The next stage of the new product
development process is the business analysis.
This stage entails evaluating the proposed product concept and marketing
strategy’s business attractiveness (Kotler and Keller, 2009). This includes making sales, cost and profit
projections to determine whether it is a suitable project to pursue. Sale
estimations usually include first-time sales, replacement sales and repeat
sales. The process of estimating sales
differs for different kinds of products and services, from a one-time purchased
product to a frequently purchased product. Costs can include research and
development, marketing, manufacturing, employment or certain investments.
Companies need to take into account every form of expenditure when performing a
business analysis in order for estimations to be as realistic as possible. Profits
are calculated by subtracting costs from revenue. Risk analysis and breakeven
analysis are both methods in estimating profit. Another factor to consider is
demand (Lamb, Hair and McDaniel, 2011). Factoring demand may mean estimating a
product’s market potential and understanding the price and sales relationship. Competition and investment requirements are
also analysed throughout.
RA
Concepts, a start-up specializing in technologically advanced golfing
equipment, thoroughly analysed its products (putters) to determine its business
attractiveness. It prepared sale revenue projections for its first 3 years,
with 1st year sales expected to almost double in revenue by the
third year (see Appendix A). The company also determined start up costs and
expenses. RA Concepts have also established that there is a strong demand in
new technology golf clubs, and are looking to gain 2% and 1% of the American
female and male golf markets respectively. The company performed a break-even
analysis to project when the firm expected to start making a profit. The firm
forecasted a steady growth in profitability over the first 3 years of
operations, with the last 2 being the most profitable (see Appendix A).
For my
adaptation of hurling, I intend to introduce the sport to 500,000 people,
through schools and universities, within 5 years of operations with the aim to
reach 10,000 strong in participation of the sport at least once a week within 6
years. Through marketing (dedicated website) and possible partners and
‘distributers’ (Street Games and Youth Sport Trust), exposure of the sport may
reach the millions if successful. There are several costs I will need to take
into consideration in my business analysis. Patenting my sport format will cost
around 230 £ just in application fees, employee salary, travel costs, IT
specialist cost for the website, flyer fees and rental fees (pitches,
equipment) are all costs associated with this project. A bank loan of 50,000 £ will be
necessary to cover start up costs. The setting up of regional and national
leagues as well as attracting sponsorship will be vital for the profitability
of the sport. With enough interest, leagues will be set up within 5 years. The
development and sale of specialized rackets and balls will also boost the
sport’s profitability.
References:
Kotler, P. and Keller, K.L. (2009) Marketing Management. 13th edn. New Jersey: Pearson
Education.
Mcdaniel, C.D. Lamb,
C.W. & Hair J.F. (2011) Introduction to Marketing 11th Edn. Ohio:
South-Western Cengage Learning.
RA Concepts (2012) Golf Club Manufacturer Business Plan. Available
at: http://www.bplans.com/golf_club_manufacturer_business_plan/executive_summary_fc.php
(Accessed: 8 December 2014).
http://www.innovate-design.co.uk/patent-advice/
(no date) (Accessed: 8 December 2014).
Appendix A:
|
Pro Forma Profit and Loss
|
|||
|
Year 1
|
Year 2
|
Year 3
|
|
|
Sales
|
$177,425
|
$305,053
|
$335,557
|
|
Direct Cost of Sales
|
$50,034
|
$86,603
|
$95,259
|
|
Other Costs of Goods
|
$0
|
$0
|
$0
|
|
Total Cost of Sales
|
$50,034
|
$86,603
|
$95,259
|
|
Gross Margin
|
$127,391
|
$218,450
|
$240,298
|
|
Gross Margin %
|
71.80%
|
71.61%
|
71.61%
|
|
Expenses
|
|||
|
Payroll
|
$58,819
|
$63,654
|
$70,689
|
|
Sales and Marketing and Other Expenses
|
$17,900
|
$19,360
|
$21,296
|
|
Depreciation
|
$1,200
|
$1,100
|
$1,100
|
|
Rent
|
$13,200
|
$12,100
|
$12,100
|
|
Research and Development
|
$4,000
|
$10,000
|
$12,000
|
|
Equipment Maintenance and Repair
|
$0
|
$5,000
|
$8,500
|
|
Utilities
|
$4,380
|
$4,416
|
$4,857
|
|
Insurance
|
$1,200
|
$1,100
|
$1,100
|
|
Payroll Taxes
|
$0
|
$0
|
$0
|
|
Other
|
$1,500
|
$1,512
|
$1,663
|
|
Total Operating Expenses
|
$102,199
|
$118,242
|
$133,305
|
|
Profit Before Interest and Taxes
|
$25,192
|
$100,208
|
$106,993
|
|
EBITDA
|
$26,392
|
$101,308
|
$108,093
|
|
Interest Expense
|
$6,489
|
$5,655
|
$4,785
|
|
Taxes Incurred
|
$5,611
|
$28,366
|
$30,662
|
|
Net Profit
|
$13,093
|
$66,187
|
$71,546
|
|
Net Profit/Sales
|
7.38%
|
21.70%
|
21.32%
|
