Business Plan-The Market Opportunity

Business Plan- Part 2
2. The Market Opportunity
With the improvement of life equality, parents start paying more attention to the early-education for kids. As a result, the requirements of books for kids increases as well. However, comparing to textbooks, story books are easily to understand and kids are more willing to read story books.
The product
We want children are not only learn knowledge but also enjoy with the process of learning. Our primary product is story book for kids which contains attractive pictures and character’s voice.
Our DNA
Our design is based on our majors. The major of Jinyi Zhu is Early-Education and the major of Jinjing Li is Communication. We believed that according to our professional skills, we can make our story books profitable and attractive.
The competition
When parents walked into the bookstore, they will see various books for kids. What’s more, kindergartens have textbooks for children. In this way, our competitions include textbooks and the same kind entertainment books for kids
Business Plan – Part 3
3. ESTIMATED REVENUES
We estimated the potential revenues according to the opportunity recognized, product defined, and competition identified. The revenues will closely be connected to the Marketing Plan, which is captured by the following 4 Ps:
The Marketing Plan
Product – In our business plan, we want to sell story books for kids with interesting and organized stories and sounds of characters. The cover of our book will be cute and attractive so that when kids walk to the area of story books, they will firstly choose our book.
Price – The price of our book will be 30 dollars per book. If we set the price too high, parents will choose other story books for their kids because kids need many story books during their childhood. They will be bored with stories which they have heard about again and again. For this reason, parents will not pay too much money to buy one story book.
Place – We will sell our story books in bookstores of Syracuse. Parents and kids will buy story books there. We will also put our products on online websites which sell books like amazon. What’s more, we will put our books in kindergartens. story books for kids. They will have great demand of story books. We can provide story books for them.
Promotion–Firstly, we will make some posts of our books and stick the posts on the wall of bookstores so that as parents and kids walk in the bookstores, they will be impressive of our books. After our books are promoted by bookstores and known by a part of children and parents, we will make our book appears in kindergartens. Because teachers of kindergartens will read story books for kids, kindergartens will have great demand of story books. When children give good responses to our books, they will ask their parents to buy our story books for them. After the promotion of kindergartens, the demand of our books will increase.
Target Demand
We estimate there are 10,000 children will love our books and each of them will purchase 6 books every year and our target demand is 60,000 books.
Target Demand 




Net price/advertisement fee/donation/percetage of revenues

30.00

Revenue-Generators (consumers/advertisers/donors) per year

10,000

Average number of times they contribute in a year  

6

Target demand per year 

60,000

4. ESTIMATED COSTS
Due to the demand and revenue which listed above, we can now started our business by focusing on the costs. Our costs mainly focus on three major activities: actual production, distribution and retail of our books.
Production plan
The major costs of our business come from these main activities:
We estimate and classify the above costs into startup and operational costs.

Books

Start-up costs


Long-term assets

=500

Start-expense

=6,000

Operational costs


Variable cost per unit

=1.25

Fixed costs per year

=27,500

Start-up Costs
Our major start-up costs include certain initial expenditures and the purchase of long-term assets. In the beginning stage of the business, we will spend 2000 on writing and designing the outlooks of books to attract more consumers and get good feedback. In addition, the initial design for books is for giving kids different feelings from other storybooks. Next, our promotion cost is 1000 dollars. We make advertisements in bookstores, educational websites, and kindergartens. Our legal costs are 2000 dollars. This includes travel costs, which is two trips to travel to China. Also, costs for furniture and office tools will be 1000 dollars for the beginning.
Our long-term assets will include five hundred dollars spent on: the design of logo of storybooks.
Operational Costs
Production of storybooks will necessarily bring operational costs that repeats itself each year.We break them into two categories, variable and fixed costs. Variable costs are those costs that vary with demand. Although the total variable costs vary in proportion with the annual demand, the variable cost per unit, is a fixed amount. For example, the design of the looking of storybooks is 0.5 dollars. Also, the printing process per book is 0.25 dollars. Furthermore, the packing fee per book is 0.5 dollars.
We also estimate that there are costs that do not change with the change in demand over the years. These are fixed costs of 27500 dollars per year. Some of the main fixed costs are insurance costs 1000 dollar, 2500 dollars for shipping fee. The total wages for labor is 6000 dollars. Internet service provider fees($500), accounting($500), travel fee($1000).
Net Cash Flow
We now want to estimate our operational cash flows. This results in a table of Net Cash Flow for the first five years.
Revenues will come from the sales of shirts at a net price of $30 each.Net price multiplied by the estimated demand for each year will yield cash collection from customers in a year.By year two, we will have reached our target demand. As the demand going up, the annual cash inflow from operational reaches $1,525,000 by year 2. After 5 years, our business generates cash inflow from operations of $7,970,000.
Our initial cash out flow includes $500 for long-term assets and $6,000,in start-up expense, and and $25,625 in working capital to pay for salaries, inventory and basic operational expenses before the collection of revenues. We assume that we need an amount equal to one quarter of annual target operational expenses $25,625. This results in the initial cash out flow of $32,125.
Note from the chart above that by the end of the third year, we recovered fully the $32,125. As a result, our payback period is two years and our net cash flow is $2,845,375.
These numbers while showing a profitable operation are more than desirable but we can also think about some strategies to improve our profit in our business.
5. Strategies to Improve Profitability
In order to increase our profitability and gain competitive advantage with our competitors we focused on using strategic pricing and positioning.
Strategic Pricing
Our demand for the number of books to be sold per year is 60,000 units, given that the original price for each unit book is$30, we were able to somehow prevent our demand from hitting zero regardless of time due to our price sensitivity (-857) and elasticity (-1). However, given this demand line, we were able to predict that a 50% increase in price ($30 to $45) would still be profitable for a given time since we would still be able to get a demand of 40,000 units.
By increasing the price in either direction a corresponding effect would happen. Particularly increasing it would decrease our demand, while decreasing the price would increase it. Nonetheless, we opted for $45 as the strategic price since the price margin is lower as compared to our competitors.
Based on the inflection point on the Net Cash Flow-Price curve, we were also able to confirm that $45/unit would definitely result in maximum profitability.
Strategic Positioning
Since our firm would have to compete with other established firms, we choose to invest in a printing machine that would increase the number of units created as well as create additional sources of revenues for us. The cost structure is provided below.
Impact on Profitability
Due to our revised strategic pricing, we were then able to increase our cash flow from $50,000 to $9,528,143. Differentiation also yielded a net cash flow of $10,636,000, which tremendously increased our profits.
6. Innovations to Improve Profitability
Since we’ve invested in high-quality machinery, we are also able to focus on products that would complement our initial one. This led to additional gross revenue as well as better payback period.
Secondary products
In order to generate additional revenue, we focused on creating Greeting cards, which could easily be created with the printing machine and excess resources from the books. We expect on selling about 85,000 units/year at a unit price of $5.00 each.
Incremental costs
In this additional product, we are expecting to spend an additional $500 for advertising. All of the other start-up costs are not needed for the materials would come from the books printed. As for the fixed cost, we estimated that an increase of $5,300/year and a variable cost of $0.35/unit would be added.
Impact on the profitability
We think that this addition would definitely increase our...