Creating a Financial Model for an Agency or Services Business
Sturppy allows you to create the financial model for any agency or services business that sell to consumers or to other businesses.
Creating a financial model for an Agency business is very easy with Sturppy. The steps that we will follow are the standard ones for creating a financial model: defining customer acquisition, configuring the revenue through the various products/services that you are going to offer and finally listing the expenses.
Step 1: Defining Customer Acquisition
To create a customers acquisition projection navigate to
/Users/Acquisition, here we will define how we are going to get new customers.
Here we can add different traffic sources that will bring in traffic and, in turn, customers.
When adding a new traffic source you can define:
- Name: this is the name that you assing to this traffic source, we suggest you use the marketing channel where you are going to advertise on, like Facebook Ads, Google Ads or SEO.
- Payed or Free: this is the type of the traffic source, either payed or free. A payed traffic source is any source that requires a direct investment of money.
Then, based on the type of the traffic source you decided, you have to enter:
If you want to add a payed traffic source, then you have to define:
- Monthly Budget: how much you are going to spend each month on this traffic source.
- CPL (Cost per Lead): how much each lead from this traffic source will cost you.
It is possible that you already have a traffic source called Marketing. This is completely fine. This source was created when you followed the steps in the onboarding to create your first financial model. You can keep it, edit it or remove it and add a new one.
To add a free traffic source, you need to define:
- Organic Monthly Traffic: this is how much traffic you are generating every month. Depending on your source, this could come from your social media presence, SEO, content, word of mouth or others.
- Conversion Rate: the percent of free traffic that becomes a lead. Since this is free and not very targeted traffic, conversion rates are usually low.
At the end we will calculate the number of leads that you are going to receive.
Payed Leads = monthly budget / CPL
Free Leads = monthly traffic * conversion rate
You can add as many different traffic sources as you want.
Be carefull when adding free traffic sources. You can easily be over-optimistic and tilt your projections.
Free traffic can come from an existing social media presence, PR, SEO (this requires time) and other sources.
If your sales-force is also responsible for procuring the leads, be sure to add that as a traffic source!
Step 2: Configuring the Revenue
To configure the revenue from your Sales and create the various products/services that you are offering, go to
/Revenues/Sales, here you will be able to configure everything you need. There are a couple of things that you can configure when creating a Sales model, we will go over all of them.
As a starting point, you have to enter your conversion rate and churn rate. These inputs are shared acrosss all of your products.
This is the percentage of leads that become paying customers. You can learn more here.
The percentage of customers that don't renew their subscription each following month. You can learn more here.
You can then add all of the products/services that you want.
You have a lot of options to configure when creating a product or service for a Sales business model. Let's go over each input and see what they mean.
The name of the product, this is just for you to list all of the ones you offer (the name must be unique).
The percentage of customers that buy this particular product. The sum of all the shares between all your products must equal 100 (Struppy helps you to keep this at one-hundred). Usually, more expensive products have a lower shares percentage while cheaper products have an higher shares, but this highly depends on your business.
The cost of the product that is payed just once. You can leave this empty if it is only a recurring payment. For instance, if the first time your customer buys your product it also has to pay an activation fee or an installation fee.
If you enter a value for One-time cost, then you can also enter a value for One-time commission. This is the commission that is payed to the salesman that closed the deal only once.
The cost of the product taht is payed each month. You can leave this empty if it is only payed once.
If you enter a value for Monthly cost, then you can also enter a value for Monthly commission. This is the commission that is payed to the salesman that closed the deal each month.
This is needed if each new customer needs to be served by one of your people (e.g. for the technical installation or the sales-person that needs to follow him until the deal is closed). This will help you model the load on your employees. You can choose a position from the ones that you entered in your hiring plan. (Optional)
The time that is required by the employee defined in Required role to handle a new customer. The max number of clients the that the employee can handle is pecified by the Hiring Rule field in the hiring plan in the SG&A expenses. (Optional)
At the end, you will see how many customers you are going to get for each product and the load over your employees. From the chart you will see the number of customers that need to be served and the number of customers that are actually served, so you can better plan and forecast how many human resources you need.
Step 3: Listing your Expenses
For the final part we will add the expenses to the financial model. Adding expenses is super important and should be done with great attention to avoid missing key expenses that could turn the startup upside down.
The expenses for a Agency business are mostly expenses associated to human resources, especially if you are selling software. We will go over each expense that you can add, but you can always go in more detail on the ones that you are most interested about.
COGS: Cost of Goods Sold
For a Agency these costs aren't really a lot (fortunately!). Here you can add the cost per thousand customers, which reflects the load that your infrastructure will neeed to handle as more customers come using your product (think about how you will need more and better servers to handle the increasing load).
You can also add any fixed cost that you need to face monthly, directly linked to your product. For instance if you are using an external piece of software integrated in your product you will need to add it's monthly cost here (think about all the APIs that you will use, like programmatic emails, etc.).
If you want to learn more about COGS, read here.
SG&A: Selling, General & Administrative
This will be your main cost when running a Agency company. The team behind your product will make your startup go big or go home and so it is of rightfully the biggest cost you have to face.
Be sure to list all of your current employees and those that you will hire in the future, plus, set up rules to hire them automatically as more customers come in.
We have a complete section dedicated to the hiring plan.
Don't make the mistake of not adding the salary of the founders to your SG&A.
The financial model has to be complete and is needed to forecast your startup not to show the spirit of sacrifice of the founders.
CAPEX: Capital Expenditure
If you need to invest any significant amount of money in buying equipment for your startup, you have to add it here. For instance, all the technical equipment, like computers, monitors and office forniture should be added here.
Also, if you need to buy any software, or have an external agency build it for you, you have to add the cost here.
If you want to learn more about CAPEX, read here.
You should now have a solid financial model, but you can always go back in and add more details and tweak the assumptions. You now have access to all the financial statements, metrics and scenario planning.
Don't forget that you can also add other monetization modes, such as: sales and transactions and you can also add your various operating activities.
Don't forget that you can now go live and connect your forecast to your actual live data!Learn more