Entrepreneurship and new ventures finance. Designing a new business (3): Revenues and costs. Prof. Antonio Renzi

Transcription

1 Entrereneurshi and new ventures finance Designing a new business (3): Revenues and costs Prof. Antonio Renzi

2 Agenda 1. Revenues analysis 2. Costs analysis 3. Break even analysis

3 Revenue Model Primary Demand Cometitive strategies Marketing Secondary Demand Customers comosition Unit Price

4 Scenarios analysis The scenarios analysis is based on the what if logic : Relationshis of cause and effect Causes Phenomenon (1) Phenomenon (2) Phenomenon (3) Phenomenon (n) Probabilities (1) (1) (3) (n) Effects (targets) Outcome (1) Outcome (2) Outcome (3) Outcome (n)

5 Four tyes of scenario Exloration scenarios Forecast scenarios Descritive scenarios Normative scenarios

6 Exloration scenarios vs. forecast scenarios Exloration scenarios are based on ast and current henomena. They assume, on the one hand, the recurrence of henomena, on the other, stable relationshis between the indeendent variables and deendent variables. It s ossible to associate to each cause one or more effects: causes effects. Forecast scenarios are based on the hyothesis of strong sread between ast henomena and future henomena. This sread could be deend on new henomena and/or new relationshis between the indeendent variables and deendent variables: effects causes

7 Exloration scenarios vs. forecast scenarios CAUSE EFFECT For instance, the analysis of ast has demonstrated that the rimary demand of a certain roduct changes of - 20% than oil rice changes: EFFECT CAUSE For instance, each target about exected market share requires a secific change in rice

8 Descritive scenarios vs. normative scenarios Descritive scenarios have no contsrains: there are not limits in relation to ositive or negative correlations. The analyst simly describes causal relationshis. In the case of normative scenarios the causal relationshis are limited within constraints system: For instance, a growth in demand can be assumed as scenario taking into account constraints that come from internal resources.

9 Exloration Forecast Descritive Given the causes, what will be the effects? Given the effect, what will be the causes? Normative Given the resources, which target can be reached? Given the targets, what resources target can be mobilised? Source: Martelli A. (2014), Model of scenario, Palgrave

10 Price elasticity of demand (ε) ε ΔQ Q Δ Δ ΔQ Δ ε Q = rice er unit Q = sales

11 Phases of elasticity analysis: Price elasticity of demand (ε) Estimation of elasticity using a samle of comarable comanies Estimation of the neutral change in rice Estimation the change in rice that maximizes the level of revenues

12 The elasticity rice of demand of a secific business as the average elasticity of a certain cluster of comarable comanies Estimation of the elasticity using a samle of comarable comanies Given a cluster, the elasticity rice of demand of a secific business as the average elasticity of the comany characterized by the lower market share.

13 Price elasticity of demand (ε) ε Q REV / t Qt REVT The elasticity analysis can be used to figure out the maximum increase of the sale rice beyond which the revenues go down. In addition it s ossible to determine the change in rice that maximize the exected revenues for each level of elasticity.

14 Price elasticity of demand (ε) ε ΔREV ΔQ Q REV = Revenues Δ Q ΔQ t1 Δ ΔREV ΔQ Δ ε Q Δ Q ε Q t1 Q REV 0 Q ε Q Δ t1 0 ε Q Q Δ t1 t1 t1(max) ε (max) ε - max shows a neutral variation in rice in relation to revenues dynamic

15 Price elasticity of demand (ε) ε Q REV Δ ε ΔREV ε Q REV Δ 16 ε ΔREV ε Q REV Δ 14 ε ΔREV 56 15

16 Price elasticity of demand (ε) ΔREV REV Δ max ε Δ 0.5 max Δ

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18 Price elasticity of demand (ε) max /P Q V ( max /P ) 0.75 Maximum REV ε ε Q Q REV REV ε Q REV ε Q REV

19 ε max /P Q V Price elasticity of demand (ε) 0.5( max /P ) ε Q V Maximum REV ε Q V ε Q V

20 Variable costs Technical coefficients + - Negotiation skills + - Variable cost er unit Distance of otential suliers Number of otential suliers Variable costs exected = (Variable cost er unit) x (Exected sales ) Exected sales

21 Contribution margin Revenues = Price er unit () x Exected sales (q) - Variable costs exected = Variable cost er unit (c) x Exected sales = Contribution margin (CM) CM q( c)

22 Revenues, variabler costs e contribution margin: a simulation Max roduction caacity 120 Price 10 Unit cost 8 Probabilities Q Probabilities (Q) Σ =1 Σ =76 Exected Sales 76 Exected Revenues 760 Exected Variable Cost 608 Exected contribution margin 152 This analysis must be reeated for each forecast year

23 Steed fixed costs Fixed costs Q Q* Q**

24 Start-u, develoment and dynamics of total costs Before roduction start Stable resources First stage FC = Total costs First growth Q Incre easing reso ources Q CT Increasing resources CV Cf Cf Q* Q**

25 Break even analysis Ebit REV VC FC Q( c) FC Q' FC - c Ebit 0 Q Q' rofitability Q Q' losses REV Total costs VC FC Q' Q

26 Break even analysis Growth of internal resources Q Worsening cometitive osition Exloitation of internal resources + Q Imroving the cometitive osition

27 Break even analysis (Q ) and entrereneurial stages Q First stage First growth Stability Internal efficiency Stability Stability, exansion or downsizing

28 Break even analysis (Q ) and entrereneurial stages FC - c Q Q Ebit First stage First growth Break even Efficiency Cometitiveness

29 Key Points General kinds of scenarios Price elasticity of demand and the revenues otimization The drivers of variable cost The relationshi between fixed costs and internal resources The break even analysis during the several entrereneurial stages 29