Travis,
Excellent point. My suggestion does not match your model.
My model is different, as I am the financers of our radio equipment.
I've paid cash in full upfront for every radio.
My cash flow model sucks, but at the end of the first year, its all profit.
(All our sales must be a 1 year or less total ROI to accept.)
(Well maybe not all profit as there is maintenance and support).
The point I was making is that not all business model have the reoccurring
cost proportional to the revenue for life.
Some business models allow for teh reoccuring costs to go away after a
certain time, or atleast not to continue to grow at the same rate as the
revenue does.
This is when profits are realized. For example in our business model we had
huge upfront tower leases. It was tough, and showed negatively on our books.
But now that I have them covered in my cash flow positive business, I can
continue to grow my customer base without continueing to increase my tower
lease costs. Therefore allowing for a higher rate of profitabilty later in
the road. Another example is our routers. We spend a lot of money on R&D
for our routers, and in our growth stage we lost financially. Not enough
volume to recognize the savings of owning the intellectual property of our
own routers. However, as we grow our client base, our costs for router
equipment does not grow with it, as they scale to high capacity and the cost
involved to add new routers is cheap now, since a large poirtion of the R&D
stage is over.
So maybe a better way to evaluate is...
Total profit per sub, based on the life of the CPE???
If you finance your CPE for 3 years, and your business model estimates a CPE
replacement every three years, you could ask your self what percentage of
the revenue over 3 years is profit after paying the CPE lease? Or what ever
criteria you want to use for cost. When other companiess were looking to
buy us, we put a higher value on our subs, as it took less cost to maintain
the revenue long term.
Anotherway to look at it is....
You can't look at a company's profitabilty based on totals to date, bundling
all years. You must seperate the years. The total profit that can be made
over 5 years from the subs that were installed this year is.... This allows
the consideration of total company costs. But does not allow the higher
growth rate spending to scew the perception of the companies successes.
Or maybe another way to word this is....
Average ARPU means nothing, unless it is disclosed with additional data that
shows Average Cost Per User.
I don't care how the financial model is structured, as long as the revenues
and costs are considered in the same manner, and can be compared to
determine average profit.
Ultimately determining the rate at whcih average profit per users grows or
drops will define a companioes long term profitabilty or viabilty to stay
alive.
Its also possible a model will result in a decrease in profit, if retails
prices drop in the future due to competition, or higher failure rate is
acheived than anticipated.
This is the whole concept of VC lending. That in 5 years one will ahve
atleast 500% return on investment. Meaning as a company grows, it has the
ability to become more profitable.
Matt, used an example of Vonage, that did not show profits. But if that were
the case with all investments VCs would not be in business. A certain
percentage of them do very well and are very profitable. Thats what VCs are
banking on. Some will be highly profitable. A company that is highly
profitable, and does not sacrifice in other areas, will most likely sell for
higher. Not in all cases, as profitabilty can be used to mislead the status
of a company. For example if necessary upgrades are bypassed to show higher
profitabilty, when in truth its neglect resulting in reliabilty and
performance being sacrificed. A run down network so to speak. Thats why I
think there is no real answer on how to evaluate a company based on jsut
comparing wether a number is higher than another in one specific area.
A successfull business is one that has many areas that are balanced as far
as numbers reached.
Tom DeReggi
RapidDSL & Wireless, Inc
IntAirNet- Fixed Wireless Broadband
----- Original Message -----
From: "Travis Johnson" <[EMAIL PROTECTED]>
To: "WISPA General List" <[email protected]>
Sent: Tuesday, May 30, 2006 10:54 PM
Subject: Re: [WISPA] This is HUGE!
Tom,
There is no such thing as "average profit per sub after ROI period". Let
me give an example:
I lease all my CPE. It is a recurring monthly debt that will never go
away. Even after 3 years, when I own the CPE, there will be new CPE that
needs purchased... and thus new towers, new AP's, new backhauls, new
routers, new bandwidth, new whatever. Even if I move that paid for CPE to
a new customer on the edges of my network, there are still costs mentioned
above for that customer.
Maybe I'm not thinking the same as you, but I can never see an "after ROI
period". It never happens.
Travis
Microserv
Tom DeReggi wrote:
I agree current profit is irrelevant, when considering company totals
during the early growth period.
But calcualted future Profit clearly is relevant, as far as how much
profit will be made per sub, and how soon.
Profitabilty can be misleading when jsut considering accounting paperwork
(profit loss / balance sheets)
I'll give an example:
Lets say a company gets an ROI in 1 year. And had 4 years of selling
subs. And by the 4th year, profit would be being made from each sub.
But then lets says a company had a 100% growth spurt in the 5th year. And
lets say there is a 1 year ROI, meaning 12 dollars needs to be spent for
ever new dollar that is made. Because the growth rate of the company is
so much higher in the later year, the expendatures are far greater than
the revenue comming in from the samller customer base taken on the first
4 years. Thus, it appears the company is losing money and not profiting.
When in actuallity, the company has record high success. All
pre-existing subs ARE 100% profitable, and lot of new growth has been
made to replicate the previous years successful model.
So yes, profitable books may mean a company is not growing and not making
new sales.
However, showing the average profit per sub, after the ROI period is a
VERY relevant bit of information. Its what defines the value of the
business model in my mind.
In other words:
Forcasted Profit margin based on current years proven track record.
Tom DeReggi
RapidDSL & Wireless, Inc
IntAirNet- Fixed Wireless Broadband
----- Original Message ----- From: "Matt Liotta" <[EMAIL PROTECTED]>
To: <[EMAIL PROTECTED]>; "WISPA General List" <[email protected]>
Sent: Tuesday, May 30, 2006 6:19 PM
Subject: Re: [WISPA] This is HUGE!
Profit is irrelevant for an early stage growth company.
-Matt
Peter R. wrote:
Because number of subs is the measuring stick.
Revenue is more important; but profit is the most important.
Not many can speak to profit, so they measure in subs.
- Peter
Matt Liotta wrote:
Not sure why the number of customers is even important when the
quality of customers can vary so wildly. I run into WISPs regularly
whose ARPU is barely above $100. At 1000 customers an ARPU of $100 is
only $1.2M per year. That's a lot of radios and a lot of customers for
very little revenue. Compare this to CBeyond, which is an
Atlanta-based CLEC that in recent time went public. Today they have
about 17,000 customers, but their ARPU is $761. With just 1000
customers, an ARPU of $761 would be worth $9.1M. Or to look at it a
different way, with 17,000 customers an ARPU of $100 would only be
$20.4M compared with the $155.2M they pull in now.
A WISP would be wise to raise their ARPU as opposed to the number of
customers.
-Matt
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