Revenue Modeling Exercise

You are a new autonomous driving electric SUV company and have partnered with Google to provide a wide range of app services to the market. You are trying to determine if you should adopt a B$2$B or B$2$C business model. The options you are considering are:

$1.$ Fleet management services $($FMS$)$ to companies that can benefit from real time vehicle monitoring and reporting services leveraging onboard vehicle diagnostics along with road condition and traffic analysis.

$2.$ On$-$board infotainment services $($OIS$)$ to passengers including video streaming, mobile office, and other related apps

B$2$B Channel Forecast FMS

For FMS your initial target market is the New England states $($not including New York$).$ Your target customer has a fleet size on average of $100$ vehicles. There are $50$ such companies in the target region.

$$ You have chosen a direct sales model due to the complex nature of the service offering. You only have budget for one sales person which costs $$50,000$ annually plus a $10\%$ sales commission. You have learned that competitive FMS offerings take on average $6$ months cycle time. A sales$-$person can only manage $20$ customers during that period and has a close ratio of $10\%.$

$$ For the FMS you are planning on charging a per vehicle price of $$250$ per year with an average bundle size of $125$ units. You expect only $50\%$ of your clients to renew annually. You will add an account manager for $$50$K in the second year to manage client satisfaction and renewal.

$$ The Bill of Materials for the service model has three labor elements of $$2500,$ $$1500,$ and $$1500$ per bundle, and two materials components at $$1000$ and $$500$ per bundle. There is also a CRM fee of $$1,200$ annually per user for tracking the campaigns.

B$2$C Channel Forecast OIS

For OIS your initial target market is the New England consumers of your system $($not including New York$).$ Your target customer is a family of four with two school aged children. They typically purchase an electric SUV as a second vehicle and are located in the suburbs around metropolitan areas. Your research indicates that there are approximately $1$ million consumers in this market. You intend to run two different types of campaigns to attract consumers to this offering.

$$ The two campaigns are a direct email campaign and the other is leveraging your partnership with Google to run a Google$-$ad campaign. Each campaign runs for $3$ months. $($Assume each month has the same conversion volume per type of campaign$)$ You alternate campaigns starting with a Google$-$ad campaign in Q$1.$

$$ The campaigns require will be managed by a marketing associate with an annual cost of $$50$K in the first year, and an additional associate to manage client service and renewal in the second year.

$$ You have decided to launch with average pricing based on competitive data. You have found three competitors with similar products pricing at $$320,$ $$295,$ and $$285$ per year. You anticipate a $75\%$ Churn Rate annually.

$$ Each email campaign will need to reach $5,000$ target customers with a $1\mathrm{.}5\%$ conversion rate and CPM of $$300,$ and each Google$-$ad campaign will also need to reach $5,000$ target customers with a $2\%$ conversion rate with a CPM of $$150.$

$$ The Bill of Materials for the service model has three labor elements of $$25,$ $$15,$ and $$15$ per unit, and two materials components at $$10$ and $$5$ per unit. There is also a CRM fee of $1,200$ annually per user for tracking the campaigns.

Using the Revenue Model Mini$-$Case, and the excel financial modeling template create the business model financial statements and answer the following questions:

$1.$ What is the Year $1$ per vehicle acquisition cost for the FMS service? $$\_\_\_\_$

$2.$ What is the Year $1$ per vehicle acquisition cost for the OIS service? $$\_\_\_\_$

$3.$ What is the Year $2$ Revenue for the FMS service? $$\_\_\_\_\_\_$

$4.$ What is the Year $2$ Net Profit$/$Loss $(\%)$ for the FMS service? $\_\_\_\%$

$5.$ What is the Year $2$ Revenue for the OIS service? $$\_\_\_\_\_\_$

$6.$ What is the Year $2$ Net Profit$/$Loss for the OIS service? $\_\_\_\%$

The following questions you need to use the financial statements and perform sensitivity analysis based on the changes suggested.

$7.$ What is a better option? Add an additional salesperson for the FMS business in the $2$nd year or reduce the total COGS bundle by $$2,000?$ Support your answer.

a$.$ Salesperson Year $2$ Revenue: $$\_\_\_\_\_\_$ and Cumulative Earnings: $$\_\_\_\_\_\_$

b$.$ Unit COGS Year $2$ Revenue: $$\_\_\_\_\_\_$ and Cumulative Earnings: $$\_\_\_\_\_\_$

$8.$ Which is the best digital channel to use for the OIS service $($email or Google ads$)?$ Support your answer using Year $1$ Quarterly Data.

a$.$ Google Ads Customers: $\_\_\_\_,$ Variable Cost: $$\_\_\_\_\_\_,$ Revenue: $$\_\_\_\_\_\_$

b$.$ Email Customers: $\_\_\_\_,$ Variable Cost: $$\_\_\_\_\_\_,$ Revenue: $$\_\_\_\_\_\_$

$9.$ How does the year $2$ revenue and profitability improve if you only use the best performing digital channel