1
00:00:00.000 --> 00:00:06.100
The third topic in the final session is "Break-even point"

2
00:00:06.100 --> 00:00:08.200
Have you heard about Break-even point?

3
00:00:08.200 --> 00:00:13.200
We are going to talk about 
the Break-even point mainly in this session

4
00:00:13.200 --> 00:00:16.200
But before we go into the Break-even point,

5
00:00:16.200 --> 00:00:21.200
I want to give you a hypothetical startup situation

6
00:00:21.200 --> 00:00:27.000
 that helps you to understand 
the balance sheet and income statement

7
00:00:27.000 --> 00:00:32.080
Do you remember the hypothetical situation
in the previous session?

8
00:00:32.080 --> 00:00:38.759
We started AI-based online tutoring service

9
00:00:38.759 --> 00:00:48.720
which CEO Tom started company 
with CFO Greg and CMO Rachel

10
00:00:48.720 --> 00:00:52.020
This was the situation that they met together

11
00:00:52.020 --> 00:00:56.000
and discussed about the income statement 
and the balance sheet

12
00:00:56.000 --> 00:00:58.200
Let's look at the cartoon

13
00:00:58.200 --> 00:01:03.279
I asked the Chat-gpt to draw the cartoon style scenario

14
00:01:03.279 --> 00:01:08.800
Tom says, 
"We need to build five years projections"

15
00:01:08.800 --> 00:01:10.500
Five years projection means

16
00:01:10.500 --> 00:01:14.700
thinking about what will happen after five years

17
00:01:14.700 --> 00:01:19.000
how our income and costs will change

18
00:01:19.000 --> 00:01:24.800
Basically, you should guess those numbers

19
00:01:24.800 --> 00:01:27.400
based on realistic assumption

20
00:01:27.400 --> 00:01:33.500
Greg says, 
"Okay, let's start with assumption for revenue growth"

21
00:01:33.500 --> 00:01:39.100
Then Rachel says, 
"I have some ideas for expanding our user base"

22
00:01:39.100 --> 00:01:46.100
The CFO Greg started explaining the financial structure

23
00:01:46.100 --> 00:01:47.600
He says, "I will go first

24
00:01:47.600 --> 00:01:52.000
I've structured the financial model 
around the two revenue streams

25
00:01:52.000 --> 00:01:58.000
The first one is B2C premium subscription 
business model to the individual consumers

26
00:01:58.000 --> 00:02:07.500
Second one is B2B software as a subscription

27
00:02:07.500 --> 00:02:09.400
licensing fee to the private academia"

28
00:02:12.800 --> 00:02:16.559
We have many private educational institutions

29
00:02:16.559 --> 00:02:19.800
We say it, private academia

30
00:02:19.919 --> 00:02:23.440
We license our software to the private academia

31
00:02:23.440 --> 00:02:26.700
This is kind of B2B

32
00:02:26.700 --> 00:02:28.200
Then there is assumption,

33
00:02:28.200 --> 00:02:33.700
year 1, we can achieve $50,000 as a one-year revenue

34
00:02:33.700 --> 00:02:36.440
What about five years later?

35
00:02:36.440 --> 00:02:43.639
For five years revenue, we will achieve at least $6.5M

36
00:02:43.960 --> 00:02:50.200
This is a very ambitious revenue target

37
00:02:50.200 --> 00:03:00.000
Monthly average revenue per user is $8

38
00:03:00.000 --> 00:03:05.000
If we make a contract with the private academia,

39
00:03:05.000 --> 00:03:10.000
we get $400 per month per institution

40
00:03:10.000 --> 00:03:14.600
CAC means consumer acquisition cost

41
00:03:14.600 --> 00:03:21.200
Consumer acquisition cost is an average 
of $25 to get one individual consumer

42
00:03:21.200 --> 00:03:30.350
We should pay at least $600 as an average cost 
to get one private institution

43
00:03:30.350 --> 00:03:31.880
Now we understand that

44
00:03:31.880 --> 00:03:35.800
Annual churn is 30%

45
00:03:35.800 --> 00:03:39.600
30%(B2C), 15%(B2B) mean

46
00:03:39.600 --> 00:03:46.000
70%(B2C) of our existing consumers 
will continue using our product

47
00:03:46.000 --> 00:03:55.200
85% of our B2B consumers will continue using our product

48
00:03:55.200 --> 00:03:58.399
This is the opposite of the retention rate

49
00:03:58.399 --> 00:04:01.899
He lists the assumptions

50
00:04:01.899 --> 00:04:07.700
when he calculated a five-year income statement

51
00:04:07.700 --> 00:04:12.100
Then he prepared a five-year income statement projection

52
00:04:12.100 --> 00:04:20.640
Year 1: $500,000, and by Year 5, 
we will achieve $6.5M in revenue

53
00:04:20.640 --> 00:04:26.000
This is a cost based on our consumers

54
00:04:26.000 --> 00:04:29.200
Then, we can get gross margin and total

55
00:04:29.200 --> 00:04:33.519
This is our profit

56
00:04:33.519 --> 00:04:35.800
We expect to have these profits

57
00:04:35.800 --> 00:04:39.600
For example, Year 1, our profit should be negative,

58
00:04:39.600 --> 00:04:41.100
Year 2 should be negative

59
00:04:41.100 --> 00:04:47.600
Year 3, we will achieve a breakeven point

60
00:04:47.600 --> 00:04:52.200
Later, we are going to talk about 
what the breakeven point is

61
00:04:52.200 --> 00:04:57.800
Year 4, we will get the positive $600,000 as a profit

62
00:04:57.800 --> 00:05:02.300
Year 5, we will get $1.8M as profit

63
00:05:02.300 --> 00:05:06.440
It has not happened yet

64
00:05:06.440 --> 00:05:09.079
This could happen later

65
00:05:09.079 --> 00:05:13.200
This is a kind of projection

66
00:05:13.200 --> 00:05:14.600
What kind of projection?

67
00:05:14.600 --> 00:05:17.200
Income statement projection

68
00:05:17.200 --> 00:05:18.700
When you meet your investor,

69
00:05:18.700 --> 00:05:22.079
you should prepare an income statement

70
00:05:22.079 --> 00:05:24.500
for at least three to five years of projections

71
00:05:24.500 --> 00:05:29.000
Rachel says, "We will need a marketing budget,

72
00:05:29.000 --> 00:05:34.800
as soon as possible to meet these numbers"

73
00:05:34.800 --> 00:05:43.440
Let's assume we raise a Series A in Year 2 to cover expansion

74
00:05:43.440 --> 00:05:48.000
Good idea, I will finalize this into 
the visual income statement

75
00:05:48.000 --> 00:05:51.800
Before we we meet the investors

76
00:05:51.800 --> 00:05:55.700
This is how we use the income statement

77
00:05:55.700 --> 00:06:02.300
After meeting with the investor, Greg says, "All right,

78
00:06:02.300 --> 00:06:05.100
as part of our fundraising preparation,

79
00:06:05.100 --> 00:06:11.600
Investors are requiring a balance sheet

80
00:06:11.600 --> 00:06:14.200
They ask us to provide the balance sheet

81
00:06:14.200 --> 00:06:15.700
Do you remember what the balance sheet is?

82
00:06:15.700 --> 00:06:19.700
There are assets, debt, and equity,

83
00:06:19.700 --> 00:06:21.500
balance sheet is a kind of snapshot

84
00:06:21.500 --> 00:06:27.320
Income statement shows business performance 
from revenue to profit

85
00:06:27.320 --> 00:06:33.200
Rachel asks,
"But we already have the 5-year income statement

86
00:06:33.200 --> 00:06:35.900
Why do we need the Balance Sheet too?"

87
00:06:35.900 --> 00:06:38.400
She asks some fundamental questions

88
00:06:38.400 --> 00:06:47.900
Then Greg says, 
"Balance Sheet shows where we are

89
00:06:47.900 --> 00:06:50.839
It's a snapshot

90
00:06:50.839 --> 00:06:58.800
Investors want to evaluate our current financial health"

91
00:06:58.800 --> 00:07:03.200
Then Greg shows the balance sheet of our company

92
00:07:03.200 --> 00:07:05.000
Here it is

93
00:07:05.000 --> 00:07:11.600
Our total asset is $150,000, and our debt, $90,000

94
00:07:11.600 --> 00:07:14.000
This money probably came from the bank

95
00:07:14.000 --> 00:07:16.839
Our equity, $60,000

96
00:07:16.880 --> 00:07:18.030
Put together, the debt and equity

97
00:07:18.030 --> 00:07:21.200
How much? $150,000

98
00:07:21.200 --> 00:07:23.400
Do you remember the balance sheet equation?

99
00:07:23.400 --> 00:07:27.400
Asset should be same as debt+equity

100
00:07:27.400 --> 00:07:34.200
The asset, $150,000, is same as debt+equity, $150,000

101
00:07:34.200 --> 00:07:36.200
It's totally same

102
00:07:36.200 --> 00:07:41.300
We made a great and perfect balance sheet, and it's accurate

103
00:07:41.300 --> 00:07:43.559
What's this? Cash

104
00:07:43.559 --> 00:07:50.600
Among the assets, we had $85,000 as cash

105
00:07:50.600 --> 00:07:54.450
It means $85,000 left as a cash

106
00:07:54.450 --> 00:08:00.400
What about remaining $65,000?

107
00:08:00.400 --> 00:08:11.200
We already spent the $65,000 on other materials, 
such as PCs, working tools, and tables

108
00:08:11.200 --> 00:08:13.440
We purchased these things

109
00:08:13.440 --> 00:08:17.359
In order to purchase these things, we already spent $65,000

110
00:08:17.359 --> 00:08:21.839
But we had those materials in our company

111
00:08:21.839 --> 00:08:25.089
So, tables, tools, all are included

112
00:08:25.089 --> 00:08:28.880
we call them assets, because assets are what we have

113
00:08:28.880 --> 00:08:35.840
What we have are PCs, tools, tables, and our cash

114
00:08:35.840 --> 00:08:40.000
Cash left $85,000

115
00:08:40.000 --> 00:08:44.000
Now we understand how to interpret the balance sheet

116
00:08:44.000 --> 00:08:52.320
Then, Rachel asks again, 
"So our debt makes up more than half of our total asset"

117
00:08:52.320 --> 00:08:54.000
Isn't it?

118
00:08:54.000 --> 00:08:57.250
Yes, our total assets are $150,000,

119
00:08:57.250 --> 00:09:03.960
but our debt exceeds 50% of total assets

120
00:09:03.960 --> 00:09:07.400
"Should we be worried about that?

121
00:09:07.400 --> 00:09:10.840
What will investors think about this portion?"

122
00:09:10.840 --> 00:09:16.540
Greg responded, "That's a fair concern, but

123
00:09:16.540 --> 00:09:20.790
we still have $85,000 in cash,

124
00:09:20.790 --> 00:09:28.100
which means we've got plenty of the runway left"

125
00:09:28.159 --> 00:09:33.459
CEO Tom added, "We're just early stage

126
00:09:33.459 --> 00:09:38.650
We will emphasize that we are managing cash efficiently

127
00:09:38.650 --> 00:09:41.800
while building product and transaction

128
00:09:41.800 --> 00:09:46.800
Then we can persuade our investors, don't worry about it"

129
00:09:46.800 --> 00:09:52.400
This is the meaning of the balance sheet

130
00:09:52.400 --> 00:09:56.600
Now we understand how to interpret

131
00:09:56.600 --> 00:09:59.200
income statement and balance sheet

132
00:09:59.200 --> 00:10:01.700
and how to use income statement and the balance sheet,

133
00:10:01.700 --> 00:10:06.400
and how it looks in the meeting about the financial terms

134
00:10:06.400 --> 00:10:09.280
inside the startup

135
00:10:09.559 --> 00:10:14.400
Now we are going to talk about the breakeven point

136
00:10:14.400 --> 00:10:16.800
What is breakeven point?

137
00:10:16.800 --> 00:10:20.150
Breakeven point is the indication of

138
00:10:20.150 --> 00:10:22.150
how much you need to sell

139
00:10:22.150 --> 00:10:23.700
please remember the word,

140
00:10:23.700 --> 00:10:29.679
how much or how many you need to sell in order to pay

141
00:10:29.679 --> 00:10:39.000
for your fixed investment, your fixed cost

142
00:10:39.000 --> 00:10:47.200
So far, we have discussed about one-time cost and ongoing cost

143
00:10:47.200 --> 00:10:49.000
Do you remember that?

144
00:10:49.000 --> 00:10:52.200
One-time cost is one of the cost that we pay,

145
00:10:52.200 --> 00:10:55.600
and once you paid this money,

146
00:10:55.600 --> 00:10:58.950
then we don't have to worry about the one-time cost

147
00:10:58.950 --> 00:11:02.000
because one-time cost is just only once

148
00:11:02.000 --> 00:11:05.650
Ongoing cost, on the other hand, we should pay regularly,

149
00:11:05.650 --> 00:11:09.150
like a monthly rent fee, and utility fee

150
00:11:09.150 --> 00:11:12.039
This is an ongoing cost

151
00:11:12.039 --> 00:11:14.320
How can we distinguish these two costs?

152
00:11:14.320 --> 00:11:22.735
We can distinguish these two types of 
costs based on regular payment

153
00:11:22.735 --> 00:11:28.235
If we pay regularly, it is an ongoing cost

154
00:11:28.235 --> 00:11:32.835
If we don't have to pay regularly, it is a one-time cost

155
00:11:34.000 --> 00:11:35.479
Do you understand that?

156
00:11:35.599 --> 00:11:38.559
What about fixed cost?

157
00:11:38.559 --> 00:11:41.659
There are two additional types of costs

158
00:11:41.659 --> 00:11:46.200
They are of different types

159
00:11:46.200 --> 00:11:52.000
That costs depend on whether 
they are linked to your usage

160
00:11:52.000 --> 00:11:55.700
For example, the first one is fixed cost

161
00:11:55.700 --> 00:11:59.550
Fixed cost is the cost that stays the same

162
00:11:59.550 --> 00:12:06.450
It means that this cost is a flat cost

163
00:12:06.450 --> 00:12:10.100
No matter how many units of a product or service sold,

164
00:12:10.100 --> 00:12:12.479
you pay this money

165
00:12:12.479 --> 00:12:18.929
For example, you have a room 
and you should pay monthly

166
00:12:20.000 --> 00:12:24.300
In this particular month, you never use your room

167
00:12:24.300 --> 00:12:25.400
because you travel a lot

168
00:12:25.400 --> 00:12:29.599
but you should pay the same rent fee, why?

169
00:12:29.599 --> 00:12:35.700
Because your rent fee is already fixed

170
00:12:35.700 --> 00:12:39.700
Although the rent fee is an ongoing cost

171
00:12:39.700 --> 00:12:41.650
because you should  pay monthly,

172
00:12:41.650 --> 00:12:51.250
this cost is a fixed cost because it is already 
a flat fee regardless of your usage

173
00:12:51.250 --> 00:12:56.000
But some cost is related to your usage

174
00:12:56.000 --> 00:12:58.400
This is called a variable cost

175
00:12:59.039 --> 00:13:03.350
Variable costs can change with 
the number of units produced and sold

176
00:13:03.350 --> 00:13:08.640
The variable cost is a cost that is linked to your usage

177
00:13:08.640 --> 00:13:11.540
For example, the gas fee or utility fee,

178
00:13:11.540 --> 00:13:24.900
Although utility fees like gas fees, 
electricity fees, water fees, are  ongoing costs,

179
00:13:24.900 --> 00:13:29.200
this cost changes based on your usage

180
00:13:29.200 --> 00:13:34.559
You see the difference between 
fixed costs and variable costs

181
00:13:34.559 --> 00:13:40.309
Now, we are going to talk about this fixed cost

182
00:13:40.309 --> 00:13:46.479
and variable cost in order to 
calculate the breakeven point

183
00:13:46.479 --> 00:13:49.429
In order to calculate the breakeven point,

184
00:13:49.429 --> 00:13:51.800
we need to calculate contribution margin

185
00:13:51.800 --> 00:13:53.500
How do we get the contribution margin?

186
00:13:53.500 --> 00:13:57.050
Contribution margin can be calculated by

187
00:13:59.000 --> 00:14:05.300
price per unit - variable costs per unit

188
00:14:06.520 --> 00:14:08.670
So, in order to calculate the contribution margin,

189
00:14:08.670 --> 00:14:18.960
you need to know your price per unit 
and your variable cost per unit

190
00:14:20.719 --> 00:14:22.640
How to calculate the breakeven point?

191
00:14:23.359 --> 00:14:26.309
Once you calculate the contribution margin,

192
00:14:26.309 --> 00:14:28.400
then you can use the contribution margin(in the formula)

193
00:14:28.400 --> 00:14:36.239
Breakeven point can be calculated by 
Fixed costs / Unit Contribution margin

194
00:14:36.239 --> 00:14:37.280
I will give you an example

195
00:14:37.919 --> 00:14:43.039
So, you are a producer of head rack

196
00:14:43.039 --> 00:14:46.239
In order to produce this head rack,

197
00:14:46.239 --> 00:14:49.900
you use a machine for the plastic

198
00:14:49.900 --> 00:14:52.800
Like this, this is the machine for the plastic,

199
00:14:52.800 --> 00:14:57.200
and this is your final product, which is the head rack

200
00:14:57.200 --> 00:14:59.599
Then, how much is the machine?

201
00:15:00.800 --> 00:15:04.719
This machine costs $100,000

202
00:15:04.719 --> 00:15:09.119
In order to start your business, 
you should purchase this machine first

203
00:15:09.119 --> 00:15:12.719
It means you paid this machine already

204
00:15:12.719 --> 00:15:14.900
How much? $100,000

205
00:15:15.200 --> 00:15:20.650
Regardless of the product you made,

206
00:15:20.650 --> 00:15:25.520
you paid $100,000 already

207
00:15:25.520 --> 00:15:28.520
Although you do not use this machine at all,

208
00:15:28.520 --> 00:15:31.000
your money is already gone

209
00:15:31.000 --> 00:15:34.239
because you already purchased this machine

210
00:15:34.239 --> 00:15:37.200
This is a kind of fixed cost

211
00:15:37.200 --> 00:15:41.039
How much is your fixed cost? $100,000

212
00:15:44.000 --> 00:15:45.359
Probably you can pay back monthly

213
00:15:46.479 --> 00:15:50.239
This is your monthly ongoing fixed cost

214
00:15:50.239 --> 00:15:53.439
If you pay this machine with your cash one time,

215
00:15:53.439 --> 00:15:56.800
there is a one-time cost for the fixed cost

216
00:15:57.200 --> 00:15:59.359
Do you understand the relationship?

217
00:15:59.359 --> 00:16:02.880
This is your final product, which is a head rack

218
00:16:02.880 --> 00:16:06.900
You will put the prices, how much? $75

219
00:16:07.119 --> 00:16:10.479
For each unit, you can say $75

220
00:16:10.479 --> 00:16:15.800
Now we need the number of variable cost

221
00:16:15.800 --> 00:16:17.900
You calculate your variable cost

222
00:16:17.900 --> 00:16:20.880
Then you can get your variable cost per unit

223
00:16:20.880 --> 00:16:22.320
How much in this case?

224
00:16:22.320 --> 00:16:24.479
Let's say $22

225
00:16:24.479 --> 00:16:27.229
$22 as a variable cost includes

226
00:16:27.229 --> 00:16:33.840
some electricity, water, salary to make one head rack

227
00:16:33.840 --> 00:16:36.340
This money can be changed

228
00:16:36.340 --> 00:16:43.000
based on your usage of salaries, water, electricity, etc.

229
00:16:44.080 --> 00:16:47.599
We got all the numbers that we need

230
00:16:47.599 --> 00:16:53.100
We know the fixed cost, prices, variable cost per unit

231
00:16:53.100 --> 00:16:56.960
Then we are ready to calculate our breakeven point

232
00:16:56.960 --> 00:16:59.200
How to calculate our breakeven point?

233
00:16:59.200 --> 00:17:00.400
It's pretty easy

234
00:17:00.400 --> 00:17:03.350
Breakeven point can be calculated by

235
00:17:03.350 --> 00:17:07.000
fixed cost / contribution margin

236
00:17:07.599 --> 00:17:09.760
So, how to calculate the contribution margin?

237
00:17:10.319 --> 00:17:15.760
Contribution margin is calculated by 
Price per unit - Variable cost

238
00:17:15.760 --> 00:17:22.000
In this case, price $75 - variable cost per unit $22

239
00:17:22.000 --> 00:17:26.500
Then our contribution margin would be $53

240
00:17:26.500 --> 00:17:29.119
$53 is the contribution margin

241
00:17:29.119 --> 00:17:34.400
Let's go back to the calculation of breakeven point

242
00:17:34.400 --> 00:17:35.760
How to calculate it?

243
00:17:35.760 --> 00:17:37.910
Breakeven point can be calculated by

244
00:17:37.910 --> 00:17:41.280
fixed cost / contribution margin

245
00:17:41.280 --> 00:17:42.959
We got the contribution margin

246
00:17:42.959 --> 00:17:48.400
We have fixed cost $100,000 divided by 
our contribution margin

247
00:17:48.400 --> 00:17:50.719
How much? $53

248
00:17:50.719 --> 00:17:59.359
Then we can get the breakeven point, which is 1,887

249
00:17:59.359 --> 00:18:04.640
Please remember 1,887

250
00:18:04.640 --> 00:18:10.800
This number represents the number of product, not a dollar

251
00:18:11.839 --> 00:18:15.680
So, 1,887 product

252
00:18:16.000 --> 00:18:17.359
What do you mean by that?

253
00:18:18.079 --> 00:18:22.029
In order to reach out the breakeven point,

254
00:18:22.029 --> 00:18:30.000
we should sell at least 1,887 head racks

255
00:18:30.000 --> 00:18:30.800
What do you mean by that?

256
00:18:30.800 --> 00:18:39.390
In order to cover our $100,000 as a fixed cost,

257
00:18:39.390 --> 00:18:43.800
we should sell at least 1,887 head racks

258
00:18:43.800 --> 00:18:47.439
Then later, all the money goes to positive(+)

259
00:18:47.439 --> 00:18:50.039
Before then, all the money could be negative

260
00:18:50.039 --> 00:18:53.500
because we already spent $100,000

261
00:18:53.500 --> 00:18:54.600
Do you understand that?

262
00:18:54.600 --> 00:18:56.800
That's why breakeven point is important

263
00:18:57.760 --> 00:18:59.600
I want to give you another example

264
00:19:00.479 --> 00:19:03.929
When I was in New York City,

265
00:19:03.929 --> 00:19:08.239
I participated in hypothetical business competition

266
00:19:08.239 --> 00:19:15.599
We teamed up and we came up with a hypothetical product

267
00:19:15.599 --> 00:19:24.800
And then, we set the manufacturer's price 
at $89.99 as a retail price

268
00:19:24.800 --> 00:19:30.400
We calculated our fixed cost, which is $85,000

269
00:19:31.199 --> 00:19:34.199
There are several costs involved,

270
00:19:34.199 --> 00:19:39.000
product development, application development, 
molding, packaging

271
00:19:39.000 --> 00:19:44.319
Later, we calculated variable cost per unit, which is $75.5

272
00:19:45.119 --> 00:19:53.900
It includes direct unit cost, shipping cost, 
and other variable costs

273
00:19:53.900 --> 00:19:58.700
Then, we tried to calculate our breakeven point

274
00:19:58.700 --> 00:20:03.359
It is possible because we know 
all the numbers that we need

275
00:20:03.359 --> 00:20:09.760
For example, we know the number of prices, 
the fixed cost, the variable cost

276
00:20:09.760 --> 00:20:15.760
How to get our breakeven point?

277
00:20:15.760 --> 00:20:19.520
Do you remember the equation of the breakeven point?

278
00:20:19.520 --> 00:20:24.800
Breakeven point can be calculated by 
fixed cost / contribution margin

279
00:20:24.800 --> 00:20:27.599
How to get the contribution margin?

280
00:20:27.599 --> 00:20:28.700
It's pretty easy

281
00:20:28.700 --> 00:20:32.239
Contribution margin is price - variable cost

282
00:20:32.239 --> 00:20:34.400
Let's get the contribution margin first

283
00:20:34.400 --> 00:20:46.640
Our contribution margin is, price $89.99 - cost $75.5

284
00:20:47.599 --> 00:20:57.500
Then, contribution margin is $14.49

285
00:20:58.959 --> 00:21:03.359
Now we got the contribution margin

286
00:21:03.359 --> 00:21:06.880
Then how do we calculate our breakeven point?

287
00:21:06.880 --> 00:21:13.119
Breakeven point can be calculated by 
fixed cost / contribution margin

288
00:21:13.119 --> 00:21:13.839
How much is it?

289
00:21:13.839 --> 00:21:17.700
Our fixed cost is $85,000

290
00:21:17.700 --> 00:21:23.079
Then, divided by our contribution margin, $14.49

291
00:21:23.439 --> 00:21:24.959
Then, how much do we get?

292
00:21:25.599 --> 00:21:31.920
5,866 units

293
00:21:31.920 --> 00:21:38.500
This is our breakeven point

294
00:21:38.500 --> 00:21:42.300
It means in order to achieve our breakeven point,

295
00:21:42.300 --> 00:21:47.800
we should sell at least 5,866 units

296
00:21:47.800 --> 00:21:54.000
In other words, in order to cover our 
fixed cost, which is $85,000,

297
00:21:54.000 --> 00:21:58.479
we need to sell at least 5,866 units

298
00:21:59.119 --> 00:22:05.839
Then our investors will probably ask 
when to achieve this breakeven point

299
00:22:05.839 --> 00:22:09.439
How long it'll take to achieve the breakeven point

300
00:22:09.439 --> 00:22:13.119
We need to guess several, the numbers

301
00:22:13.119 --> 00:22:19.359
For example, first quarter, we cannot sell anything

302
00:22:19.359 --> 00:22:24.000
But after three months, we can probably sell, 
though not for sure, 100 units

303
00:22:24.000 --> 00:22:30.000
After six months, we can probably sell at least 1,000 units

304
00:22:30.000 --> 00:22:37.400
By accumulating, we can achieve 5,866 units at some point

305
00:22:37.400 --> 00:22:40.800
Look at this graph

306
00:22:40.800 --> 00:22:45.839
Well, for the first to second week, we cannot sell anything

307
00:22:45.839 --> 00:22:50.079
But after two and a half quarter(2.5Q),

308
00:22:50.079 --> 00:22:54.079
We can start selling our product

309
00:22:54.079 --> 00:22:58.319
We can achieve the breakeven point here,

310
00:22:59.280 --> 00:23:07.520
which is, we can sell 5,866 units around that time

311
00:23:07.520 --> 00:23:12.959
So I think it will take one year and four months

312
00:23:12.959 --> 00:23:17.040
One year and four months later, 
we can achieve the breakeven point

313
00:23:17.920 --> 00:23:25.040
This is the cartoon-style scenario based on

314
00:23:25.040 --> 00:23:32.560
hypothetical business cases, 
which is AI-based online tutoring service

315
00:23:32.560 --> 00:23:37.800
CEO Tom says, "I just got off a call with one of the VCs

316
00:23:37.800 --> 00:23:45.600
They asked us to clearly define our break-even point

317
00:23:45.600 --> 00:23:51.500
they want to know when we'll stop burning cash

318
00:23:54.000 --> 00:23:57.199
Then Rachel says, "That's an important metric,

319
00:23:57.199 --> 00:24:00.319
but for us, it's a little more nuanced"

320
00:24:01.199 --> 00:24:06.479
We're subscription-based businesses

321
00:24:07.359 --> 00:24:16.500
Subscription-based, AI-driven Software as a Service product

322
00:24:16.500 --> 00:24:23.920
so the break-even analysis 
isn't different from traditional businesses

323
00:24:23.920 --> 00:24:31.119
Using our cost structure and projected ARPU,

324
00:24:31.119 --> 00:24:33.260
our break-even point can be based on

325
00:24:33.260 --> 00:24:39.680
both B2C paying consumers and B2B private academia

326
00:24:41.439 --> 00:24:46.000
I prepared for the breakeven calculation

327
00:24:46.000 --> 00:24:48.959
Our fixed cost, it can be monthly

328
00:24:48.959 --> 00:24:50.400
It's ongoing fixed cost

329
00:24:51.280 --> 00:24:52.880
In this case, salary

330
00:24:52.880 --> 00:24:58.400
Regardless of the services, 
we pay the same salary monthly

331
00:24:58.400 --> 00:25:03.920
And cloud infrastructure, 
AI modern maintenance support

332
00:25:03.920 --> 00:25:08.880
Put together, our fixed cost would be $70,000

333
00:25:09.359 --> 00:25:14.160
What about our variable cost for two users?

334
00:25:14.160 --> 00:25:18.560
Variable cost for two users, B2B users, B2C users

335
00:25:18.560 --> 00:25:21.900
Variable cost for per user is $2

336
00:25:21.900 --> 00:25:23.520
And we will charge $10

337
00:25:24.160 --> 00:25:27.280
$10 is revenue, prices

338
00:25:27.280 --> 00:25:28.560
That is prices

339
00:25:28.560 --> 00:25:30.479
Variable cost would be $2

340
00:25:31.839 --> 00:25:39.400
We can calculate the contribution margin 
of our B2C users, which is $8

341
00:25:39.400 --> 00:25:41.200
What about B2B users?

342
00:25:41.200 --> 00:25:45.040
B2B users, we charge $400 monthly

343
00:25:45.040 --> 00:25:48.239
but the variable cost for B2B users is just $50

344
00:25:48.880 --> 00:25:54.950
Then we can calculate the contribution margin
of B2B users, which is $350

345
00:25:54.950 --> 00:25:57.100
Well, a little bit complicated

346
00:25:57.100 --> 00:25:59.900
There are two different contribution margins

347
00:25:59.900 --> 00:26:03.900
Fixed cost is the same as $70,000

348
00:26:03.900 --> 00:26:07.000
That is a fixed cost

349
00:26:07.000 --> 00:26:11.900
Also, we have two different types of contribution margin

350
00:26:11.900 --> 00:26:14.100
based on two different types of users

351
00:26:14.100 --> 00:26:21.900
Contribution margin first from the B2C users is $8

352
00:26:21.900 --> 00:26:29.900
Contribution margin from our B2B private academia, is $350

353
00:26:29.900 --> 00:26:34.304
Anyway, based on this information,

354
00:26:35.024 --> 00:26:37.224
they calculate the breakeven point.

355
00:26:37.224 --> 00:26:43.400
So to break even purely on B2C, if we ignore the B2B users,

356
00:26:43.400 --> 00:26:52.400
we'd need at least 8,750 paying users per month.

357
00:26:52.400 --> 00:26:59.184
But if we had 100 academy clients,

358
00:26:59.904 --> 00:27:10.700
then we can reduce our B2C users 
from 8,750 to 4,375 users.

359
00:27:10.700 --> 00:27:15.300
This is a calculation of the breakeven point.

360
00:27:15.300 --> 00:27:25.300
B2C alone(purely), we need 8,750 users

361
00:27:25.300 --> 00:27:39.200
But if we had B2B clients, then we need B2C 4,375

362
00:27:39.200 --> 00:27:48.200
or if we have just only B2B only, 
then we need 200 clients

363
00:27:48.200 --> 00:27:52.450
and we don't need any B2C users

364
00:27:52.450 --> 00:27:58.600
Now you understand the relationship
when you calculate the breakeven point from

365
00:27:58.600 --> 00:28:01.200
the subscription business model

366
00:28:01.200 --> 00:28:04.100
This is how we use breakeven point

367
00:28:04.100 --> 00:28:07.100
What do you think? Is it helpful?

368
00:28:07.100 --> 00:28:11.900
You know, finance is very important

369
00:28:11.900 --> 00:28:14.700
and accounting is also important

370
00:28:14.700 --> 00:28:19.700
We should know how to use our accounting report

371
00:28:19.700 --> 00:28:23.700
Also, how to deal with our numbers

372
00:28:23.700 --> 00:28:26.800
Remember, breakeven point is very important

373
00:28:26.800 --> 00:28:31.000
because investors really care about your breakeven point

374
00:28:31.000 --> 00:28:32.800
So you need to prepare the numbers

375
00:28:32.800 --> 00:28:35.300
for your investors and for yourself

376
00:28:35.915 --> 00:28:36.915
Thank you for listening