Let’s Test a New Model

Let’s Test a New Model

Module 4: Let’s Test a New Model

Share on Facebook or LinkedIn

🎯 Our goal in this module is to see if we can reach our target Net Profit (before taxes) figure by modifying your business model.

Let’s take a look at another option: selling directly from your “kitchen” to the people who will be consuming your energy bars.

We just need to make a few simple, quick changes in our Profit & Loss Sheet to create a snapshot of what this could look like.

In this new model, you will sell directly to final consumers of your energy bars.

  • You already have your place of business renovated for making and storing your bars.
  • Maybe you decide to add a window to the outside world where you can interact with your customers, as well as some signage near the window with your business name, logo, and menu.
  • No need for anyone to enter your facility (just in the early stages), so no need for more renovations or purchases of furnishings, etc.

Here are three Sales options to start with:

  1. Customers can order from your website and then pick up their orders at your "kitchen" facility.
  2. Or, they can just stop by your facility, ring a bell at your new window to get your attention, and then select and purchase bars face-to-face.
  3. Or, customers can order through DoorDash, or other food delivery services. In this case, customer orders will be picked up at your facility window by the delivery service.

Scenario 1: Sell 50,000 Energy Bars at $4 Each

For this business model, since you won’t be selling to Specialty Food Stores, but directly to the people who will be eating your bars, you can sell them at the market price, which, as we recall, is between $4 - $5 dollars per bar.

Let’s go with $4 per bar, to be conservative, and let's stick with our original Year 1 Sales target of $200,000.

We already determined that you could realistically produce this amount of energy bars in a year—so far, so good.

Let's add a row to the Sales section in our Profit & Loss Sheet and input this new figure:

Sales
Direct Sales
200,000
Specialty Food Store Sales
0
Total
$200,000

What about your Cost of Goods Sold?

(Click each triangle toggle to view)

Product Ingredients
Carry-Out Boxes
Packaging

So, in summary, the only change to your Cost of Goods Sold for moving from a business model selling to Specialty Food Stores to a model selling directly to consumers will simply be replacing Display Boxes with Carry-Out Boxes/Bags.

Let’s update our Profit & Loss Sheet:

Sales
Direct Sales
200,000
Specialty Food Store Sales
0
Total Sales
$200,000
Cost of Goods Sold (COGS)
Product Ingredients
50,000
Packaging
12,500
Display Boxes
0
Carry-Out Boxes
2,800
Total COGS
$65,300

What about Your Operating Expenses?

Now, let's look at your Operating Expenses and consider what might be different with this new "Direct to Consumer" business model.

(Click each triangle toggle to view)

Advertising & Marketing → $24,000
Credit Card Fees → $5,000
Shipping Boxes → $0
Vehicle Operating Expense → $4,388
Website & SEO Services → $10,000

Finally, we'll keep Miscellaneous to 15% of your Operating Expenses subtotal (which will be automatically calculated in our spreadsheet).

We'll let your other Operating Expenses remain the same for this first scenario of your new "Direct to Consumer" model.

Let’s update our Profit & Loss Sheet:

Sales
Direct Sales
200,000
Specialty Food Store Sales
0
Total Sales
$200,000
Cost of Goods Sold (COGS)
Product Ingredients
50,000
Packaging
12,500
Display Boxes
0
Carry-Out Boxes
2,800
Total COGS
$65,300
Operating Costs
Advertising & Marketing
24,000
B&O Tax
0
Bank Charges
600
Credit Card Fees
5,000
Insurance - Health
6,000
Insurance - Hazard/Liability
3,000
Janitorial Expense
0
Legal & Professional Fees
5,000
Licenses & Permits
2,000
Office Expense
1,500
Payroll
0
Payroll Taxes (State & Federal)
0
Phone
600
Postage & Printing
0
Rent
12,000
Repairs/Maintenance
0
Security & Alarm Expense
3,500
Shipping Boxes
0
Utilities
4,000
Vehicle Operating Expense
4,388
Website & SEO Services
10,000
Miscellaneous (15%)
13,817
Total Operating Costs
$93,826
Net Profit (Before Taxes)
$40,874

Our previous "Specialty Food Store" business model with 50,000 bars selling for $2 each resulted in a Net Loss of $47,998 (before taxes).

This new model generates a Net Profit of $40,874 (before taxes).

👍

Wow! This new “Direct to Consumer” model is starting to look promising.

Let’s see what happens if you make and sell 100,000 energy bars with this “Direct to Consumer” business model.

Scenario 2: Sell 100,000 Energy Bars at $4 Each

We already determined that you can realistically produce 100,000 energy bars in the same facility and with the same equipment (recall Scenario 2 of the Specialty Food Store model).

If we keep the selling price at $4 per bar, then your new Sales estimate will be:

What about Cost of Goods Sold?

Since all we're doing in Scenario 2 is doubling the number of bars that you will be producing and selling, we just have to double our previous Cost of Goods Sold estimate:

(Click each triangle toggle to view)

Product Ingredients → $100,000
Packaging → $25,000
Display Box → $0
Carry-Out Boxes → $5,600
💡

By doubling the number of energy bars sold, your Gross Profit also doubles in this scenario to $269,400. You now have twice as much money left over to pay for your Operating Expenses.

What about Operating Expenses?

Now, let's think through how your Operating Expenses might be affected by doubling Sales.

(Click each triangle toggle to view)

Advertising & Marketing → $48,000
Credit Card Fees → $10,000
Legal & Professional Fees → $7,500
Office Expense → $3,000
Payroll → $31,200
Payroll Taxes (State & Federal) → $2,500
Phone → $1,200
Utilities → $8,000
Vehicle Operating Expense → $8,775
Website & SEO Services → $15,000

Finally, your 15% Miscellaneous expense will automatically increase with your new Operating Expenses subtotal.

We'll let your other Operating Expenses remain the same for this scenario.

Now, let’s update our Profit & Loss Sheet with all of these new estimates:

Sales
Direct Sales
400,000
Specialty Food Store Sales
0
Total Sales
$400,000
Cost of Goods Sold (COGS)
Product Ingredients
100,000
Packaging
25,000
Display Boxes
0
Carry-Out Boxes
5,600
Total COGS
$130,600
Operating Costs
Advertising & Marketing
48,000
B&O Tax
0
Bank Charges
600
Credit Card Fees
10,000
Insurance - Health
6,000
Insurance - Hazard/Liability
3,000
Janitorial Expense
0
Legal & Professional Fees
7,500
Licenses & Permits
2,000
Office Expense
3,000
Payroll
31,200
Payroll Taxes (State & Federal)
2,500
Phone
1,200
Postage & Printing
0
Rent
12,000
Repairs/Maintenance
0
Security & Alarm Expense
3,500
Shipping Boxes
0
Utilities
8,000
Vehicle Operating Expense
8,775
Website & SEO Services
15,000
Miscellaneous (15%)
24,341
Total Operating Costs
$186,616
Net Profit (Before Taxes)
$82,784

Our previous scenario with the "Direct to Consumer" business model resulted in a Net Profit of $40,874 (before taxes).

This scaled up scenario, with double your Sales, generates an estimated Net Profit of $82,784 (before taxes).

👏

Another positive improvement of about $42,000! Now this "Direct to Consumer" model looks even more promising.

One Final Scenario

Let's test out one more scenario with the "Direct to Consumer" model to see if we can reach our target Net Profit (before taxes) of $100,000.

Let's raise the price of your energy bars from $4 to $5 per bar and see what happens.

This one should take about five seconds, since all we're changing is Sales from $400,000 to $500,000.

Your Cost of Goods Sold and Operating Expenses remain the same as in Scenario 2 (with the exception of Credit Card Fees).

Since we're increasing Sales, Credit Card Fees will also increase.

If we continue to estimate (conservatively) this cost at 2.5% of Sales, then your new Credit Card Fees cost will be:

Your 15% Miscellaneous expense will also automatically increase based on your new Operating Expenses subtotal.

Let’s update our Profit & Loss Sheet:

Sales
Direct Sales
500,000
Specialty Food Store Sales
0
Total Sales
$500,000
Cost of Goods Sold (COGS)
Product Ingredients
100,000
Packaging
25,000
Display Boxes
0
Carry-Out Boxes
5,600
Total COGS
$130,600
Operating Costs
Advertising & Marketing
48,000
B&O Tax
0
Bank Charges
600
Credit Card Fees
12,500
Insurance - Health
6,000
Insurance - Hazard/Liability
3,000
Janitorial Expense
0
Legal & Professional Fees
7,500
Licenses & Permits
2,000
Office Expense
3,000
Payroll
31,200
Payroll Taxes (State & Federal)
2,500
Phone
1,200
Postage & Printing
0
Rent
12,000
Repairs/Maintenance
0
Security & Alarm Expense
3,500
Shipping Boxes
0
Utilities
8,000
Vehicle Operating Expense
8,775
Website & SEO Services
15,000
Miscellaneous (15%)
24,716
Total Operating Costs
$189,491
Net Profit (Before Taxes)
$179,909
🔥

Wow! Raising the price of your energy bars by just $1 increases your Net Profit (before taxes) by nearly $100,000.

You can see how easy it is to make changes and instantly see how your Net Profit is affected--positively or negatively.

Comparing different scenarios on your Profit & Loss Sheet can often lead to the discovery of options that you had not seen or considered before.

As you go through this process with your business (whether you're just starting out or already up and running), it's important to think things through and to be as realistic as possible.

For example, let’s go back and take a closer look at Scenario 2, which resulted in $82,784 Net Profit (before taxes).

Start With Sales
Next Up, Cost of Goods Sold
On to Operating Costs

Again, every prediction about the future will be a “guess”, but the more you can think through the details of your business model, the better your guesses will likely be, and the better the odds of building a successful, profitable business that you will look forward to working in and on, long after the honeymoon period.

What’s Next?

Okay, so your Energy Bar business is starting to look like a high potential opportunity “on paper”.

What’s the next step?

Now, it’s time to see if you can make this work in the real world. That’s what the the rest of Phase 1 is all about.

📍

In the upcoming modules we’ll walk through, step-by-step, the same process I use with my own clients to help them assess and develop their business idea until they're ready to make the ultimate Go/No-go decision to launch their business.

💡

In the end, it really comes down to “getting out of the office” and finding out if people actually want your product/service/solution and would be willing to pay for it (possibly even in advance).

⚡Action Step

Try to find a realistic scenario where you reach your target Net Profit (before taxes).

Use your Profit & Loss Sheet to modify your business model with new (rough) estimates of Sales and Costs.

Try increasing your price per sale (within a reasonable range) and think through how this would affect your costs.

Try increasing your sales volume and think through how this would affect your costs.

💡

Remember: Try to be conservative with your sales estimates and liberal with your costs estimates.

🗂️

Access our Profit & Loss Google Sheet at the bottom of this page in the ”Resources” section.

🗂️ Resources

💡

Scroll left-to-right across the table below to view all columns. Click on any item in the leftmost column to open that specific resource page.

🗂️
Resources Core Database

ItemTagsURLPriceDescription
Profit & Loss Sheet
Napkin MathFinancialsBizActually
Free
A simple Profit & Loss Google Sheet to test alternative business models fast! (Created by our Team)

Give Us Feedback

❇️

Help us improve this module. Use the form below to tell us what content you’d like us to add or modify. (If you can’t see the form below, try refreshing the page)

← Previous

Next →

💠

https://startup.bizactually.com/

© 2022 Terry Cornelison | DIY Startup Bootcamp is a BizActually.com initiative.