
Ask HN: How to transform SEO expenses into revenue in financial model? - tjc4
Creating proforma financial models for a startup.<p>The basic model logic is:
 - $1 of advertising expense creates $x of new revenue
 - $1 of monthly recurring revenue requires $y customer service reps
 - headcount drives other than advertising expenditures<p>With the exception of a few salaries (e.g. CEO, CTO, CMO) which are manually entered, the logic above accounts for most expense.<p>I like this model logic because it adjusts automatically in response to changes to advertising expenditure and&#x2F;or the efficiency of the advertising spend.<p>But advertising won&#x27;t be the only marketing activity.  Marketing efforts will also likely include content creation and promotion for SEO.<p>Any ideas on how to model such expenses?  E.g. $1 spent on content creation today yields???<p>On one hand, I&#x27;m tempted to just lump it in with the advertising expense so the model doesn&#x27;t get too complicated.<p>On the other hand, part of me thinks I should create some new logic for these expenses.  E.g. $1 of content creation expense today yields $a of revenue one month from today, $b of revenue two months from today, etc.  But that seems really complicated and subjective.<p>Any suggestions?
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tixocloud
You're right in that it is pretty subjective. I would personally keep it
simple in that $1 spent on content creation will generate X number of page
views multiplied by conversion rate to get you monthly revenue.

Your new logic requires some sort of growth/decay rate which is mostly an
assumption at this point unless you're willing to track that ongoing. However,
to a startup and to high-level executives, it's not necessary. All they need
to know roughly is how much investment is required to generate how much output
and with the simplified model, it gets away from growth/decay rate
discussions.

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PaulHoule
Actually advertising works like that too. Cumulative exposure to an ad can
lead to a purchase decision after many, many impression. It's one reason why
remarketing is so big.

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tjc4
Understood and agreed.

However my belief is that financial models should not attempt to mirror
reality but present a simplified version of reality (all the complexity of
reality makes models too complicated and fragile thus reducing their utility).

So the question isn't really "how's it actually work?" but "what's the best
way to simply model it in a way that kinda, sorta approximates reality?"

I'm looking for the right balance between accuracy and complexity.

