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Master Decker G6 PBS
542
Expansion Opportunities
30th November 2019
By Group 6:
- Haikal Ilmani
- Lim Kim Fuu
- Nithya Rajen
- Nur Izzati
- Nurul Iman
- Mohammad Hanif
ACC7101 - Accounting For Decision Making
COMPANY
BACKGROUND
COMPANY
BACKGROUND
- Based in London, Ontario, Master Decker was incorporated by Matthew Druzcz during his university years providing a deck-restoration service to the local community.
- Employs a specialist restoration system based on the the American and Australian servicing methods and improvise it for their colder climate.
- Aims to provide excellent service and product warranty to its customer; depending on word of mouth and positive customer reviews on its website.
- Now planning on expansion avenues to further the company.
Master Restoration Techniques
Staining
Eco-Friendly
Repairs
Sanding
Stains offer protection against moisture and the elements. A good quality stain won’t peel, will be a breeze to maintain, and can help mask flaws in the wood.
There comes a time when the best plan of action is to make some repairs. This requires selectively replacing boards, or sometimes, refacing an entire deck.
Variety of sanders and grits are used for different situations – some are best used for pressure-treated wood, others for Cedar, and some for exotic hardwoods.
Environmentally safe chemical are used to help prevent damaging the wood from high pressure water, open wood pores in preparation for staining, and help prevent premature peeling.
Restoration Technique
DECK BUILDING
Druzcz’s first plan of expansion is to provide deck-building service to its existing and new potential customers. The service has been frequently sought after by its customers and may provide a low barrier of entry for Master Decker to expand into while simultaneously maintaining synergy with its concurrent business.
DECK BUILDING
Assumptions:
i. The limitation in time availability for the deck building season being only 8 months of the entire year is mainly due to the cold environment in the winter, ranging from November to February.
ii. To ensure that the workers’ higher allocated time in the second half of the season, is proportional (and thus salary) to their output, we believe that there will be more orders in the second half of the deck-building season, or orders are more controlled in the first half and limited to one per month.
iii. The business loan of $20,000 and insurance are taken out before the opening of the orders (in February).
iv. There will be no CAPEX involved in this project.
Profitability
Profitability
Cash Budget Projection
Cash Budget Projection
Non-Financial Aspects
Non-Financial Aspect
Pros & Cons
Advantages
Disadvantages
No dominant player
Lost referrals from deck builders
Pros & Cons
Additional source of revenue
Compromise perceived expert status in deck restoration
Good fit with existing business
Competitive market
Is in demand and sought after
May jeopardize existing business relationship
Income only for 8/12 months
Extra labour cost
Bargaining Power of Suppliers
- Increased cost of raw materials
- The experienced carpenter may negotiate for higher salary
Porter 5
Substitute Products or Services
- Similar deck material offered by deck builders
Rivalry Among Existing Competitors
- More experienced
- High competition
Porter 5
Threat of New Entrants
- No dominant player in the market
- Existing competitors could offer restoration service to create diversification
Bargaining Power of Buyers
- High bargaining power of customers
- Customer can compare price, product and service freely
Recommendation
Recommendation
We believe that is both profitable and creates a lot of business opportunity for Master Decker to grow its business naturally and synergistically and recommend them to pursue this avenue.
EXCLUSIVE STAINS
EXCLUSIVE STAINS
Druzcz's second business avenue is to exploit the gap in the market where the sought after and premium stains used by the company is not readily avaialble to DIY-ers and consumer market.
Druzcz’s idea is to enter an exclusivity agreement with their supplier where Master Decker will be the sole provider of these stains and will supply the market via Amazon online retailer as the initial and primary sales channel. The stains would be ordered from the supplier and later sent to a centralized Amazon warehouse where the shipping will be taken care of.
We believe that Druzcz intends on utilizing Amazon’s Fulfilled by Amazon (FBA) service that will incur extra costs on top of those he had previously identified.
Profitability
Profitability
Breakdown of Calculation
Amazon Fees
*Rates are according to Amazon Canada's website
Amazon Fees (1)
Explanation
Fees
Individual Seller Fee (ISF)
- Amazon charges $1.49 CAD for every item sold on your basic Amazon account.
- For Master Decker, this cost comes to a total of $745.00 for selling 500 units of the stains through Amazon.
Professional Business Account (PBA)
- For larger online businesses, the $1.49 charge can be removed by subscribing to Amazon’s Professional Business Account.
- This subscription cost comes to a total of $359.88 per year, which is lower than the ISF above.
- Hence it is more cost effective to subscribe to the PBA.
Amazon Referral Fee
- Depending on the item sold category, Master Decker stains would most likely fall under home maintenance category, Amazon charges a fixed rate of 15% per item sold.
- This fee is compulsory for all good sold on Amazon regardless of the account type.
- Amounts to a total of $5,325.00.
Amazon Fees (2)
Explanation
Fees
FBA Fulfillment Fee
- In order to utilize the centralized warehousing and delivery by Amazon where the shipment to customers is taken care of, Amazon charges essentially a stocking fee that is dependent on the item size and weight.
- The SKU sold will fall under the standard size items and will be charged for its first 500g (@ $5.48), the next 500g (@ $6.08) and the following 500g (@ $0.42).
- 1-gallon SKU will be charged $14.09
- Total Fulfillment fee of $7,044.20
Inventory Cost
- Amazon also charges for the inventory warehouse cost per m3 of the items to be stored in their warehouse.
- This cost is also dependent on the month and no of units Master Decker wishes to stock their items at their warehouse.
- January to September rate is $24 CAD per m3
- October to December rate is $33 CAD per m3
- However, we decided to omit this calculation due to the difficult nature of it and we will have to create more assumptions of the distribution of Master Decker’s stocking throughout the year.
Amazon Fees (3)
Explanation
Fees
Long Term Storage Fees
- Amazon charges extra fee for items that will be on shelf for more than 365 days.
- However, as Master Decker’s are only stocking up to 300 units where they are expecting to be completely sold, this may not be necessary.
- All fees are subjected to Canadian tax GST at 5% which are not included in the fee rate., which comes to $636.45.
GST Tax
Overhead & Net Profit Difference
- 324% increase in overhead
- 148% decrease in Net Profit
- Loss of $8.64 per gallon sold
Overhead & Net Profit Difference
- 37.7% reduction in NPM
- 69.2% reduction in ROI
Selling on Amazon
Average price (of 10 listings) is $140 CAD. Master Decker is planning to sell at 50% the average market price.
Pros & Cons
Advantages
Disadvantages
Thin margins (potentially losses)
Exclusive Stains not widely available to customers
Pros & Cons
High cost of stains
Add to company's value proposition
Need to procure a license for exclusivity
Attractive to DIY homeowners
Compete versus Amazon backed brands
Online sales potential to reach wider customer base
No extra labour cost
Selling online will require a reputable online seller profile which may take some time to develop
Amazon FBA will handle all customer queries and returns
FBA fees might not be obvious and add up fast
Cheaper than the average selling price on Amazon
Recommendation
Recommendation
We believe that the true cost of running an online retailer via Amazon is strictly cost-prohibitive and NOT financially viable for Master Decker to execute.
There are other online platforms available for Master Decker to consider, such as Walmart Canada, which also charges a referral fee of 15% but does not have a monthly subscription fee as Amazon and possibly lower fees overall.
Alternatively, Master Decker could consider distributing and delivering the products to consumer themselves and utilize their website for orders, potentially cutting cost that would have been incurred by Amazon.
Increase selling by at least $9 to breakeven and/or provide multiple SKU for product sold on Amazon.
MANUFACTURED CLEANING CHEMICALS
CLEANING CHEMICALS
Druzcz had utilized his time to create his own mixture of deck-cleaning formulation, which presents an enticing high-quality package to the end users while keeping the manufacturing costs as low as possible for Master Decker. He intends to sell this to consumers through his website, as an additional source of revenue.
As the mixing and manufacturing of the chemical will be done for his deck-restoration business and does not consume additional time outside of that, there would be no opportunity cost that could incur to Master Decker if they were to execute this plan and does not disrupt his current operations.
Profitability
Profitability
Pros & Cons
Advantages
Disadvantages
No inherent shortcomings
Highest quality cleaning chemicals for the lowest possible cost
Pros & Cons
No additional labour cost
Supplier discount
Easy to execute
Little disruption to current business
Provide additional revenue source
Recommendation
We believe that this is a profitable engagement for Master Decker to execute this plan as it does not present any significant capital nor time investment.
Recommendation
SWOT & PESTLE
SWOT ANALYSIS
1. No competitor in deck restoration
2. Provide high quality service and use high quality stain
3. Secure contract to buy stains
4. Warranty
5. Trained employee
6. Reputation, strong connection and customer loyalty
STRENGTH
1. Limited time and personal capacity
2. Limited financial capability
3. Foregone lost referrals restoration sales
4. Hire experienced carpenter at additional cost and possibility to quit
5. Little experience in international market
WEAKNESSES
OPPORTUNITY
1. Expand to oversea
2. Market on social media platform such as establishing its own business website/application
3. Facilitate potential job creation in the local community, further enriching the community and its image
4. Diversify its services by opening a carpentry or DIY workshop/class to fully utilize the manpower
THREATS
1. Open market with no dominant player makes it easier for new competitor to enter
2. Weather
3. Changes in government rules and regulations
PESTLE ANALYSIS
POLITICAL
1. Forces that tend to be altered by the influence of government on the infrastructure of country
2. May involve environment regulations, employment laws, tariffs, tax policy, political stability, reforms and trade restrictions.
1. Forces that involves interest rates, inflation and growth of economy, working hours, wage rate, exchange rate and cost of living.
ECONOMIC
SOCIAL
1. Culture/social influence usually varies from country to country.
2. Includes various demographic, population growth rates, safety and health consciousness and cultural aspects.
1. Technology is one of the most important factors in being on par with other competitor in a highly competitive market arena.
2. It can drive globalization which include environmental and ecological aspects.
TECHNOLOGICAL
1. May involve law or regulations which can affect the business operations as well as impending and current legislation that may impact the industry such as employment, safety and health and competition.
2. Should consider the influence of national and international laws
LEGAL
1. Involve awareness of the climate or seasonal change or terrain variation.
ENVIRONMENTAL
RECOMMENDATION
RECOMMENDATION
We believe that Master Decker should execute option 1 and 3 in the deck-building and selling cleaning chemicals, where there is very little to no resistance in market penetration and adoption. Both options have a high positive return while not overcomplicating their supply-distribution chain significantly.
For option 2, we believe that is it not financially feasible due to the stipulated Amazon fees that were not mentioned by Matthew Druzcz and may take too much of his time in dealing with the supplier and Amazon distribution. Disregarding the Amazon fees, its profit margin and ROI is still the lowest of the three.
It is imperative that the company does not bite more than it can chew and maintain a steady course for the next few years as it is still a relatively young company, particularly with the economic downturns that may affect their business later on.