Grading Impact
I cannot stress enough the importance of identifying and calculating a correct demand for your feasibility study. An incorrect demand will cause a domino effect and impact other required items:
Total points affected by an incorrect demand = 17.5
Note: If you cannot/do not cite your demand, no points will be given.
Golden Number
The key to demand is picking a proposed business where you can get a "golden number." A golden number is a comparable demand figure describe in your text (pp. 108-110 & 59 and Chapter 4 Online Lesson. The first two demand methods are the only ones accepted for the feasibility study assignment.
Comparable Project
Method: Identifying the total annual customers (for a service business)
or total annual sales (for a retail business) for
an existing business in the same proposed location, or a location in a comparable socio-demographic profile
to the proposed business site. For example, you would not use a
comparable business in Phoenix (3.5 million population) for a proposed
business in Flagstaff (65,457 population).
Participation Rate
Method: Using national survey data which identifies consumer behavior
for different products or services. Then based on the national participation
rates the demand for local consumption may be determined (5% of adults
belong to a private tennis club, therefore in a local population of 100,000,
5,000 would be the potential market demand.
Application of
Standards Method: a criteria based on the ability of a given population
to support a specific type of business. NOTE: Do Not attempt
to use this method for the Feasibility Study/Business Plan.
Trend Analysis Method: Projecting future demand based on history of demand. NOTE: Do Not attempt to use this method for the Feasibility Study/Business Plan.
Golden Number Examples
Comparable Project Method
For example, using the comparable demand method would be if you could get the total customers or total sales from an existing commercial recreation business. Being aware that asking for the “golden number” is proprietary information and is not easily shared by a business owner. But for instance, if you got the total customers from a rafting company in Taos, New Mexico, then you would have the golden number to use for your business plan to start a rafting company in Taos, New Mexico.
Total Customers Example: Comparable Demand Method, Wolf Whitewater Rafting Company, Taos, New Mexico. Total 2012 yearly customers = 1257
There are nine competitors (this information comes from item 2b in the Feasibility Study), so if the number of competitors is incorrect then the demand will also be incorrect. Make sure you have the correct number of competitors (Hint: Google search).
Demand Calculation: 1257 x 9 = 11,313 (total market); divided by 10 (nine competitors pus your company) = 1,131 demand
Total Sales Example: Comparable Demand Method, Wolf Whitewater Rafting Company, Taos, New Mexico. total sales = $106,845*
* The Total sales amount has to be converted into the total customers for a correct demand. So, divide Total sales $106,845 by the average trip cost. In this case it is $85/person (This information was retrieved from the WOLF Whitewater's web site). Yes, this ignores the fact that some of these sales may be half day trips, but it will give you a good demand estimate.
So, $106,845 total sales) divided by $85 (per person raft trip cost) = 1,257, then continue with the calculation.
There are nine competitors (this information comes from item 2b in the Feasibility Study), so if the number of competitors is incorrect then the demand will also be incorrect. Make sure you have the correct number of competitors (Hint: Google search).
Demand Calculation: 1257 x 9 = 11,313 (total market); divided by 10 (nine competitors plus your company) = 1,131 demand
NOTE: Be sure to include the name of your comparable business and cite the information, usually as a personal communication with the owner or staff of the comparable business.
Example: Wolf Whitewater Rafting Company (J.O. Smith, personal communication, October 4, 2015)
Participation Rate Method
For example, using the participation rate demand method would be if you could get a figure from a local, state, or national survey such as "39.3 million Americans age seven and older were estimated to have ridden a bicycle six times or more in 2012, according to the National Sporting Goods Association" (NBDA Statpak, 2012).
So then you would divide 39.3 by the population of the United States (American Fact Finder, 2012) = 12.4%, this is the participation rate.
Now if your bike shop is in Las Cruces, New Mexico that has a population of 97,618 (American Fact Finder, 2012) you would use the adult population between 15 to 49 years old (48,797). Next multiply 48,797 by 12.4 (.124) = 6,050 which is the total market.
There are two competitors (this information is from item 2b), so if the number of competitors is incorrect, then the demand will also be incorrect. Make sure you have the correct number of competitors (Hint: Google search).
Participation Rate Demand Calculation: 6,050 (total market); divided by 3 (two competitors plus your company) = 2,016 demand
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