Students should be given guidance on the extent to which you require an analytic answer based on a detailed revenue model or a consideration of the strategic issues. If a detailed revenue model is required, then some additional information will be required or students will need to state their assumptions.
Essentially this question is about revenue models and costs, so it requires the students to consider total costs of driving visitors to the site and converting them to sale in comparison with revenue sources. Profitability will also be dependent on the long-term capability of the company to gain revenue customers.
Students should mention these elements of a conversion based revenue model including: • Total market size for these products based on the size of existing loans markets. Sub-set of market who would meet Zopas lending criteria.
• Cost of customer acquisition – this is a competitive market and it may be difficult to attract visitors to the site, for example, using search engine marketing or offline advertising. • Cost of servicing sales – to what extent are phone contacts needed to facilitate sales? • Conversion rate from visitor to lead to sale.
• Average revenue earned from each new borrowers that is based on charging borrowers one per cent of their loan as a fee, and from commission on any repayment protection insurance that the borrower selects.
• Lifetime value from customers based on attrition rates – will borrowers continue to use Zopa or will they use it as a one-off?
• Flexibility on revenue model – for example, after launch, Zopa has gained additional revenue from lenders.
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