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Written by Start a WISP Site Admin
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Thursday, 20 October 2005 |
"I've been reading these posts for months now and I am wondering how
some of you are calculating ROI. I see postings about folks buying
$1300 900Mhz gear to get around trees, etc. and people spending a lot
of time trying to get a link to work, etc.
When you folks do all
this work, buy all this custom equipment, spend all this time trying to
get links to work, how do you bill the customer and what do you charge
them extra per month? Surely you can't justify doing all that work at
normal install fees and buy special equipment for a $30/mo user since
the payback could be a few years or more.
How do you all bill
for the harder installs and how much do you mark up the additional
equipment needed to make a link work so that you can get a reasonable
payback time?"
bcbuie:
If you have to spend cash to buy all the customer equipment, then yes
letting the customer pay $30/month or $40/month for the equipment would
kill your business.
But most businesses should be able to get a
business line of credit, or even use a personal home equity loan. As
long as the customer is paying more per month than you are to pay off
the loan then you come out ahead, in addition to the profit on the
service.
The 900MHZ CPE is in the $300 - $600 range (depending on brand and type), not $1300.00.
We
do it this way; we give the customer two choices. They can pay $X/month
with no contract and they can buy the equipment outright at our cost.
Or, they can sign a 2-year contract for $X-$15/month, + roughly
$20/month for the equipment. If they break the contract before 2 years
they have to pay a cancellation fee and return the equipment. At the
end of the 2-year period they own the equipment and are paying
$15/month less than if they didn't sign a contract. So they not only
get to finance the equipment over 2 years but they also save money on
the service in the long run.
Not the only way to do it, just one way to skin a cat. The idea is to give people an incentive to sign the contract.
pdg2:
Since $600 of equipment isn't covered in 24 months at $20/month, I
assume the remaining $120 is paid for when the equipment is installed?
+ an install fee to cover the time cost as well? Otherwise it seems
like even with the monthly fee the GROSS profit on one user over 12
months at $30/mo is $360 - $120 = $240 - infrastructure costs of say
20%, to net possibly $198 per year on a user? And we haven't even
counted the personal time to get the account running.
Granted,
if the user cancels you get the gear back less the costs to dismantle
it, but you are paying carrying costs on the equipment balance all that
time.
I just did an Excel budget. With 122 users in 17 months it
shows NET monthly figures (on just the residential users) of $3387 with:
$32.95/user + $199 install fee
less
$240 cost for CPE and install
$633/mo for monthly recurring support costs
$32.95 x 122 = $4019 - $633 = $3387
but for every new user that gets installed, we lose $41 + install costs, which takes about 3 months of the sub fee to pay off.
So it seems like one really needs to get to over 300 users to make this into a real business.
bcbuie:
I was using $20/month for the lower cost CPE (we use indoor CPE that
run $450). In general we take our total equipment costs, add 10% (5%
simple interest for 2 years), and then divide by 24. We have different
equipment costs for indoor installs, outdoor installs, and "advanced
installs".
We don't eat any money, trust me.
Also, there
is no way we are are talking $30/month. You are correct, if you are in
a market where that kind of price point is necessary then the business
model doesn't work out well. We aren't in that kind of market.
JohnGalt:
Spreadsheet and discussion...
»www.wispreviews.com/viewtopic.php?t=56
»www.cwlab.com/financial/WISP-Finance-D..
This is from a few years ago, but is still valid. The equipment costs have changed a bit...
I reworked this spreadsheet many times, and cut it "to-the-bone" for a four tower system servicing 400 subs.
It
still requires $80,000 capitalization plus a $120,000 credit line. This
is for 900 MHz gear ($500 CPE/install cost) in a tree-dense area and
presumes that I get all 400 subs on-line in four months. That's why I
made the comment about "40 hour days"...
$99 installs...we own the gear.
And it requires that I have a truck/van, all the tools, paid for and no burden to the company other than gas/insurance.
The CPE costs are the killer...
As
bcbuie pointed out there are ways to manipulate this, but expect to pay
with a "firehose" and get your returns with an "eyedropper". This isn't
a business for the faint-of-heart. It isn't a question of "throw up
some gear" and wait for the big checks to start rolling in...The good
news is that you can recover your initial capitalization in about 36
months and start making a real profit.
Check out the spreadsheets...
Original thread location
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Business Operations 
