� Cost Benefit Analysis
This analysis allows the participants to look at the expected costs of an item against its expected benefits, to determine the best and / or most profitable course of action. Please explain this to the participants through the following example.
Example: A Cost Benefit Analysis for Purchasing a New Computer System for the Social Start Up
A new computer system will costthe following:
� Equipment
� Training
� Time( training, transfer from one system to another, adjustment to the new system, etc)
� Loss of marketing and sales focus while developing and transferring to the new system Total = Euro 10,000
The benefitsof the new computer system will be:
� Improved customer service
� Ability to undertake internet based marketing and sales
� Improved sales management
� More effective web-based presence
� Increased efficiency
Total = Euro 18,000
10,000 / 18,000 = 0.555of the benefits
This means that it will take less than a year to recuperate the full cost of the new computer system if it is bought, as these costs make up 55 % of the benefits.
Do take time now for the participants to consider and discuss such purchases for the social start up.
� Break Even Analysis
This allows the participants to identify the Break Even point when Sales / Membership = Costs. Therefore, it is an indication of the volume of sales and membershipsthey will need to achieve to cover the costs of the social start up.
To determine the Breakeven Point, they will need to have: 1. allthe fixed costs and, 2. the variable cost of producing one item
Once they have these figures, they can calculate the Break Even point. The best way to demonstrate how you calculate the Break Even point to the participants is through the following example.
Example: Calculation of the Break Even Point 57