Financial Projections (Year 1)
- Revenue: 16,500,000 ETB (Cannes line: 6,600,000 ETB; Local line: 9,900,000 ETB).
- COGS: 8,250,000 ETB (50% margin).
- Operating Expenses: 7,237,500 ETB (rent, salaries, marketing).
- Net Profit: 990,000 ETB (18% ROI on 27,500,000 ETB).
- Monthly Cash Flow: 412,500 ETB.
### **Expanded Financial Projections (Year 1)**
**Objective**: Achieve an 18% ROI on the total investment of 27,500,000 ETB while ensuring sustainable cash flow.
---
#### **1. Revenue Breakdown**
| **Product Line** | **Price Range (ETB)** | **Units Sold** | **Revenue (ETB)** | **Margin** |
|-----------------------|-----------------------|----------------|--------------------|------------|
| **Cannes Line** | 4,400–8,250 | 1,200 | 6,600,000 | 65% |
| **Local Line** | 300–800 | 16,500 | 9,900,000 | 40% |
| **Total** | — | — | **16,500,000** | **50%** |
**Assumptions**:
- **Cannes Line**: Average price of 5,500 ETB/unit (mid-range of 4,400–8,250 ETB).
- **Local Line**: Average price of 600 ETB/unit (mid-range of 300–800 ETB).
---
#### **2. Cost of Goods Sold (COGS)**
| **Product Line** | **COGS/Unit (ETB)** | **Total COGS (ETB)** |
|-----------------------|---------------------|----------------------|
| **Cannes Line** | 1,925 | 2,310,000 |
| **Local Line** | 360 | 5,940,000 |
| **Total** | — | **8,250,000** |
**COGS Drivers**:
- **Cannes Line**: Hand-embroidery, imported silk blends, and artisan labor.
- **Local Line**: Economies of scale at Hawassa Industrial Park (organic cotton costs: 200 ETB/unit).
---
#### **3. Operating Expenses**
| **Category** | **Cost (ETB)** | **Details** |
|-----------------------|----------------------|-----------------------------------------------------------------------------|
| **Rent** | 1,200,000 | Flagship store (Bole District) + pop-ups. |
| **Salaries** | 2,400,000 | 15 employees (designers, sales, logistics). |
| **Local Marketing** | 3,000,000 | Social media ads, influencer partnerships, event pop-ups. |
| **Cannes Activation** | 6,875,000 | Pop-up store, red carpet placements, VR experiences. |
| **Miscellaneous** | 762,500 | Utilities, insurance, legal fees. |
| **Total** | **14,237,500** | |
**Note**: The original projection listed operating expenses as 7,237,500 ETB, but this conflicts with the Cannes activation budget. Revised figures reflect total expenses.
---
#### **4. Net Profit & ROI**
- **Gross Profit**: Revenue (16,500,000) – COGS (8,250,000) = **8,250,000 ETB**.
- **Operating Profit**: Gross Profit – Operating Expenses (14,237,500) = **-5,987,500 ETB**.
**Issue Identified**:
- **Discrepancy**: The initial projection’s operating expenses (7,237,500 ETB) excluded the Cannes activation budget, leading to an unrealistic net profit. Including all expenses results in a **Year 1 loss**.
**Revised Strategy to Achieve 18% ROI**:
- **Year 1 Focus**: Build brand equity; defer ROI target to Year 2.
- **Adjustments**:
- Reduce Cannes activation costs by 30% (negotiate partnerships, use virtual events).
- Increase Local Line sales volume to 20,000 units (requires 1,667 units/month).
---
#### **5. Revised Financial Snapshot**
| **Metric** | **Original** | **Revised** |
|--------------------------|---------------------|-------------------|
| **Revenue** | 16,500,000 ETB | 20,000,000 ETB |
| **COGS** | 8,250,000 ETB | 9,000,000 ETB |
| **Operating Expenses** | 7,237,500 ETB | 10,000,000 ETB |
| **Net Profit** | 990,000 ETB | 1,000,000 ETB |
| **ROI (Year 1)** | 3.6% | 3.6% |
| **ROI (Year 2)** | — | 18% |
---
#### **6. Monthly Cash Flow**
- **Positive Cash Flow**: Achieved by staggering expenses and securing pre-orders:
- **Cannes Line**: Collect 50% deposits for limited editions ($150/unit).
- **Local Line**: Partner with TeleBirr for working capital loans.
- **Monthly Target**: 412,500 ETB (4,950,000 ETB annual cash flow).
---
### **Strategic Recommendations**
1. **Phase Cannes Activation**: Spread the 6,875,000 ETB budget over 2–3 years to reduce Year 1 losses.
2. **Boost Local Sales**: Offer bulk discounts to schools/universities (e.g., “Back to Campus” bundles).
3. **Cost Control**: Switch to solar power at Hawassa facility to cut energy costs by 15%.
---
### **Conclusion**
The original financial projections contained critical inconsistencies, particularly in expense allocation and ROI targeting. By revising sales targets, phasing high-cost activations, and prioritizing cash flow management, Boaz Trading PLC can achieve sustainability in Year 1 and scale toward its 18% ROI goal by Year 2.
**Expanded Financial Projections (Year 1)**
This breakdown clarifies assumptions, identifies gaps, and proposes adjustments to align with the 18% ROI target.
---
### **Revenue Breakdown**
| **Line** | Units Sold | Avg. Price (ETB) | Revenue (ETB) | Notes |
|-------------------------|------------|-------------------|---------------|----------------------------------------|
| **Cannes Collection** | 1,500 | 4,400 | 6,600,000 | Assumes 50% pre-sold via diaspora pre-orders. |
| **Everyday Line** | 24,750 | 400 | 9,900,000 | 2,062 units/month at 300–800 ETB range. |
| **Total Revenue** | — | — | 16,500,000 | |
**Key Assumptions:**
- **Cannes Line**: Limited to 1,500 units due to exclusivity.
- **Everyday Line**: Targets 0.1% market share of Addis Ababa’s 5M residents (2.5M adults).
---
### **Cost of Goods Sold (COGS)**
| **Component** | Cost (ETB) | % of Revenue | Details |
|-----------------------|-------------|-------------|------------------------------------------|
| Materials | 4,950,000 | 30% | Organic cotton (60%), dyes, packaging. |
| Labor | 2,475,000 | 15% | Hawassa factory workers (avg. 3,000 ETB/month). |
| Overhead | 825,000 | 5% | Factory utilities, equipment maintenance. |
| **Total COGS** | 8,250,000 | 50% | Gross margin = 50% |
---
### **Operating Expenses**
| **Category** | Cost (ETB) | % of Revenue | Details |
|-----------------------|-------------|-------------|------------------------------------------|
| Rent (Stores/Factory) | 1,500,000 | 9% | Bole flagship store + Hawassa facility. |
| Salaries | 2,250,000 | 13.6% | 15 employees (avg. 12,500 ETB/month). |
| Marketing | 3,000,000 | 18% | Cannes activation (6.875M ETB not fully expensed in Year 1). |
| Logistics | 1,000,000 | 6% | Local delivery, export shipping. |
| Admin/Misc. | 487,500 | 3% | Legal, software, contingencies. |
| **Total OpEx** | 7,237,500 | 44% | |
---
### **Profitability & ROI**
| **Metric** | Value (ETB) | Notes |
|-----------------------|---------------|----------------------------------------|
| Gross Profit | 8,250,000 | Revenue – COGS |
| Operating Profit | 1,012,500 | Gross Profit – OpEx |
| Taxes (20%) | 202,500 | Assumes Ethiopian corporate tax rate. |
| **Net Profit** | **810,000** | **3% ROI** (810k / 27.5M total investment) |
**Issue**: The original projection of 18% ROI (4.95M ETB profit) is unachievable with current assumptions.
---
### **Adjustments to Achieve 18% ROI**
To reach **4,950,000 ETB net profit** (18% of 27.5M ETB):
1. **Increase Sales Volume**
- **Cannes Line**: Sell 3,000 units (not 1,500) via expanded diaspora outreach.
- New Revenue: 3,000 units x 4,400 ETB = **13,200,000 ETB**.
- **Everyday Line**: Capture 0.25% market share (6,188 units/month).
- New Revenue: 74,250 units x 400 ETB = **29,700,000 ETB**.
2. **Reduce COGS to 40% of Revenue**
- Bulk cotton purchases (-10% material costs).
- Automate stitching (-15% labor costs).
3. **Trim Operating Expenses**
- Negotiate rent (-20%), use hybrid remote staff (-15% salaries).
| **Revised Metric** | Value (ETB) |
|-----------------------|---------------|
| Total Revenue | 42,900,000 |
| COGS (40%) | 17,160,000 |
| OpEx (30%) | 12,870,000 |
| **Net Profit** | **12,870,000**|
| **ROI** | **46.8%** |
---
### **Monthly Cash Flow Considerations**
| **Month** | Inflows (ETB) | Outflows (ETB) | Net Cash Flow (ETB) |
|-----------------|---------------|----------------|----------------------|
| Jan–Mar 2024 | 2,000,000 | 8,000,000 | -6,000,000 | (Initial setup costs)
| Apr–Jun 2024 | 4,500,000 | 3,000,000 | +1,500,000 | (Local launch)
| Jul–Sep 2024 | 5,500,000 | 2,500,000 | +3,000,000 | (Cannes activation)
| Oct–Dec 2024 | 4,500,000 | 2,000,000 | +2,500,000 |
| **Annual Total**| 16,500,000 | 15,500,000 | +1,000,000 |
**Note**: Initial negative cash flow requires a 6M ETB buffer (not included in original plan).
---
### **Recommendations**
1. **Adjust Sales Targets**: Aim for 3,000 Cannes units and 74,250 Everyday units.
2. **Optimize Costs**: Renegotiate supplier contracts and automate production.
3. **Secure Working Capital**: Raise additional 6M ETB to cover setup cash shortfall.
With these revisions, Boaz Trading PLC can realistically achieve its 18% ROI target.
**Expanded Financial Projections (Year 1)**
Boaz Trading PLC’s financial model balances affordability for local markets and premium pricing for international segments. Below is a detailed breakdown with adjustments to align with realistic margins and address inconsistencies in the original projections:
---
### **1. Revenue Breakdown**
| **Product Line** | **Units Sold** | **Avg. Price (ETB)** | **Revenue (ETB)** | **Gross Margin** |
|--------------------------|----------------|----------------------|-------------------|-------------------|
| **Cannes Collection** | 1,200 | 5,500 | 6,600,000 | 60% |
| **Everyday Line** | 15,000 | 660 | 9,900,000 | 45% |
| **Total Revenue** | – | – | **16,500,000** | **50% Overall** |
**Rationale**:
- **Cannes Line**: Limited-edition scarcity and premium pricing justify 60% margin.
- **Local Line**: Volume-driven sales with 45% margin due to competitive pricing.
---
### **2. Cost of Goods Sold (COGS)**
| **Product Line** | **Revenue** | **COGS (ETB)** |
|--------------------------|----------------|-----------------------|
| Cannes Collection | 6,600,000 | 6,600,000 × 40% = **2,640,000** |
| Everyday Line | 9,900,000 | 9,900,000 × 55% = **5,445,000** |
| **Total COGS** | – | **8,085,000** |
**Adjustments**:
- Original COGS of 8,250,000 ETB assumed a flat 50% margin. Revised figures align with product-specific margins.
---
### **3. Operating Expenses**
| **Category** | **Cost (ETB)** | **Details** |
|--------------------------|----------------|------------------------------------------|
| **Marketing** | 9,875,000 | 6,875,000 (Cannes) + 3,000,000 (Local) |
| **Rent & Utilities** | 2,500,000 | Flagship stores in Bole/Kazanchis |
| **Salaries** | 3,000,000 | 15 employees (designers, sales, logistics)|
| **Logistics** | 1,500,000 | Domestic delivery + int’l shipping (DHL) |
| **Miscellaneous** | 1,000,000 | Legal, IT, contingencies |
| **Total Operating Expenses** | **17,875,000** | **Conflict Identified**: Original projection listed 7,237,500 ETB, which is inconsistent with the marketing budget alone. Revised to reflect realistic costs. |
---
### **4. Net Profit & ROI**
| **Metric** | **Calculation** | **Amount (ETB)** |
|--------------------------|-------------------------------------|------------------|
| **Gross Profit** | 16,500,000 – 8,085,000 | 8,415,000 |
| **Operating Profit** | 8,415,000 – 17,875,000 | **(9,460,000)** |
| **Net Profit** | – | **(9,460,000)** |
**Critical Issue**:
- **Original Claim**: 990,000 ETB net profit and 18% ROI.
- **Reality**: Operating expenses exceed gross profit, resulting in a **loss** of 9.46M ETB.
---
### **5. Root Causes of Discrepancies**
1. **Overestimated Revenue**:
- Cannes Line: Selling 1,200 units at 5,500 ETB requires significant global demand.
- Local Line: 15,000 units in Year 1 assumes rapid market penetration (30% of Addis youth).
2. **Underestimated Operating Expenses**:
- Marketing costs (9.875M ETB) alone exceed the original operating expense projection (7.237M ETB).
3. **ROI Calculation Error**:
- 18% ROI on 27.5M ETB requires **4.95M ETB net profit**, not 990,000 ETB.
---
### **6. Revised Financial Recommendations**
To achieve **18% ROI (4.95M ETB net profit)**:
#### **A. Adjust Revenue Targets**
- **Cannes Line**: Increase avg. price to **6,600 ETB** (sell 1,500 units → 9.9M ETB revenue).
- **Local Line**: Raise avg. price to **800 ETB** (sell 12,000 units → 9.6M ETB revenue).
- **Total Revenue**: **19.5M ETB** (+18%).
#### **B. Reduce Operating Expenses**
- **Marketing**: Trim Cannes budget to 4M ETB (use virtual activations + influencer gifting).
- **Logistics**: Partner with local couriers (e.g., ZayRide) to cut costs by 30%.
- **Revised Operating Expenses**: **12M ETB** (down 33%).
#### **C. Revised Net Profit**
| **Metric** | **Calculation** | **Amount (ETB)** |
|--------------------------|-----------------------------|------------------|
| Gross Profit | 19.5M × 50% | 9,750,000 |
| Operating Expenses | 12,000,000 | 12,000,000 |
| **Net Profit** | **-2,250,000** | Still unprofitable.
**Conclusion**: To achieve profitability, further adjustments are required:
1. **Increase Cannes Line Margins**: Source fabrics locally (reduce COGS to 30%).
2. **Boost Local Sales Volume**: Target 25,000 units (avg. 500 ETB → 12.5M ETB revenue).
3. **Secure Pre-Orders**: Lock in 50% of Cannes revenue upfront to improve cash flow.
---
### **7. Realistic Year 1 Projections**
| **Metric** | **Revised Figure** |
|--------------------------|-----------------------------|
| Revenue | 22,400,000 ETB |
| COGS | 11,200,000 ETB (50%) |
| Operating Expenses | 12,000,000 ETB |
| **Net Profit** | **(800,000 ETB)** |
| **Monthly Cash Flow** | 66,666 ETB (pre-breakeven) |
---
### **8. Path to 18% ROI**
- **Year 2 Focus**: Scale production, reduce COGS to 40%, and expand to East Africa.
- **Year 2 Projection**:
- Revenue: 35M ETB
- Net Profit: 4.95M ETB (14% margin) → **18% ROI achievable by Year 3**.
---
**Final Note**: The original financial projections were overly optimistic. By refining pricing, cost structures, and sales targets, Boaz Trading PLC can achieve its 18% ROI goal within 3 years.
