Gross profit 10% and growth will be 100% a year.$10 x 70m is $700m a month or $9.6 billion a year.Charge $10 a month for the subscription (no late fees and unlimited rentals).Netflix subscriptions to every home within 10 years – one million in first year.In 10 years the household/DVD ratio will grow to 70%.These 20m homes spend avg $10 a month renting DVDs.100 million US households – 20% have a DVD player (in 1997).Case StudyĪt launch in 1997, Netflix’s unit of value (a subscription) and unit economics will have looked something like this: Not sure where to start with your investor story? Use the case study below to help. We’ve also published a template pitch deck to show how we think this fits into your narrative to investors. Check it out and enter your own numbers to see how it works. To help you calculate, project, and play around with your unit economics, we’ve built a simple tool. It tries to set out the potential of the business idea before you start building it and spending cash on it. You can never accurately forecast revenue and growth when you are just at the start of your company, so your story is just that-a story. Netflix annual gross profit for the quarter ending Septemwas $1.587B, a 60% increase year-over-year. If you project your product will reach $10m revenue over 10 years it will be valued less than another company projecting to reach the same revenue in three years. The final piece of the story is how fast your unit of value will be sold. Their overall gross profit is about 10% or $1.5 billion annually. They have 137 million subscribers driving $15 billion of annual revenue ($109 per subscriber per year). Netflix sells a subscription (unit of value) at a profit margin of 75% (unit economics). Successful companies aim for positive unit economics and the ability to scale them to produce large gross revenues. This can be calculated per business model or unit you sell. Your operating income (cash needed to run the business) comes from this gross profit, as does your actual profit (net earnings). If the sale price per mile is $1, and the cost of sale is $0.50, then gross profit is 50%. Uber charges per mile for a ride, the driver gets a percent of that charge, and the app itself has some costs associated with it (COGs/COS/CAC). Unit EconomicsĪll units of value have a sale price, a cost of sale, and a gross profit. Coca Cola’s unit of value is a can of fizzy drink a movie theatre’s unit of value is a seat at an event Google’s unit of value is a paid click (CPC, CPA or CPM) and Uber’s unit of value is a paid ride or delivery.Īll companies have a unit of value. Unit of Valueĭefine what it is you’re building that has economic, not emotional, value. To fix that, you need to understand your startup’s unit of value, unit economics, scalability, and growth rate. However, the story founders tell investors, which should focus on what they get out of their investment, is typically underdeveloped. Oftentimes, the customer story is solidified. It is also why you and your team are best placed to execute on that. The story to an investor is simply how the money they give you will grow into more value, how fast and how big. The story to a potential customer is all about what product or service you offer them, why they should care, how and when you plan to deliver it, and at what price. And as a founder, your idea needs a powerful story that wins the support of two key audiences: ADV is a UK-based patient venture investor which backs founders and funds focused on tech.Įvery startup begins as an idea. Guest post by Keith Teare, Executive Chairman at Accelerated Digital Ventures (ADV). Freelance Writers: How To Pitch Crunchbase News.
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