BUSINESS PROPOSITION
VISION
Create a consciousness of the importance of nature.
MISSION
Educate children about nature and acquire responsibility, patience and organizational skills. Also, to let parent and child spend more time together
IDENTITY
We want to educate about nature in a fun and practical manner. For our company to be close into contact with our customers and to be sustainable.
START-UP GOALS
KEY PERFORMANCE INDICATORS
This product will rely on customer satisfaction, parents meet a lot of parents at a middle school and mouth-to-mouth advertising can be greatly used. Therefore, the customer should feel valued and benefited from using this product or buying it for their children. And that is why we value this key performance indicator as most important. These key performance indicators is a tool businesses can use to measure how effectively they are achieving their goals.
SHORT-TERM OR LONG-TERM
Our company will be focussed mostly on the long-term. We want to create a good quality product and to become part of people’s life. Short-term big profit will probably be out of the question, since we want our subscription to be available and affordable for as many people as possible. But since we are a start-up company, many short-term goals will need to be realized. So these are important too.
SHORT-TERM GOALS
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Market research to see what customers think of the idea;
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Adjust idea;
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Produce box;
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Test box;
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Find new agricultural companies that want to sponsor a box;
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Get the product produced and put the product service on the market.
LONG-TERM GOALS
Set-up subscription for schools;
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Set-up a service for inquiries for customers to get help with problems;
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Create long-term deals with a company to create a more permanent sponsorship;
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Improve product service over time to maintain good quality.
INVESTMENTS
To start the company and to create the starters box will require some money. This we want to do by investments. These investments will have these results:
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Mold (to create the box);
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Production line/cost;
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Development cost;
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Storage space costs;
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Marketing;
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First 80.000 starterskits
We estimate this investment around 1.8 million euro
CUSTOMER MARGIN
In order to see what profit the company can make, it is necessary to see what percentage of the Dutch families will want to order a Sprout subscription. Since this is an estimation, a percentage of 0,5% and 5,0% is chosen. If in both scenarios a profit will be made, then the company is in the safe.
In the Netherlands, a family consists of a (pair of) parents with one or more children. This can include a married or unmarried couple, or a single parent. The CBS does include adoption parent and stepchildren but excludes foster children. There are 1,9 million families with their youngest child below 18 years old. Deducted are the age groups besides families with a 6-12 year old, this number is around 1,092,965 (3)(4).
If 0,5% of these families buys a Sprout subscription, then 54,648 families will buy a Sprout subscription.
If 5,0% of these families buys a Sprout subscription, then 546,482 families will buy a Sprout subscription.
If the subscription costs 5 euro per month, our 6 month and 12 month subscription will turn a profit. But if we would supply a 3 month subscription then we would lose money during the subscription. We would lose money because the starterskit is valued higher than what we earned for the subscription.
MARKETING PLAN
We want to have at least 40.000 customers at the start of spring. To achieve this, we want to start promoting the product in December, since there are multiple holidays in that month. To promote the product, we would like to use advertising blocks on the television and on the internet. We will also promote on social media to the parents, since children are not on most of the social media platforms. To get along with all the promotions made during the holidays, we would also like to make use of advertising brochures.
When the first group has started with our service, word of mouth will take place. When children come over to play they can see the plants and the child can proudly show how far he or she is. Also the competition part will help with the word of mouth.
The years that follow there will still be an advertisement, but less than the first year, since there already is a group of customers.
COST-ESTIMATION
COST ESTIMATION
In order to determine what price our users have to pay we made a costs estimation including the starter kit, fixed and monthly costs. With this cost estimation a selling price can be determined that is necessary to break even with variables such as the amount of customers and the average subscription duration.
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STARTERS KIT COSTS
You can find the costs of the starters kit in table 1.
TABLE 1 - STARTERS KIT COSTS
The starter kit is a big part of the cost of the whole subscription. We look into the financial consequences of designing our own starter kit or purchasing another one. Since most of the costs of the starter kit are in sending it to the user we decided to use our designed starter kit. More about the starter kit can be found on the starter kit page. The costs of the starter kit are per piece and therefore per subscriber. The cost of the starter kit is influenced by the amount created. The example below is in case we supply 40.000 subscribers.
MONTHLY COSTS
We have monthly costs that include sending the seed packages to the users. But also upkeep of the servers and employees. Employees include server maintenance, customer support and assembly of the starter kits.
Employee costs are determined in table 2 and 3.
Combining the employees with server upkeep costs creates a list of monthly costs visualised in the table. The amount of subscribers influences the monthly costs greatly because we have to send the seed envelopes to the customers every month. Which introduces a costs per customer. The table below shows the monthly costs in the example of 40.000 subscribers.
TABLE 2 - EMPLOYER COSTS
TABLE 3 - MONTHLY COSTS
TABLE 4 - FIXED COSTS
FIXED COSTS
Fixed costs are the same no matter the amount of subscribers we have. So for this part of the costs balance, the more customers the less costs. It is mainly made up of mould costs for the injection moulding of the starter kit. Another big part of these costs consist of research and development. This is made up of our project group of 5 people, working 280 hours per person. We used the hourly costs of an employee to determine R&D costs. The total fixed costs are shown in table 4.
COST BALANCE
The total costs are influenced by the amount of subscriptions and the amount of customers. With a higher average subscription duration the higher the percentage of the total costs exist of monthly costs. But therefore also the smaller the part that exists of starter kit costs. Below are three examples that show the balance of costs. The first with 3 months average subscription duration, the second with 6 months average subscription duration and the last with 12 months subscription duration. These diagrams make clear that the longer the average subscription duration is, the less the starter kit costs are of influence on the total costs.
DIAGRAM 1
DIAGRAM 2
DIAGRAM 3
SUBSCRIBERS
To determine the amount of subscribers we need we will compare the variable of the amount of subscribers to our costs. This is done three times, for the subscription duration of 3, 6 and 12 months. The price that comes from this is the price the customer will have to pay monthly in order for us to break even.
The selling prices required to break even is visualised in graphs below. This is again done in 3, 6 and 12 months average subscription duration.
TABLE 5 - THREE MONTHS
TABLE 6 - SIX MONTHS
TABLE 7 - TWELVE MONTHS
It is clearly seen that the shape of the graph is the same no matter what subscription duration is used. However, the price drops significantly when a longer subscription duration is used. Also the graphs clearly show a relation between how many subscriptions there are and the break even selling price. The difference between 375 subscriptions and 5000 subscriptions in breakeven selling price is a drop of 89% when using an average subscription duration of 12 months.
PROFIT
To see how much profit we can make we must define a selling price. We have included selling price as a variable to see the effect on profit. The selling price that is determined is €5 a month. With this selling price the profits are shown in the graphs below. The graphs show the profit over the amount of subscriptions. The graphs are showing the option of having 3, 6 and 12 months subscriptions.
These graphs show that when the average subscription duration is 3 months, no profit will ever be made and the more subscriptions, the more loss is made. When the average subscription duration is 6 months, profit is made when there are approximately 25.000 subscribers. When the average subscription duration is 12 months, profit is made when there are approximately 10.000 subscribers.
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SUBSCRIPTION DURATION
Since no profit can be made with a 3 month subscription there needs to be a minimum of more than 3 months. With subscriptions lasting at least 6 months, profit can be made. Also, a 6 month long subscription is a subscription for one growing season. After the 6 months, the subscription can be stopped monthly. It is easier to reach the required 25.000 subscriptions when offering the subscription for the duration of a growing season, than it is to reach the 10.000 subscriptions required when offering it for 12 months.
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INVESTMENT
To determine the size of the investment required we graph the total cost of the amount of subscribers and compare it to the revenue from these subscribers each month. The moment the profit line passes through the investment line is the moment the investment is earned back.
The first graph is when 20.000 subscriptions are used. It shows that 20.000 subscriptions are just a little bit too few to be able to pay back the investment.
The second graph shows that with 40.000 subscriptions the investment can be paid back and additional profit is made. When having 40.000 subscriptions, after 6 months: € 147.353,22 is left, after paying back the investment (interest excluded).
The third graph shows the profit investment graph with 80.000 subscriptions. The profit line goes through the investment line sooner than with 40.000 subscriptions. The profit after the 6 months is: € 489.015,58
The graph below shows the profit and investment with 80.000 subscriptions when using an interest rate of 5%. Interest on a large amount of money increases fast. If we were to ask for an investment with 5% interest rate, we would need at least 80.000 subscriptions and we would pay back the last of the loan with revenue of people who would not stop their subscriptions after the 6th month. If 22% of the people would continue their subscription after the 6th month we would be able to pay back the whole investment with 5% interest rate at the 7th month.
All above calculations and graphs are done with a constant amount of subscriptions. However, when the minimal subscription length is 6 months, people will eventually stop their subscription. With this estimation can be made about how many people will subscribe and when. A worst case scenario is when all subscribers stop their subscription exactly 6 months after subscribing. On the right side is an estimation of the amount of subscribers when all subscribers stop immediately after the 6th month. This example has an estimated maximum of 80.000. The amount of subscribers increases fast at the beginning and at the end the increase flattens a bit. Once the product service draws attention the customer amount will increase fast up to a point where the increasement stabilizes. The estimation is shown below:
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With this estimation of subscriptions a more realistic profit graph can be made. The investment required with this subscription estimation is based upon the fixed costs, with the starter kit costs of 80.000 pieces and the monthly costs based upon the monthly estimation of subscriptions. The total investment required sums: € 1.798.800,00. The total profit made after the 11 month period in this estimation is: € 2.450.000,00. This gives an € 651.200,00 of revenues in 11 months.
CONCLUSION BUSINESS-MODELS
To earn back our investment we’ll need 80.000 subscribers in 6 months. Since it is only 1,4% of all families, this is a relatively low percentage. The subscription is not expensive and can educate the child about nature. If marketing strategies are applied well, this is doable. We need to focus on good customer experience, so that after people know our product exists because of marketing strategies; they will want to tell the people they know what their experience is with our product. If this is positive; new customers will buy a subscription.