Financial Modeling · Financial projections

How many customers do I need in the first year of operation?

Chizoba A. Founder | Travel Expert | Operations | Recruiting | Creative

August 15th, 2018

When in the pre-seed stage most numbers are based on statistics & assumptions based on calculations. Yet my revenue numbers still feel unrealistic based on market research numbers.I do not know how to be realistic without numbers to back it up; only way I see is to release my product into market in order to get the actual metrics needed.


I based my assumed first year customers count based on the amount of travelers coming into NYC - 62M & know my first year customers will not reflect that.Has anyone run into this dilemmna before or know an alternative approach? I want my pitch deck numbers & executive summary numbers to feel real. Do I just base my assumed customer in the 50K - 100K range & do from there?Could use all the help I can!

Alexandre Azevedo Founder of The Traction Stage Blog & Podcast

August 15th, 2018

Hi, Chizoba! Nice to meet you.

I would suggest you some other criteria that you may use to refine your numbers:

Similar/competitors' apps growth in the first year: understanding the growth rate of apps in the same industry or that share some characteristics with yours may help you on having a notion of the growth you should consider. Let's suppose you find 3 similar apps and that acquired in the first year: 1k, 5k and 10k users. Then, saying you will acquire 100k might be too much. Of course, it's just a sense, not a rule.

How is your first customers profile like: Try to better define who will be more likely to jump on board first. Are these first customers women or men? Teenagers or Adults? They live in the city or abroad? Once you have the answer for these and other similar questions, you may know how many people there are in this range. It is not the final number, but again it could give you a better sense and consequently a better pitch numbers argumentation.

Conversion rate x marketing budget: if you have already performed some previous tests with your potential customers you might have a notion about your conversion rate. For example, if you've built a landing page that collected email addresses from interested people, you may know how many people registered their emails from the total number of people exposed to your landing page. Yet, if you've performed some ad tests you may know how many people saw your ads x the number of people that went to your landing page. Consider the conversion rate(s) you've got from these numbers and apply the amount you'll invest in marketing. So: marketing budget -> number of people exposed to ads -> number of people that go to your landing page -> number of people who download your app.

Just some ideas... I hope any of those can help you some way.

Good luck and success!

Alex

Chizoba A. Founder | Travel Expert | Operations | Recruiting | Creative

August 16th, 2018

Hi Alexandre,


Thanks for sharing! Have a couple of questions:


Where can I find first year growth of my competitors? SimilarWeb is a good tool but it does not break down or show the growth rate.


I have my customer profile broken down. I know how many women live in NYC & how many tourists come into NYC but there is no breakdown on how many women travel to NYC per month/year. Is there a way I can get a reasonable number out of the info I current have?


Even with the conversion rate, there is no guarantee they will also be buyers. This is similar to having followers on your startup social media channels. The landing page provides little amount of info, enough to get a visitors attention but the product can be way better than they predicted which will increase people to buy.


Was that a formula you were trying to send me? I'm a bit confused.


__________________________________________________________________


Hi Mogens,


Thanks for sharing!


"Ways to estimate

To come up with a qualified guess you could interview 10 potential customers. Ask them whether they want to buy your product instead of the one they are using at the moment. Hopefully, 50% will say yes."


After you figured out the ratio of how many people are willing to pay where do you go from there? What other info/metrics needs to be considered & what formula would be used to do so?

Alexandre Azevedo Founder of The Traction Stage Blog & Podcast

August 16th, 2018

Hi, Chizoba!

So...

Where can I find first year growth of my competitors? There is not something so direct as that. Hence, I suggest you to check two information from similar apps/competitors: Launch year and number of downloads. You have the number of "installs" on Google play, but not in App Store. Maybe you'll find that information in some of these apps websites. Well... yes, you'll have to mine the information. With some notion about these two numbers you may try to estimate their growth.

Is there a way I can get a reasonable number out of the info I current have? Well, the word "reasonable" is the most important one for what you're trying to do. For example, there is this report that shows information about US travelers:

All US Travelers: ~ 33 Million

Port-of-Entry New York: 14%

Female adults: 50%

Than you may assume New York Female Adults: 2.3 Million. (33 x 14% x 50%)

Of course, we can say "but this is a 2015 report." or "50% women is for all population, but the proportion might different in NY", etc, etc... However, when you have no numbers and no source to get them perfectly, use your best estimate. Something reasonable, as you've said.

Even with the conversion rate, there is no guarantee they will also be buyers. Yep. No guarantee. You're right. However, your landing page represents the visualization of your product and, therefore, you should be able to check the level of excitement your target customers have towards your product. Conversion rates may show that, but they are just the beginning of your rationale, not the end.

Was that a formula you were trying to send me? I'm a bit confused. Actually, it was a generic marketing funnel. Just to reinforce my conversion rate point. :)

I hope it helps you somehow.

Best,

Alex