+
online course in responsible tourism development session #05
Gerardine Parisi
Tourism business planning
+Agenda
1. From business idea to business plan
2. What is a business plan
3. How to write a business plan
4. Create your own business plan
5. A practical example
+From business idea to business plan
Create a successful business is a very difficult task. You have to be strong motivated and very oriented to planning and scheduling.
Principal steps of an aware process:
How to start up your own business
Identify a business
idea
Create a business
plan
+From business idea to business plan
Your business idea can be based on a dream or an aspiration but you have to translate it in something of concrete
BUSINESS IDEA
Organizational structure
Product
Market segment
The business idea
+From business idea to business plan
Planning and scheduling are key successful factors
Most common reasons of failure: Lack or inadequacy of planning Lack of market research Overestimation of demand Poor quality in the management of the business Error in determining the selling price Little attention to costs and expenses Poor financial management Insufficient sales Startup capital deficient
The importance of planning
LACK OR POORNESS
OF BUSINESS
PLAN
+What is a business plan?
Business plan allows to verify:
Market feasibility TO SELL
Organizational and technical feasibility TO MANAGE
Financial and economic feasibility TO EARN
Business plan
+What is a business plan?
BP
Internal planning
Quantify goals
Calculate risk
Evaluate perfomance
External evaluation
Request of fund
Participation to grant
Aim of business plan
+How to write a business planMain questions
?
WHO
WHAT
WHOM
WHERE
AGAINST WHO
HOW
HOW MUCH
WHAT NEEDS
+Create your own business plan
CUSTOMERS
COMPETITORS
SIZE AND TREND INSTITUTTIONAL
CONTEXT
MARKET RESEARCH
1. Market feasibility
+Create your own business plan2. Marketing mix
PRICE
PLACEPROMOTION
PRODUCT
+Create your own business plan
Most important point to evaluate:
Special permissions to start up
Investment necessary to start the business
Most appropriate legal form to manage the business
3. Organizational and technical feasibility
+Create your own business plan4. Financial and economic feasibility
Investment cost
Operating cost
Year 1 Year 2
Operating cost
Year 3 Year ……
Operating cost
Operating cost
+Create your own business plan
Initial investment cost are all the expenses you will need to start up your business such as:
Immaterial expenses to start up the business, such as permission;
Material needs:• location or office;• special machine;• basic equipment.
4.1 Initial investment cost
+Create your own business plan
How can I get the money I need to start up my own business?
4.1 Initial investment cost
Savings
LoansGrant
+Create your own business plan4.2 Break even point
COSTS OCCURRED
AMOUNT OF
PRODUCT TO BE SELL
NO PROFITS NO LOSES
BREAK EVEN POINT
+Create your own business plan
To calculate the break even point it is necessary to know which kind of costs are related to your business.
Costs can be divided into four main categories:
Fixed cost
Variable cost
Financial cost
Taxes
4.3 Operating cost
+Create your own business plan
Fixed costs are business expenses that are not dependent on the level of goods or services produced by the business.
4.3.1 Fixed cost
$
UNIT OF PRODUCTION
FIXED COST
+Create your own business plan
Variable costs, instead, are volume-related.
The sum of fixed cost and variable cost represent the total cost that is the total economic cost of production.
4.3.2 Variable cost
$
UNIT OF PRODUCTION
FIXED COST
VARIABLE COST
TOTAL COST
+Create your own business plan
Financial cost consists in interests which the entrepreneur have to pay to banks for loans
Taxes are calculated on the taxable income and differ from country to country
4.3.3 Financial cost and taxes
+Create your own business plan
The other main point to calculate the break even is to define the price of product or service.
Price is influenced by internal and external factors
4.4 Pricing strategy
Market goals
Costs incurred
INTERNAL
Market and demand
Competitors
EXTERNAL
+Create your own business plan
There are some criteria used to define the price. The principal are:
Cost plus pricing: the price is fixed calculating the cost of production and adding to it a percentage
Competition-based pricing: the price is decided taking into account the price adopted by competitors
Objective profit pricing: the price is set at a level that allows to gain a certain level of expected profit.
4.4 Pricing strategy
+Create your own business plan4.4 Pricing strategy: 9 laws of price sensitivity & consumer psychology
Reference Price Effect Buyer’s price sensitivity for a given product increases the
higher the product’s price relative to perceived alternatives. Perceived alternatives can vary by buyer segment, by occasion, and other factors.
Difficult Comparison Effect Buyers are less sensitive to the price of a known/more
reputable product when they have difficulty comparing it to potential alternatives.
Switching Costs Effect The higher the product-specific investment a buyer must make to switch suppliers, the less price sensitive that buyer is when choosing between alternatives.
Price-Quality Effect Buyers are less sensitive to price the more that higher prices signal
higher quality. Products for which this effect is particularly relevant include: image products, exclusive products and products with minimal
cues for quality.
Expenditure Effect Buyers are more price sensitive when the expense accounts for a
large percentage of buyers’ available income or budget.
End-Benefit Effect The effect refers to the relationship a given purchase has to a larger overall benefit, and is divided into two parts:
Derived demand: The more sensitive buyers are to the price of the end benefit, the more
sensitive they will be to the prices of those products that contribute to that benefit. Price
proportion cost: The price proportion cost refers to the percent of the total cost of the end
benefit accounted for by a given component that helps to produce the end benefit (e.g., think CPU and PCs). The smaller the given
components share of the total cost of the end benefit, the less sensitive buyers will be to the
component's price.
Shared-cost Effect The smaller the portion of the purchase price buyers must pay for
themselves, the less price sensitive they will be.
Fairness Effect Buyers are more sensitive to the price of a product when the price is outside
the range they perceive as “fair” or “reasonable” given the purchase context
The Framing Effect Buyers are more price sensitive when they perceive the price as a loss
rather than a forgone gain, and they have greater price sensitivity when the price is paid
separately rather than as part of a bundle.
+Create your own business plan4.5 Turnover and net profit
TURNOVER
PRICE * QUANTITY
NET PROFIT
TURNOVER – FIXED COST
– VARIABLE COST – FINANCIAL COST
- TAXES
+
Gerardine bed and breakfast
Drag picture to placeholder or click icon to add
Drag picture to placeholder or click icon to addA
practical example
+Gerardine bed and breakfast
WHAT: Boutique, charming, eco bed and breakfast, 5 rooms, high level of standard.Special offer for people interested in enogastronomy, tradition and mountain.
WHERE: Abandoned house of my grandmother in a rural area of Trentino, tourism not well developed
WHO: I will be the enterpreneur, this will be a second work
Business idea
+Gerardine bed and breakfast
MARKET RESEARCH:Internet, studies…
CUSTOMERS:Lovers of enogastronomy, tradition, mountainCouple (empty nest)Good level of income
COMPETITORS:No direct competitors in my area
SIZE AND TREND:
Niche segment, but increasing
ISTITUTTIONAL CONTEXT:Certification
Special permission
Market feasibility
+Gerardine bed and breakfastMarketing mix
•High level b&B
PRODUCT•From market research I know that I can ask 80€ for night
PRICE
•Internet
PROMOTION
•Direct selling
•Local DMO
•Small association
PLACE
+Gerardine bed and breakfast
INITIAL INVESTMENT COSTS
MATERIAL EXPENSES
Refurbishment of the house 100.000€
Purchasing furniture 50.000€
IMMATERIAL EXPENSES
Permission and certification 3.000€
Marketing and communication (website, brochure…) 7.000€
TOTALE 160.000€
+Gerardine bed and breakfast
How can I get the money I need to start up my own business?
Grant 30.000€
Savings 30.000€
Loans 100.000€
+Gerardine bed and breakfast
Every year I have to sustain this cost:
Fixed cost: 5.000€
Variable cost: 30.000 (40€ for every host 750 arrivals for year)
Financial cost: 5.000€
Taxes: 6.000 (10% of 60.000€ that is the foreseen turnover)
+Gerardine bed and breakfast
Break even point:
Cost/price = number of host 26.000€ / 80€ = 325 arrivals
Provisional net profit:
Turnover-costs = net profit 60.000€ - 46.000€ = 14.000€