From getting legal business certificate to launching first product, Driving Lens must estimate the minimal fixed cost which includes the below items.
License and permits fee includes registering enterprise and getting legal certificate.
Office space setup includes setting up the office cubicles, meeting room and internal infrastructure cost.
I.T infrastructure Setup includes laptop, projectors, local area network, printers and telephone system.
Equipment expense includes hardware instruments, and software toolkits. These devices and tools are helping R&D members to integrate the critical components as a prototype.
Item Cost Remarks
License and Permits Fee $200,000 Business registration and Legal certificate.
Office Space Setup $200,000
IT infra Setup $400,000 NB/Server/Projector etc
Equipment Expense
Hardware Instruments $300,000 Oscilloscope, Multimeters, etc.
Software toolkits $200,000 SDK, JTAG32 debugger, etc.
Total $1,300,000 Unit: NT Dollar
Depreciation Period 5 Years
Variance +/-100%Variance
Table 4-Fixed Cost
As seen in the Table 4, the total amount of fixed cost will be 2,300,000 NT dollars, and depreciation method is five years straight line deprecation method
‧
國立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
39
10.2 Variable Cost
As shown in Table 5, the annual variable cost is summarized the detailed info as the following items.
Rent of office space
Full time employee’s salary and increasing rate is 10% per year.
Utility fee such as electricity, water, and the fee increases 10% per year.
Misc. cost such as stationery, shipping expense, etc. The increasing rate is 10% per year.
Travel budget is only spent when employees have to discuss face-to-face, or to figure out the problem on-site. The budget increases 10% per year.
Research and Development budgets are planned to purchase the new IC, generic board, camera, target vehicle models and other electronic components. R&D team will integrate these components to generate the prototypes of new products. The budget increase 20% per year.
Marketing & Promotion budgets are used to hold a new product launch event, to make commercial film, pay the list fee to the distributers, etc. Its increasing rate is 20%.
Business development expense is paid for the social activities and gifts when visiting the business partners.
Technical support fee for the electronic component suppliers who provide consulting and troubleshoot services for the products of Driving Lens. The increasing rate is 10% per year.
‧
Engineers - 6 Employees $3,600,000 Hardware, firmware and software engineers
Operating Expense
Utility $120,000 Electricity, Water bills etc.
Misc. $60,000
Travel $240,000 Hotels & Tickets
Research & Development $2,000,000 Generic board, camera, display, vehicle.
Marketing & Promotion $600,000 Listing Fee, New Product Launch, Commerical film, flier
Business Development $240,000 Networking, business entertainment Technical Support - Supplier $360,000 Supporting fee for IC/Camera/Display
suppliers
Total $13,460,000
Unit Per Year
Variance +/-50%Variance
Table 5-Annual Variable Cost
10.3 Cash Flow Statement
The consumers have to pay for customized services and products, but the major income for Driving Lens is the sales of products. The service stores will charge the consumers the fee for customized services. Driving Lens sets the margin to 40%, which is a little higher than the average margin of auto accessories, 30%[9]. In addition, the selling number of new car is around 440,000 in 2016, and the average growing rate of selling car is 4%
9 Ministry of Finance Business Income statistics. Retrieved from
https://www.ntbsa.gov.tw/etwmain/download?sid=13abfb223cc000009298cf0c2e05771d
‧
per year. Based on this assumption, we forecast the selling number to increase to 476,000 in 2018, the margin to be 40%, and target market share to be 3%. Then, Driving Lens estimates the gross profit will be 475,000 (Total selling cars) * 3% (Target market share)
* 10000 (Price) * 40% (Margin), and the revenue will be $57 million NT dollars.
According Table 6, the detailed items are listed as below.
Price of Driving Lens products is $10,000 and the increasing rate is 10%
Margin of Driving Lens products is 40 percent because the cost of manufacturing is about 60%.
The targeted market share is 3% at the first year, and continuous grow 5% per year.
According the record of selling cars in 2016, the number is close to 440,000, and the number of total selling cars usually increase 4% per year. Therefore, Driving Lens set the total number of selling cars is 475,000 in 2018, and the increasing rate is 4%.
Forecast Volume is based on the targeted market share times total selling cars.
Gross Profits is calculating result from price, margin, and forecast volume.
Year Price Margin Market
Share
Total selling cars Forecast Volume
10.4 Pro-forma Income Statement
Based on the above projection, Driving Lens uses pro-forma income statement to reports
‧
the financial performance over next 5 years. As shown in Table 7, it includes the revenue, expenses which included the fixed cost and variable cost per year. As seeing the result of net income, positive NPV shows that this business model is profitable. Selling Augmented Reality assistance system is not only workable to B2C business model in automobile industry, but also able to extend to B2B business model in automobile industry, even expanding to the other industries.
Category Year 2018 2019 2020 2021 2022
Revenue Gross Profit $57,108,480 $174,218,936 $323,873,003 $513,014,836 $749,913,687 Expense Wage -$10,200,000 -$11,220,000 -$12,342,000 -$13,576,200 -$14,933,820
Operating -$420,000 -$462,000 -$508,200 -$559,020 -$614,922
Technical support
-$360,000 -$396,000 -$435,600 -$479,160 -$527,076
Travel -$240,000 -$264,000 -$290,400 -$319,440 -$351,384
Research &
Development
-$2,000,000 -$2,400,000 -$2,880,000 -$3,456,000 -$4,147,200
Marketing &
Promotion
-$600,000 -$720,000 -$864,000 -$1,036,800 -$1,244,160
Business Development
-$240,000 -$288,000 -$345,600 -$414,720 -$497,664
Depreciation -$100,000 -$100,000 -$100,000 -$100,000 -$100,000 Profit EBIT $42,948,480 $158,368,936 $306,107,203 $493,073,496 $727,497,461
Income Tax(17%)
-$7,301,242 -$26,922,719 -$52,038,224 -$83,822,494 -$123,674,568
Net income $35,647,238 $131,446,217 $254,068,978 $409,251,002 $603,822,893
Table 7-Income Statement
‧
In order to make the business successful, Driving Lens must identify the potential risks which it could face in future. After predicting, the company must analyze the criticality and probability of these risks. With more and more definite information about these risks, Driving Lens will have enough time to plan, prepared and mitigate them. Table 8 shows the possible risks which damage the business model, and the mitigation steps how Driving Lens will decrease the impact of these risks.
Risk Criticality Probability Mitigation Steps
Consumer doesn’t satisfy with the quality
Medium High Offer technical support and upgrade the software quality periodically.
Critical supplier can’t offer enough material
High Low Prepare the alternative candidates for critical component
Supplier raise the prices of material High Low Change with alternative solution, or shift the cost to consumers.
Vehicle Manufacture develop this product by themselves
High Low Seek the collaborated opportunities, and become one of their suppliers.
Income cash flow can’t meet the
3. Increase marketing and promotion
Table 8–Risk Factor Analysis