Speaker 1: There's lots of ways to model financial revenue and today I'm going to show you three easy ways to do it. One super easy, one kind of medium and one hardest but still pretty easy to be honest once you get grasp of the concept. So let's start with the easiest one. What I've done here is I've laid out the historical financials for a mock company. So you can see here just the revenue $1 million, $1.15 million, $1.375 million in 2020, 2021 and 2022 respectively. And what I've done is just calculated the growth rate. So 2021 divided by 2020 minus one, the same thing in 2022, just dividing it over 2021. You can see the formula there. And the simplest way that actually probably most businesses forecast their future revenue is just apply a future growth rate. So here I've hard coded some growth rates here for 2023, 2024 and 2025 and then just multiplied the previous year's revenue by that growth rate. So you can see that 2020, 2022 revenue times one plus the growth rate and the same thing for 2024 and the same thing for 2025. This is very simplistic. The good thing is there's only really one assumption you're making, what percentage you're going to grow for the next three years, which makes it relatively easy in terms of just the number of inputs that you have and the things that can go wrong. The next method is a little bit more difficult, but again, not that difficult once you understand the concept of it. So what we've done here is the same revenue numbers for the historicals have also put here the number of units sold. So this could be a product company where you're selling widgets and the number of units you've sold for that. Or it could even be applied to a service company where you charge by the hour or this could be instead of units sold, projects sold or whatever it might be. So here again, I've hard coded the number of units for those historical periods. So in 2020 we sold 500 units, in 2021 we sold 550 and in 2022 we sold 600. And from that I've basically implied what was the average price per unit. So dividing the total revenue by the number of units sold gives you the average price per unit. And I've done that every year here. So now you have two components to forecast. What we're going to do, grow the number of units sold. So historically we've grown at 10% and 9%. This company in particular feels really good about growing it by more in 2023 and then that trailing off. So 15% in 2023, 10% in 2024 and 8% in 2025. And you can see the result there. The previous year times 1 plus the growth rate. Every year doing that. You can see how that works out. And then the other thing is, well what's going to happen to the price? Well we've forecasted the number of units. Units times price equals revenue. So here again, we've hard coded the growth rates that we assume. The price has been going up, it went up more in 2022. Maybe because of inflation you think you've got a couple of good years of growth in the pricing as well. And the same math works. So you just take the previous year's price times 1 plus the growth rate. And then you multiply those two things out against each other. So number of units times average price per unit equals the revenue for the year. And then you can see how that works every year. Now let's turn our attention to the hardest method. And again it's still pretty easy, especially when you break it down into the different components. This is basically essentially the same as the medium one that we just ran through. But instead of just doing it on a blended basis across all of the products that you have in the company like we did on the last example. This is breaking down each individual product. And so we're doing the same math that we did last time. But you can see here we have product 1. Where we do that math of the number of units sold times average price equals the product 1 revenue. And we do product 2, the same math again. And we add those up to get to total revenue. Now if you had 150, 200 different products and some of the products you only sell a couple of units of, it really doesn't make sense to break it down by every single individual product. But there might be groupings of products that you can break it down into instead. And I recommend like kind of you know any more than 5 to 10 different groupings or products would be pretty hard to model and then way too many assumptions. So if you can kind of keep it to 5 to 10 different groupings that's probably the best way to model. And I'm not going to run through the math again because it's exactly the same as what we just did. The only difference and I think I just want to highlight this here is what this actually tells you. So we've got the same math here where it adds up to the same amount of revenue. And then we project out the number of units based on the growth rate and the price for product 1 and the number of units and the price for product 2. But the trends highlighted by breaking it down by these individual components really shows a business owner much more information about their business but also helps them plan much more, much better. So what you can see here is we've got two products. One that is growing in units. So 19% growth in 2021, 37% growth in 2022 with pretty steady pricing. Not really changing that much. And then we've got a second product that is in definitely in decline. You can see the number of units has declined from 100 to 50. At the same time probably because these things are kind of becoming obsolete and there's not really many places to get them, product 2 is increasing in price. And this just shows you a lot more trends in terms of, you know, on the last page where we did a blended average, you really couldn't see that this trend of one product that's really growing at a good pace and one product that's in decline. And this might help you make different decisions. You might actually focus more on product 1 and really accelerate the decline of product 2. Or product 2 could be much more profitable because of the pricing and you can figure out a way to kind of extend the life of that. But I just think this shows up so much more information than you have than just looking at it on a blended basis or just a growth rate like we did in the first example. Lastly, let's go do a comparison. So this is the same math, you know, each of those see easy, medium, hardest and what do each of those produce? So the historicals are obviously the same and the projections is what changes. And you can really see, interestingly enough, they don't change that much from year to year. They're pretty consistent. You know, if you model things out by the product, you get a higher number in 2023 than you do for the other two examples, but then it kind of closes the gap and then it becomes the medium one over time. But what I would say is, while it is harder to do and there are more assumptions going into it, this method, the hardest method, is probably the most accurate way to do it. And it's going to take a lot more time to model it out, but it's definitely worth it. Anyway, I hope that was helpful. We're going to be bringing out more videos on how to model financial models in the coming weeks. And subscribe to the channel if you like the content and definitely comment below if there's anything that you would like me to go through or any videos you'd like me to add.