Creating a Financial Model for a Mobile App
Sturppy allows you to create the financial model for any mobile app with any monetization model.
Creating a financial model for a Mobile App 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 based on your monetization mode and finally listing the expenses.
For customer we intend anyone that is using your app, you may also refer to this as user.
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.
- Paid or Free: this is the type of the traffic source, either paid or free. A paid 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 paid 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.
Paid 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.
Step 2: Customer Retention
To set your customer retention navigate to
/Users/Retention, here we will define how your new customers convert to recurring customers.
This is important to get right, because not all of your new customers, will keep coming back to your business and make new purchases, but some will. This behaviour is configured with the retention rate.
So, for example, if you have 10,000 new users in month one and a retention rate of 40%, then, on month two
10,000 * 40% = 4,000 users of the previoius month (month one) will still be using your app in this month (plus all the new users that you are going to acquire in this month).
Step 3: Configuring the Revenue
When configuring your revenus for a mobile app you have a lot of options depending on your monetization model. You can choose just one or use all of the available revenue options.
To start configuring your revenue go to
/Revenues, here you can choose between: Subscriptions, Ad Revenue and In-App Purchases.
If you monetize your app through a recurring revenue model, you can learn more here. To learn how to configure your subscription revenue click here
If you show ads to your users, configure them here. To learn how to configure your ad revenue click here
If you users can buy digital items from your app, configure it here. To learn how to configure your in-app purchases revenue click here
Step 4: 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 Mobile App are mostly expenses associated to human resources. 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 Mobile App 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 Mobile App 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 furniture 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