Mark Gonzalez has a sandwich shop in a downtown Los Angeles. Several of his cust

Question

Mark Gonzalez has a sandwich shop in a downtown Los Angeles. Several of his customers have said that they would purchase from his shop more often if he offered a delivery service. Mark is considering establishing a delivery service to meet the needs of his market. He believes that he will have to purchase a fax machine, install a new phone line for the fax machine, purchase a delivery van, and hire at least one delivery person. Mark asks your advice in determining whether or not he should take on the delivery service venture.

What steps would you recommend that Mark use in reaching a profitable decision?

Explain to Mark what each step involves.

Explanation / Answer

Mark should proceed in the following Steps :

1. Estimating the Future Potential Demand and Growth of Business - The most important decision which Mark should make is whether or not he should go about making any investment at all in this new delivery service venture.This can be analysed by forecasting the daily number of customers which currently come to his shop and the number of customers who demand the delivery service. Also Mark should probably look at the demand of such delivery service by other Food chain retailers as well. He should first get an idea about how many prospective customers he will make if he goes on about starting this delivery venture and how much more sales he will make than the current level of sales.

2. Setting up the Fax Machine, Telephone line and Hire a Delivery van - So once he has ensured that this decision will extend his customer base, Mark should buy a fax machine and install a new phone line(preferably buy a second hand machine) and try to minimise the cost of setting up. He should not buy a delivery van outrightly but rather should contact some outsourcing agency which helps in delivery service. This Outsourcing service will charge Mark on a number of Outings basis and hence Mark would save the fixed cost of acquisition of a new van and also the fixed salary of the delivery person(s).

3. Analyse his decision at the end of 1 Month - After 30 days Mark should analyse the increase in sales numbers and the additional costs he has incurred on this service. In case the costs exceed the increase in revenue by an amount which is within the permissible limit of Mark's budget and tolerance then he should continue with this scheme for a further one more month. However if there is very less increase in revenue as compared to the increase in costs, then Mark should simply shut down this service and go about selling the second hand machine and stopping that outsourcing service.

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