We need to sell 650,000 tickets in order to award the property. This article explains why we need to generate £1,300,000 in revenue to award a property that has been valued at £750,000, and what happens if we don't.
A brief history and a little insight
Founded in 2017, Raffle House began trading in 2018. Since then we've handed out hundreds of thousands of pounds in prizes, including a more than £173,000 jackpot-prize in 2019 and a £500,000 property in 2020, as well as our weekly £1,000 cash-prizes and tens of thousands of pounds to our charities.
Having now done this for a while, we know how much it costs to operate. We do so as leanly as possible but hosting and maintaining a website, 24/7 live-chat customer support, advertising, staff, and more, all costs money.
In 2018, we took on investors and start-up capital to propel the business through its initial phase. And because of that, we've been able to hand out life-changing prizes and see our customer base grow to more than 55,000.
And now we want to continue to operate and grow
We cannot continue to operate if we don't have the capital to do so, and we want to continue to award prizes to our customers and donate to our charities. And, therefore, we need to build in our operational costs into the ticket threshold so that we can continue to sell them and ultimately award the property.
Here's what that looks like:
More than 60% of that £1.3 million is taken up by both the property and its Stamp Duty Land Tax (SDLT), which total £785,000. With a third-party valuation of £750,000, the total SDLT payable is as much as £35,000.
Bringing the total to £515,000
We will award 16 £1,000 cash-prizes (one for every week that the competition will run for) and a £5,000 referral-prize to the user that successfully refers the most customers to us. We also cover the winner's legal fees and throw in a £3,000 lump-sum to cover council tax and utilities, coming to a total of £4,500. All of this equates to £25,500.
Bringing the total to £468,500
That means that 64% of the revenue that we take is awarded in prizes. To put that in perspective, Camelot, the operators of the U.K. National Lottery, awards about 50% of their revenue in prizes.
After prizes, our next biggest cost is marketing. In order to ensure that we can award a property to one of our customers for £2, we need to build awareness by advertising. Based on our past ROI, tested over more than two years, that cost is more than £300,000, and about 23% of the revenue we generate at 650,000 tickets.
Bringing the total to £168,500
From that, we need to cover our charitable donations and payment processor fees. With charitable donations equating to 2.5% of our ticket revenue, we hope to donate £32,500, which is more than double the donations we made from our first two competitions. Payment processing costs about the same.
Bringing the total to £100,000
Raffle House has various monthly operational costs. These costs go towards paying the people that work for the business such as our technical support team, our 24/7 customer support agents, advertising management agents, and others; the software and assets that help support what we do; hosting our website, and more. The monthly cost of this is a little more than £15,000. Spread over the four months, that equates to £60,000.
Bringing the total to £40,000
This is profit and buffer; marketing costs may be higher than we forecast, and our monthly burn may increase if we encounter an unforeseen issue. Ultimately though, as a business with investors and plans to scale and grow, we need to turn a profit at some point (since 2017, we haven't) and £40,000 represents 3.5% of total revenue generated at our target threshold.
Our goal is to make one of our customers a homeowner every single week of every single year in the next three years; we need to make a profit so that we can attract further investment and achieve this goal.
What happens if we don't hit our threshold?
We believe that it is entirely possible to reach our target within four months. We have experience doing this (our last winner is a homeowner now) and there are numerous examples from 2020 of far higher thresholds being met by independent property sellers via a prize-competition (raffle) mechanism. So we're positive that our 55,000 strong customer base and marketing plans will see us achieve our goal.
However, if we don't, we have two recourses available to us:
We can extend the competition's closing date or award a cash prize. The cash-prize is set at 90% of sales net costs. More on that can be found in our terms, here.
That said, we want to achieve our goal of awarding the property within the time-frame we've set. That's why we're doing this and we can't wait to make another one of our customers a homeowner before Christmas 2020.