Case Three: Marketing A Small Business

Case Three: Marketing A Small Business

By Mike McLoughlin,
Youth With A Mission, Marketplace Mission
Visit the Scruples Small Business Forum at www.scruples.net for more information.

The first challenge that DJ and Marlene faced in the launching of their new poultry business was the lack of funds for them to start their business. Mr. Muleko had been paying DJ a Farm Foreman's wage which was hardly enough to feed him and Marlene and pay the rent at the servant's quarters that they were renting. They also did not have a premise from which to operate their business.

So DJ decided to approach his uncle for a family loan. Mr. Mubala was open to DJ's request for he had noticed how hard DJ had worked at Mr. Muleko's farm. He was willing to provide DJ a loan of $360.00 to help start his business and also offered DJ the small shed in the backyard of his home as a temporary location for the chickens. However, he was a careful man and asked DJ to first determine if there was a market for his new poultry business.

DJ was very pleased that Mr. Mubala was open to assisting him. So he set about to determine whether or not there was a market for his business. DJ and Marlene needed every month $20.00 for the rent for their dwelling. They also needed another $55.00 per month for living expenses. DJ knew that the average cost of raising a broiler chicken was $1.40 over an 8-week period. Dressed broiler chickens were fetching $2.00 on the wholesale market. The retail price for a regular dressed broiler chicken was $2.70.

There was 10 Grocery stores in their town. Each store purchased about 500 broiler chickens wholesale every week. The town had a population of about 10,000 families.

DJ and Marlene were quite active in their English speaking church. When their pastor heard that they were starting a poultry business he invited them to announce it at the church when their chickens were ready so that the members might have the opportunity to buy them. There were about 50 families in the church.

Case Problems:

Develop a marketing plan for DJ and Marlene to market their broiler chickens so as to meet their monthly expenses and pay back the loan.

1. Determine if a market exists:

a. What is the total of DJ and Marlene's monthly expenses? Answer: _______________________

b. Decide which market would be the most profitable for them: the wholesale market or the retail market.

i. Net Income from a chicken sold on the wholesale market? _______________

ii. Net Income from a chicken sold on the retail market? _______________

Answer: _______________________.

c. Determine how many chickens are sold on the retail market every month in the town.

(Assume there are four weeks in a month.) Answer: _______________________.

d. Determine how many chickens the average family consumes every month. Answer: ______________

e. Determine how many chickens DJ needs to produce in each batch to breakeven (cover all his costs) and pay back the loan of $360 over a period of 2 years. Assume the retail price for a dressed chicken is $2.70. Use the Cost Price Formula. Solve it for the Volume variable (that is the number of chickens he is going to raise in each batch.) Remember that one batch takes 8 weeks (2 months).

Answer: _____________

f. Determine if a market exists and where that market can be found.

_____ The Grocery Stores How many? ________

_____ The Church. How many? ________

_____ Family and friends How many? _________

Total Sales Goal for each batch of chicken sales: ____________

2. Develop a brief Marketing Plan to reach the market:

i. Person Number One: Who? ______________________________

ii. Product: What? ______________________________________

iii. Price: How much? ____________________________________

iv. Place: Where sold? ___________________________________

v. Promotion: How sold? _________________________________

vi. Person Number Two: DJ: ______________________________

CASE THREE SOLUTION
1. Determine if a market exists:
a. $75.00 Living Expenses per month
b.i. $0.60 (Wholesale);
b.ii. $1.30 (Retail)
Answer: Choose the retail market!
c. 20,000 Chickens sold every month
d. 2 Chickens per family per month
e. Break Even Sales Goal Calculation = Vol.
i. Assume calculation based on two months expense.
ii. Assume retail price is $ 2.70.
iii. Assume loan of $360 to be paid off over 2 years
at a rate of $30.00 per batch .(every 2 months.)
iv. Use Selling Price Formula. (See under Price)
v.$2.70=(($1.40*Vol)+$75.00(2)+ $30.00))/Vol*
vi. Vol=($180.00)/$1.30=138 Chickens
f. Decide if a market exists and where:
i. Grocery Stores = 0 (Not selling wholesale)
ii. The Church = (Potential of 200 Chickens/2 months)
iii. Family & Friends = (Potential unknown)
ANSWER: YES! A MARKET EXISTS AT CHURCH.
Example Profit/Loss Statement for One Batch
i.Gross Sales: $372.60 = 138 * $2.70
ii.Cost of Sales: $193.20 = 138 * $1.40
iii. Net Sales: $372.60 - $193.20 = $179.40
iv. Total Overhead Expenses per batch = $150.00
v. Net Profit for Loan Repayment = $29.40/batch
NOTE: DJ should probably raise more than 138
chickens to avoid loss due to disease etc.
2. Develop a Marketing Plan to reach market:
i. Person Number One: Church Families
ii. Product: Retail Dressed Chicken
iii. Price: $2.70
iv. Place: The Church Family Network
v. Promotion: Sunday Service Announcements
vi. Person Number Two: DJ & Marlene = Honest!

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