Business Analysis

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 1^st 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. 13^th 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%