Project Analysis Report

To: Ms. Lindenbaum

From: (Your name)

Basic Business Model

I have conducted an analysis of the Basic Business model from a financial
perspective, based on the information related to implied costs. Those costs have
been classified according to their relationship with volume or variability. Here
are the cost associated with this project:

Variable costs
Commissions paid to stylists
Supplies
Fees on bank and credit
Cost of retail products

Fixed costs
Salaries paid to shampoo person and front counter attendant.
Rent
Insurance expenses
Shop equipment expenses
Telephone & Utilities bills
General supplies

Once considered and measured all costs, they were set in a uniform periodic
base, thus further results are expressed in year basis. It is important to highlight
that the project is running as in mix product operations, which implies that units
are indeed a combination of several different hairdressing services.

Break-even analysis

Forward analysis was conducted to determine the break-even point, which can
be easily viewed in the chart attached. Analysis resulted in a necessary level of
2,170 clients to attend per year to achieve the break-even point, i.e. $137,795 in
sales and an equal amount in Total costs. Due to the product mix percentage,
2,170 clients are:

Wash, cut & blow dry - 434 services

Wash, cut & style - 868 services
Wash, cut & color - 760 services
Retail product sales - 108 services

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Particular profit goal

Calculations were made to determine services necessary to achieve a particular

expected profit of $35,000, resulting in 3,321 services sold as to produce such
level of profit.

According to the product mix percentage, such 3,321 units represents:

Wash, cut & blow dry - 664 services

Wash, cut & style - 1,329 services
Wash, cut & color - 1,162 services
Retail product sales - 166 services

Project summary

Variables and fixed costs in this project depends on how they are linked to the
service offered, thus variable costs are closely related to sales level (as the
commission paid to the stylists and the supplies used in services) and fixed costs
dont, although necessary to keep the company operative (as the rent and
telephone expenses). In this project the Weighted Average Contribution Margin
is $30.42, i. e. the gross profit on the mix product once deducted ales revenues
and variables costs. The break-even point means the necessary services to be
offered and sold as to equalize costs and revenues. Once selling 3,321 at a year,
the project would start generating profit (in a year range, of course). Finally, the
project would generate $35,000 in net profit when selling 3,321 services,
distributed in the four sub-products that the company will offer.

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Expanded Salon Model
A similar analysis was conducted as in the previous model but with several
variations for an expanded and larger-scale project. Therefore, implied costs are
the same in category but higher in measurement. Moreover, this project would
add another service to the mix product setup, then additional variable costs
should be considered. The costs classification is as follow:

Variable costs
Commissions paid to stylists
Supplies
Fees on bank and credit
Cost of retail products

Fixed costs
Salaries paid to shampoo person and front counter attendant.
Rent
Insurance expenses
Shop equipment expenses
Telephone & Utilities bills
General supplies

Once considered and measured all costs, they were set in a uniform periodic
base, thus further results are expressed in year basis. It is important to highlight
that the project is running as in mix product operations, which implies that units
are indeed a combination of several different hairdressing services.

Break-even analysis

Further analysis determined the break-even point, graphically expressed in the

chart attached. Results indicate that 4,570 clients per year are needed to achieve
the break-even point, representing $251,350 in sales and an equal amount in
Total costs. According to the product mix percentage, such 4,570 units are:

Wash, cut & blow dry - 686 services

Wash, cut & style - 1,371 services
Wash, cut & color - 1,142 services
Manicure & Pedicures - 457 services
Retail product sales - 914 products

Particular profit goal

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Additional calculations were made to determine services necessary to achieve a
particular expected profit of $35,000. Calculations resulted in 5,934
services/products sold as to produce such level of profit.

Due to the product mix percentage, 5,934 unit are:

Wash, cut & blow dry - 890 services

Wash, cut & style - 1,780 services
Wash, cut & color - 1,484 services
Manicure & Pedicures - 593 services
Retail product sales - 1,187 products

Project summary

Variables and fixed costs in this project depends on how they are linked to the
service offered, thus variable costs are closely related to sales level (as the
commission paid to the stylists and the supplies used in services) and fixed costs
dont, although necessary to keep the company operative (as the rent and
telephone expenses). Moreover, this model includes the manicure and pedicure
services which have variable cost implied. Break-even point, defined as the level
of selling necessary to equalize costs and revenues, was calculated in 4,570 at a
year, thus forward this level the project would start generating profit (in a year
range, of course). This expanded model needs to sell at least 5,934 services (or a
combination of five services and products) as to generate $35,000 in annual net
profit.

In my particular opinion, I would suggest you to go on with the Basic Business

model due to that one would return your money more easily, since you will need
a very lower level of production to achieve profit goals. Moreover, break-even
point in a Basic Business model is just the half than in Expanded Salon option.
Thus, unless you are expecting to duplicate your sales in a bigger salon, Basic
model will be more a more feasible and less demanding project.

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