SO YOU MUST CALCULATE
1. Open a delegation
We will present the case of Equipalia, an imaginary company dedicated to the sale of computer equipment. This company employs two people in addition to the merchant and sells its products in a shop in a mall. After three years they have become a benchmark in the region and it is planned to grow as sales in this mall have reached a ceiling and thus diversify the risk that activity could decrease in the current market.
Repeat the strategy.
With the experience gained in three years of activity, the first of his growth options is to repeat his business model step by step, only in a new shopping center in a different area, close but 10 km from the current one.
The average turnover is expected to be 4.4 sets per day at a price of 700 euros per set. When would we get the investment back? “With these figures, we would achieve a return on investment in two years and benefit from that moment with an annual return of about 85%. The final pre-tax benefit after 5 years would be €291,600,” explains Donoso.
When would we get the investment back?
“With these figures, we would achieve a return on investment in two years and benefit from that moment with an annual return of about 85%. The final pre-tax benefit after 5 years would be €291,600,” explains Donoso.
2. Develop a new line of business
The Equipalia owner believes that he may not have time to attend to the new business (works, reopening, hiring, cancellations, etc.) and instead is studying to grow a new line of business in his current business. He wants to sell mobile phones, does the math again and takes into account that he needs to hire another employee and remodel his premises to create a “mobile zone”.
For this growth formula, the owner of Equipalia would have to make a small investment of 9,000 euros in the reform of the premises, showcases and interior displays. If you sold 2 phones per day – the number of phones you need to sell to break even – you would recoup your investment in just over a year with a return of over 100%. If you compare it with the possibility of opening a branch in another shopping center, it involves less risk, at least at first glance, and it also has less end benefits after covering the investment: 40,200 euros. But these numbers are only realistic if you sell 2 cell phones a day…
Computers or Cell Phones?
But what happens if, when opening a delegation, we take into account the same daily sales that you planned for computer equipment? Well, for the sale of 4.4 mobile phones, the profit is 234,600 euros, and if we reach 5.1 mobile phones per day, we even out the profit at 5 years and assuming a lower risk and initial investment. “It seems that the figures are achievable without much difficulty for a store in a mall, since 5 phones means that a little more than 1 phone is sold every 2 hours,” clarifies Donoso. “Being a simplified assumption, actual sales would be of cell phones, accessories and other types of products, just like a new computer equipment store. There is no new spend on advertising as the contracted media could be used for the rest of the products, optimizing space.”
3. Design a strategy to increase the number of customers
After all, the finance manager of this company thinks that if he were to look for a new customer profile to increase his potential market, he could also increase his sales. Today’s customers are mainly individuals who go to the mall and buy appliances for their home. He wants to see if providing the funds to access businesses in the area, the costs involved and the profitability achieved would make it a viable growth option. What would happen then…?
Invest in advertising.
To develop this growth strategy, the owner of Equipalia will have no choice but to invest in advertising, particularly direct marketing – the formula that works in this sector – and also hire a salesperson – expert in the mobile sector with a medium-high profile, since they have to deal with a more “demanding” customer – who visits the companies that sell the equipment, and also a computer technician who can travel to do the installations, maintenance, etc. At the selling price, the margin can be increased, since the strategy of selling to companies allows playing with a slightly higher price that includes installation and maintenance.
Sell in fewer days.
“We assume the sale would take place 20 days a month as it would sell to companies with that schedule. In the others it was 27 days – 3 Sundays closed -. In this case, and due to the increase in margin, only with a sale of 2.5 units per day would we make the largest profit of the three options: 228,090 euros. With 4.4 teams, the profit would explode to 684,090 euros,” analyzes Donoso.
The best choice!
“Considering that this option requires the equipment to be sold in fewer days, it is the best option from a breakeven point of view, since it is the one that requires the fewest units to not make a profit,” he concludes Expert. We have to keep in mind that it is the one with the highest margin, with the second lowest fixed costs and the highest average prices. do you get the bills