To launch this product, there are some minimal fixed cost associated with this project. Main fixed cost will be towards
Registration that includes getting legal license, corporate identification, tax identification number etc.
Rent of the office space, setting up the office cubicles, conference room, meeting room needs and internal infrastructure cost.
I.T infrastructure cost like Personal computers, laptop, projectors, local area network, printer, facsimile and telephone lines to be connected
Information technology cost will be segregated into hardware and software. Hardware part cover the webserver, license, domain etc. and software part will be the cost associated with the I.T Vendor for developing the portals.
To attract the organizers, there will be a demo booth inside the facility. It primarily compose of photo kiosk machine and the layout of the installation kit and banners
Table 2: Fixed Cost
Source: Organized by this study
As shown in the Table 2: Fixed cost the total amount will be INR 2,050,000. All the currencies mentioned were in Indian rupee (INR & approx. Exchange rate 1 USD = INR 60). Depreciation period of four years which is a common industry practice for standard ePlatform startups.
Item Cost Remarks
Registration 100,000 Legal Entity Registration & Paperwork
Office Space Setup 250,000
IT Infra Setup 400,000 PC / Laptop / Projector etc
Photo Kiosk Machine 300,000 For Pilot / Demo Purpose
Booth Installation Kit & Banners 100,000 For Pilot / Demo Purpose IT - System
Development 500,000 System / UI Development
Infrastructure 400,000
Hardware , Server, License
& Domain reg. (Shared Services), SEO etc
Total 2,050,000
Depreciation Period 4 Years
Variance +/-100%
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Details about the associated monthly expenses were shown in Table 3. Variable Cost. Major variable expenses can be summarized as below items
Rent of office space
Full time employee’s salary.
Incentive fee for liaison officers
Maintenance fee for the information technology vendor to do the production support and provide basic support for our portal.
Utility fee like electricity, water
Misc. cost associated with Janitor services.
Travel budget: There is a huge cost associated with employees need to travel to the marathon event place and work with liaison officers.
For effective networking, Food and compliment gifts can be spent during client meeting but within defined limits.
Table 3: Monthly Variable Cost
Source: Organized by this study
Above expenses are approximate figure and expected to have +/- 50% variance.
Expense Details Unit Cost Remarks
Office Rent 20,000
Employee Salary - Fixed Cost (CTC)
CEO 100,000
VP - 3 Employee 180,000
FTE - 6 Employee 210,000
Fixed Fee : Liason 70,000
IT Support - Vendor 20,000
Utility 10,000 Electricity, Water bills etc
Misc 5,000 Janitory
Travel Budget 20,000 Hotels & Tickets
Marketing : Runner's Club 21,667 Recreational : Food or Gift Expenses
Total 656,667
Unit Per Month
Variance +/- 50% Variance
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Apart from this there was huge expenses associated with each marathon race event, since the onboarding strategy in the initial year fully relay on making an impact by setting up a physical booth at the venue. Table 4. Event Cost shows approximate expenses associated with each event.
Hence in the initial period, only large event with huge participation will be targeted.
Table 4: Event Cost
Source: Organized by this study
10.3. Pro-formo Income Statement
For I.T Products, the life time is very short and creates a strong need to be aggressive in acquiring customers as early as possible.
Table 5: Revenue Forecast
Source: Organized by this study
Above table: 5 shows the projections for the first four year. The primary sources of revenue comes from advertisement, eStore transactions and travel package products. The forecast was derived based on following basic assumptions. It’s neither optimistic nor pessimistic and above
Event Activity Cost
Incentive : Liason Activty 5,000
Photo Kiosk Design & Rent 10,000
Setup Booth & Freelancer 15,000
Photographer 3,000
IT _ Partner Package Work- 50,000
Half Yearly #Event Booth #Event Partner Target Reach Members eStore Transactions Standard Ad. Sports Ad. Travel Package
H1 1 0 17,500 875 350 20 0 4
H2 28 7 490,000 147,000 9,800 24 24 735
H3 42 14 735,000 274,400 14,700 29 31 1,372
H4 56 18 980,000 354,200 19,600 35 41 1,771
H5 70 24 875,000 266,250 17,500 41 53 1,331
H6 84 24 1,050,000 271,500 21,000 50 69 1,358
H7 98 24 1,225,000 264,500 24,500 60 89 1,323
H8 112 24 1,400,000 268,000 28,000 72 116 1,340
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numbers should be viable to meet in the lifespan with very minimal deviations.
Average participation in premium event will be 17,500 and standard event around 7,500
In year1, 5% of the members participate in the event is more likely to enroll their email id in portal or sign up for free photograph during the events. For the successive years, we expect this to be dropped by 1%.
Though people signup for viewing their photographs, conversion rate in online store will be around 2% only. I.e.) in an event where 10,000 people participates, new members of 500 runner will subscribe and only 200 people may like to checkout their photographs as some souvenior.
Travel package is not easy to sell and hence the assumption is only 0.5% conversion rate.
This deal is applicable only for the members.
Table 6: Pro-formo Income Statement
Source: Organized by this study
Few more assumptions associated with above pro-forma were there will be average revenue of INR 150 from each transactions that happen through online store during the checkout of digital print solutions. Advertisement will be priced around INR 25,000 for standard one and if it is related to sports or running industry then it will be charged slightly higher as INR 32,500.
Category Half Yearly 1 2 3 4 5 6 7 8
Salary : ManPower (Fixed) 3,360,000 3,360,000 3,696,000 3,696,000 4,065,600 4,065,600 4,472,160 4,472,160 IT Vendor Cost 120,000 120,000 132,000 132,000 145,200 145,200 145,200 145,200
Utility 60,000 60,000 66,000 66,000 72,600 72,600 72,600 72,600
Misc 30,000 30,000 33,000 33,000 36,300 36,300 36,300 36,300
Travel Budget 120,000 120,000 132,000 132,000 145,200 145,200 145,200 145,200 Marketing Budget 130,000 130,000 143,000 143,000 157,300 157,300 157,300 157,300 Event Based Booth 33,000 924,000 1,386,000 1,848,000 2,541,000 2,772,000 3,234,000 3,696,000 Event Based : IT Partner 0 0 512,000 644,000 921,200 842,000 842,000 842,000 Depreciation 256,250 256,250 256,250 256,250 256,250 256,250 256,250 256,250 Total 4,109,250 5,000,250 6,356,250 6,950,250 8,340,650 8,492,450 9,361,010 9,823,010 e-Store Commission 52,500 1,470,000 2,205,000 2,940,000 2,625,000 3,150,000 3,675,000 4,200,000 Advertisement : General 500,000 600,000 720,000 864,000 1,036,800 1,244,160 1,492,992 1,791,590 Advertisement : Sports 0 780,000 1,014,000 1,318,200 1,713,660 2,227,758 2,896,085 3,764,911 Travel Pack Commission 8,750 1,470,000 2,744,000 3,542,000 2,662,500 2,715,000 2,645,000 2,680,000 IT Partner Package 0 350,000 700,000 900,000 1,200,000 1,200,000 1,200,000 1,200,000 Total 561,250 4,670,000 7,383,000 9,564,200 9,237,960 10,536,918 11,909,077 13,636,501 EBIT -3,548,000 -330,250 1,026,750 2,613,950 897,310 2,044,468 2,548,067 3,813,491 Tax 1,064,400 99,075 -308,025 -784,185 -269,193 -613,340 -764,420 -1,144,047 Net Profit -2,483,600 -231,175 718,725 1,829,765 628,117 1,431,128 1,783,647 2,669,444 Expenses
Revenue
Profit
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Company gets a commission of INR 2,000 during the sales of travel package. Normally these packages will be priced more than INR 10,000 and it includes 20% cut. Revenue that can be generated through CPC advertisement (Cost per click) is not considered in this forecast, it will be used only as backup and placing more advertisement in the portal may not have the right appeal for consumers. Hence it will be very limited advertisement and keep out of spam for a long term growth.
10.4. Cash Flow Statement
This project needs a capital investment of INR 5,500,000 (Approx. less than 100,000 USD) and the net present value of this project is INR 3,940,623. Discount rate of 10% applied in calculating the NPV.
Table 7: Cash Flow Analysis
Source: Organized by this study
India’s tax rate approximately accounts to 30% and it will take around 30 Months for breakeven.
This project has the potential of giving 26% internal rate of return or compound annual growth rate of 20.7%. Once the breakeven achieved, there is a strong potential to expand this platform without much risk. It may even emerge as no revenue business model in future.
10.5. Sensitivity Analysis
It is really critical to understand the factors that are associated and can create strong impact in
1 2 3 4 5 6 7 8
Fixed Cost 2,050,000
Variable 3,853,000 4,744,000 6,100,000 6,694,000 8,084,400 8,236,200 9,104,760 9,566,760
Tax Payable 0 0 0 0 197,928 613,340 764,420 1,144,047
Total 5,903,000 4,744,000 6,100,000 6,694,000 8,282,328 8,849,540 9,869,180 10,710,807 Cash In Revenue 561,250 4,670,000 7,383,000 9,564,200 9,237,960 10,536,918 11,909,077 13,636,501 -5,341,750 -74,000 1,283,000 2,870,200 955,632 1,687,378 2,039,897 2,925,694 Cash flow from Operations
Half Yearly Cash Out
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picked up for analysis and then the Net Present Value for those combinations were calculated.Factors identified for analysis were
Member sign up conversion rate from a marathon event
Runners who check out the picture in our online eStore
Runners who opt our travel package and participate in other state events through our portal
Advertisement growth rates
Salary of full time employees and incentive cost associated with the photographs or liaison officers
Transaction profit from the online eStore
Table 8: Sensitivity Analysis
Source: Organized by this study
Key lessons learnt from the above analysis is “customer experience is very critical” for this business model. Organization needs to add value by making their experience really exciting and interesting to stay and visit the portal frequently. Creative product offering in digital solutions store and exclusive travel packages can also contribute to keep it up.
Value NPV Value NPV Value NPV
Member Conversion Rate
Travel Deal Conversion Rate 0.75% 9.2 M 0.50% 3.9 M 0.25% -1.6 M
Standard Ad. Growth Rate (In 2 Year) 30% 5.9 M 20% 3.9 M 10% 2.5 M
Sports Ad. Growth Rate( In 2 Year) 40% 6.5 M 30% 3.9 M 10% 0.5 M
FTE Salary Cost 30,000 4.9 M 35,000 3.9 M 45,000 1.9 M
Liaison Incentive 8,000 4.4 M 10,000 3.9 M 15,000 2.7 M
Photographer Cost 2,500 4.1 M 3,000 3.9 M 5,000 3.2 M
eStore Average Profit / Transaction 175 5.8 M 150 3.9 M 100 0.2 M
Optimistic Normal Pessimistic
Sensitive Factor
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Business always associated with risks in many forms and hence the real success depends on how well the company predicted, planned and prepared themselves to mitigate it. Table 9. Risk Factor Analysis show the possible risk that has the impact on this business model and the proposed mitigations steps to overcome that.
Table 9: Risk Factor Analysis
Source: Organized by this study
Risk Criticality Probability Mitigation Steps
Consumer didn’t like the membership program attractive to stay on
High Medium Work with Focus group of running experts / influencers to understand and serve the critical needs to retain.
Revenue generating traffic may not ramp us as forecast
High High Spend initial huge efforts of the labor force in providing personalized solution for potential consumer based on analytics
Competitors may try to imitate the same business model
Medium Medium Build the I.T back end process of the core-system to have high artificial intelligence based on data analytics which will be hard to imitate.
Customers may be bored with the product offers in eStore
Low Low Work with Digital partners and revise the product offers based on the trend.
For example ) Mobile case etc.
RFIP – Providers may not be ready to integrate to single standard platform
Medium Low Sign deal with exclusive RFID Provider for only Marathon
Segments. Explore possibility to raise investment to build in-house RFID Service for sustainability.