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Gregs Cycle Case BUS-1117 - Market Potential and Break-Even
Gregs Cycle Case BUS-1117 - Market Potential and Break-Even
Greg Benson has worked in a sporting goods store for several years
that sold bicycles and cycling equipment. Because of his abilities and
experience he had progressed to the position of cycle shop manager,
but he could see that the chances of becoming store manager were
slim, since the current manager was 35. Consequently Greg was
seriously thinking about the possibility of starting his own cycle shop in
his home town of Guelph Ontario. The population of Guelph had grown
to 131,794 with a large trading area surrounding it. There were
presently 12 cycle shops and 10 sporting goods stores that sold
bicycles and cycling equipment. Greg wondered if there was room for
another one.
During the past few years he had been saving his money for exactly
this plan of opening his own business. His savings and a small
inheritance totaled $58,000 which he hoped would be enough to turn
his idea into an opportunity. He had also completed a certificate in
Small Business Management at Conestoga College. The instructor had
stressed the importance of market research and mentioned several
sources of secondary data that could help in determining the total
market potential for a new business. As a result of his research he
determined the median household income was $70,880.21 and that
the average family spent 3.2% on sports equipment.
He wasn’t sure how useful the information was, but he was clear which
area of the sporting goods industry he wanted to specialize in. Since he
was an avid mountain biker and a great mechanic, he believed that he
understood the upscale mountain biking [MTB] market.
1. Can you help Greg estimate the total market size and potential
sales?
2. Can you help Greg determine if there is room for another bicycle
and cycling equipment store specializing in the mountain bike
market?
Fixed Cost
$ 3,000.00
Rent + Taxes Month
Depreciation Year $ 8,000.00
Management Salaries Year $ 42,000.00
Taxes Year $ 5,500.00
Total
Total Total
Price Point Breakeven Volume and Sales
Retail Price Unit BE Volume BE Sales
Contribution (units)
$ 1450
$ 1600
$ 1250
Profit for Sales of 400 Units
[(Price at % retail x 400) – Fixed Costs – (Variable Costs x 400)]
$ 1450
$ 1600
$ 1250