100k people were “airdropped” cold hard digital currency. This currency came from People’s Bank of China (PBOC), who has created a digital manifestation of the Chinese yuan. This is planned to run concurrently with its paper and coin playmates. Upon initial inspection, they resemble the same structure as Bitcoin and Ethereum. But there’s a major difference here: The Chinese government is the one fronting the money.

The suspected plan behind this is that the government plans to tightly control the value of the digital yuan, which they are known to do with the paper one as well. This would create a unique item within the world of cryptocurrency. Personally, I don’t think that any of this is going to go anywhere soon. Too many people still need hard currency but it does open up a unique aspect of currency that has only just started since debit and credit cards. It gives the government the ability to spy on its cryptocurrency users. Being able to monitor transaction flows can reveal things like tax evasion and spending habits. There is even the possibility of experimenting with expiring cash.

But how does this affect the US? There’s a method that has been used by Americans since WWII called dollar weaponization.  The exchange domination allows the US government to monitor how the dollars move across the border. Along with that monitoring they are actually able to freeze people out of global financial products as well. It’s a phenomenal amount of power to hold. 

The concern for economists is that the price fixing capabilities of this new currency as well as its backer being an entire countries government could affect everything about the global financial system. Only time will tell how true that turns out to be.

There are a number of possibilities that could come up honestly and they could fall flat on their face unless they put their entire monetary worth behind it. Only time will tell but some economists are already calling for DigiDollars from the American government. Another step into the future.

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Business Finance

A tiger shows its stripes: The growth of Tiger Global and their investments

(BUSINESS FINANCE) Tiger Global has been acquiring a load of tech companies – let’s talk about who they have and how they’ve been so successful.



Two business partners shaking hands as part of a Tiger Global acquisition deal.

In 2003, Tiger Global was founded by Chase Coleman who began his career at Tiger Management (brilliant name choice). In the ensuing years the investing firm expanded to include private equity and venture investing. Today it’s hitting the charts at $65B with its employees (number at ~100) being the firms’ biggest shareholders.

Earlier this month, Tiger Global raised one of the largest pots of VC money ever recorded, coming in at $6.7B. These came from a list of occurrences and investments.

  • Roblox: A sandbox gaming startup, Tiger Global owned 10% when it went public in March and the value is hitting ~$38B+
  • Stripe: A fintech firm Tiger Global leaped onto this investment when Stripe announced a $600m rise in value at a $95B monetary evaluation of the company.
  • M&A wins: In 2020, 3 portfolio companies (Postmates, Kustomer, & Credit Karma) of Tiger Global were acquired in billion-dollar deals.

The tactics that Tiger Global stands by are well documented in a few different locations. One of the biggest that they push is speed. The deals that fly across their tables are completed in just 3 days, far outpacing other firms. When you are an investment firm hour are a time between success and failure. To keep up with these ideas, they have a pre-emptive approach to startups. Doing thorough research and throwing money at people before they even start looking for it. Knowledge is power and this lets them get their foot in the door faster than anybody else.

Resources and a monstrous war chest are 2 of the other factors that they set their claim to fame on. The numerous portfolio companies have high-priced consultants thrown at them for advice on a regular basis. These consultants just add to the success of the companies and keep things building. Where does this money come from? The stakeholders. The mountainous mounds of money that this firm keeps on hand is matched very few in the world. Scrouge McDuck would be hard pressed to keep up with these guys.

They also keep to long-term holdings as an approach to their methods. Unlike traditional VCs, Tiger Global operates public market hedge funds which provides price stability for startups since it doesn’t have to distribute funds after an IPO, unlike traditional VCs.

In the first quarter of 2021 Tiger Global has closed 60 deals, keeping with their hit the ground sprinting approach. They have bids on a number of different companies already as well (ByteDance, Discord, Hopin, & Coinbase). At least one of these reaches a value into the tens of billions. This company is set to be one of the fastest growing groups in the globe. Who knows where it will stop? Let’s wait and see, or join. Whatever hits your fancy.

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Business Finance

India bans cryptocurrency prior to releasing their own

(BUSINESS FINANCE) India is potentially planning to ban cryptocurrency — and instead, they’re planning to introduce their own version of it for purchase.



Cryptocurrency coin on a phone open to a purchasing app.

Owning mainstream cryptocurrency these days is a bit like owning a pair of Crocs: Potentially lucrative (especially if you’re Post Malone), but mostly just weird. A recent report shows that India is planning on adding “illegal” to that list, possibly ahead of launching their own cryptocurrency in place of the banned ones.

The proposed law would also fine anyone found tradingor even simply owningbanned cryptocurrencies in India. Mining and transferring ownership of cryptocurrency would similarly warrant punitive measures.

CNBC notes that this law would be “one of the world’s strictest policies against cryptocurrencies” to date. While some countries have imposed strict laws regarding things like mining and trading cryptocurrency, India would be the first country to make owning it illegal.

Some talk of jail timeincluding sentences of up to 10 yearsfor cryptocurrency owners and users was floated by Indian lawmakers back in 2019, but there is no explicit indication that those terms would be present in this rendition of the bill.

To be fair to the lawmakers involved here, the bill wouldn’t be as cut-and-dry as “has bitcoin, gets fined.” According to the CNBC report, people who own cryptocurrency would be able to “liquidate” their earnings for up to six months preceding the bill going into effect. This would theoretically allow investors to hold onto their portfolios for a bit longer before having to cash out.

But that leniency might not matter anyway. It doesn’t take a genius to see that this move could do two dramatic things to the cryptocurrency market: Add yet another niche option for investors, and destabilize every other pre-existing cryptocurrency optionor, at least, make them less stable than they already were.

In fact, the simple introduction and threat of this bill could be enough for the cryptocurrency market to take a nosedivesomething that can’t be discounted as a factor in making this decision. Current reports put Indian-owned bitcoin values at roughly $1.4 billion, though, so it’s clear that the bill hasn’t had a deleterious effect at this point.

The fact that India’s central bank has plans to introduce a government-sponsored cryptocurrency of their own cannot be separated from this bill, either. While the official government position is that blockchain is to be trusted while existing cryptocurrencies are eschewed and dismissed as “Ponzi schemes”, it’s clear that at least part of this bill is motivated by a desire to thin out the competition.

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