# Revenues

The default revenue model in the Standard Financial Model is prebuilt to handle a wide variety of business models. Here's an explainer on how it works.

The `Revenues` sheet is the core revenue model in the [Standard Financial Model](https://www.hemrock.com/standard-financial-model), built to work for a wide range of revenue models. For business-type specifics:

- [SaaS](https://www.hemrock.com/docs/saas-standard/)
- [Ecommerce](https://www.hemrock.com/docs/ecommerce-standard/)
- [Marketplaces](https://www.hemrock.com/docs/ecommerce-standard/)
- [Services and Consulting](https://www.hemrock.com/docs/services-standard/)
- [Hardware](https://www.hemrock.com/docs/hardware-standard/)

The `Revenue Model` assumption on `Get Started` selects which prebuilt structure drives the `Revenues` sheet.

> Modifying or replacing the prebuilt revenue model with [custom revenue streams](https://www.hemrock.com/docs/integrating-models/) is common. You don't need to change the `Get Started` selection to do that.

## How to use

The prebuilt revenue model lives across two sheets:

- `Get Started` — the primary inputs, the main place you interact
- `Revenues` — calculations and more detailed assumptions

The model uses **progressive inputs**: core inputs on `Get Started`, full detail on `Revenues`. The revenue model can run entirely off `Get Started`, but `Revenues` lets you apply [drivers](https://www.hemrock.com/docs/drivers/) to change inputs over time and add custom logic.

## How it works

At a high level: grow a metric, convert it into another metric, model retention (churn), and calculate revenues and billings from it. Metric labels are inputs on `Get Started`. Calculations shift based on the revenue model selection (recurring, ecommerce, marketplace, etc.).

The model supports one or (optionally) two customer segments (personas, subscriber types, contract cycles, pricing tiers). `Revenues` links into `Forecast`, which carries the calculations through the rest of the model, statements, summary, and reporting.

### Revenue model selection

The `Revenue Model` options:

- **Recurring** — SaaS or subscription. Contract cycle length (1, 12, 4 months) defines the period.
- **Transaction** — ecommerce, physical commerce, hardware. One-time or repeat.
- **Marketplace** — earn a portion of gross transaction value. Set the primary revenue metric to GTV per revenue unit, then use the take-rate. Select this only if the revenue model _is_ a take rate; marketplaces running subscription or transaction pricing should use those options.
- **Advertising** — CPM or CPC. Mathematically equivalent to recurring; label revenue metric as ARPU.
- **Financial services** — businesses that track account balances.
- **Top-down from market size** — same math as marketplace. Revenue metric is market size; take rate is your share.
- **Not applicable** — zeros out revenue calcs. Use if you're building your own revenue logic.

### Modeling growth

The first `Get Started` section models growth.

Labels:

- **Operational metric** — default `Growth Units`. Change to fit your business (e.g. customers, leads, sessions, MRR).
- **Revenue metric** — default `Revenue Units`. Change to fit (subscription, customer, order, contract). Can match the operational metric to skip conversion.
- **Revenue model selection** — sets the logic. Labels can be edited; adding new types requires supporting logic.

Growth and acquisition assumptions:

- **New Growth Units in first month** — starting growth curve.
- **Starting date** — will assume a full first month regardless.
- **Initial growth rate** — percentage for the first month.
- **Growth rate change per month** — creates a curve that changes over time.
- **Seasonality** — yes/no, uses [seasonality](https://www.hemrock.com/docs/seasonality) on `Get Started`.
- **Viral coefficient (K)** — virality per period. Invites per user * conversion rate.
- **Cost per Acquisition (CPA)** — optional, per paid growth unit.

### Modeling conversion and retention

Conversion:

- **Conversion rate per Growth Unit** — percentage or number per growth unit.
- **Same period or with lag** — 0 converts same month; 1 converts one month later.
- **Seasonality** — yes/no.

Retention:

- **Revenue Units segments** — splits conversion into up to 2 segments.
- **% Churn Rate** — paired with the contract cycle below.
- **Cost per Retention** — optional, per paid revenue unit.

### Modeling recurring and transaction revenues

Revenues and cash:

- **Revenue Units at end of \[start month\]** — starting customer count. Growth inputs cover _new_ units; this sets the opening balance.
- **Average Revenue per Revenue Unit per period** — label only; overwrite the formula if useful.
- **Billed every N months** — billing cycle.
- **Billed in full %** — optional. Split of contract billed upfront vs at end.
- **% of average revenue per unit as revenue** — optional.

### Linkage to Forecast and MRR/ARR reporting

Standard Financial Model / Linkage to Forecast sheet, and MRR and ARR reporting

## Common Modifications

The prebuilt revenue model is highly customizable:

- **Additional growth channels.** Add them on `Forecast` with whatever logic you want, then sum into the total used for conversion.
- **Additional revenue streams.** Use the [drivers](https://www.hemrock.com/docs/drivers) in the revenues section on `Forecast` to model revenues off any operating metric (e.g. # of subscribers * avg monthly revenue).