Work out with calculations:
Total units of service/product sold per year
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With the startup of our business we are going up against competitors like Carvana, Carfax,
Autotraders, and Truecare. So to begin, we are going to have to be patient to expect to be
profitable in our business. It will likely take a good few years to fully establish the business to
build credibility, and customer base.
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Looking at our competitors statistics, Carvana sold 2,105 units in 2014 which was the year the
company started. In 2015, it increased to 6,523, and in 2016 increased to 18,761 units sold.
https://investors.carvana.com/~/media/Files/C/Carvana-IR/documents/ar-new/CVNA-2020-Annual-Repor
t.pdf
→ Total units of product sold per year: 3,400 units
COGS (expected cost of goods sold-how much does it cost to make a ready to sell product?) & SGA
(sales and general administrative costs - this is salaries, rent, promotional expenses)
→ COGS (labor, material, shipping)
COGS $22,096,900 + $17,000,000 = $39,096,900
SGA (salaries + rent) $10,501,900 + $11,595,000 = $22,096,900
→ Material:
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We would need supplies to help us get our business going, since we are selling our
service, rather than a product
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We would need
○
Computers and potentially a software system
○
The building in which we work in southern california
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The warehouse on the east coast
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Office supplies for things to help us run our service
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Rough estimate for modification supplies; including tires, rims, spoiler/wing, wraps, tint,
paint $17,000,000
→ Shipping:
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It will cost the company different amounts to ship, depending on how far in cars are being
brought in from
●
According to
https://www.findthebestcarprice.com/carvana-review/
Carvana charges
$599 non-refundable delivery charge to have your car shipped long distance
○
Therefore, we are going to estimate that per car, we would charge $699 at most
depending on how far the car would need to be delivered (fee would be
dependent on buyer)
Profit margin (what is the average profit margin per unit sold)
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Gross profit margin = (net sales - COGS) / net sales
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44% = (70,000,000 - $39,096,900 ) / $70,000,000
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Gross margin = 44%
BEP (break even point) when is the company cash flow positive (making more than spending?)
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Break even point = fixed cost / (selling price per unit - variable cost per unit)