foxy originals

What is the question?

What is the question?

Should Foxy Originals expand into the U.S. by way o f trade shows or sales representatives?

Given the additional workload, the owners would expect the expansion to provide a target profit of $100,000.

Background

Foxy Originals sells necklaces and earrings in 250 boutiques in Canada.

Three customer segments Reversible enamel ladies Bridge ladies Chain-lovin ladies

U.S. jewelry market is 10 times larger than Canadian market

Trade Shows(Benefits and Risks)

Trade Shows(Benefits and Risks)

Foxy Originals owners could interact directly with U.S. customers. Build rapport with customers Spot trends quicker Retain control of brand image

Time commitment is substantial 50 days of prep work 30 days attending shows

Orders may be geographically dispersed

Sales Representatives(Benefits)

Sales Representatives(Benefits)

Requires limited time commitment from owners.

Commission-based compensation eliminates the need for fixed cost investment, thereby lowering the company’s risk.

Sales reps can sell to all key retailers in each geographic location, resulting in stronger brand recognition.

Sales reps already have many contacts Sales reps approach can be easily

expanded.

Sales Representatives(Risks)

Sales Representatives(Risks)

Sales reps already carry 10-15 brands, so how committed will they be to Foxy Originals?

Foxy will lose control of how its brand is portrayed to customers.

Foxy will not have direct interaction with U.S. customers.

Sales reps may have substantial turnover thereby wasting Foxy’s training resources.

Let’s build the Inputs Tab in Excel.

The Inputs(Sales Data)

The Inputs(Sales Data)

The Inputs(Trade Show Data)

The Inputs(Trade Show Data)

The Inputs(Trade Show Variable Cost per Order)

The Inputs(Trade Show Variable Cost per Order)

The Inputs(Trade show fixed costs)

The Inputs(Trade show fixed costs)

The Inputs(Sales representative data)

The Inputs(Sales representative data)

The Inputs(Sales reps variable cost per order)

The Inputs(Sales reps variable cost per order)

The Inputs(Sales reps fixed costs)

The Inputs(Sales reps fixed costs)

Let’s build the Trade Shows Tab in Excel.

Trade Shows(Contribution Format Income Statements)

Trade Shows(Contribution Format Income Statements)

Breakeven in orders

Breakeven in orders

Breakeven in orders

Target Profit in Orders

Target Profit in Orders

Margin of Safety(Minimum Scenario)

Margin of Safety(Minimum Scenario)

Let’s build the Sales Reps Tab in Excel.

Sales Representatives(Contribution Format Income Statements)

Sales Representatives(Contribution Format Income Statements)

Breakeven in orders

Breakeven in orders

Target Profit in Orders

Target Profit in Orders

Margin of Safety(Minimum Scenario)

Margin of Safety(Minimum Scenario)

What are the revised net operating incomes if the trade show travel costs

actually end up being $3,000 per show?

What-If Analysis

What are the revised net operating incomes if the rental space per rep per

month actually ends up being $300 instead of $200?

What-If Analysis

What are the revised net operating incomes if the actual number of

necklaces and earrings per order ends up being 20 and 15, respectively?

What-If Analysis(Trade Shows)

What-If Analysis(Sales Representatives)

The Original Scenario

Why is there a wider gap between the minimum and maximum net incomes for the trade shows when compared to the sales representatives?

The Original Scenario

Why is there a wider gap between the minimum and maximum scemarios for the trade shows when compared to the sales representatives?

The two alternatives have different cost structures. Trade shows is higher fixed costs and

lower variable costs Sales reps is lower fixed costs and higher

variable costs.

Operating leverage

Minimum Scenario

Trade Shows

Sales Reps

Contribution margin $120,700 $103,872

Net operating income ÷ $26,367 ÷ $78,352

Degree of operating leverage

4.58 1.33