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Jeffrey S. Klein
A Business Perspective
USC Boot CampMay 20, 2010
Follow The Money
Content is King, right
Wrong
CASH IS KING
Agenda
Basics of the Business Strategy Budgeting Revenue
Selling advertising Other ways to generate dollars Events
Expenses Sustainability Profit, or, can I quit my day job Raising money and exiting the business
Basics
The old deal: For consumers, you bring us information for free or
low-cost and we’ll look at your advertising For advertisers, you bring us audience and we’ll pay
you for reaching them The new deal (still unclear but…)
You bring information relevant to me when and where I need or want it
You bring us eyeballs and we’ll pay you if we get something from them
Unclear if the economics will work, so new funding approaches will be necessary
Strategy
Define your market Define your target audience Competitive Landscape Pricing approaches Set goals and milestones To partner or not Exit Strategy
Budgets
Why are they important? Sets a goal and a pathway Allows you to track performance Helps eliminate surprises You can only manage it if you measure it
Budgets are for you, not your CPA Budgeting/Forecasting will help you
understand your business NUMBERS tell a story. Don’t miss it
Revenue
Where does the money come from Advertisers or Readers
User Pay Content must be unique And have financial value See the world of B2B niche Online Training
Advertising Impressions, clicks, sponsorships Leads Webinars, virtual trade shows Directories
Events (user pay and sponsor pay) Affiliate programs (e.g., Amazon books) Text Links
Sample Revenue Forecast
Source: http://newsinnovation.com/models/
Large Blog P & LMedium Blog
P & L
Revenues
Year 1 Year 2 Year 3 Year 1 Year 2 Year 3
Advertising Revenues
Banner Advertising $ 129,730 $ 273,230 $ 338,466 $ 74,844 $ 184,410 $ 250,716
Contextual Advertising $ 3,538 $ 7,452 $ 9,231 $ 2,041 $ 5,029 $ 6,838 Ecommerce/Affiliate Rev
$ 6,825 $ 22,995 $ 39,570 $ 3,938 $ 13,266 $ 22,829 Events
$ 2,400 $ 7,200 $ 8,400 $ 1,800 $ 4,800 $ 7,200
Revenue before Operating Expenses $ 142,493 $ 310,877 $ 395,667 # $ 82,623 $ 207,506 $ 287,582
Metrics Drive Projections Year 1 Year 2 Year 3
Overall Metrowide MarketTotal # of Adults 18+ (Metrowide) 5,000,000 5,000,000 5,000,000 % of these who are online users 80% 80% 80%
Total # of Adults 18+/Online (Metrowide) 4,000,000 4,000,000 4,000,000
Submarkets Coverage Area - Large Blog (Population = 60K)% of Total Living in Large (Population = 60K) 54% 54% 54%Total # of People living in Large Submarkets 2,700,000 2,700,000 2,700,000 # of areas with Given Population 45 45 45
Unique Visitors & Page Views% of these who are Large Blog users 35% 49% 60%Beginning UV - Ending UV 945,000 1,323,000 1,620,000 UV/Blog 21,000 29,400 36,000 Page Views/User/Mo. 12 12 12
Total Monthly PVs -Hyperlocal Blog (All Blogs in each mkt. size) 11,340,000 15,876,000 19,440,000 Total Monthly PVs/Blog 252,000 317,520 388,800
# of Ad Positions/Page Avails Per Page Av. STR # of Sold Units/PgLarge Hyperlocal/Vertical Blog 12 55% 7
Contextual Ads (Google, e.g.)# of Ads per Page 3 3 3CPC $ 0.20 $ 0.20 $ 0.20 CTR 0.36% 0.36% 0.36%
Average Effective CPM $ 12.00 $ 12.00 $ 12.00
EcommerceMonthly $ per Converted User $ 10.00 $ 15.00 $ 20.00 User Conversion rate 0.50% 0.50% 0.50%
Events # of Events/Year 12 24 24 # of Tickets Sold/Event 20 30 35 Price per Ticket $ 10.00 $ 10.00 $ 10.00
Total Annual Event Revenue Per Blog $ 2,400.00 $ 7,200.00 $ 8,400.00
Additional AssumptionsCapex per Employee $ 1,000 $ 1,000 $ 1,000 Rent
Square footage/person 100 100 100 Cost/Sq. Ft. $ 8 $ 8 $ 8
Advertisers are your FRIENDS
In-house or Out-house sales structure Sales compensation
“Commission only” does not usually work well Heavily incent success
Self Serve options Marketing support and materials Data, Measurability, Performance Ad networks (e.g., Google Adsense) You can’t make a sale unless you ask for it
Advertising Sales TIPS
Training and Education are key For your sales people and your customers Be your customer’s marketing partner and consultant
An “internet marketing seminar” Teach the value and effectiveness of advertising
Small/Medium business folk often don’t have time for you Expect churn
Of customers and sales people Customers and sales people are high maintenance
Out of pocket cost is more important to most than CPM Advertisers want you to do the work for them Telephone sales can work effectively Simple is best but complicated packages can drive $$$
Ad Pricing & Strategy
Pricing is important CPM—cost per one thousand impressions CPC—cost per click CPA—cost per acquisition (lead or activity)
Sell real estate and exclusivity Create “markets” (e.g., tires in Sports) Everything is negotiable You are not selling a product or a service
You are selling a relationship with an audience You can be their digital marketing consultant
But are you willing to “share” in your “partner’s” success?
Budgeting Expenses
Staffing Technology Equipment and Facilities Outsourcing Cost of sales Marketing Office Expenses (utilities, supplies, etc.) Accounting/Tax preparation Legal Reserves
Sample Expense Forecast
Source: http://newsinnovation.com/models/
Expenses Year 1 Year 2 Year 3 Year 1 Year 2 Year 3
SG & A Salaries (Including Owner/Operator) $ 96,860 $ 184,382 $ 219,104 $ 42,920 $ 91,800 $ 114,314 Marketing & Promotion $ 7,500 $ 5,000 $ 5,000 $ 2,000 $ 2,500 $ 3,000 Events $ 1,200 $ 3,600 $ 4,200 # $ 900 $ 2,400 $ 3,600 Technology Costs $ 10,000 $ 5,000 $ 5,000 $ 4,000 $ 1,500 $ 1,500 Legal Fees $ 3,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 Accounting Costs $ 5,000 $ 5,000 $ 5,000 $ 3,000 $ 3,000 $ 3,000 Rent & Utilities $ 1,600 $ 2,800 $ 3,200 $ - $ 1,500 $ 1,688 Travel/Misc $ 2,500 $ 5,000 $ 7,500 $ 1,000 $ 2,500 $ 2,500
Total Expenses $ 127,660 $ 211,782 $ 250,004 $ 54,820 $ 106,200 $ 130,602 Expense/Revenue Margin 90% 68% 63% 66% 51% 45%
Operating Income $ 14,833 $ 99,095 $ 145,663 $ 27,803 $ 101,306 $ 156,981 Operating Income Margin 10.4% 31.9% 36.8% 33.7% 48.8% 54.6%
Earnings Before Taxes $ 14,833 $ 99,095 $ 145,663 # $ 27,803 $ 101,306 $ 156,981
Income Taxes @40% $ 5,933 $ 39,638 $ 58,265 $ 11,121 $ 40,522 $ 62,792
Earnings (Accrue to Owner/Operator) $ 8,900 $ 59,457 $ 87,398 $ 16,682 $ 60,784 $ 94,188
Net Margin 6% 19% 22% 20% 29% 33%
Attracting and Retaining Consumers
Link Economy : “Do what you do best and link to the rest”—Jeff Jarvis
Search Engine Optimization Search Engine Marketing Social Media Word of Mouth Email Newsletters drive traffic Registration Measure, Measure, Measure
Engagement, where do consumers come from/go to
Any pay for content possibilities? Archives? Data
Event Business
Builds your community Promotes/reinforces your brand Can generate significant revenues/profits Exploits your “convening” role Users can pay, Sponsors can pay, or both
Ask yourself: what are the niche topics where information is valuable or certification is needed (e.g., real estate)
Tracking Performance
What are the key drivers of your success? Develop a performance dashboard
Key metrics measured/reported regularly Spot trends Test hypotheses Dispel anecdotal evidence Helps assess priorities/investments, for example
What is “lifetime” value of a customer? Does traffic translate into revenues? Return on sales efforts—relationship between cost of
sales and sales performance?
Legal Structure
Proprietorship Personal Liability
General Partnership C-Corp
Corporate Veil limits personal liability Double tax issues
S-Corp Flow-through of tax losses and gains (taxed like a proprietorship
or partnership) Regulations/requirements
LLC Limited liability of corporate structure and tax advantages of S
Corp Costs of upkeep
Funding your Enterprise
Sweat Equity Leverage (e.g., a second mortgage) Friends and Family “Angels” Venture Firms (requires an exit strategy
with a high rate of projected return) Investors will want to see your business
plan
Exit Strategy
Pay the bills and retire Build a multi-generation family business Partner with other like businesses Sell to a strategic buyer Sell to a financial buyer IPO Go to the beach!