The purpose of this simulation is to demonstrate the implications of forecasting sales without consideration for how much it cost you to acquire a lead and how much you have available to spend. A common mistake in sales forecasting is to define your # of expected sales leads based on your total market size and your assumption regarding the % of that market you can reach.
This model demonstrates the forecasting impact to defining the # of expect leads based on how much it cost you to acquire a lead and how much you have available to spend.
Important Variables:
1. [UseLAC?] (set to 1 to use the lead acquisition cost to define your reachable market; use 0 to set the reachable market to equal the total available market size)
2. LAC (should equal what it cost you to acquire a lead)
3. SalesMarketingBudget : how much you have available to spend on customer acquisition
Other Variables:
4. Price : Avg spending amount per new customer
5. Total Available Market : Total available market size
6. Conversion Rate : the % of your target market that will become a lead
With Cloud becoming the operating word, many Purchasing Managers have to deal with a variety of contracting types. At a basic level, there are two kinds - subscription contracts and consumption contracts.
Subscription contracts require you to commit to a certain volume upfront for the contracting period. This does not depend on the actual consumption. In contrast, consumption contracts let you pay based on the actual consumption.
On the face of it, it looks like Consumption Contracts are better. However, consumption contracts come at a premium. The question is - how much of the premium is justified for the consumption contracts given certain demand uncertainty?
This is a basic model that lets you understand the dynamics. The demand has uniform distribution between a minimum of 90 and a maximum of 100. Subscription contract is priced at a monetary unit of 100. Consumption contracts command a premium for the flexibility they are offering. You can play with the premium (it is a premium you are paying over 100) by moving on the slide bar and see how the costs of subscription and consumption are shaping up.
Simple model used to assess the likely outcome of Revenue and Profit due to variability of purchase price, price impact on Units Sold, and Units Sold impact on Unit Cost.
