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Exploring new business options with mystrategy®
In this situation the best approach is to work from the "opportunity" back to
the resources you must develop to take it. For example... 'If we were to add a
new sales channel, what might we be able to achieve in extra sales and
profits?'
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NOTE: This example contains more than 12 elements in total and therefore cannot
be built in full with the free mystrategy® reader. However the
sample file can be opened and explored with the reader.
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Specify the opportunity in terms of the number of tangible resources [most
often 'customers'] you think you can develop into the future.
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Opportunity:'We could use dealers to reach perhaps 16,000 smaller
customers over the next 12 quarters.'
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Measure:
Customers, which is a resource.
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Action: Set the timescale in mystrategy® to run from periods
0 to 12, in quarters, with "Today" being 0. Add a resource
to the desktop and sketch or type in an estimated growth in customers over the
12 quarters.
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Use the mystrategy® calculation facility to calculate the sales volume
and revenue that may result. Build this up in the same way as you might in a
spreadsheet - each element is equivalent to a spreadsheet cell. Keep it simple
so you can see the logic.
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'Expected sales per small customer of 10 units per quarter
will produce sales volume of 160,000 units per quarter' ...
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... and if we charge dealers €10 then sales of this volume
would result in incremental revenues of ~€1.6m per quarter.'
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Assess the other resources that you will have to develop if the increased sales
channel is to be achieved.
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'There are about 50 dealers to be won, the largest bringing
us up to 100 small customers in the early quarters [though later dealers will
reach fewer new customers].'
In the example we have added a data set for new small customers per dealer per
quarter that peaks early and then tails off.
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'We can allocate 3 sales people for 2 months, reducing
to 2 and then 1 to win these dealers.' Add this data to the "Sales
staff focused on dealers" resource. Note: make sure these are joined to an inflow
into the resource "dealers serving smaller customers" - not directly to the
resource.
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The customer win rate (the inflow into the resource "smaller customers") can
now be calculated from the number of dealers multiplied by the average number
of customers they bring each quarter.
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Now that there is an inflow to "smaller customers", you can delete the data
entered in step 1 - on the graph tab for smaller customers, select the "clear"
button. If you run the sample simulation the numbers won now reach 16.35
('000).
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Calculate the extra costs involved and subtract these from the expected new
revenues to forecast incremental profits
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The extra sales people cost €25,000 per quarter each, so add a variable for the
sales force costs and enter the equation in.
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Dealer support will cost €10,000 per dealer, so add another variable for that
with an equation.
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Add variables for total costs and incremental revenue with the costs and
revenued leading in. On running the simulation we can see total costs will grow
to €565,000/qtr and incremental profits will reach ~€1million per quarter.'
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With a small amount of data we have built a small model that illustrates the
basis of a possible increment to the business. But what if our estimates turn
out to be too optimistic? Use mystrategy®
comparative graphs to explore what will happen if key assumptions
change - for example:
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'If our dealers struggle to sell to these small customers, only achieving
average sales of 3 unit per quarter, we will not hit sufficient revenue to make
this channel profitable.'
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