Summary: We use Python to make a financial calculator to help media startup founders to find out the break-even point of their business model. In other words, it can estimate how many visitors should they acquire to become profitable. We will also show you how to numerically solve the equation and study the sensitivity of key operating parameters, like member fee and CPM of Ads.
Start up A New Business
First of all, you should start up your new business. As all of our group members will graduate from the communication school of HKBU, we want to start up a new business together in the media industry. After doing analysis about the industry and competitors, we decided to found up a news website about new technologies, innovations and application in the media industry.
Basically, our business model is like this. We produce high-quality content in different formats to help our target audience to know what is the newest trend and hot topic in the media industry. and on the monetization side, we have two ways to get revenues. The first is by combining ads into our website like feed ads, and the other way is by charging the subscription fee for exclusive content.
Before we start to find investors, however, we should first get to know how much money is needed to make the website work.
Set up Your Business Plan
On the one hand, we should point out the cost, which combines the content cost and other cost. Expected content cost is roughly 70000 yuan in the first month, and other cost such as labor cost and server cost is 30000.
On the other hand, our revenue comes from the charge of advertisings and subscription. In the first month, the expected ads revenue is 1 yuan per person (according to the charge rate in China’s market: 120 yuan – 320 yuan/CPM). 10% of website visitors expected to become our subscribers, and we charge the subscribers 15 yuan per person per month. In addition, we choose to use cloud computing because it can achieve coherence and economies of scale by sharing of resources. And then we have extra cost to calculate. When the number of visitors is larger than 50,000, with one more increment, it will cost us 0.1 yuan more for the cost of cloud computing.
Redefine Your Business Plan
Model 1: Basic Calculation
When the number of visitors is equal to 20,000, 40,000 and 60,000, calculate our net income respectively.
Skills required: Basic python codes for calculating
Model 2: Solve the break-even point
We want to know what the number of subscribers is when we begin to make a profit.
Skills required: For Loop
Model 3: Explore the design space
After those 2 practices, we can see that it is convenient to examine your business model with python and see if it is reasonable. Except for the above-mentioned cases, we can apply it to more realistic situations. You can change variables(member fee, ad revenue, convert rate, cloud server fee…) and see how it goes with your business target and plan. In reality, there are different product positions to target different groups of audiences. Below are two examples targeting different audiences.
One is that If you want to target some special and niche audiences with the higher ability of consumption, like the information, then your target market will be limited into a small size, therefore, you should raise your subscription fee to make it profitable. You can change the number of subscribers to calculate how much subscription fee should be to make money.
Take the information as an example, assume that we can have a maximum of 10,000 subscribers, if the fixed cost is 300000HKD. Calculate how much should we charge for a subscription to get the break-even point.
Answer：member fee = 290
Another situation is that if you want to target mass audiences and monetize from other methods, for example, getting more audiences by lowering the subscription fee so that you can get more ads revenues, like Headline Daily, then you can just set your subscription fee lower or set your subscribers size larger and see how it goes with your business model.
Take Headline Daily as an example, assume that we want lower the subscription fee to get more audience, if the fixed cost is 100000HKD, and there is no subscription fee. Calculate how many viewers should we get to reach the break-even point?
Answer: subscribers = 105556
After calculation, you can compare your business plan with your rivals’ and see if it is competitive or worth to invest, and after that, you can make the conclusion whether you want to continue doing this business.
Some problems you may encounter
- When we use ‘if’, please do not forget the colons,
- The problem of indentation.
- We must define some function or variables first if we want to use them later.
- The logic of ‘if’ and ‘for’, for example, in task 2, this version cannot get the right answer because the logic between the last 2 line and the earlier is wrong.
- CPM criteria in China
- DIGITAL IN 2018：https://wearesocial.com/blog/2018/01/global-digital-report-2018
- Cloud computing: https://en.wikipedia.org/wiki/Cloud_computing
- Ali Cloud pricing: https://www.alibabacloud.com/zh/starter-packages/general?spm=a3c0i.7919406.709264.dzcube1.4651c35fHQZv9G
Author/ Yucan Xu, Yanhua Chen, Yu Peng
Editor/ Pili Hu