# Financial Models & Projections

## Capital Requirements Summary

### Phase 1: Integration Consulting
**Total Capital**: $500
- LLC registration: $100-300
- Website (Carrd/WordPress): $0-200
- Business cards: $50
- Marketing materials: $50

**Source**: Personal funds (out of pocket)

### Phase 2: Edge Monitoring Platform
**Total Capital**: $1,000
- GTHost server (2 months): $200-300
- Development/testing: Nights/weekends (sweat equity)

**Source**: Phase 1 consulting revenue

### Phase 3: GPU-Powered AI
**Total Capital**: $3,000
- GPU server (3 months): $1,050-1,350
- ML model development: Nights/weekends
- Marketing materials: $200

**Source**: Phase 2 platform profits

**TOTAL 18-MONTH CAPITAL**: $4,500 (self-funded)

---

## Revenue Models by Phase

### Phase 1: Consulting Only

**Revenue Streams:**
- Hourly consulting: $150-200/hour
- Project fees: $15k-40k per project
- Optional retainer: $2k-5k/month

**Monthly Revenue Projection:**
| Month | Projects | Hourly | Total Revenue |
|-------|----------|--------|---------------|
| 1 | 0.5 pilot | - | $5,000 |
| 2 | - | 40hrs | $7,000 |
| 3 | 1 full | - | $25,000 |

**90-Day Total**: $37,000 (conservative)

**Cost Structure:**
- Direct costs: ~$500 (one-time setup)
- Ongoing: $50/month (website, tools)
- **Gross Margin**: 95%+

---

### Phase 2: Hybrid Model

**Revenue Streams:**
- Consulting (declining): $10k-20k/month
- Setup fees: $5k-10k per customer
- Monitoring MRR: $1.5k-2k per customer

**Monthly Revenue Evolution:**
| Month | Consulting | Setup Fees | MRR | Total |
|-------|-----------|------------|-----|-------|
| 4 | $15,000 | $10,000 | $0 | $25,000 |
| 5 | $15,000 | $5,000 | $1,500 | $21,500 |
| 6 | $15,000 | - | $3,000 | $18,000 |
| 7 | $12,000 | $10,000 | $5,000 | $27,000 |
| 8 | $10,000 | $5,000 | $7,000 | $22,000 |
| 9 | $10,000 | - | $10,000 | $20,000 |

**Month 9 Totals:**
- Consulting: $10,000
- MRR: $10,000 (6-7 customers @ $1.5k avg)
- **Total Monthly**: $20,000

**Cost Structure:**
- GTHost server: $150/month
- Tools/software: $100/month
- **Gross Margin**: 87%

---

### Phase 3: Recurring Revenue Focus

**Revenue Streams:**
- Basic monitoring: $1.5k × 10 customers = $15,000/month
- Premium AI: $5k × 4 customers = $20,000/month
- Occasional consulting: $5,000/month
- **Total MRR**: $40,000/month

**Customer Mix (Month 18):**
| Tier | Customers | Price/Month | Revenue |
|------|-----------|-------------|---------|
| Basic | 10 | $1,500 | $15,000 |
| Premium | 4 | $5,000 | $20,000 |
| Consulting | - | - | $5,000 |
| **Total** | **14** | - | **$40,000** |

**Cost Structure:**
- GTHost servers (2): $550/month
- Contractor: $5,000/month
- Tools/software: $200/month
- **Total costs**: $5,750/month
- **Gross Margin**: 86%
- **Net Profit**: $34,250/month

---

## 18-Month Financial Projection

### Revenue Breakdown

| Month | Consulting | Setup Fees | Basic MRR | Premium MRR | Total Revenue |
|-------|-----------|------------|-----------|-------------|---------------|
| 1 | $5,000 | - | - | - | $5,000 |
| 2 | $7,000 | - | - | - | $7,000 |
| 3 | $25,000 | - | - | - | $25,000 |
| 4 | $15,000 | $10,000 | - | - | $25,000 |
| 5 | $15,000 | $5,000 | $1,500 | - | $21,500 |
| 6 | $15,000 | - | $3,000 | - | $18,000 |
| 7 | $12,000 | $10,000 | $5,000 | - | $27,000 |
| 8 | $10,000 | $5,000 | $7,000 | - | $22,000 |
| 9 | $10,000 | - | $10,000 | - | $20,000 |
| 10 | $8,000 | $10,000 | $12,000 | - | $30,000 |
| 11 | $7,000 | - | $13,500 | - | $20,500 |
| 12 | $5,000 | $10,000 | $15,000 | $5,000 | $35,000 |
| 13 | $5,000 | $5,000 | $15,000 | $10,000 | $35,000 |
| 14 | $5,000 | - | $15,000 | $10,000 | $30,000 |
| 15 | $5,000 | $10,000 | $15,000 | $15,000 | $45,000 |
| 16 | $5,000 | - | $15,000 | $15,000 | $35,000 |
| 17 | $5,000 | - | $15,000 | $20,000 | $40,000 |
| 18 | $5,000 | - | $15,000 | $20,000 | $40,000 |

**Cumulative 18 Months**: $480,000

---

### Cost Breakdown

| Month | Infrastructure | Labor | Tools | Marketing | Total Costs |
|-------|----------------|-------|-------|-----------|-------------|
| 1 | - | - | $500 | - | $500 |
| 2 | - | - | $50 | - | $50 |
| 3 | - | - | $50 | - | $50 |
| 4 | $150 | - | $100 | - | $250 |
| 5 | $150 | - | $100 | - | $250 |
| 6 | $150 | - | $100 | - | $250 |
| 7 | $150 | - | $100 | $200 | $450 |
| 8 | $150 | - | $100 | - | $250 |
| 9 | $150 | - | $100 | - | $250 |
| 10 | $550 | - | $200 | - | $750 |
| 11 | $550 | - | $200 | - | $750 |
| 12 | $550 | - | $200 | - | $750 |
| 13 | $550 | $3,000 | $200 | $200 | $3,950 |
| 14 | $550 | $3,000 | $200 | - | $3,750 |
| 15 | $550 | $4,000 | $200 | - | $4,750 |
| 16 | $550 | $5,000 | $200 | - | $5,750 |
| 17 | $550 | $5,000 | $200 | - | $5,750 |
| 18 | $550 | $5,000 | $200 | - | $5,750 |

**Cumulative 18 Months**: $33,950

---

### Profit Summary

**18-Month Totals:**
- Total Revenue: $480,000
- Total Costs: $33,950
- **Total Profit**: $446,050
- **Average Monthly Profit**: $24,780
- **ROI**: 9,921% (on $4,500 invested)

**Month 18 Snapshot:**
- Monthly Revenue: $40,000
- Monthly Costs: $5,750
- **Monthly Profit**: $34,250
- **Annual Run Rate**: $411,000/year profit

---

## Break-Even Analysis

### Phase 1 (Consulting)
**Break-even**: Month 1
- Need: 1 small project ($5k-10k)
- Covers: All startup costs

### Phase 2 (Platform)
**Break-even**: 2-3 monitoring customers
- Need: $3k-4.5k MRR
- Covers: Infrastructure + development costs

### Phase 3 (Premium AI)
**Break-even**: 1-2 premium customers
- Need: $5k-10k from premium tier
- Covers: GPU server costs

---

## Customer Lifetime Value (LTV) Analysis

### Basic Monitoring Customer
**Monthly**: $1,500  
**Average Retention**: 24 months  
**LTV**: $36,000  
**Setup Fee**: $5,000  
**Total LTV**: $41,000

### Premium AI Customer
**Monthly**: $5,000  
**Average Retention**: 30 months (stickier)  
**LTV**: $150,000  
**Setup Fee**: $10,000  
**Total LTV**: $160,000

---

## Customer Acquisition Cost (CAC)

### Phase 1 (Consulting)
- Outreach time: ~10 hours per customer
- Marketing: $50-100
- **Total CAC**: $500-700 (labor + marketing)
- **Payback Period**: First project (immediate)

### Phase 2 (Platform)
- Transition from consulting: $0 (existing customer)
- New customer: ~20 hours + $200 marketing
- **Total CAC**: $1,000-1,500
- **Payback Period**: 0.7-1.0 months

### Phase 3 (Premium)
- Upgrade from basic: $500 (sales time)
- New premium customer: ~40 hours + $500 marketing
- **Total CAC**: $2,500-4,000
- **Payback Period**: 0.5-0.8 months

---

## LTV:CAC Ratios

**Phase 1 (Consulting)**:
- Project LTV: $25,000 (avg)
- CAC: $600
- **Ratio**: 42:1 ✅ Excellent

**Phase 2 (Basic Monitoring)**:
- LTV: $41,000
- CAC: $1,250 (avg)
- **Ratio**: 33:1 ✅ Excellent

**Phase 3 (Premium AI)**:
- LTV: $160,000
- CAC: $3,000 (avg)
- **Ratio**: 53:1 ✅ Excellent

**Industry Benchmark**: 3:1 is good, 5:1+ is excellent

---

## Pricing Strategy

### Phase 1: Consulting
**Hourly Rate Logic**:
- $150-200/hour = competitive for OT expertise
- Positions below enterprise consultants ($300-500/hour)
- Above general IT ($75-150/hour)

**Project Pricing**:
- Small (40-80 hours): $15k-25k
- Medium (100-150 hours): $25k-35k
- Large (150-200 hours): $35k-50k

### Phase 2: Monitoring Platform
**Tier Logic**:
| Tier | Monthly | Setup | Target Customer |
|------|---------|-------|-----------------|
| Basic | $1,500 | $5,000 | 1 production line |
| Pro | $2,000 | $7,500 | 2-3 lines |
| Enterprise | $3,000+ | $10,000+ | Full facility |

**Pricing Rationale**:
- 10x cheaper than enterprise solutions ($15k-30k/month)
- 2-3x more than DIY (but includes support)
- Predictable vs cloud per-message pricing

### Phase 3: Premium AI
**Tier Logic**:
| Tier | Monthly | Setup | Differentiation |
|------|---------|-------|-----------------|
| AI Basic | $4,000 | $10,000 | Predictive maintenance |
| AI Pro | $6,000 | $15,000 | + Computer vision |
| AI Enterprise | $8,000+ | $20,000+ | Custom models |

**Value Justification**:
- If prevents ONE unplanned downtime event: $50k-500k saved
- If extends equipment life 10%: $100k+ value
- If improves quality 2%: Hundreds of thousands in savings

---

## Cash Flow Management

### Key Principles
1. **Consulting Funds Platform**: Use project revenue for infrastructure
2. **50% Deposits**: Always collect upfront on projects
3. **Monthly Billing**: Subscriptions billed 1st of month
4. **3-Month Runway**: Maintain in reserves
5. **Reinvest Profits**: Use for growth until $100k saved

### Month-to-Month Cash Flow

**Months 1-3** (Pure Consulting):
- Inflows: Project payments
- Outflows: Minimal ($50-500/month)
- **Accumulation**: $20k-40k cash reserve

**Months 4-9** (Platform Build):
- Inflows: Consulting + setup fees + MRR
- Outflows: Infrastructure + time
- **Accumulation**: Building to $50k-80k

**Months 10-18** (Scale):
- Inflows: MRR + premium + occasional projects
- Outflows: Infrastructure + contractor
- **Accumulation**: $100k-200k reserves

---

## Scenario Analysis

### Conservative Scenario
- 50% of projected customer count
- 75% of projected pricing
- **Month 18 Revenue**: $20,000/month
- **Month 18 Profit**: $15,000/month
- **Still viable**: Yes, above typical job salary

### Base Case (Projected)
- As modeled above
- **Month 18 Revenue**: $40,000/month
- **Month 18 Profit**: $34,000/month

### Optimistic Scenario
- 150% of projected customers
- Faster phase transitions
- **Month 18 Revenue**: $60,000/month
- **Month 18 Profit**: $52,000/month

**All scenarios are profitable and viable.**

---

## Exit/Growth Options

### Option 1: Keep Bootstrapping
- Grow to 50-100 customers
- $150k-300k/month revenue
- Hire 5-10 person team
- Owner salary: $200k-500k+/year

### Option 2: Raise Capital (Year 2-3)
- Platform proven at scale
- Raise $1-3M seed round
- Accelerate growth (sales, marketing)
- Exit in 3-5 years

### Option 3: Strategic Acquisition
- System integrator acquires for customer base
- Controls vendor buys for technology
- Valuation: 3-5x annual revenue ($1.5M-7.5M range)

### Option 4: Lifestyle Business
- Stay at 20-30 customers
- $50k-100k/month profit
- 1-2 person operation
- Indefinite sustainable income

---

## Key Financial Metrics (Month 18)

**Revenue Metrics:**
- MRR: $35,000 (recurring only)
- ARR: $420,000
- Total Revenue (with consulting): $480,000/year

**Profitability:**
- Gross Margin: 86%
- Net Margin: 85%
- Monthly Profit: $34,250

**Efficiency:**
- CAC Payback: <1 month
- LTV:CAC: 33-53:1
- Revenue per customer: $2,500-5,000

**Growth:**
- MRR Growth Rate: 20-30%/month (early)
- Customer Count: 14
- Churn Rate: <10% (target)

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## Next Steps

See `go-to-market.md` for customer acquisition strategy.

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*Last Updated: December 2025*