Tourism business planning YAC

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online course in responsible tourism development session #05

Gerardine Parisi

Tourism business planning

+Agenda

1. From business idea to business plan

2. What is a business plan

3. How to write a business plan

4. Create your own business plan

5. A practical example

+From business idea to business plan

Create a successful business is a very difficult task. You have to be strong motivated and very oriented to planning and scheduling.

Principal steps of an aware process:

How to start up your own business

Identify a business

idea

Create a business

plan


Your business idea can be based on a dream or an aspiration but you have to translate it in something of concrete

BUSINESS IDEA

Organizational structure

Product

Market segment

The business idea


Planning and scheduling are key successful factors

Most common reasons of failure: Lack or inadequacy of planning Lack of market research Overestimation of demand Poor quality in the management of the business Error in determining the selling price Little attention to costs and expenses Poor financial management Insufficient sales Startup capital deficient

The importance of planning

LACK OR POORNESS

OF BUSINESS

PLAN

+What is a business plan?

Business plan allows to verify:

Market feasibility TO SELL

Organizational and technical feasibility TO MANAGE

Financial and economic feasibility TO EARN

Business plan

+What is a business plan?

BP

Internal planning

Quantify goals

Calculate risk

Evaluate perfomance

External evaluation

Request of fund

Participation to grant

Aim of business plan

+How to write a business planMain questions

?

WHO

WHAT

WHOM

WHERE

AGAINST WHO

HOW

HOW MUCH

WHAT NEEDS

+Create your own business plan

CUSTOMERS

COMPETITORS

SIZE AND TREND INSTITUTTIONAL

CONTEXT

MARKET RESEARCH

1. Market feasibility

+Create your own business plan2. Marketing mix

PRICE

PLACEPROMOTION

PRODUCT


Most important point to evaluate:

Special permissions to start up

Investment necessary to start the business

Most appropriate legal form to manage the business

3. Organizational and technical feasibility

+Create your own business plan4. Financial and economic feasibility

Investment cost

Operating cost

Year 1 Year 2

Operating cost

Year 3 Year ……

Operating cost

Operating cost


Initial investment cost are all the expenses you will need to start up your business such as:

Immaterial expenses to start up the business, such as permission;

Material needs:• location or office;• special machine;• basic equipment.

4.1 Initial investment cost


How can I get the money I need to start up my own business?

4.1 Initial investment cost

Savings

LoansGrant

+Create your own business plan4.2 Break even point

COSTS OCCURRED

AMOUNT OF

PRODUCT TO BE SELL

NO PROFITS NO LOSES

BREAK EVEN POINT


To calculate the break even point it is necessary to know which kind of costs are related to your business.

Costs can be divided into four main categories:

Fixed cost

Variable cost

Financial cost

Taxes

4.3 Operating cost


Fixed costs are business expenses that are not dependent on the level of goods or services produced by the business.

4.3.1 Fixed cost

$

UNIT OF PRODUCTION

FIXED COST


Variable costs, instead, are volume-related.

The sum of fixed cost and variable cost represent the total cost that is the total economic cost of production.

4.3.2 Variable cost

$

UNIT OF PRODUCTION

FIXED COST

VARIABLE COST

TOTAL COST


Financial cost consists in interests which the entrepreneur have to pay to banks for loans

Taxes are calculated on the taxable income and differ from country to country

4.3.3 Financial cost and taxes


The other main point to calculate the break even is to define the price of product or service.

Price is influenced by internal and external factors

4.4 Pricing strategy

Market goals

Costs incurred

INTERNAL

Market and demand

Competitors

EXTERNAL


There are some criteria used to define the price. The principal are:

Cost plus pricing: the price is fixed calculating the cost of production and adding to it a percentage

Competition-based pricing: the price is decided taking into account the price adopted by competitors

Objective profit pricing: the price is set at a level that allows to gain a certain level of expected profit.

4.4 Pricing strategy

+Create your own business plan4.4 Pricing strategy: 9 laws of price sensitivity & consumer psychology

Reference Price Effect Buyer’s price sensitivity for a given product increases the

higher the product’s price relative to perceived alternatives. Perceived alternatives can vary by buyer segment, by occasion, and other factors.

Difficult Comparison Effect Buyers are less sensitive to the price of a known/more

reputable product when they have difficulty comparing it to potential alternatives.

Switching Costs Effect The higher the product-specific investment a buyer must make to switch suppliers, the less price sensitive that buyer is when choosing between alternatives.

Price-Quality Effect Buyers are less sensitive to price the more that higher prices signal

higher quality. Products for which this effect is particularly relevant include: image products, exclusive products and products with minimal

cues for quality.

Expenditure Effect Buyers are more price sensitive when the expense accounts for a

large percentage of buyers’ available income or budget.

End-Benefit Effect The effect refers to the relationship a given purchase has to a larger overall benefit, and is divided into two parts:

Derived demand: The more sensitive buyers are to the price of the end benefit, the more

sensitive they will be to the prices of those products that contribute to that benefit. Price

proportion cost: The price proportion cost refers to the percent of the total cost of the end

benefit accounted for by a given component that helps to produce the end benefit (e.g., think CPU and PCs). The smaller the given

components share of the total cost of the end benefit, the less sensitive buyers will be to the

component's price.

Shared-cost Effect The smaller the portion of the purchase price buyers must pay for

themselves, the less price sensitive they will be.

Fairness Effect Buyers are more sensitive to the price of a product when the price is outside

the range they perceive as “fair” or “reasonable” given the purchase context

The Framing Effect Buyers are more price sensitive when they perceive the price as a loss

rather than a forgone gain, and they have greater price sensitivity when the price is paid

separately rather than as part of a bundle.

+Create your own business plan4.5 Turnover and net profit

TURNOVER

PRICE * QUANTITY

NET PROFIT

TURNOVER – FIXED COST

– VARIABLE COST – FINANCIAL COST

- TAXES

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Gerardine bed and breakfast

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Drag picture to placeholder or click icon to addA

practical example

+Gerardine bed and breakfast

WHAT: Boutique, charming, eco bed and breakfast, 5 rooms, high level of standard.Special offer for people interested in enogastronomy, tradition and mountain.

WHERE: Abandoned house of my grandmother in a rural area of Trentino, tourism not well developed

WHO: I will be the enterpreneur, this will be a second work

Business idea


MARKET RESEARCH:Internet, studies…

CUSTOMERS:Lovers of enogastronomy, tradition, mountainCouple (empty nest)Good level of income

COMPETITORS:No direct competitors in my area

SIZE AND TREND:

Niche segment, but increasing

ISTITUTTIONAL CONTEXT:Certification

Special permission

Market feasibility

+Gerardine bed and breakfastMarketing mix

•High level b&B

PRODUCT•From market research I know that I can ask 80€ for night

PRICE

•Internet

PROMOTION

•Direct selling

•Local DMO

•Small association

PLACE


INITIAL INVESTMENT COSTS

MATERIAL EXPENSES

Refurbishment of the house 100.000€

Purchasing furniture 50.000€

IMMATERIAL EXPENSES

Permission and certification 3.000€

Marketing and communication (website, brochure…) 7.000€

TOTALE 160.000€


How can I get the money I need to start up my own business?

Grant 30.000€

Savings 30.000€

Loans 100.000€


Every year I have to sustain this cost:

Fixed cost: 5.000€

Variable cost: 30.000 (40€ for every host 750 arrivals for year)

Financial cost: 5.000€

Taxes: 6.000 (10% of 60.000€ that is the foreseen turnover)


Break even point:

Cost/price = number of host 26.000€ / 80€ = 325 arrivals

Provisional net profit:

Turnover-costs = net profit 60.000€ - 46.000€ = 14.000€

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Thank you very much!Gerardine Parisimail: [email protected]

mailto:[email protected]

Tourism business planning YAC

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