Revenue model
The revenue model of our PSS can be separated in two subsections. The first subsection is the revenue model of the cotton pads. The cotton pads will be sold to the customers of the cosmetic stores. There is a profit margin on these pads. The costs covered in this subsection of the revenue model are the transportation costs, overhead costs, the costs of the employees and production costs of the cotton pads. The second subsection is the revenue model of the PSS. The PSS is the product service system of the machine and pads for the stores. The costs covered in this subsection are the production costs of the machines, electricity, gas & water and plant lot costs for the office. Furthermore the employee costs for the production of the machines are covered. The reason for this is that the income with the PSS is more reliable than the income of the cotton pads. Therefore the variable costs are covered in the cotton pads revenue and the (semi-)fixed costs are covered in the PSS revenue (the fixed income). The overhead costs are split in variable costs and fixed costs. The variable overhead costs are the overhead costs that grow with the size of the company. That is why these variable overhead costs are covered in the revenue of the cotton pads. Splitting the costs in this manner provides a secure income.
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Revenue
The total revenue of the cotton pads is € 2,245,309.76 per year. This income is obtained with sale numbers of 30.000 x 1.05^n pads per week with the starting point on day one. The total revenue of the PSS is a constant line of €22,788.50 per month. This means that the income every month is evenly distributed.
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Costs
The total costs of the machines is € 46,920.- euros for production. These costs are spread out over 5 years. This includes the labour and rent of the workshop location. After this the monthly costs will be € 3,490.90 for maintenance. The total costs of the cotton pads will be €324,000.- and after that the amount of pads sold times € 0.27. This is a linear income with an estimated sale of 30,000 pads each week. The office costs are a fixed cost of €3,900 a month. The overhead costs are estimated to be €177,840.- a year. The employee costs are part of the overhead costs, the regular staff takes €20,000.- each month. The transport costs in the first month is €380,01 and from the second month on it will be €213,6.
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Break-even point
To calculate the break even point, we look for the point where the revenue exceeds the costs. This is early on in our process. It is in the first month, so the only income we have are the pads. The total amount of costs covered is 58473.1 + 60802x = 178260,5x → x = 0.5
After 0.5 months, our company is profitable.
The investment needed is € 46,920.- for the production of the machines, €17,550.- for the production of the cotton pads before the break even point. And an overhead percentage of 40% to cover office costs, licencing, marketing, administration etc. The total investment asked for is €90,258.-
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Investment plan
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In the beginning of the company there are only costs, because we haven’t sold anything there will not be revenue yet. It has been calculated that the costs will be covered after 14 days by our revenue, and that after that the revenue will be bigger than the costs. But to take into account the fact that consumers may not pay immediately and we will not have enough cash on hand in the beginning to pay the costs, a loan needs to be taken from investors. It has been calculated that an initial investment is needed of €90,258. To be safe, the loan taken will be a bit bigger, to have enough lee-way for when cash is not at hand sometimes. The loan taken will be €100,000 and this loan will be paid off over a period of two years. Because we don’t want to take a lot of risks, the rent will be relatively low: namely 10% per month.
Revenue Model Now and in the Future
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For the starting phase of our company we will not include all cosmetic stores in the Netherlands. This will be an investment that is too big to make at the beginning of our company. The total number of cosmetic stores in the Netherlands is 351. Our first production will consist of 300 machines. This will not cover all stores, especially since larger stores are in need of 2 or 3 machines. We will exclude the smallest stores. These stores have a low use of cotton pads and have less customers. This, most likely, will not be profitable for us in the short term. The estimation is made that we will cover 30 large stores, 200 medium stores and 10 small stores. We will have a stock of 30 machines (10%) to replace broken machines in a fast way.
When we find that in the 10 small cosmetic stores we can also make profit in the short term, we will include the other small stores relatively fast. When this is not the case, we will wait at the right time to expand and include the small cosmetic stores completely as well, we do not want to have extra investors on this expansion when it is not profitable. This will only happen from the point when our company is profitable.
In the first month we expect the stores to sell 4 to 5 packages a day. As a company we want to grow and have more customers. We invest money in marketing and sales guidance for the employees of the cosmetic stores. We expect our sale numbers to grow with 5 percent each month. This means that in the end of the first year each store will sell 7-8 30-packs each week.
In the future we could also include non-cosmetic stores, beauty salons, wellness centers, visagie companies. We could also expand to other countries or continents. When we become this big, we can include mass production to reduce the production costs of the machine. Besides that we will also be able to create multiple sizes and improve our material effectiveness.
To see the full details of the PSS and cotton pad revenue models, click on the button
Marketing strategy
The product that we will take marketing responsibility for are the cotton pads. The PSS on itself is not profitable. This causes the cotton pads sale to become dependent on the success of our company. Maximizing the sales will maximize the profit. Therefore we will stimulate the stores to sell more products. This is done by training them in selling the products. A common marketing strategy is to work via the employees in the cosmetic stores. A target is set per store for the employees to sell our products and when this target is achieved they will get a reward. This reward usually is a product of the brand, but it can also be more diverse and creative.
The type of new offering which our product provides the customers of the cosmetic stores, is a reusable cotton pad that gives the user the opportunity to use their own cleaning and make-up products. There are already existing products that are similar, but those brands do not have a PSS that directly puts customers in contact with their product. The price of the most comparable products are €2,- a piece at Douglas and ICI Paris does not sell reusable cotton pads yet. The cotton pads at Douglas are Only Only products. That means that the employees in the stores do not sell these products yet. Our product will not exceed €2,- a piece quickly and because the name of the store is on the pad, the store has more benefit from selling our pads as well.
Besides the marketing strategy via the employees and stores, we could also work with social media or commercials. The issue here is that we have the same pads for two competing stores. The commercials will either be exclusive for one of these companies or non/both will be mentioned. Financially it is attractive to have exclusivity with one store, this means that the stores will contribute to paying the money for the commercial and the customers know where to find our products.
The target audience for promotion is different. Our target group is all people that use/are going to use cotton pads. The age-, style-, gender- and lifestyle range in this group is big. This means that we will not be marketing very specifically. Distribution and communication channels for this marketing can be E-commerce to speak to the younger generation which is interested and aware of sustainability. In magazines like LINDA. or Margriet the cotton pads can become known at a different target group. Also TV commercials can speak to new groups as well as promotion speakers at sustainability markets or make-up schools. Social media is known for including a lot of people from diverse backgrounds. This will be our main focus. The message strategy will most be on sustainability, ease and comfort.
The budget for this marketing strategy will be influenced by the sale numbers of the pads. The overhead costs will cover marketing costs.