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Financial Model Template for Marketplace
Contents
- Assumptions
- Revenue
- Human Resources
- Operational Expenses
- Financial Model
- Profit and Loss Statement
- Cashflow Statement (coming soon - subscribe to be notified)
- Balance Sheet (coming soon - subscribe to be notified)
Assumptions
Marketplaces are extremely complex. Benefiting from the crowd effect, the experience of such platforms is only as good as the size of supply and demand engaged with it, providing that both have to be as balanced as possible to ensure the satisfaction of all involved parties. That is why we've created a financial model template specifically thinking on the complex structure of this type of business models.
Before going into much detail on how to build a financial model for marketplaces, let's clarify what these businesses are all about. Composed by at least two different groups of users, a marketplace is a platform where a user of one group is seeking to satisfy a need that is fulfilled by the activity or resource of one user from the other group. Users belong to one group or another in the context of the type of transactions/ needs that define the purpose of a certain platform. For example, a user who is looking to buy art at a particular time will be part of the buyers group on a marketplace where he/ she can find artworks offered by several artists. Needless to say that an user who is part of one group when facing a specific transaction may very well be part of another group if his/ her needs change at a given time.
One of the main differences from this template to the other financial models we've made available is that the assumptions tab includes different metrics to consider for each market. Markets can be distinguished through a multitude of factors, such as geographical, social, product-based, among others. For example, uber and airbnb both operate in several markets distinguished by different geographies, usually applying a different strategy to different countries or even cities where its operations are established.
Of course almost all business models are suitable for expansion, with more or less creativity, throughout different markets, but as we've mentioned before, marketplaces are especially dependent on the crowd, traditionally applying low margins that only make sense with volume, while also dependent on it for user satisfaction and consequent purchase frequency. In fact, it is not rare having marketplace platforms losing money up up until the client doesn't do his/ her third or fourth purchase, as the cost of acquiring a customer (CAC) needs to be compensated by a higher volume of purchase per customer, when taking into account these typical lower margins.
Because of that, this tab allows you to include different prices, margins, costs/ lead for three different markets - if you want you can also add more markets yourself, but remember to trace cells on the existing ones in order to understand where you'll have to include the new markets as well.
Revenue
Instead of just doing general assumptions on revenue, this document has a different approach in the sense it almost gives users the cause-effect of projections on other KPIs. Being this a marketplace, each market has a different tab with projections for each of two groups of users - customers and suppliers.
By filling in the assumptions for each market on the previous tab and then filling in growth objectives on this tab, the user will understand the impact such growth would have on several other metrics and KPIs, such as Customer Acquisition Cost (CAC), Lead Acquisition Cost (LAC), User Acquisition Cost (UAC) or the ratio Sales/ Marketing Expenses.
Human Resources
Same as what happened on the Revenue and Assumptions' tabs, here the user is given the choice to insert different salaries for the same position on different markets. The specific case here exemplified is also interesting in the sense that it has the majority of functions centralized in market A, especially the ones related to technological development and digital growth, whereas markets B and C present expenses on human resources related to commercial representation on those markets.
The hiring plan of each company is always a very tailored component, usually changing as the market reacts to its products and services. You may find yourself planning to hire 20 engineers and 5 sales representatives on Year 1 and realizing on Year 2 that you'll need a lot more members on the sales team to sell what engineers are building. Or maybe you've built a product that's so good that you don't even need a sales team - we've never seen it happening though. Whatever you do, remember that human resources are a very particular entry on your spreadsheet - they're humans! So try to include them as much as possible in the company strategy, plans, decision changes and adaptations to the market, and so on - humans like that.
Operating Expenses
Finally, operational expenses are also structured in a market segmented way. Having revenues and expenses divided by market - or even segment - is also very useful to later in the game understand the potential business contribution of each market, allowing you to make go/ no-go decisions in a more substantiated way. It is very common to have different Profit and Loss (P&L) Statements for each country where the company operates, for example, but not as common to have a P&L for each segment of users in the same country. Although that would result in more work and higher maintenance costs for management, it could avoid delaying some decisiones of high value to the business, so it may pay off!
Financial Model
After filling all the tabs mentioned above, the 'Income Statement' tab will provide you with a summarized view of your company's projections. This was the only part of the document that we haven't segmented by market, but if you find that of added value for your planning, we suggest you add a different tab with similar tables to this one properly linked to each market's results.
Remember that although some expenses may be centralized in a certain market, that doesn't mean it should be 100% accounted as part of that market, unless it is the only one benefiting from it. For example, if your team of product developers is entirely located on market A, you'll have to attribute a percentage of this expense category to each of your markets, as without it you wouldn't have a product to sell on any of them.
This post will be updated soon with the cashflow statement and balance sheet parts of the template, so if you don't want to miss out, subscribe here.
