The School Order at Rs 95 a Set
You run a two-machine mobile-phone repair and accessories counter in a shopping complex in Kolhapur, registered as a proprietorship. Your monthly figures are: rent Rs 9,000, electricity Rs 1,800, EMI on test equipment Rs 2,400, helper's salary Rs 7,000, and your own drawings Rs 10,000. Last month you took Rs 46,000 in repairs and Rs 22,000 in accessory sales; accessories bought cost Rs 15,400, spare parts used cost Rs 11,000, and Rs 1,300 went on a banner and flyers. A nearby school offers a one-time contract: screen guards plus covers for 300 staff phones at Rs 95 per set, delivered in 20 days. Your supplier quotes Rs 58 per set with 15 days' credit. Each set takes six minutes to fit. You work ten hours a day, 26 days a month, and fitting would eat into repair work, which earns about Rs 260 per hour of bench time.
1. Compute last month's profit and judge whether the school offer is worth taking. Show your numbers.
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Last month: revenue 46,000 + 22,000 = Rs 68,000. Costs: accessories 15,400 + parts 11,000 + rent 9,000 + electricity 1,800 + equipment EMI 2,400 + helper 7,000 + promotion 1,300 = Rs 47,900. Add drawings 10,000 = Rs 57,900. So profit is Rs 10,100 after paying yourself, or Rs 20,100 before drawings. Say which you mean - drawings are your wage, not a business cost.
The order: 300 x Rs 95 = Rs 28,500 in. Material 300 x Rs 58 = Rs 17,400. Contribution = Rs 11,100. Time: 300 x 6 minutes = 1,800 minutes = 30 hours of bench time. At Rs 260 per hour that bench time earns Rs 7,800 in repairs. If the order simply displaces repairs, the true gain is about Rs 3,300 for 30 hours - roughly Rs 110 an hour, less than half your normal rate. The school pays on delivery while the supplier gives 15 days, so you may also have to fund Rs 17,400 for a few days.
Judgement: not worth taking at Rs 95 as offered. It becomes worth taking if it fills genuinely idle hours, or if the price reaches about Rs 115 to 120, or material falls to about Rs 52.
2. What non-price terms would you negotiate and why?
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- 40 to 50 per cent advance with the order, balance on delivery. This alone removes the cash-flow exposure of Rs 17,400.
- A written specification: exact phone models and counts. '300 staff phones' is not a specification, and an unknown model mix can double fitting time and ruin your yield.
- Delivery in three lots of 100, each accepted and paid on the day. Spreading 20 days protects both your repair customers and your cash.
- One named coordinator at the school for approvals, so fitting does not stall on a teacher's free period.
- Price valid for 10 days, because the supplier's Rs 58 is not guaranteed after that.
- Billing clarity - the school will want a proper bill; know whether your quote includes GST before you shake hands.
Why: each term turns a risk you do not control - their payment habit, their model mix, their coordination - into a term you do control. Price is the last thing to argue about and the first thing people argue about. A slightly lower price with an advance and three lots beats a higher price with 30-day payment.
3. Name two risks to the business if you take the order, and how you would cap each.
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Risk 1 - repair income collapses during those 20 days. The order is visible and demanding; the walk-in customer is not, and he does not complain, he simply stops coming. Cap: ring-fence four hours of bench time every day for repairs, and use the three-lot delivery so no single week is consumed. Watch: weekly repair revenue. If it falls more than 25 per cent, stop accepting new fitting work and renegotiate the third lot.
Risk 2 - material and cash locked into a one-time buyer who can reject a lot. Cap: 15-day supplier credit plus a 40 per cent advance, and never more than one lot's material on the shelf. Inspect each lot with the school coordinator before it leaves the counter, and get the acceptance signed.
Quieter third risk: the helper's fitting quality. One badly aligned screen guard on a teacher's phone becomes the school's permanent memory of your shop. Cap it by fitting the first lot yourself, then checking every tenth set before it goes out.