Vonage will need money again!


Vonage’s hiring binge got me thinking, and just when I was waiting for my takeout Chinese to be delivered, I did a very rough back of the envelope calculation, and realized that the company is going to need more money, maybe by end of this year. Now in all these calculations, admittedly the numbers are a bit gray, and I am assuming that the price wars in VoIP business will be more civilized than the presidential race. Yeah Right!

vonagemoney.jpgAt $50K per employee, VONAGE is going to have to shell out nearly $30 million in additional salaries. I am not sure how many people Vonage has right now, but lets assume there are 200 employees now, so that makes it a whopping $40 million in payroll expenses alone. Earlier, Andy had calculated that Vonage was spending around $450 in customer acquisition and other hardware costs. Citron told Investor’s Business daily that he would have more than half-a-million customers by end of 2005. That means spending a cool $225 million on them in gear, and acquisition costs. Vonage has raised nearly $207 million in VC funding.

Let us assume, it generates about $25 a month from these customers, or roughly $150 million in annual sales. Total monthly costs etc, for PSTN termination and other carriage charges, as estimated by Andy are around $15 a month. That’s about $90 million per annum. And with the payroll being what it is, I am pretty certain that company will have to raise more money. Now tell me what you think of this bit of admittedly fuzzy math!



Even worse than you suggest. Salary is only part of the story–I’m sure they have (or must soon have) a benefits package. Adding that (plus office, travel expense, etc.) and you could easily be at 150-200% of actual salary paid.


Vonage in the Best Buys’, the OfficeDepots’, the Circuit Cities………Vonage seems to KNOW how to market-I imagine they STOP ”’spending”’ so much on ADVERTISING and now go for the ramping of REVENUES by getting more and more customers!


Andy Abramson

The number I came up with was taking into consideration the publciczedadvertising budgets that were shopping to new agencies.

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