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"What Web's up, must download".
  Ragmar Bosephus, Web Designer

Financial Feasibility
Is your business financially feasible? We can use the following criteria to answer this question.
  • Startup Cost - Capitalization - reflected on a Balance Sheet and Asset List
  • Income Statement
    • Demand/Price
    • CGS = Cost of Goods Sold varies with sales demand
    • Overhead = monthly expense assumed to be steady
    • Living wage or profitabilty projections
  • Bear the Loss of Startup Capital
  • At what point in Revenue and in unit sales do we break even and began to turn a profit?
  • Can we do the work?

Now, let's look at some general trends and in eCommerce.

  • 75% of online shoppers abandon their shopping carts before checkout.
  • B2B spending, fueled by small businesses, topped consumer spending for the first time in '99, by $5 billion.Total Internet spending for the full year 2005, including travel, reached $143.2 billion, up 22 percent over the $117.2 billion spent online in 2004. source

Active  users of the Internet

 

  • 54% business users
  • 46% personal users 
  • Of the Business users, 20-25% conduct personal activities at work and a similar portion of home users conduct business at home.
  • OAR (Online Advertising Report) indicates that within 90 days of an online ad campaign, 49% of revenues come from repeat visits from a "converted" customer.

What are business Operating Expenses like for a typical eCommerce Business?

If you are going to spend money on an eCommerce business, it is useful to know how other companies are spending their money in going online. In other words, how do the expenses of an online business break down?  
 
Expense Structure of a Typical Small Business:
  • CGS - 29%
  • Core Business Services - 27%
    • IT Services - 36%
      (Internet access/Web host/help D)
    • Telecommunications Serv. - 32%
      (long dist/wireless/teleconference)
    • Logistics - 12%
      (transportation/storage/etc.)
    • Marketing - 11%
      (      adv/sales/etc.)
    • Business Services - 9%
      (financial/Human Res./acct/payroll)
  • Salaries & Wages - 25%
  • Maintenance, Supplies - 7%
  • Depreciation - 7%
  • Other Expenses - 5%

 
 

We will use the following assumptions to illustrate feasabilty assessments and look at adjustments we might make to improve the businesses chances of succeeding:

  1. Demand = 100 units/month
  2. Overhead = $1,000/month
  3. CGS/unit = $10 each item sold
  4. Salary Requirement = $2,000/month
  5. Startup Capital Requirements = @12,000 (we would like to pay back our investment over two years time and return this cash invested in the business to our personal bank account.)
Financial Feasibility - Price/Cost/BEP Worksheet

Steps              A. Calculate TFC (Total Fixed Costs) = Add Total Overhead

                        B. Calculate TCGS (Total Cost of Goods Sold) = Add CGS

                        C. Calculate FC/unit = TFC/Demand in units

                        D. Calculate CGS/unit = TCGS/Demand in units

                        E. Calculate TC (Total Costs) = TFC + TCGS

                        F. Calculate TC/unit = FC/unit + CGS/unit

                        G. Calculate SP/unit

                                                                                                                      

 Cost Chart Analysis

              Demand in Units = __________ (use high, low or best guess))

              TFC    __________                          FC/unit    __________

              TCGS __________                          CGS/unit __________

                TC    ==========                          TC/unit  ==========

                    (= $ BEP )                                               (= SP to BE)

                                                                                                                     

Profit per Unit

Your salary per year or salary + ROI per year divided by Total Demand in units.

 

Salary  Calculation per unit        $          /Demand units = profit/unit ___________

 

- AND/OR -

 

ROI Calculation per unit           $          /Demand units = profit/unit ____________

                                                                                                                    

Selling Price Calculation:

 __________            + Profit/unit

__________            + ROI/unit
                                                       
__________            + FC/unit                                           

__________            + CGS/unit                                                                                                                   

=========           = Selling Price/unit     

 BEP units =    

 

      TFC    =
SP - CGS  (per unit) 
_________
BEP $ = SP/unit X BEP units = _________