3 Organizational Strategy and Competitive Advantage
7.4. Expenses
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7.4. Expenses
The expenses are broken down into the various categories below.
7.4.1. Website and App Development
We contract out the design and the development of the website and app to a professional team and an app team. We avoid time and materials contracts and focus only on request for quote.
The local average cost of a decent website development is approximately $3,600 and the development procedure would last for 2 weeks. We would also invest $1,200 for our iOS app development and $800 for the Android development.
7.4.2. Domain Name
We intend to rent our domain name from www.net.cn. Because the cost to buy existing domain name of www.thegreatwall.org or www.thegreatwall.com or www.thegreatwall.cn is very high, we choose to rent the domain name of www.thegreatwall.me with a registration fee about $53 per year.
7.4.3. Rental of Server/Storage
Our partner Aliyun, which belongs to the biggest IT company in China, would provide us cost-efficient, safe and high-quality server rental services. The monthly rent for a Relational Database Management System (RDMS) would be $180 for a version 5.5 MySQL that has 1000 GB of storage, 2400 MB of RAM with the node in Hangzhou. We also would rent the Elastic Compute Service (ECS) from Aliyun as our server. The ECS would be a 8-core, 16 GB RAM,
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100 Mps bandwidth and 5.7 64-bit Aliyun Linux Operation System, with the node in Hangzhou as well. The rent for the server would be $1,500 per month.
7.4.4. SG&A Costs
Since we are a startup non-profit organization, we would invest a relatively huge amount of our budget to marketing to build up our user base from the beginning. We plan to invest as much as
$34,000 in marketing for the first quarter, $14,000 in the second quarter and $9,000 for the following two quarters separately. The marketing cost in the first fiscal year would be $66,000, almost accounting for 45% of the total expenses. Then we anticipate a 20% QoQ growth rate for the next two years.
7.4.5. Salary and Wages
We segment our staff into two teams, one of which is a hybrid of development and design and the other team is responsible for customer services, operations and maintenance. The first team is part-time and the cost is discussed in the initial investment section above. We would hire 4 full-time employees for the second team. Their salary is $600 per month, a fair wage for college graduates in our target area. All the four founders won’t get any salary for the first quarter and would get $800 per month beginning in the 4th month.
7.4.6. Administrative Costs
We intend to use the house of Jin Yikai, one of the founders, as our regular office. The house is located in the center of Shaoxing, which is part of our target market and very close to other key
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require such as telephones, fax and wi-fi etc. From the 4th month, we intend to rent a virtual office in Shanghai from Regus for $300 a month. We can get 5 days’ access to the virtual office per month for the purpose of meeting our key law firm clients. We can use the Regus address to do business and also have unlimited use of their front-desk services (e.g., phone-answering service, and mail-pickup) and free administrative accounting services. This price would grow 50% annually.
7.4.7. Commission Fees to Third Party Escrow Account
We would corporate with Alipay, the biggest third-party payment system in China. They charge us 1%-2% of the revenue from the consumers as commission fee. Because we would receive law firm membership fees directly from their accounts, we wouldn’t not incur any third party charges for this revenue stream.
7.4.8. Taxes
The Great Wall would be applied the 10% income tax rate, which is the lowest rate for commercial income in China, regardless of whether we’re non-profit or for-profit.
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7.4.9. Income Statement Projection
Table 7: Projected income statement for the three year period
Y1 Y1 Y2 Y3
Quarter Q1 Q2 Q3 Q4
Revenue 10,758 20,467 33,980 46,821 112,025 221,921 281,096
Expenses
administrative (7,200) (16,800) (16,800) (16,800) (57,600) (80,640) (88,704) Advertisement
Costs (34,000) (14,000) (9,000) (9,000) (66,000) (79,200) (95,040) Rental of Virtual
Office 0 (900) (900) (900) (2,700) (5,400) (8,100) Commission to
third party (8) (91) (253) (405) (758) (1,879) (2,260) Total expenses (46,716) (37,299) (32,461) (32,613) (149,090) (189,151) (216,136) EBIT (35,958) (16,832) 1,519 14,207 (37,065) 32,770 64,961 Income taxes** 0 0 (152) (1,421) 0 (3,277) (6,496) Net income (35,958) (16,832) 1,367 12,787 (37,065) 29,493 58,465
The projected NPV for these 3 years is $44,452.
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