Yesterday, when i came back from office, there was a power cut at home. I was getting bored & I wanted some thing to munch. So, I went into the main street to the nearest Hot chip store.
I bought 250 gm of potato chips for Rs 45. During the 5 min i spent at the shop, i saw that he could sell 1.5 kg of potato chips. I came back home and enquired my mom about the cost of potatoes. She said that the maximum price she had paid in her experience was Rs 25. I couldn’t resist from making these quick calculations
The calculations shown here are very conservative, considering the sale of only 2 kg of chips per hour.
| Chips (in Kgs) sold per hour (Minimum) | 2 | |
| No of operating hours (Minimum) | 6 | |
| Total number of Kgs sold/day (Minimum) | 12 | |
| No of business days | 30 | |
| Revenues | Per kg (Rs) | Per month (Rs) |
| Selling cost of potato chips | 180 | 64800 |
| Expenses (Conservative) | Per kg (Rs) | Per month (Rs) |
| Raw potatoes | 25 | 9000 |
| Edible oil | 10 | 3600 |
| Salary of the only employee who makes chips | 14 | 5000 |
| Rent of the shop | 19 | 7000 |
| Electricity | 1 | 300 |
| Raw material transport | 1 | 500 |
| Miscellaneous expenses | 8 | 3000 |
| Total Expenses | 79 | 28400 |
| Net Income from potato chips/month | 36400 | |
| Profit margin on each kg | 56 % |
Rs 36,400 is the profit (Munafa) which the 22 year old boy in the shop makes per month by selling potato chips.
The story is not over here. The raw material (Potatoes & Oil) cost is actually much less than Rs 25, as he buys them in bulk. Potato chips is only one of the items he sells at the shop. There are at least 10 other varieties of chips. I haven’t included the calculations for other items as i don’t have the data. So, the boy in reality is earning much more than Rs 36,400. Accounting for other uncertainties and losses, he would earn a minimum of Rs 36,400.
The boy’s profit is more than what an average engineer earns during his first year of job. I don’t intend to insult the education system or the highly qualified engineers in the country. The point i am trying to drive is as follows.
Some smart guys realize the business man in them at a very early stage. They know the magic of Dhandha.
If you start-up your business at the age of 18 after PUC and invest 4 years to make it a profitable business, you are an independent and successful business man by the age of 22. Wah, what a feeling.
The guess the boy in the hot-chip shop is doing the business for a survival. Some don't do it for survival. They grow every year, investing in the right areas and build a mighty empire around them. For example, Steve Jobs built “Apple” during the same years of his life and was worth 10 million USD at the age of 22. When ever i feel low, i listen to his commencement speech at Stanford University. Only accomplished people can deliver such great speeches.
Dhirubhai Ambani is an Indian example of such heroes. These heroes don’t mind the initial risks and set-backs. They are very clear about their objective and are highly confident about reaching there. That’s why they are famous. They accomplished what many other people holding 3 to 4 academic degrees couldn’t.
In this thought process, I remembered the movie “Guru” (based on Dhirubhai Ambani’s Life story) by Maniratnam. I would have watched it over 10 times by now. Will watch it once again over the weekend for a dose of inspiration.
I wish i die as a founder of at least a small company or at least a shop, and rather not as a retired employee. Today is not the day. I wish it comes asap :) (A day of successful business, not death)
Hmmmm... Good to see an entreprenure budding in you.. Wish a day would come when some maniratnam wants to make a movie on your life.
ReplyDeleteHowever.. how come you haven't counted the initial investment the advance for the place, furniture et al (which you are not sure of about the returns)? and the rent for that place.. and the 7*365 days of work near that oil all day?
And the other logistics like the competetion that could come up around your place if u start one?
You have Entreprenure skills....You can do it...All the best.
ReplyDeletenice! interesting! :)
ReplyDelete@sandy -
ReplyDeleteThanks for the Wishes. Maniratnam will be a very old man by then. Lets give a chance to the budding directors. (hehe)
I just wanted highlight the business potential. I was not writing a serious financial statement :)
However, i feel that he would breakeven very fast. Here are the rough estimates
Advance for the shop = Rs 100000
Furniture cost = Rs 100000
First month operating expenses (perpetually blocked) = Rs 28400
(Note: I have included the shop rent as one of the operating expenses. Line 4 in expenses Category)
Total Investment required = Rs 228400
Assuming that the consistently generates a minimum profit as shown in the earlier calculations, he would breakeven in 6 and half months (approx) – (Decent B.E point)
Coming to the return on investment,
Net profit for the financial year = 12 * 36400 = Rs 436800
Total Investment = Advance for the shop + Furniture + Investment (each month) = Rs 228400
Return on Investment = 436800/228400*100 = 191 % (approx)
I see it as a very profitable business (assuming that all the other assumptions are correct :)
Correct me if I was wrong with the calculations anywhere.
Cheers!!!
@ Girish - Thanks a lot mate
@ Prateek - :)
You have considered a uniform customer flow for in your statistics . But it might not be the case all the time . May be one day he might have more customers and the other might have none . I think you should also be considering this in your calculation.What i mean to say is there is profit no doubt in it but its not as much as you qouted. It also depends on the area standard of living etc ....
ReplyDelete@ Anonymous -
ReplyDeleteI see a point in your comment. The calculations might not reflect exactly whats happening in reality.The main intention behind the post was to throw light on possibilities.
I have thought about the dynamics in customer flow and took some care while making these estimates. I have considered 10 kg of sale on an average, which is very much achievable. (These statistics are very specific to the store near my home. I see very good customer flow everyday, and i think approximation for 10 kg is very conservative). Also, I haven't considered the revenue and profits due to the sale of other products in the store. There might be a difference in the profit estimated when compared to reality, but i dont think it would be significant. There would be months where he would do business on a high note. Estimates shown here are close to a conservative estimate. Yoru comment will find more relevance if i had considered best business all the time. Instead, It was a conservative & less than average business. Please correct me if iam wrong.
By the way, I have missed the cost of LPG in my estimates as it was rightly pointed out by my friend Barath.Though the buffer in Misc expenses should account for that, i cant understand how dumb i was to miss that out in the actual list as a separate item!
ReplyDelete