Essay on Caribbean Internet Cafe

633 Words Sep 17th, 2013 3 Pages
Pre-Text
*All numbers are based in Jamaican currency.
* All numbers are rounded to the nearest dollar.

1.What managerial issues should David consider before starting the CIC?

Before starting the CIC David should consider the following managerial issues:

1. He has minimal training in business ownership. He has the background of a computer programmer, and is getting his MBA but he is still in the process of learning and doesn’t have the knowledge to start an internet café.

2. David is also planning to hire a manager with Jamaican restaurant experience to help him with the majority of his business activities; this could be an issue as he hasn’t found anyone yet. He isn’t considering the possibility that he will not be able to
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4. What is the contribution margin per customer?

In order to calculate contribution margin per customer, I used the worst case-scenario provided by the market research firm assuming 30% of the 20,000 person market segment would visit the café 2 times per year. Furthermore, that 40% of these customers would use the internet and all of the customers would buy food and drinks.

Total Revenue
Based on the above assumptions, I concluded:

(20,000 (target market) x 30%) X 2 = 12,000 visits eating and drinking. Of these 12,000 visits, 40% would use the internet service, so 12,000x40% = 4,800 computer users.

Thus:
$576,000 - 12,000 visits x $200 (Sales per person (food and drink))
$2,400,000 – 4800 computer users x $60 (Sales per internet hour)
$2,976,000 – Total Revenue

Variable Costs
Based on the above assumptions, I concluded:

$960,000 – 12,000 x $80 (Cost of food and drink per person)
$288,000 – 4,800 x $60 ( Cost of internet per person)
$1,248,000 – Total Variable Costs

Total Revenue – Total Variable Costs = Total Contribution Margin
$2,976,000 – 1,248,000 = 1,728,000

To determine contribution margin per unit I used, 1,728,000 / 12,000 = $144 per visit. This is based on the average contribution margin, as some customers will eat, drink and use the internet and some customers will just use the internet.

Thus, contribution margin per customer is $144.00.

5. How many customer visits will CIC need in order to break-even in the

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