How “BUSINESS SMART” Are You?
Can you help Cher be more Successful with her “Pretty Hair” Sale?
Cher owns a beauty shop and now wants to add a new line of hair care products. The product called “Pretty Hair” will cost her about $1.00 a bottle. One of the reasons she is paying only $1.00 a bottle is that although the bottle is over five inches high, the quantity of the shampoo is much less than the other products of similar size. The way she achieves this “perceived value” is a clever use of a false bottom in the container. She does not want to deceive anybody so she clearly states the fluid ounces on the side of the bottle…. and relies on people’s perception of the size of the bottle to determine value and “benefit for the purchase price”.
For Cher, the minimum order for this product is 1000 bottles. The suggested retail for this product is $3.00 a bottle. She has been informed by the “sales representative” that the best way to market this product is with an initial “sale price” of 50% off and should be used in connection with radio advertising. Being somewhat of a radio enthusiast herself, Cher decides that the best way to create a great radio spot is to use songs from long ago when she use to be with that other guy. The radio advertising is costing $500.00 a month for a minimum of three months.
Cher is “very sharp” and knows that one of her employees [$15/hour] will need to devote about two hours a day speaking with customers about this product. You have been hired by Cher to provide advice on this project. She is thinking that printed advertising may be a good idea also and wants to do both print and radio.
BUSINESS DEVELOPMENT PRINCIPLES:
Break Even Analysis
“Costs”: Operational and Overhead costs for a business are the costs of resources, products and services used by a business just to maintain its
existence. Overhead costs are usually measured in monetary terms, but non-monetary overhead is possible in the form of time required to accomplish tasks and perform services.
Operating costs may include salaries of personnel, advertising, products, license fees or equivalent fees or costs as imposed by a government agency, rent/lease payments, office space maintenance, furniture and equipment, investment value of the funds used to purchase the assets, business property taxes and equivalent assessments, fuel costs such as power for operations, public utilities such as telephone service, internet connectivity, maintenance of equipment, office supplies and consumables, insurance, depreciation of equipment and eventual replacement costs and, yes, let’s not forget income taxes.
Break-Even #1 (of 3) is the volume where all fixed expenses are covered.
You will start a break-even analysis by establishing all the fixed (overhead) expenses of your business. Since most of these are done on a monthly basis, don’t forget to include the estimated monthly amount of line items that are normally paid on a quarterly or annual basis such as payroll taxes or insurance.
There are three ways to lower your break-even volume, only two of them involve cost controls (which should always be your goal on an ongoing basis).
Time to dig deeper:
Cher, being the goddess that she is to women, (and some men, too) has decided that she needs to spice up the sale campaign. She recalls an outfit that she wore on a Navy ship in one of her earlier videos and figures with the current military support of our troops; this may be a good way to create a “WOW” media event. Her consultant has warned her that this may be inappropriate in today’s politically correct environment, but increasing sales is important to her.
So, she hires the old band back again and sets up on the street outside of her business. Even though they love Cher, the band wants the usual $5,000.00 a day to play the music. Business is great, the fans are happy, (not so much the business neighbors) and she sells all 1000 bottles of “Pretty Hair”. She considers her “sales idea” a huge success since she has sold out of the “Pretty Hair” in just one day.
She now wants to buy 3000 bottles and also hire a few more “dancers”, which she calls the store employees. Feeling excited about singing again and now considers herself a business success, she wants to have the events every month, year round … regardless of the weather.
DO YOU HAVE THE ANSWERS?
1. What is Cher’s profit after the first month when she sells 500 products?
a. About $1,000.00.
b. Less than $500.00.
c. She has lost money.
2. What is her profit if it takes her three months to sell 1000 products?
a. Over $1,000.00
b. Less than $1,000.00
c. She has lost money.
3. What is Cher’s BEST marketing option?
a. Fire the employee.
b. Do not have the sale.
c. Increase the advertising budget.
HOW BUSINESS SMART ARE YOU?
What would you suggest to Cher so she can have a successful sale?