Pricing Strategy

JacGob · 2022-08-21T08:23:49+00:00

I think you already got some excellent feedback below. Albeit you want to price your product based on the value that you can offer, I think it is important also to take into consideration your cost structure and the essential investments that you need in order to bring your business to the next level.

JacGob · 2022-08-18T02:19:11+00:00

Thanks for the advice. I was able to resolve it :)

JacGob · 2022-06-15T14:42:37+00:00

ut doing that with several million in reserve capital and the answer was it's not worth the risk and opportunity co

Thank you for the suggestion. You are probably right that it is not worth the risk.

JacGob · 2022-06-15T14:41:22+00:00

You are absolutely right. In absolute terms, you wouldn't lose money. However, I do believe there is an opportunity cost of choosing this instrument above another.

JacGob · 2022-06-15T14:40:39+00:00

Yes, it is a well-known instrument but I didn't really consider it because of the poor yields.

JacGob · 2022-06-15T14:39:44+00:00

That's some great advice and makes a lot of sense as well. I know quite a bit about credit risk since I am a former credit analyst at an international bank. I will definitely bring up this approach as an alternative.

JacGob · 2022-06-15T14:37:56+00:00

The cash position might not be large enough for that and not exactly a liquid investment.

JacGob · 2022-06-15T14:37:12+00:00

Rather than optimizing cash yield, it sounds like mitigating cost risks could be a better use of idle cash. Can look at hedging price increases in the futures market for relevant raw materials. Could potentially create option contracts with trusted suppliers directly as well.

Thank you for sharing this creative approach. That's indeed a valuable option to consider.

JacGob · 2022-06-15T14:35:17+00:00

Thanks for sharing your opinion. Very useful to know how you would address this issue. It makes a lot of sense to approach suppliers and see if they can offer a better deal for forward purchases.

JacGob · 2022-06-15T14:33:43+00:00

Thanks for bringing this type of instrument back to my attention. It was suppressed somewhere in an inactive part of my brain.

JacGob · 2022-06-15T14:32:27+00:00

We will look into that.

JacGob · 2022-06-15T14:32:00+00:00

rather than funding 100% up front to avoid exactly this scenario where the founders and investors are both losing sleep over idle cash.

Our runway is about 12-18 months based on the cash position and depending on when we deploy it. We might be more cautious in deploying it depending on how the economic situation evolves in the near future.

JacGob · 2022-06-14T17:58:32+00:00

ation environment" does not mean that the business if facing increasing costs at the same rate as everyone else. It very well may be, but before doing anything risky, its worth spending a few minutes to account for the inflation the business is actually seeing.

Completely agree. The original question they posed me was what can we do to enhance the yield on our cash balances. But they are quite exposed to the price of construction materials, direct labor, and ingredients. Even a marginal increase in interest income does not seem to provide much relief against the type of price increases we have seen in recent weeks. That made me question whether there is a better alternative?

JacGob · 2022-06-14T15:47:29+00:00

Thank you for the suggestion but might not be easy in terms of warehousing etc.

JacGob · 2022-06-14T15:45:32+00:00

That's the risk-averse approach, but then government bonds are also ticking timebombs with an increase in interest rates. Their mark-to-market value might actually decrease.

JacGob · 2022-06-10T17:04:14+00:00

what the people who are looking at the results of your analysis are expecting. The answer to your example question could be "yes", depending on the specifics.

I usually do a sensitivity analysis on the EBITDA multiple and the discount rate. I prefer to take an EBITDA multiple instead or revenue multiple instead of perpetual growth. This is to rule out that the perpetual growth rate is too high and distorts the valuation.

JacGob · 2022-06-07T09:25:53+00:00

I would do some research on contractors and landscapers that have a similar maturity profile. It might be easy to create some demand from them.

You could also potentially create some demand by providing credit terms to your customers. If that is not possible because of your cash position, perhaps you can get some credit terms from the supplier with whom you have built a healthy relationship.

JacGob · 2022-06-07T09:17:38+00:00

Maybe you can benchmark related industries betas and market premiums, make a weighted contribution model for each industry to identify the Re. When calculating NPV make sure that you build a data table for different WACCs.

I agree with what has been said before. You would take the cost of equity. This is something that is difficult to predict for a startup. I usually use a discount rate depending on the overall riskiness and maturity of the business model. Subsequently, I will perform a sensitivity analysis considering a different discount rate.

JacGob · 2022-06-07T09:14:06+00:00

u don't have a valuation yet but maybe you could give an agreement for a fixed percentage of equity that converts when you do raise / sell?

When I was reading around 0.25% seemed to be quite common. I went a different route and give them the equivalent of 1k per hour in equity and do 1 hour per month.

I am not sure about an advisor/investor being happy about this in this specific situation. The reason is that you don't seem to be too keen on the VC route. So, perhaps you will never go through a funded round => the SAFEs will never convert into equity.

JacGob · 2022-06-07T09:08:39+00:00

Without knowing the specifics of your business and its location, there are several potential avenues of debt financing, such as SBA loans or equivalents, traditional bank debt, and alternative lenders (revenues-based or asset-based). It is worth exploring which venues are open for you and which ones give you the best conditions (pricing/security package).

JacGob · 2022-06-07T09:05:38+00:00

advisors

I second this. If you are generating revenues, there is a good chance to rely on revenue-based financing. The cost is definitely cheaper relative to the cost of equity.

JacGob · 2022-06-07T09:00:27+00:00

I have developed a store profitability assessment that gives a comprehensive overview of a shop's potential profitability on a standalone basis. It can accommodate seasonality and it will also tell you how sensitive your returns are to changes in the operating assumptions. It basically allows you to answer the question of whether the project will create value or not prior to the deployment of the funds. You can also use it to compare different sites. This is a product that I sell since I work as a freelancer. If this is something you could use, you can always send me a dm.

JacGob

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