Q: How do I break out my products and services into offerings in your model?
A: An offering refers to a product or service unit provided by your company at a given price point with specified associated costs.
If you have a SaaS app that comes in three levels, such as Basic, Premium, and Platinum, model those as three separate offerings. If you have one service that you offer to three very distinct customer groups, you may choose to model those separately as three different offerings so that you can specify a unique sales growth rate for each. If you have a service that includes both a one-time setup fee and a recurring subscription, enter that as two different offerings and link them as described in our blog post on Modeling Revenue Streams.
Q: I offer a service where our pricing can vary greatly. How do I enter this into your model?
A: Some businesses have a pricing structure that is on a sliding scale. For example, a consulting or law firm might bill based on an hourly rate, a SaaS company might bill based on the number of client accounts, and a contractor might provide a quote based on the size of the job.
To address this, we would break out the service into a few different offerings with averaged prices in different tiers. For example: three offerings for small, medium, and large customers. You can break this up however works best for your company, based on the drivers of your pricing and direct costs.
Instead of a vague estimate of randomly-priced sales, this provides you with a clear way to forecast and present the anticipated sales in the different categories and to see the unit economics at the different price point categories.
Q: Your model only allows for 15 offerings, and I have more than that. What do I do?
A: Businesses such as e-commerce companies can have hundreds or thousands of unique products sold. However, a financial model need not
In this case, we would aggregate the products into larger categories. Instead of modeling twenty different types of men's shirts you sell, group them into one offering "Men's Shirts."
This helps to bring clarity to your financial planning and avoid the false specificity of predicting the number of sales for each product.