Introduction
Organic food delivery services require consideration of operating costs that will be incurred to run the business effectively. Fit Small will bear expenses related to the different operations conducted as it strives to achieve its mission and vision in the targeted market. The business operates well when there is a combined effort from the various teams that handle different duties. Fit Small organizational structure will include the CEO, finance department team, supply chain management team, and marketing department team. The team will be paid salaries depending on their level of experience and their roles and responsibilities in the business.
While renting a space, the business will be required to pay rent and electricity charges. Storage of inventory will cause the business to incur extra charges related to insurance and handling costs. The business will incur shipping costs to supply the products to the targeted customers. The marketing department will incur costs related to communicating the products and services of the business to a different audience in the market. The paper describes the various operating expenses that will be incurred in the business in the market it serves.
Operating Costs
In the first 6 months of 2023, the business will incur operating costs associated with the various activities taking place in the firm. Salaries for the team will be constant for the 6 months, which will be $ 3,000 per month for the three departments. Office space operating costs will be constant at $ 1000 per month.
The business will incur variable delivery costs for the six months as follows: January $ 120, February $ 130, March $ 150, April $ 165, May, 200, and June $ 230. The varying delivery costs are a result of changes in demand during the six months as demand in different locations increases from one period to another. For the period, the business will incur a constant marketing cost of $ 250 per month. The continuous marketing cost is a result of focusing on social media platforms and other advertising channels to make the products and services of the company known to the targeted market.
Table 1 – Operating Costs.
The business determines its marketing budget by considering the monthly sales. For the business to successfully execute a marketing plan, it should spend at least between 1 percent and 10 percent of the revenue generated on marketing (Bransom, 2019). Fit Small Business will budget its marketing cost at 3 percent of the revenue generated every month.
Table 2 – Marketing Costs.
Break Even Analysis
The business undertakes break-even analysis in a bid to determine how to cover expenses while still making profits. To perform the analysis, the company must analyze its fixed costs, variable costs, and price (1st Commercial Credit, 2023). To get the break-even point in the quantity of the business, the items considered are fixed costs, variable costs, and the selling price. The selling price is $ 7, the Unit fixed cost is $ 1.25, and the contribution margin is $ 6. To get break-even point in units for the month of January with 1234 units;
Total fixed cost; $ 1.25* 1234 = 1542.5
Break-even points in units = 1542.5/ 6 = 257 units. That means that for the business to break even, it needs to sell 257 units in January, and this value changes from month to month.
Conclusion
The operating costs of the business determine the profit that it will generate from its operation. By considering the various expenses, the business is in a better position to make an informed decision on budgeting and projection. Break-even analysis will help the business to know the number of units that it will require to sell every month to cover its expenses and at the same time generate profits.
References
Bransom, A. (2019). The recommended percentage of sales for a marketing budget. Small Business – Chron.com. Web.
1st Commercial Credit. (2023). Conducting a break-even analysis for small businesses. 1st Commercial Credit. Web.