course bg
EduPristine>Blog>Modeling Facebook Cost Drivers

Modeling Facebook Cost Drivers

February 21, 2012

Today we discuss the modeling of other important P/L’s drivers – the cost drivers. Cost drivers are elements that cause cost to be incurred. It includes various operating and non-operating costs.

Modeling Simple Cost Driver

We can express costs as percentage (%age) of revenue (sales). The basic assumption behind this driver is that the cost would scale to support the scale in revenues!

For example,

Lets say today I have 10 servers supporting a user base of 10,000 unique users, which results in USD 100,000 of revenues.

Tomorrow, if I want to grow my revenues to USD 1,000,000, I would need a unique user base of 100,000, for which I would need 100 servers.

Hence most of the costs scale as per revenue! Please don’t burn me for saying this! I know that this is a simplistic assumption! But then, this is a simple model as well!

Modeling Facebook’s Cost Drivers

Understanding the cost drivers is important as it tells you what affects the total cost the most. It helps you to focus on areas where the largest cost are incurred, because the larger the total cost the smaller the bottom line (profit).

We calculate most of costs drivers as a percentage of revenue. Provision for income tax is calculated as percentage of earning before tax (EBT).

Facebook Cost Drivers

This is a very simple exercise. I am sure, you would quickly get this in place!

Please note: Cost Drivers are NOT growth Drivers! These are derived from Revenue

Next Steps

2moro we would understand modeling techniques for B/S drivers of Facebook. I am sure after knowing how to model P/L drivers you’ll be able to model the B/S drivers of Facebook on your own.

Enroll for the entire Facebook Valuation Program here!

Why go hunting for each individual post on our blog, when the entire Facebook Valuation Program can come right in your inbox? Yes. It’s now a simple click away, just provide your email address in the form below, and we will email you the entire 1 month program 1 article a day!!

About Author

avatar EduPristine

EduPristine is a member of Adtalem Global Education (NYSE: ATGE), a global education provider headquartered in the United States. Adtalem is a 3 billion dollars (20,000 crores) company that has about 9 institutions and companies with more than 16,000 employees spread across 145 locations. Adtalem takes pride in training 142,000 degree-seeking students all over the world.The organization's purpose is to empower students to achieve their goals, find success and make inspiring contributions to our global community. EduPristine is one of India's leading training providers in Analytics, Accounting, Finance, Healthcare, and Marketing. Founded in 2008, EduPristine has a strong online platform and network of classrooms across India and caters to self-paced learning and online learning, in addition to classroom learning


Interested in this topic?

Our counsellors will get in touch with you with more information about this topic.

* Mandatory Field

Post ID = 12448