Welcome to The Dish, the only newsletter that simplifies finance for CPG people.

Today we’re doing a deep dive on financial models. Get your silverware ready—this one’s going to be delicious.

The Main Course

Building a financial model should be done by every company. I have built over 100 models supporting early and mid stage companies and have learned a lot along the way. As you think about constructing one for budgetary planning or preparing for a capital raise, I want to share some tips with you.

Revenue

Start with a tops down approach. The other day I met with a beverage client and built the below. It was a brand focused on selling in the natural channel, and after our introductory call, where I learned about their vision and go to market strategy, I put together the below.

Now let’s start off with the thinking behind every assumption.

Wholesale Price

The product is going to sell for $2.99 on the shelf. With a 40% retailer margin and 20% distributor margin (mix of KEHE/UNFI at 15% and then DSD at 25%) the calculation is as follows to determine wholesale price:

$2.99*(1-40%)*(1-20%) = $1.435

For simplicity, I rounded up to $1.45 which will be the price I will use for all 5 years. While pricing can come down overtime as COGS become lower, I never want to change the wholesale price in the model as trade spend can reduce cost to the consumer, making price a variable that remains constant.

Doors

The natural / specialty door set is very small compared to conventional grocery and the convenience channel. With a naturally focused product, I typically take a narrow and deep approach within a region and then expand out from there unless you kick it off with a WFM nationwide launch. After 18 months of penetrating the natural channel, I like to enter my way into Conventional (Think Kroger, Albertstons, Jewel Osco) and then Mass (Target and Walmart). Eventually I model in some Club, but I like to keep the revenue to be around 10-15% of total revenue so the model isn’t heavily driven by this channel.

Average SKUs Per Door

Most beverage brands launch with 4 SKUS and the retailers will take in between 2-4. Overtime, as your brand gets some traction, additional SKUs can be launched during the category reset periods.

Velocity Per SKU

Most beverages around the $2.99 price point have to move a half a 12 pack case per week per SKU. This usually doesn’t happen out of the gate across all doors, so I like to gradually get there. For a natural product, your velocity will most likely be stronger in those doors than in other channels. For a tops-down view, I kept my chart a general average.

Revenue

The 4 assumptions outlined when multiplied together and then by 52 weeks, will result in a tops down revenue build. From here, you can factor in innovation to occur in the future and Wahaaaalaaaaa, you have now built yourself a tops down revenue build.

This is one of many writeups that I plan on doing around financial modeling. Stay tuned for a deeper dive on different financial aspects of your business as well as key ways to scale and grow.

Desserts

• For a natural focused product, I like to build door count to ~10k

• For a mainstream beverage , I like to build door count to ~20-30k

• For revenue in natural, I target $30-50M and $50M+ for beverage

Thanks for reading through today’s Dish.

Have a great week.

— Adam Siskin