Obviously revenue will be generated as some function of the absolute numbers of user conversions. A 200% lift from a small starting conversion number is not nearly as valuable as a 200% lift from a large starting base.
Question 3 (For analysts/investors) – How confident are you in your funnel forecast?
Sales funnels are intoxicating for analysts. The ability to build a spreadsheet model of the funnel often creates a degree of confidence about the outcome that wouldn’t exist if the forecast was done on the back of an envelope.
The modelling process involves:
- Generating starting assumptions for the various elements of the funnel filter – users/conversions/price per conversion etc.
- This is then dragged and dropped across the page with suitable growth assumptions.
- Finally, the forecast is copied and pasted down the page to reflect the various paid programmes and verticals that the company is targetting.
As they undertake this process, analysts need to ask the following questions:
- Based on what I know about the funnel (see questions above) are my starting assumptions realistic?
- Does the way in which the company presents data (see comments above) increase/reduce my confidence in my starting and forward assumptions?
- Is the timeframe upon which results have been delivered to date (e.g. product launched CY 15, original Pilots announced mid CY 16) reflected in my forecasts about how quickly monetisation will occur?
- To what extent have my forecasts been biased by company guidance and comments?
The Moroccan Bargaining Technique
This last question relates to an experience I had many years ago bargaining for a hat in a Moroccan Bazaar. The vendor offered 20, I haggled him down to 5, thinking I’d won a great deal. I was later told “market price” for the hat was 1.
Pyschologists call this anchoring, where we get attached to the first number (regardless of relevance) that is presented. In the case of Updater, analysts should consider carefully how their forecasts have been impacted by anchors provided by the company. These include various bullish estimates of “revenue opportunities” for “discussion purposes” only.