Financial Analysis

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Financial Analysis Tools For Product Management
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Who Am I

• Director Product Marketing Product Management
• 4 years at Digital Impact
• 4 years of investment banking, corporate finance
  accounting experience

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What Is Digital Impact

• Founded in February 1998
• The leading provider of online direct marketing
  solutions for F1000 retail, financial services,
  technology telecommunications verticals
• Provider of ASP software online marketing
  services

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Agenda

• Financial Calculations For Lead Generation
• Financial Analysis ROI Calculators
• Comparing Projects
• Resources

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Financial Calculations For Lead Generation
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Estimating Reach In Lead Generation Programs
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The Customer Lifecycle
Proposal Negotiation
Qualified Prospects
The Masses
Advocate
Customer
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Measuring the Sales Cycle
Proposal Negotiation
Qualified Prospects
The Masses
Customer
Advocate
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Relevant Customer Measurements
Proposal Negotiation
Qualified Prospects
The Masses
Customer
Advocate

• Median Revenue
• Median Contribution
• Retention Rate

1. Calculate metrics for all appropriate customer
   segments
2. Dont forget important segments and the 20/80
   rule
3. Dont ignore recent trends that arent reflected
   in the figures yet (eg. price declines)

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Reach Calculation Example
Budget is moved back by one quarter assuming a 3
month sales cycle
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Things To Remember
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Financial Analysis Calculating Return
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Closing the Deal With An ROI Calculator
Sales is having difficulty convincing prospects
of the companys value proposition in the
proposal stage of the sales cycle
Problem
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Cash Flow Introduction
Accrual
Cash Basis
41.7 k
50k
0
0
1
2
3
N
1
2
3
N
Investment 300k Contribution 50k
Investment NA CAPEX 300 k (8.3 k/mo) Gross
Margin 41.7 k (50 8.3)
300k
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Building Cash Flow Diagrams
TODAY
-2
-1
-3
0
1
2
3
4
5
6
7
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Cash Flow Measurements
50k
0
1
2
3
4
5
6
7
8
9
10
11
12
Investment 300k Contribution 50k Time Period
12 years
300k
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Modifications
Terminal Value 125
5k
0
1
2
3
4
5
6
7
8
9
10
11
12
Year 1
Year 2
Year 3
300k
Annual IRR (18) NPV (r16) (168)
Investment 300k Quarterly Contribution
5k Time Period Perpetuity Hurdle 16
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Building an ROI Calculator
Step 1 Define the key business metrics assumptions for improvement
Step 2 Identify build the status quo business model for the prospect
Step 3 Build the prospect business model with assumed improvements calculate the difference between the two models this difference is the incremental cash flows
Step 4 Set the investment in the cash flow diagram equal to the total cost of purchasing the product use a cash flow measurement to calculate benefit
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ROI Calculator Sales Improvements
Step 1 Key Metrics Assumptions

1. Use public documents, press releases needs
   analysis to identify the values
2. Make sure that you have proof points for your
   assumptions
3. Make sure you include additional costs they will
   incur (decreased contribution in above example)

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ROI Calculator Sales Improvements
Step 2 Key Metrics Assumptions
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ROI Calculator Sales Improvements
Step 3 Revised Business Model
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ROI Calculator Sales Improvements
Step 4 Cash Flow Diagram
10.9
9.2
7.4
5.6
0
1
2
3
4
30
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Comparing Projects
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What If Projects Need to Be Compared
Step 1 Request the current corporate business model projections
Step 2 Estimate improvements to corporate plan from executing the project
Step 3 Create a corporate plan assuming that the project is not executed (or is completed at a later date)
Step 4 Create a cash flow diagram based on the investment required and the incremental contribution from the project
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Comparing Requirements Across Projects
Step 2 Calculate Corporate Plan With Project
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Comparing Requirements Across Projects
Step 3 Calculate Corporate Plan With No Project
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Comparing Requirements Across Projects
Step 4 Create Cash Flow Diagram
27.8k
21.8k
15.4k
0
1
2
3
4
6
5
7
25k
25k
25k
25k
6.1k
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Forget the Theory, Whats the Practice

• Customer prospect data is still the most
  critical aspect of the analysis
• Example assumes project is either done or not,
  but the same approach can be applied to the
  timing of projects, requirements prioritization,
  build vs. buy, etc.
• More common in a non-startup environment with
  multi product companies, especially companies
  facing high fixed cost investments
  (manufacturing, hotels, etc.)

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Resources
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Where to Find the Information
Metric Where Notes
Sales Cycle Metrics Cost Per Lead Lead to Proposal Sales Management Marketing Can be calculated relatively easily if you dont currently track this
Customer Metrics Median Revenue Median Contribution Retention Rates Data from Controller Maintained in Marketing Finance can provide the raw data but marketing will need to slice dice it
Business Planning Metrics Corp. Business Plan Target Contribution Hurdle Rate CFO Executive Staff Less relevant for most tactical product marketing important for large projects and product strategy
The majority of day-to-day product marketing
product management activities can be satisfied
with Sales Cycle Customer Metrics
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Tools For Financial Analysis
Item Examples
Finance Books Analysis For Financial Management, Robert C. Higgins (79.20) How To Use Financial Statements A Guide to Understanding the Numbers, James Bandler (13.97)
Product Management Books Portfolio Management for New Products, Cooper, Edgett, Kleinschmidt (42.50) Product Development for the Service Sector, Cooper, Edgett (37.50)
SEC Filings (www.sec.gov, www.freeedgar.com) Financial Statements Notes To Financial Statements Managements Discussion Analysis Quarterly Press Releases
Microsoft Excel Functions (IRR, NPV) Pivot Tables Data Tables Scenarios
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Dont Forget

• Avoid Analysis Paralysis
• Dont try to analyze everything pick the items
  that are most relevant to your business
• Make decisions the greatest risk is not doing
  anything
• Financial analysis provides a common language to
  review things but doesnt replace business sense
• Dont Go It Alone
• Get commitment from the appropriate
  cross-functional groups before moving forward
• Agree cross-functionally to the appropriate
  metrics before starting
• Get Started
• Maintain the historical information so that you
  can analyze trends
• Pick one area and get it operating before moving
  on

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Things We Havent Covered

• Measuring accounting for risk
• Forecasting planning
• Options
• Decision trees probability models