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A short guide to 2024 planning

Daniel Nugent

December 15, 2023

Marketing, Finance

Congratulations! If you are reading this that probably means you survived eCommerce in 2023 - not everyone was as lucky. The fact of the matter is that 2024 probably won’t be much easier than 2023. As we close out BFCM and turn our attention to 2024, I’m sure many of you are scrambling around trying to get management or boards together to solidify your plan for 2024.

In this article, we are going to take you through the process of how to produce multiple annual scenarios in a way where you can methodically think through the pros and cons of each one and how your goals may influence which plan you ultimately choose to execute.

First, the annual plan is manifested as one single deliverable: a financial model.

If you don’t have someone who can build a financial plan, you should hire at least a freelancer who can build a sound & balanced financial model for a few different scenarios.

Step 1: The Financial Model

In our opinion, you should build these forecasts in order to triangulate 3 key numbers for each plan:

  • Total sales for the year
  • Total profits/burn for the year
  • End of year cash balance

Your financial model will consist of the following forecasts (moving down the P&L and ending through the cash flow statement):

1. Revenue

  • For DTC & Amazon
    • New Customer Acquisition (a.k.a your growth marketing plan)
    • Returning Customer Revenue (a.k.a how many of those customers will come back)
  • Wholesale Revenue
    • Units per store per week by account

2. Expenses

  • When budgeting for expenses in your financial model, there are a few different ways you can approach it, described simply below:
    • Incremental budgeting: Last year's expenses, +/- a certain percentage.
    • Activity-based budgeting: Starting with a revenue goal and doing a ‘top down’ style budget to decide what you would need to to support that revenue goal.
    • Value prop budgeting: Analyzing each line item in the plan and allocating budget in a more methodical way, perhaps ROI driven.
    • Zero-based budgeting: This is the most time consuming by far, but is also generally, in our opinion, a very healthy exercise for startups. Zero-based budgeting is the practice of justifying every single expense over every period of time. In other words, every department starts from scratch, regardless of historical figures, and comes up with a brand new budget.
  • COGS
    • This can be a top down plan that will also help you with demand planning
      • For example, each SKU is going to be X% of revenue by month, so therefore I can expect to sell Y number of units.
  • Marketing expenses
    • This will actually be mostly informed by your new and returning customer models in revenue.
  • Selling, general & administrative
    • This should be a bottoms up build as well. You will have each member of your team, how much they cost, which software your company uses etc.

3 & 4. Balance Sheet and Statement of Cash Flows

The balance sheet and statement of cash flows are more or less outputs of the P&L for budgeting purposes, and so you should mainly focus on the P&L and its components as outlined above.

Do so 3 different times for 3 different scenarios: Base case, Bull Case, Bear Case.

Bull and Bear come from the classic Wall Street nomenclature for ‘upside’ and ‘downside,’ respectively. Your Base case should be the most realistic outcome for the year that you expect with regards to sales and expenses, and the Bull/Bear case can be plus or minus 10-20% or higher depending on if you have some big questions during the year (i.e., launching new products or retailers etc) that can cause more drastic swings in performance.

For our purposes in CPG, the main lever for growing or shrinking revenue, cash, and profits (the 3 main metrics that determine success) is going to be ad spend on a dollars basis. CPM, CAC, CTR, and all other advertising funnel metrics will change as we adjust our spend. But really these are outputs in our model driven by how much we are spending across the digital advertising ecosystem. We can play around with a few different spending plans and see how our Northstar metrics change with each one.

Step 2: Executing The Plan

Once we have a couple different scenarios modeled out for the business, you should get all key stakeholders into a meeting to discuss the feasibility of each one. Does this Bull case seem achievable? Is it in line with our organizational goals? Are we more concerned with ending the year with maximum cash or do we want to demonstrate a strong growth year?

Once key stakeholders are aligned, it’s time to execute.

Perform monthly variance analyses against the budget to determine where things are going right or wrong and don’t be afraid to re-forecast the budget if things change. The budget is not supposed to be set in stone if there are externalities that might affect the business. Remember COVID and iOS14.5?

So now you've got an idea on how best to approach your 2024. We at Wayflyer wish you a prosperous and successful New Year!

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