Draft Business Proposal

Draft Business Proposal

Introduction

Milk Hair Moisturizer is a product of Hair Experts. This product consists of several ingredients that help in moisturizing hair among which milk is the most prominent ingredient. In this report, the market structure, income estimates, fixed and variable costs, number of years required for reaching breakeven point, methods for increasing revenue, pricing strategies, and cost cutting methods have been devised for the product.

Discussion

The market structure in which the business would operate and the price elasticity of demand for the good or service

Milk Hair Moisturizer's market structure would be monopolistic competition market structure. The market structure for this product is assumed to be monopolistic competition due to the reason that it consists of a large number of firms offering similar types of products. In such a competition, each firm produces a bit different product from the other (Allen Resources, 2012). Therefore, their products possess a uniqueness due to which such firms have a monopoly power to some extent. Our hair products' firm would target a small market size at a local level which is a characteristic of the firms lying under monopolistic competition. The price elasticity of demand for the product would be elastic due to the presence of several closer substitutes of the product in the market. Its price elasticity of demand will be elastic in beginning. However, if the firm is capable of having loyal customers that corresponds to brand loyalty, then the price elasticity of demand curve may become inelastic as the products become differentiated from their closer substitutes. In that case, customers would not worry about the changing prices.

Income estimates for the first year that the business will operate

The initial amount of money needed for execution of the firm would be $62,000 as start up costs along with a working capital of $14,000. This makes a total of $76,000. Annual sales forecast for the first year will be $200,760. Total income for the first year is estimated to be around $200,760 with monthly income ranging from $14,000 to $20,000.

Main types of fixed and variable costs for the first year that the business will operate

The main types of fixed costs for the first year of the business would include land and building, licenses/permits, rent, and utilities where as the variable costs include office supplies, inventory, salaries, advertising and marketing costs.



The number of years that that it will take for the business to reach the breakeven point

As breakeven is an unexpected component of a business draft plan, particularly for start-up firms, it is difficult to define the number of years a firm will take to reach the breakeven point. As the company is expected to have a revenue of $16,000 per month, it requires to earn $17,500 per month to reach the breakeven point on an annual basis. According to the calculations, the company is expected to reach the breakeven point in 1 year and 6 months.

Increasing Revenue

I will be increasing revenue by increasing the number of customers, raising prices, increasing the frequency ...