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online course in responsible

tourism development
session #05
Gerardine Parisi
Tourism
business
planning
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Agenda
1. From business idea to business plan
2. What is a business plan
3. How to write a business plan
4. Create your own business plan
5. A practical example


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From business idea to business plan
Create a successful business is a very difficult task.
You have to be strong motivated and very oriented to planning
and scheduling.

Principal steps of an aware process:









How to start up your own business

Identify a
business
idea
Create a
business
plan
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From business idea to business plan
Your business idea can be based on a dream or an aspiration but
you have to translate it in something of concrete







BUSINESS IDEA
Organizational
structure
Product
Market
segment
The business idea

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From business idea to business plan
Planning and scheduling are key successful factors
Most common reasons of failure:
Lack or inadequacy of planning
Lack of market research
Overestimation of demand
Poor quality in the management of the business
Error in determining the selling price
Little attention to costs and expenses
Poor financial management
Insufficient sales
Startup capital deficient


The importance of planning
LACK OR
POORNESS
OF
BUSINESS
PLAN
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What is a business plan?
Business plan allows to verify:
Market feasibility TO SELL
Organizational and technical feasibility TO MANAGE
Financial and economic feasibility TO EARN

Business plan
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What is a business plan?
BP
Internal
planning
Quantify
goals
Calculate
risk
Evaluate
perfomance
External
evaluation
Request of
fund
Participation
to grant
Aim of business plan
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How to write a business plan
Main questions
?
WHO
WHAT
WHOM
WHERE
AGAINST
WHO
HOW
HOW
MUCH
WHAT
NEEDS
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Create your own business plan
CUSTOMERS COMPETITORS
SIZE AND TREND
INSTITUTTIONAL
CONTEXT
MARKET
RESEARCH
1. Market feasibility
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Create your own business plan
2. Marketing mix
PRICE
PLACE PROMOTION
PRODUCT
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Create your own business plan
Most important point to evaluate:
Special permissions to start up
Investment necessary to start the business
Most appropriate legal form to manage the business
3. Organizational and technical feasibility
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Create your own business plan
4. Financial and economic feasibility
Investment
cost
Operating
cost
Year 1 Year 2
Operating
cost
Year 3 Year
Operating
cost
Operating
cost
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Create your own business plan
Initial investment cost are all the expenses you will need
to start up your business such as:
Immaterial expenses to start up the business, such as
permission;
Material needs:
location or office;
special machine;
basic equipment.
4.1 Initial investment cost

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Create your own business plan
How can I get the money I need to start up my
own business?



4.1 Initial investment cost

Savings
Loans Grant
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Create your own business plan
4.2 Break even point

COSTS
OCCURRED
AMOUNT
OF
PRODUCT
TO BE SELL
NO PROFITS
NO LOSES
BREAK EVEN POINT
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Create your own business plan
To calculate the break even point it is necessary to know
which kind of costs are related to your business.
Costs can be divided into four main categories:
Fixed cost
Variable cost
Financial cost
Taxes

4.3 Operating cost

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Create your own business plan
Fixed costs are business expenses that are not
dependent on the level of goods or services
produced by the business.


4.3.1 Fixed cost

$
UNIT OF
PRODUCTION
FIXED COST
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Create your own business plan
Variable costs, instead, are volume-related.
The sum of fixed cost and variable cost represent the total
cost that is the total economic cost of production.



4.3.2 Variable cost

$
UNIT OF
PRODUCTIO
N
FIXED COST
VARIABLE COST
TOTAL COST
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Create your own business plan
Financial cost consists in interests which the
entrepreneur have to pay to banks for loans
Taxes are calculated on the taxable income
and differ from country to country

4.3.3 Financial cost and taxes

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Create your own business plan
The other main point to calculate the break even is to define the price of
product or service.
Price is influenced by internal and external factors


4.4 Pricing strategy

Market
goals
Costs
incurred
INTERNAL
Market and
demand
Competitors
EXTERNAL
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Create your own business plan
There are some criteria used to define the price. The principal are:
Cost plus pricing: the price is fixed calculating the cost of production
and adding to it a percentage
Competition-based pricing: the price is decided taking into account
the price adopted by competitors
Objective profit pricing: the price is set at a level that allows to gain a
certain level of expected profit.

4.4 Pricing strategy

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Create your own business plan
4.4 Pricing strategy: 9 laws of price sensitivity &
consumer psychology


Reference Price Effect Buyers price sensitivity for a
given product increases the higher the products price
relative to perceived alternatives. Perceived
alternatives can vary by buyer segment, by occasion,
and other factors.
Difficult Comparison Effect Buyers are less
sensitive to the price of a known/more reputable
product when they have difficulty comparing it to
potential alternatives.
Switching Costs Effect The higher the product-
specific investment a buyer must make to switch
suppliers, the less price sensitive that buyer is when
choosing between alternatives.
Price-Quality Effect Buyers are less sensitive to
price the more that higher prices signal higher quality.
Products for which this effect is particularly relevant
include: image products, exclusive products and
products with minimal cues for quality.
Expenditure Effect Buyers are more price sensitive
when the expense accounts for a large percentage of
buyers available income or budget.
End-Benefit Effect The effect refers to the
relationship a given purchase has to a larger overall
benefit, and is divided into two parts: Derived demand:
The more sensitive buyers are to the price of the end
benefit, the more sensitive they will be to the prices of
those products that contribute to that benefit. Price
proportion cost: The price proportion cost refers to the
percent of the total cost of the end benefit accounted
for by a given component that helps to produce the
end benefit (e.g., think CPU and PCs). The smaller
the given components share of the total cost of the
end benefit, the less sensitive buyers will be to the
component's price.
Shared-cost Effect The smaller the portion of the
purchase price buyers must pay for themselves, the
less price sensitive they will be.
Fairness Effect Buyers are more sensitive to the
price of a product when the price is outside the range
they perceive as fair or reasonable given the
purchase context
The Framing Effect Buyers are more price sensitive
when they perceive the price as a loss rather than a
forgone gain, and they have greater price sensitivity
when the price is paid separately rather than as part
of a bundle.
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Create your own business plan
4.5 Turnover and net profit

TURNOVER
PRICE * QUANTITY
NET
PROFIT
TURNOVER
FIXED COST
VARIABLE COST
FINANCIAL COST
- TAXES
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Gerardine bed and breakfast
A practical
example
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Gerardine bed and breakfast
WHAT: Boutique, charming, eco bed and breakfast,
5 rooms, high level of standard.
Special offer for people interested in
enogastronomy, tradition and mountain.
WHERE: Abandoned house of my grandmother in a
rural area of Trentino, tourism not well
developed
WHO: I will be the enterpreneur, this will be a
second work
Business idea
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Gerardine bed and breakfast
MARKET RESEARCH:
Internet, studies
CUSTOMERS:
Lovers of
enogastronomy,
tradition, mountain
Couple (empty
nest)
Good level of
income
COMPETITORS:
No direct
competitors in my
area

SIZE AND
TREND:
Niche segment,
but increasing
ISTITUTTIONAL
CONTEXT:
Certification
Special
permission
Market feasibility
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Gerardine bed and breakfast
Marketing mix
High level b&B
PRODUCT
From market research I know that I can ask 80
for night
PRICE
Internet
PROMOTION
Direct selling
Local DMO
Small association
PLACE
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Gerardine bed and breakfast
INITIAL INVESTMENT COSTS
MATERIAL EXPENSES
Refurbishment of the house 100.000
Purchasing furniture 50.000
IMMATERIAL EXPENSES
Permission and certification 3.000
Marketing and communication (website, brochure) 7.000
TOTALE 160.000
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Gerardine bed and breakfast
How can I get the money I need to start up my
own business?



Grant 30.000
Savings 30.000
Loans 100.000
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Gerardine bed and breakfast
Every year I have to sustain this cost:
Fixed cost: 5.000
Variable cost: 30.000 (40 for every host 750 arrivals for
year)
Financial cost: 5.000
Taxes: 6.000 (10% of 60.000 that is the foreseen
turnover)


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Gerardine bed and breakfast
Break even point:
Cost/price = number of host 26.000 / 80 = 325 arrivals

Provisional net profit:
Turnover-costs = net profit 60.000 - 46.000 = 14.000






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Thank you very much!
Gerardine Parisi
mail: gerardine.parisi@gmail.com