Estimating Price & Cost for a Startup

    For this assignment I will use MobileSmart Phone & Tablet Repair which is my proposition for a mobile smartphone & tablet repair business as the hypothetical business. The breakeven point for a business is the number of units of a product or service sold to equal the initial setup costs. The time to get to the breakeven point is the payback period. The costs are divided into fixed & variable. The fixed costs are made up of set up & overhead so rent , advertising & tools are in this category. Fixed costs are set every month & are made whether or not a single service is performed or a product is sold. The variable costs are the costs directly related to performing the service or selling the product. So this would include materials, labor & things like gas or electricity. The breakeven point is when the fixed & variable costs equal the total sales.(Small Business Entrepreneur, Breakeven Point Analysis, p128-129, Rory Burke, 2006)
    For example in my hypothetical business the monthly fixed cost is about $510(vehicle -$260 including insurance $50 & maintenance $50, website $50 including hosting, advertising with a vehicle wrap – $100 at http://mobilewraps.net). The average revenue per unit is $112.50 (this includes the average for smart phone of $85 & tablet of $140 per repair). The average per unit cost is $23.50(which is the average for parts of smart phones & tablets, & vehicle costs). In this example the monthly units to breakeven is 5.3. The monthly revenue to breakeven is $634.20. So about 5 units or $510 in sales is needed to cover all of the fixed & variable costs & breakeven. Anything over $510 or 5 units is the profit.
    There are only two ways to increase the profit; lower costs or increase sales revenues. You can further breakdown the increase of sales revenues as an increase in the per unit sold, higher than the $112.50 average, or increase the number of sales made per month. The variable costs have some room for improvement in two areas; cost of parts purchased & vehicle expenses. To improve the costs structure for parts purchased the focus should be in buying of parts in “lots”. This means focusing on the most popular smart phones & tablets used in the local area, only the top 3 of each. Buying 25 of each of the screens for all the smart phones & tablets at one time. Parts are priced from $7-$40 each, $23.50 is the average. Purchasing from one vendor who is out of state & negotiating for free shipping & lowest cost. By going out of state or even country you are avoiding the state sales tax. The state sales tax rate in North Carolina is 4.75%. Combined with local taxes, the total sales tax rate is between 4.75% and 7.5%. There is risk in having only one vendor & having a detailed current list of  vendors including their price, availability, lead times & contact information should always ready. The other variable cost is gas & maintenance. Simple planning to reduce the driving time & distance from one customer to the next is easy. Preplanning & using a schedule will minimize the cost & time on the road. Since this cost is variable so is the cost savings.
    Now we can look at the two options for increased revenues; increasing the sale per unit & increasing the number of sales. To start we need to look at the customer. Almost 30% of cell phone owners cannot imagine being without their cellphone, 44% slept with their cellphone & 67% check their cellphones without reason, found on the Pew Research Center’s website; Pew Internet: Mobile by Joanna Brenner, Jun 6, 2013, (http://pewinternet.org/Commentary/2012/February/Pew-Internet-Mobile.aspx). And to go even further, the psychology of the customer. We can take a look at Maslow’s Hierarchy of Need’s. That customer is motivated by multiple needs including, security, social & esteem needs(“A Theory of Human Motivation”, Abraham Maslow, 1943, http://psychology.about.com/od/theoriesofpersonality/a/hierarchyneeds.htm). For pricing I will rule out neutral pricing simply because it means I am not differentiating my business or my price from my competitors. I am not a college kid sharing a house that you bring your iPhone to to get fixed. Penetration pricing is not needed because I have a niche, I go to the customer & provide a level of service for which I don’t have competition. Other options for the customer are going to Apple at $200 to repair, taking it to a repair shop which runs about $80 to repair, or do a mail in repair service and be without a phone for 3-5 days. Skimming is not possible since I don’t have a monopoly on repairs. Value based pricing is the best strategy for my hypothetical business & the customer who uses my service.
    How do I maximize the value & the resulting sale for the highest profit? The typical repair prices for touch screens are @$100 for iPhones & @ $140 for iPads that are brought to the repair shop or mailed in. Adding value by providing the mobile service to the customer & performing the repair onsite provides a level of service that is more valuable. And to add more value it will come with a warranty. If the screen is broken a second time within 6 months the second repair is free. This is peace of mind to the customer & the value of what they are paying for – a repair with a warranty.  The constant upgrading of technology has many users switching to newer phones & this would eliminate some from warranty. To prevent abuse of the warranty a database of the customers name, make & model of device & serial number would need to be kept. One picture of the back of a device showing this info & saved by the customer name is the simplest & easiest way to do this. A list of photo’s by name can also be saved by date. In the current economy this value is the best way to price the service.
    Now to increase sales while getting the best return on investment. With every sale comes an opportunity. Most customer’s have multiple devices & that time with a customer  is also a great time to advertise & promote the service. Many customers have family, friends & coworkers. A simple business card with contact info or one page flyer can increase sales. This can include links to social media & how to clean their device, even links to the most popular apps. For the demographic in my area, greater Cary NC, with median household income of $82.5k, I believe the price for the service is not low but also not too high(http://www.city-data.com/city/Cary-North-Carolina.html).

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