Navigate Startup Course
Estimating revenue and costs
Section 4 Module 9
By the end of this module, you should be able to:
- Explain the cost structure of a business
- Estimate the startup costs for your business and the operating costs over the next 90 days
- Determine any startup funding required
At this point, you should have a validated business model, some degree of product-market fit, and a validated MVP. If this is the case, then you are ready to start thinking of costs! If not, then you should wait before completing this section.
Costs are inevitable in starting a business, and the more resourceful entrepreneurs can make each dollar stretch as much as possible! Costs are also attached to many of the things that we can measure and manage in an organization. The video by Steve Blank below explains measuring metrics that matter:
Metrics that Matter
Give some considerations to what metrics that you can use to measure the progress of our startup. This is very important, since these metrics can help you spot problems early and continue adjusting.
Costs generally fall under two broad headings: fixed costs and variable costs. If you remember from the first section of the course, fixed costs are those that do not change depending on how much of your product that you sell. Variable costs will increase with the more product you sell. The balance between these types of costs is called the cost structure. As a general rule, the higher proportion of fixed costs in a business leads to a higher break-even point, but more profitability once that point is crossed. A business with a higher proportion of variable costs has a lower break-even point, but will make less money as they move beyond that point. Have another look at the video that explains costs from the first section of the course:
Now it is time to estimate your own costs. This will likely take some online searches, and some discussions with any suppliers/landlords etc. The more accurate you can be in these estimates, then the better off you will be, as this will also determine and accurate level of funding for your startup. The details count here! Use the table below to estimate your costs. Table 1 is your initial setup costs, and the other table is for the costs for the first 3 months of operations.
- Complete the above cost structure exercises to estimate how much funding you need for your startup.