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Sample Financial Assessment

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Financial Assessment
Sales
Projecting sales for Sesame is a difficult proposition as it is a relatively new idea in a young industry; thus generating a high variability in sales probabilities. The variation is sales will stem from how consumers perceive the brand and the effectiveness of the product. The most accurate way to predict sales is to use data from similar products in the industry, along with data from the target market to create an accurate forecast. Reasonable estimates suggest that a low of 20,000 units could be sold in the first year, with a high of 30,000. Considering the low price point of the product, and the benefit of simplicity, it appears completely justified to have sales numbers in this range. Using sales data from competitors allows Sesame to see whether or not consumers accept the product and if it is able to compete with others in the industry. Using this high low analysis gives an indication of whether or not the company can be profitable if sales were to fall below desired levels.
Fixed Costs Website - Operating a website is extremely simple, cheap, and efficient because of the abundance of hosted solutions available. GoDaddy, the world’s largest host of domains, provides an ecommerce solution for $27 a month, and allows for unlimited online transactions. Rent/Utilities – In order to accommodate shipment and inventory needs, a warehouse will be required. A 1000 sq. ft. rental in Brampton, ON, will serve as both an office space and warehouse. This location will allow for effective shipping throughout eastern Canada at a very reasonable $600 monthly. Utilities for the warehouse can be estimated at $1.25 per sq. ft. Annually, this cost would amount to $1,250.
Advertisement – Advertisement will be done through many mediums, with emphasis on online/social media advertisement. The first medium of advertisement will be through Facebook. Advertising on Facebook will be bid through the Cost Per Click method, with each click having a price of $.24. Budgeting for 500 Clicks a day, the annual budget for Facebook advertising $43,800. A second method of online advertising which can help reach audiences outside of Facebook will be Google AdWords. Setting a $50,000 annual budget for Google AdWords will allow for an extremely generous level of clicking. The third method will not be online, but will instead be in the form of a exhibit at the National Home Show in Toronto. Costs for this event will be $29.99 per sq. ft. with a total area of 100 sq. ft. $2,999 is a small cost to pay to be a part of Canada’s largest home show.
Indirect Labor/Salary – indirect labor estimation is 8% of sales, which pays for the wages of those helping to run the company smoothly.
Variable Costs COGS – The cost of producing each Sesame product will be based upon industry averages for household electronics. However, due to the recent invention of this product, and the limited production quantities, it is safe to allocate a 65% COGS budget. Thus, for every unit sold at $149, it will cost the company $96.85 in direct materials, labor, and shipping.

Credit Card Sales – Because this is an online company, credit card sales will be an unavoidable cost in all sales. Also associated with GoDaddy, credit card transaction fees are 2.9% + 30c per transaction.

Implementation First Year – Currently, the main objective of this marketing plan is to create awareness of the product through advertisement and demonstration. Thus, it is crucial that online advertisements be effective in generating clicks towards the website where the product can be purchased. It is also imperative that there is product located in inventory so that customers can receive their product in a timely fashion, as well as for demonstrations at the National Home Show, which will be on March 13th through to the 22nd. Getting the product into consumer’s hands quickly will help the advertising campaign as it will lead to word-of-mouth sales and create a buzz around the product.

Second Year – In the second year of operations it is likely that the amount of online advertising will need to be increased, along with the possibility of physical media. This will mean increased advertising costs for the second year. Developing a new product or modifying the existing one is a possibility in order to cater to new markets and create a larger customer base. Control In order to assess the effectiveness of the marketing campaign, the click-through rate will be analyzed to see if it exceeds or fails to meet the average success ratio of .2%-.3%. Ideally, the campaign would reach a 1% click-through rate for it’s online advertisements because of its standing as a new product in a new industry. If it does not, the marketing material will have to be modified to have greater appeal towards the target market. Evaluating the success of the National Home Show will be done through the conversion ratio, which analyzes how many browsers are converted to purchasers. With an average conversion ratio of 41%, anything greater than this will be seen as a success.

http://www.ou.edu/deptcomm/dodjcc/groups/99A2/theories.htm - Early Adopters

Cost of Sales - http://www.bizstats.com/corporation-industry-financials/manufacturing-31/electrical-equipment-appliance-and-component-manufacturing-335/electrical-lighting-equipment-and-household-appliances-335105/show

http://www.bizstats.com/reports/cost-of-labor.php - Cost of Labor indirect

Rental Space - http://www.kijiji.ca/v-commercial-office-space/mississauga-peel-region/dixie-steeles-industrial/1061361790?enableSearchNavigationFlag=true

Utilities - http://www.seco.cpa.state.tx.us/TEP_Production/c/EPAEnergyStarSmallBusinessGuide.pdf

Advertising FB - http://fitsmallbusiness.com/how-much-does-facebook-advertising-cost/

https://support.google.com/adwords/answer/1704424?hl=en - Google Adwords

Click through rate - http://www.imediaconnection.com/content/25781.asp#multiview

Conversion ratio - http://businessperspectives.org/journals_free/im/2010/im_en_2010_01_Matzler.pdf

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