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Income Statement - CaffCap
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Year 1Year 2Year 3RationaleLinks
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Revenue
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Product# Units Sold50,00085,000160,000Ember cup - a similar product - got 100,000 sales in the first year, so taking a reasonable estimate, we get 50,000. Our complete target market consists of around 30 million people, so to get 0.001% of them as first adopters would be reasonable. As the buisness grows through sales and markeing, the numbers grow 1.7x in year 2 and 1.88x in year 3, a similar trend is seen across competitor productsLink
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Price per Unit$18$18$18Price set based on other similar products and customer answers to interview questions and stays constant across years to gain a loyal customer base
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Revenue from selling product $900,000$1,530,000$2,880,000(# Units sold)*(Price per unit)
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App (Freemium Model)
# of App Members47,50080,750152,000We assume 95% of people who buy the cap will also download the accompanying app based on the interviews
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Price of Premium Subscription$5$5$5Interviewing our consumers indicated $5 was a reasonable price for premium features which improve data tracking, price again stays constant for the first three years to gain a loyal consumer base
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% of Members with Premium5%6%6.50%Around 5% (as indicated by interviews) will upgrade to premium, as better caffeine data tracking will be appealing only to a select few customers with more severe caffeine problems (such as those that are recommended to limit caffeine intake by a doctor). Through advertising and slowly increasing premium features, we will gain premium membership
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Revenue from Subcriptions$11,875$24,225$49,400(Price of premium subscription)(# Free users)(% Members with premium)
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Total Revenue (# Units sold)*(Price per unit) + (Price premium subscription)*(# Free Users)*(% of Members with premium)$911,875$1,554,225$2,929,400Calculated through adding revenue from selling product + revenue from subscriptions
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Cost of Goods Sold (COGS)
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CostsProduction Factory (outsourced) per year$20,000$22,500$25,000To outsource product to a factory in China for one year, it would cost 10,000 to 50,000 dollars per year. Given we are a small factory with a non-labour intensive product, we can assume it would be on the lower end of that spectrum. As production increases, factory size and cost will increase to accomodate this. Link
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Shipping per year + delivery cost$45,000$76,500$144,000It will cost approximately 25 cents per unit to ship from factories abroad + 65 cents per unit for deliveryLink
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Investory storage $2,500$3,700$4,300The cost for storage of our product in an inventory will cost approximately 2500$ and will increase as our production increases but by lesser due to economies of scaleLink
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Worker Wage per Unit$1.00$0.90$0.75Given a worker could make around 6 units per hour and the average Chinese factory worker makes around $6 per hour, hour wage per unit would be $1; later, workers will become more experienced and make more units in an hour, so wage per unit will reduceLink
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Electronics per Unit$12$10$8Together, the custom pcb (5.5$), battery (1$), flow sensor (3.5$), accelerometer (1.2$), mini breadboard (0.5$), leds (0.1$) and other wiring (0.2$) will cost 12$ in the first year and be brought down to 8$ by the third year due to ramping up production and procuring the raw materials in bulkLink
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Physical Cap 3D printed$0.50$0.50$0.50The plastic for the cap is very cheap and can be produced at a mass scale at a low cost
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Total COGS (Production factory + Shipping + (Wages + Electronics + Cap)*Units)$742,500$1,071,700$1,653,300Obtained though adding the individual costs
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Gross Margin$169,375$482,525$1,276,100Total Revenue - Total COGS
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Operating Expenses (OPEX)
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Sales and MarketingTiktok (Influencers + Promoted Ads)$21,000$23,000$24,500TikTok advertising will be a focus of our campaign. Specifically, mid-sized influencers, who have a following in the lifestyle and health industry. For each post, micro-influencers cost 50-200 dollars and macro-influencers cost around $700Link
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Instagram$16,000$17,000$18,750Instagram ads are minimally expensive per click and view; they cost between $0.20 to $2 per click, and $0.01 to $0.05 per ad viewLink
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Google promoted websites$60,000$72,000$80,000The average small- to mid-size business spends anywhere from $12,000 to $120,000 per year; since we are a new buisness and want to grow as much as possible, we will spend moreLink
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Total Sales and Marketing $97,000$112,000$123,250Tiktok + Instagram + Google
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Other OPEXGeneral and Admin$30,000$55,000$68,000We, the founders will be working mostly for free in order to grow the business, but we will still need to pay for our workspace, food and transportation. As we make more money, greater salaries can be given to us, the founders.
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R&D$25,406$72,379$191,415On average, leading software companies invest between 10–15% of their revenue in R&D; as we want to innovate and improve our product, we will reinvest 20%Link
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Total Other OPEX$55,406$127,379$259,415General and Admin + R&D
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Total OPEX$152,406$239,379$382,665Sales and Marketing + Other OPEX
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Pre-Tax Income$16,969$243,146$893,435Gross Margin - Total OPEX
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Taxes (25%)$4,242$60,787$223,35925% flat tax rate as mentioned in the assignment
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Net Income$12,727$182,360$670,076Pre-tax income - taxes
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