How to Create a Startup Pro Forma for a Dropship E-Commerce Business
Q: I'm starting a dropship e-commerce business using your app. Our incoming orders will come from 3 different sources: 1) direct via online advertising; 2) affiliate partners; and 3) referrals from customers. Each source has a different commission structure and profit model, and sales volume will be based on click-throughs and conversion on our website. We will not take ownership of inventory, rather we will sell what the distributor has in stock. How do you recommend I structure the financial model using your pro forma app?
First, let’s tackle the sources of customers and then the offerings:
1) Direct Online Advertising
In the configuration settings under General Setup/Sales Forecast options, select Yes for both Sales Channels and Website Conversion rates as shown here:
Under the Website Conversion Rates inputs, enter your assumptions for the traffic from online advertising and the conversion rates:
Then under your Offering/Sales Forecast assumptions input, you can select the website conversion rates as one of the sales methods as your sales forecast for any of your first ten offerings:
2) Affiliate Partners
You can repeat the process as shown above, but use the Sales Channels inputs as your sales assumptions for your affiliates as shown below. You can then select Sales Channels as your sales forecast for any of the first 10 offerings:
3) Referrals from Customers:
Once you’ve entered any of the Offerings and the associated sales forecast, you can link to that offering by a subsequent offering. For example, let’s say Offering #1 is your base forecast from Affiliate sales and then you want Offering #3 sales forecast to be forecasted at a rate of 5% of the Affiliate sales customers that are referring other customers, but after 3 months of first signing up with an affiliate. In that case, Offering #3 Sales Forecast is simply linked to Offering #1 at a rate of 5% and delayed by 3 months:
There are several other ways of modeling this out, but the above steps are the easiest.
In terms of your actual offerings, unless you have only a few number of products, we would suggest not listing out your SKU’s as your offerings, but grouping them by product category and by price range. It’s far simpler to create a “directional” correct forecast without erring on the side of “false precision” at the SKU level. Here’s a support blog post that explains more: https://www.startupfinancialmodel.com/post/maximum-number-of-offerings
The first 10 offerings are all linkable to earlier offerings as well as Sales Channels and Website Conversions, while the last five offerings are not linkable to early offerings, so if you want to link one offering’s sales forecast to an earlier offering, plan on doing that within the first 10 offerings
You can also just enter an offering and apply a Revenue Share assumption to model out affiliate commissions. To use the Revenue Share feature, be sure to click “Yes” on the General Setup/Revenue Share Assumptions configuration menu
You can also set up Sales Commissions if you want to model out hiring sales staff and paying commissions
You can also enter Lead Generation expenses and simply create a customer forecast and skip the Website Conversion inputs, but most investors will want to know expected conversion rates. Our app will automatically create a Key Metrics report that shows your conversion rates for each month, quarter, and year.