Kenyan slang/sheng for 'all good'
Someone Asked We Aswered
LishaBora's business model has been in an innovation and re-design stage over the last year. Throughout these changes we've gotten many questions from our investors. It made us realize, that if our investors have these questions, it's likely the general public does too! So we've compiled all of these questions and have developed this SAWA Series (Someone Asked We Answered) in spirit of the Kenyan culture where we hear "sawa sawa" on the daily. This month we're focusing on our revenue projections. In case you missed our last blog post, read it here to understand how we currently make money before we explain how we plan to make more money!
Question: How will you make more money?
Answer: While currently we are making money simply by selling our own products to traders, we are exploring three different channels for revenue in the future:
1) App Monetization and Financial Technology
2) Milk Off-take Monetization
3) Distribution of agricultural and non-agricultural products through the app
The graph below shows a projection of the revenue we expect to generate from these different models, including a list of assumptions that have been used to create all of these projections.
- Average days in a month: 30.4
- Average Payout Rate to Farmers: 2,509 KSh
- Average growth rate of traders per month: 10%
- Number of farmers per trader: 48
- Average rate of milk paid to farmers : 33 KSh/L
- Average milk production per farmer per day: 7 L
LishaBora's business management mobile application is currently a free android application. Version 3 which is on track to be developed by November 2018 and will have the scaling potential to reach a capacity of 200+ dairy traders or 10,000 farmers on the platform. With the market surveys our team has conducted, we realize that with the demand for the application, there is potential to monetize it. We want to make sure the application remains available to majority of dairy traders in the informal market, meaning that we have to make any monetization of the app proportional to their earnings. We have come up with 4 strategies of how to do so:
1 - One-time app purchase fee
We've all purchased app's before, but what it really boils down to is the value we receive from the application and whether we believe that is proportional to the cost we're paying for it. That's why we've invested so much time in getting to know our trader partners and understanding what value they need from the application. Once Version 3 is fully developed, we can move forward with plans to monetize.
2 - Commission on scheduled payouts to farmers
This is the best way to make the monetization of the application proportional to the earnings of dairy traders. Each dairy trader varies in size of business, collecting milk of between 30-60 farmers per day. This method would charge a commission depending on numbers and frequency of payouts.
3 - Commission on loans given to farmers
From our time spent in the field, we have found that traders are giving micro-loans to their smallholder farmers for the purchase of agricultural inputs, household products and school fees. Through the application, LishaBora would be able to provide larger loans and charge an interest rate. This would help ease cash flow restrictions for smallholders, reduce pressure from traders, and help grow assets of the informal market.
4 - Commission on cash flow remediation
The informal market is characterized by cash flow restrictions. Many smallholders are producing an average of 6.8L of milk per day, earning about 2.27USD/day. In addition to providing loans through the application, LishaBora could also provide an instant cash advance and charge commission based on the amount, having positive impact on the cash flow restrictions for smallholders and traders.
Milk Off-Take Monetization
Our dairy trader partners are very knowledgable in the milk off-take model as it is the essence of their core business. We believe that with their knowledge we have the opportunity to generate value by offering services to new dairy trader entrepreneurs entering the informal market and by creating our own milk off-take brand in the following ways:
1 - Connection Commission
This model has the lowest risk but the lowest reward. We would provide this service to new dairy trader entrepreneurs by linking their product to processing facilities. This benefits them in that it would make their product acceptable for sale in the formal market, thereby increasing the price they can generate per litre of milk collected. For this service we would charge 1.50 KES/L. The disadvantage with this model is the risk of it becoming a one-time service as dairy traders become more connected on their own. Therefore it is not as sustainable as other options.
2 - Buy & Process & Connect to Market
In this model, LishaBora would act as a dairy cooperative, buying all the milk from our dairy trader partners, and selling it to a processing facility which could then sell it in the formal markets of Nairobi. This would act as a greater incentive for dairy traders to partner with us, as they would be guaranteed a buyer and sale price for their product every time, and would reduce their transportation costs. This model requires LishaBora to absorb more of the risk as we would be responsible for receiving the product and delivering it to the facility. It would require us to invest in additional assets such as a vehicle, licensed jerry cans and a pressurized cleaner. It offers more of a reward as we can charge a commission of 5 KES/L.
3 - Buy, Process & Sell to consumer
This model is the highest risk, but provides the highest reward. It is an extension of the second model, however rather than selling the milk to a processing facility, we would get the milk processed for a small fee, and then sell it to the market ourselves. We anticipate making 70 KES/L of profit as we have the entire Kiambu County and Nairobi County where we can sell the milk, including both formal and informal markets, hotels, dukas (small shops), individuals etc. This model has the highest intensive capital requirements as it requires full-time staff dedicated to buying, processing and selling the milk.
Distribution of Other Ag/Non-Ag Products
This model is an extension of our current model, however with limitless possibilities! We envision the application becoming the supply chain platform for rural East Africa. The selling of dairy feeds on milk check-off has been the baseline, and now that we know the model works, it can be incorporated to any other goods, both household and agricultural. Anything that the farmers are currently buying from their local dukas could be purchased on milk-check off through their dairy trader on the application. This solves the cash-flow issues frequently facing farmers in the informal market, and creates a new revenue stream for dairy traders too. In this model, we would be strengthening our relationships with stockists in rural areas who already have the storage capacity to hold such goods. The impact this would have on smallholders is offering them a larger variety of products through the ease of purchase on milk-check off. LishaBora is currently conducting market surveys to determine what products are desired by our customers. Through our human-centred design process, we can understand what challenges they currently face in buying these products, and can develop solutions to address these problems and optimize their buying experience. Products that LishaBora is currently analyzing for distribution on the platform is:
LishaBora Chicken Feeds
Other Cow Feeds (Pembe, Sigma, Bidco)
Other Animal Feeds (such as pig feeds)
Animal Health Products (vaccines, de-wormers, minerals, salts etc.)
Cooking Products (Unga [flour], BlueBan [cooking fat], sugar, tea etc.)
Household Products (soap, cleaning supplies etc.)
Sustainable Products (Clean cooking stoves, solar lamps etc.)