MODULE 2- Recognize a Potential Market

Entrepreneurial Ideas
The creation of an entrepreneurial idea leads to the identification of entrepreneurial
opportunities, which in turn results in the opening of an entrepreneurial venture.
The entrepreneurial process of creating a new venture is presented in the diagram below.
(Nick L. Aduana, Etrepreneurship in Philippine Setting for Senior High School, 2017, C&E
publishing page 46, Aduana, 2017).

Essentials in Entrepreneur’s Opportunity – Seeking

These are the basic foundation that the entrepreneur must have in seeking
opportunities: Entrepreneurial mind frame. This allows the entrepreneur to see things in a
very positive and optimistic way in the midst of difficult situation. Being a risk - taker, an
entrepreneur can find solutions when problems arise. Entrepreneurial heart flame.
Entrepreneurs are driven by passion; they are attracted to discover satisfaction in the act and
process of discovery. Passion is the great desire of an entrepreneur to achieve his/her goals.
Entrepreneurial gut game. This refers to the ability of the entrepreneur of being intuitive.
This also known as intuition. The gut game also means confidence in one’s self and the firm
belief that everything you aspire can be reached.

Sources of Opportunities 1.2 The Societal environment includes the

various forces like
There are many ways to discover opportunities.
Looking at the big picture, some have noticed a. Political forces – includes all the laws,
the emerging trends and patterns for business rules, and regulations that govern
opportunities. While others are trying to find out business practices as well as the
their target market. The following are some permits, approvals, and licenses
sources of opportunities: necessary to operate the business.
b. Economic forces – such as income
1. Changes in the environment level and employment rate.
c. Sociocultural forces – customs,
Entrepreneurial ideas arise when changes lifestyles and values that characterize a
happen in the external environment. A person society. d. Technological environment –
with an entrepreneurial drive views these new inventions and technology
changes positively. External environment innovations.
refers to the physical environment, societal 1.3 The Industry environment of the business
environment, and industry environment where includes:
the business operates.
a. Competitors
1.1 The Physical environment includes b. Customers
a. Climate – the weather conditions. c. Creditors
b. Natural resources – such as minerals, d. Employees
e. Government
forests, water, and fertile land that occur
f. Suppliers
in nature and can be used for economic
For example, one factor in the physical
gain.
environment that can easily change is the
c. Wildlife – includes all mammals, birds,
climate. The temperature is very high during
reptiles, fish, etc., that live in the wild.
summer but very low during the rainy season.
An individual with entrepreneurial drive can be a business that responds to the needs of the
extremely imaginative and inventive in people during summer and rainy season.
identifying opportunities. He/she can venture on
 2. Technological discovery and advancement
A person with entrepreneurial interest sees possibility of business opportunities in any
new discovery or because of the use of latest technology. For example, an individual with
knowledge in repair and installation of a machine engine discovers additional engine parts
that considerably reduce fuel consumption.
3. Government’s thrust, programs, and policies
The priorities, projects, programs, and policies of the government are also good sources
of ideas. For example, the use of firecrackers to celebrate New Year’s Eve is strictly
prohibited. People without entrepreneurial interest will view the ordinance as a plain
restriction. However, for an entrepreneur, it is a business opportunity to come up with a new
product that will serve as a substitute for firecrackers.
4. People’s interest
The interest, hobbies, and preferences of people are rich sources of entrepreneurial ideas,
like the increasing number of Internet Cafés at present could lead to the strong attachment
of young people to computers.
5. Past experiences
The expertise and skills developed by a person who has worked in a particular field may
lead to the opening of a related business enterprise. For example, an accountant who has
learned the appropriate accounting and management skills and techniques in a prominent
accounting firm can start his/her business venture by opening his/her own accounting firm.
Forces of Competition Model
It is also known as the “five forces of competition”. An industry environment is a competitive
environment. Regardless of what product or services you have, competition is always present.
Competition – it is the act or process of trying to get or win something. For example, the
prices are lower when there is a competition among the stores.
These are the five forces competing within the industry:
 Buyers
 Potential new entrants
 Rivalry among existing firms
 Substitute products
 Supplier

1. Buyers
The buyers are the ones that pay cash in exchange for your goods and services. One
example is the influence of the price or in the bargaining strategy. The buyer has a strong
and magnified bargaining power. The threat of its bargaining power will be less if the
following factors are noticed:
a. There are several suppliers available in the market. b. The buyer has the potential for
backward integration. c. The cost of switching the supplier cost is minimal.
d. The product represents a high percentage of the buyer’s cost.
e. The buyer purchases large portions of the seller’s product or services.
2. Potential New Entrants
A new entrant is defined as companies or businesses that have the ability to penetrate or
enter into a particular industry. For example, in the level of capital requirements, if the
business requires huge capital, new entrants should decline to join the business. This
gives a threat to the business. This can be noticed if there is the presence of the following
factors:
a. Substantial capital requirement
b. Strict government policy
c. Difficulty in accessing distribution channels
d. Economies of scale
e. High cost of product differentiation
f. High switching cost
 3. Rivalry among Existing Firms
Rivalry is a state or situation wherein business organizations are competing with each
other in a particular market. For example, it depends on the marketing strategy of your
competitor, like giving freebies and special offers. The intensity of rivalry among existing
firms is characterized to the following factors:
a. Diversity of rivals
b. Number of competing firms
c. Characteristics of the products or services
d. Increased capacity
e. Amount of fixed costs
f. Rate of industry growth
6. Substitute Products
Substitute is one that serves the same purpose as another product in the market. For
example, the consumers decide to use margarine as a substitute for butter. In case the price
of butter increases, preferably the consumer will gradually switch to margarine. A substitute
product can give a big threat in the industry environment if the following factors are noticed:
a. Switching cost is low
b. Preferences and tastes of the customers easily change
c. Product differentiation is highly noticeable
d. The quality of substitute products dramatically improves
e. The price of substitute product is substantially lower
5. Suppliers
The Suppliers are the one that provide something that is needed in business operations such
as office supplies and equipment. In an example where supplies and services being offered is
unstable the intensity of the threat is strong in this kind of the competitive force in the
industry. This can be noticed if there is the presence of the following factors:
a. The supplier has the ability for forward integration
b. Suppliers in the industry are few, but the sales volume is high
c. Substitute products are not readily available in the market
d. The switching cost is very high
e. The product or service is unique

MODULE 3 – RECOGNIZE AND UNDERSTAND THE MARKET

In the previous lesson we learned about the

creation of entrepreneurial ideas that lead to the
Value Proposition (VP) - is a business or
identification of entrepreneurial opportunities,
marketing statement that summarizes why a
which in turn results in the opening of an
consumer should buy a company's product or
entrepreneurial venture. There are three
use its service. This statement is often used to
processes in creating a new venture,
convince a customer to purchase a particular
Entrepreneurial mind frame, Entrepreneurial
product or service to add a form of value to their
heart flame, and Entrepreneurial gut game. In
lives. In creating Value Proposition,
opening a new venture or business, you need to
entrepreneurs will consider the basic elements:
determine the Unique Selling Proposition (USP)
and Value Proposition (VP) of your product as  Target Customer
well as your target market.  Needs/opportunity
 Name of the product
What is Unique Selling Proposition (USP) and
 Name of the enterprise/company
Value Proposition (VP)? This part allows the
entrepreneur to prepare himself on how to There are many competitors in the market who
advertise and sell his product even if it is similar establish superiority over other entrepreneurs.
to others. In this lesson, you will find out the Entrepreneurs should think of other alternatives
answers and understand more about the market. to make their products better. An important
aspect in Value Proposition is that it must be the proposed unique selling proposition is:
truthful and that it should establish credibility to “Charing sari-sari store, open 24/7”
the consumers. Example: Potential value
Readers get confused between value
proposition is most common in small businesses
proposition and unique selling proposition. The
of your locality.
two propositions are used to differentiate the
products from competitors. For example, Jollibee
is known to have a Filipino taste burger. This
Aling Charing Sari-Sari Store opens
brand has a unique selling point because of its
only from 6:00 am to 6:00 pm, but Aling
tagline “Langhap Sarap”
Charing noticed that there are customers
who go to a nearby town to look for a Unique Selling Proposition and Value Proposition
convenience store at around 10:00 pm to are two of the most famous tools used to explain
6:00 am. She believes that this is a great why prospect customers buy each product and
opportunity for her store to operate 24/7. service. Base on each definition, we learn that
In this example, the proposed value USP and VP are frameworks of each business
proposition is: “Charing sari-sari Store, industry. The two propositions are valuable for
open 24/7”. the entrepreneurs. Make sure that you're
The business describes a sari-sari focusing on a solution that is a need, and make
store – a basic retail store. The assurance sure that you are targeting a customer segment
from this value proposition is because of that's large enough and cares enough about
the phrase “open 24/7”, Aling Charing’s your solution so that you can build a viable
sari-sari store opens 24/7, which makes it business. We'll talk more about determining the
different from other competitors. size of your target market in our next lesson.
After you understand the value proposition and
Unique Selling Proposition
the unique selling proposition, now it’s time to
(USP) – refers to how you sell your
understand the target market, customers
product or services to your customer. You
requirement and market size. As you might
will address the wants and desires of your
expect, the market is right at the center of our
customers.
word cloud for this lesson. Understanding your
As an entrepreneur, you should
market is critical in building your business
think of marketing concepts that persuade
model. There are three factors that will
your target customers. You may ask the
determine your customers.
following questions in doing this: What do
the customers want? What brand does
well? What does your competitor sell well? A. Target Market Market
Some tips for the entrepreneur on Targeting is a sage in market
how to create an effective unique selling identification process that aims to
proposition to the target customers are: determine the buyers with common
 Identify and rank the uniqueness needs and characteristics. Prospect
of the product or services character customers are a market segment that
 Be very Specific an entrepreneurial venture intends to
 Keep it Short and Simple (KISS) serve. In targeting a specific market, it
will exclude people if it will not fit your
As an entrepreneur, present the criteria. Rather, target marketing
best feature of your product or service allows you to focus your marketing
that is different from other competitors. money and brand message on a
Identifying the unique selling proposition specific market that is more likely to
requires marketing research that you will buy from you than other markets.
learn from the other Choose a product that is more
affordable, efficient, and effective to
modules. In promoting your products or services,
reach potential clients and generate
make sure that it is very specific and put details
business.
that emphasize the differentiator against the
competitors. Keep it short and simple and think
Commonly used methods for
of a tagline that is easy to remember. Right now,
segmenting the markets are follows.:
 1. Geographic segmentation – the total be treated while purchasing a product and
market is divided according to how easy the buying process goes.
geographical location.
 Variables to consider Output Requirements:
a. Climate Tangible thing or things that can be seen.
b. Dominant ethnic group Characteristic specifications that a
c. Culture consumer expects to be fulfilled in the
d. Density (either rural or urban) product. Costumers will avail services as a
2. Demographic Segmentation – product, then various service
divided based on consumers requirements can take the form of output
 Variables to consider requirements. For example, if the
a. Gender consumer hires a multi cab, then on-time
b. Age arrival becomes an output requirement.
c. Income Customer buys gadgets (phone speaker)
d. Occupation the specification like the loudness and
e. Education clarity are the output requirements.
f. Religion c. Market Size
g. Ethnic group The entrepreneur’s most critical task is
h. Family size to calculate the market size, and the
3. Psychological Segmentation – divided in potential value that market has for
terms of how customers think and believe their start-up business. Market
 Variables to consider research will determine the
a. Needs and wants entrepreneurs’ possible customers in
b. Attitudes one locality.
c. Social class
d. Personality traits
e. Knowledge and awareness What is Market Size?
f. Brand concept
g. Lifestyle Market size is like a size of the
4. Behavioral Segmentation – divided arena where the entrepreneurs will play
according to customers’ behavior pattern their business. It is the approximate
as they interact with a company. number of sellers and buyers in a
 Variables to consider particular market. Companies are
a. Perceptions interested in knowing the market size
b. Knowledge before launching a new product or service
c. Reaction in the area. In determining the market
d. Benefits size, the entrepreneur will conduct a
e. Loyalty strategic marketing research from reliable
f. Responses sources using the following method. The
B. Customer Requirements first step is to estimate the potential
Customer requirements are the specific market – approximate number of
characteristics that the customers need customers that will buy the product or
from a product or a service. There can be avail your services. The second step is to
two types of customer requirements: estimate the customers who probably
1. Service Requirement dislike to buy your product or avail the
2. Output Requirement services. The third step is for the
Service Requirement: entrepreneur to estimate the market
An intangible thing or product that cannot share, that means plotting and calculating
be touched but the customer can feel the of the competitor’s market share to
fulfillment. There are elements in service determine the portion of the new venture.
requirement like on-time delivery, service Market size becomes the most important
with a smile, easy-payment etc. It includes factor if you ever need to raise funding for
all aspects of how a customer expects to your business
 MODULE 4 - Market Research

Market Research or Marketing  M

Research Process can be defined as the ake sure questions are concise and easily
process of gathering, analyzing and understood
interpreting the information about the  A
products or the services to be offered for void questions that are difficult to answer
sale to the potential consumers in the  M
market (De Guzman, 2018, p. 25) ake sure response scales used are
consistent with categories that are
DATA COLLECTION is the most mutually exclusive
valuable tool in any type of research study.
INTERVIEW is one of the most reliable
Inaccurate data collection may cause
and credible ways of getting relevant
mistakes and ultimately lead to invalid
information from target customers. It is
results. (Edralin, 2016, p. 80)
typically done in person between the
researcher/entrepreneur and a respondent
TIPS in COLLECTING DATA
where the researcher asks pertinent
 Organize collected data as soon as it
questions that will give significant pieces
is available
of information about the problem that he
 Know what message you want to get
will solve. The interview is also helpful
across and then collect data that is
even when the business has already
relevant to the message
started because the customers’ feedback
 Collect more data
provides the entrepreneur a glimpse of
 Create more data
what the customers think about the
 Take note of interesting or significant
business. Interviews normally last from 15
data
to 40 minutes, but they can last longer,
depending on the participants’ interest in
In this lesson, we will consider the three
the topic. In a structured interview, the
different data collection techniques –
researcher asks a standard set of questions
SURVEY (Questionnaire), INTERVIEW and
and nothing more. (Leedy & Ormrod, 2001,
FOCUS GROUP DISCUSSION – and evaluate
pp.38-39)
their suitability under different
circumstances Personal interviews are the
SURVEYS are the most common way to traditional method of conducting an
gather primary research with the use of interview. It allows the researcher to
questionnaires or interview schedule. establish relationship with potential
These can be done via direct mail, over the participants and therefore gain their
phone, internet (e.g. Google) or email, cooperation. It generates highest response
face-to-face or on the Web (e.g. Skype or rates in survey research. They also allow
Viber). When designing or constructing the researcher to clarify indefinite answers
your own research questionnaire, and when necessary, seek follow-up
remember the following guidelines. information. (Leedy & Ormrod, 2001,
(Edralin, 2016) pp.39)
 K
eep it as simple as possible  Telephone interviews are less
 M expensive and less time-consuming, but
ake sure it is clearly appealing and easy to the disadvantages are that the response
read rate is not as high as the face-to-face
 C interview, but considerably higher than the
luster or block related questions mailed questionnaire.
 M FOCUS GROUP DISCUSSION (FGD) -
ove from complex questions to more is an excellent method for generating and
specific questions screening ideas and concepts. It can be
moderated group interviews and
brainstorming sessions that provide  Assign an expert moderator /
information on user’s needs and behaviors. facilitator who can manage group
dynamics.
 Use a semi-structured or open-format
discussion
The following are considerations in the
 Strive for consistency in the group’s
use of focus group discussions in market
composition (for example, it may not be
research: advisable to have business customers and
 The length of the session is between retail customers in the same focus group,
90 and 120 minutes. their needs are very different) (Leedy &
 Conduct focus groups discussion with Ormrod, 2001, pp.40 41)
8 to 10 participants per group.

GUIDED PRACTICE / ACTIVITY: Conduct a survey among 15 high school students in our
school about “Milk Tea”. Use the survey form below:

MODULE 5 – 7 P’S OF MARKETING AND BRANDING

 Whatever you sell or offer you must outline your marketing mix. Marketing mix has been
around as early as trade existed and that is quite long already. The only difference is that today
everything is well outlined and keeps evolving even further. To get to the point, marketing mix is a
business mechanism used for effective marketing of the products. There is no hesitation that
anyone would benefit from a powerful 7Ps. Marketing Mix is a set of controllable and connected
variables that a company gathers to satisfy a customer better than its competitor. It is also known
as the “Ps” in marketing. Originally, there were only 4Ps but the model has been continually
modified until it became 7P’s. The original 4 P’s stands for product, place, price and promotion.
Eventually, three elements have been added, namely: people, packaging and positioning to
comprise the 7 P’s.
The 7 P’s of Marketing Mix
There are several important frameworks which you can utilize for the purpose of marketing your
product and services. A very crucial structure among these is the “7 P’s of Marketing. The
framework of “7 Ps of marketing” includes product, place, price, promotion people, packaging and
positioning. Realizing these P’s in the most ideal manner can turn out to be very profitable,
however, you should totally see each description of the 7 P’s first.

1. PRODUCT
The first P in the Marketing Mix is the
Product. Marketing strategy typically starts
with the product. Marketers can’t plan a
distribution system or set a price if they
don’t know exactly what the product will be
offered to the market. Product refers to any
goods or services that is produced to meet
the consumers’ wants, tastes and
preferences. Examples of goods include
tires, MP3 players, clothing and etc. Goods
can be categorized into business goods or
consumer goods. A buyer of consumer goods
may not have thorough knowledge of the
goods he buys and uses. Examples of
services include hair salons and accounting
firms. Services can be divided into consumer
services, such as hair styling or professional
services, such as engineering and
accounting.

There are 2 types of goods. Consumer Goods and Business Goods. The table below shows the
comparison between the 2 types of goods.
 2. PLACE
Place is the second P in the Marketing Mix. Place represents the location where the buyer and
seller exchange goods or services. It is also called as the distribution channel. It can include
any physical store as well as virtual stores or online shops on the Internet.
It is one thing having a great product, sold at an attractive price. But what if:
• Customers are not near a retailer that is selling the product?
• A competing product is stocked by a much wider range of outlets?
• A competitor is winning because it has a team of trained distributors or sales agents who
are out there meeting customers and closing the sale?
Place matters for a business of any size. It is a crucial part of the marketing mix. The
main function of a distribution channel is to provide a link between production and
consumption.

Channel 1 contains two stages between producer and consumer - a wholesaler and a retailer. A
wholesaler typically buys and stores large quantities of several producers' goods and then breaks
into bulk deliveries to supply retailers with smaller quantities. For small retailers with limited order
quantities, the use of wholesalers makes economic sense.
Channel 2 contains one intermediary. In consumer markets, this is typically a retailer. A retailer is a
company that buys products from a manufacturer or wholesaler and sells them to end users or
customers. In a sense, a retailer is an intermediary or middleman that customers use to get
products from the manufacturers.
Channel 3 is called a "direct-marketing" channel, since it has no intermediary levels. In this case
the manufacturer sells directly to customers.
3. PRICE
The third P in the Marketing Mix is price. The price is a serious component of the marketing
mix. What do you think is the meaning of Price? In the narrowest sense, price is the value of
money in exchange for a product or service. Generally speaking, the price is the amount or
value that a customer gives up to enjoy the benefits of having or using a product or service.
Thus, customers exchange a certain value for having or using the product – a value we call
price. In commerce, price is determined by what (1) a buyer is willing to pay, (2) a seller is
willing to accept, and (3) the competition is allowing to be charged. With product, promotion,
and place of marketing mix, it is one of the business variables over which organizations can
exercise some degree of control. One example of a pricing strategy is the penetration
pricing. It is when the price charged for products and services is set artificially low in order to
gain market share. Once this is attained, the price can be higher than before. For example, if
you are going to open a Beauty Salon, you need to set your prices lower than those of your
competitors so that you can penetrate the market. If you already have a good number of
market share then you can slowly increase your price.
There are several factors that affect a small business’ revenue potential. One of the most
important is the pricing strategy utilized by you as the owner of the business. A right pricing
strategy helps you define the particular price at which you can maximize profits on sales of
your product or service. You need to consider a wide range of factors when setting prices of
your offerings. The different pricing strategies with its definition can be found in the table
below.
3. PROMOTION
Promotion is the fourth P in the Marketing Mix. Promotion refers to the complete set of
activities, which communicate the product, brand or service to the user. The idea is to
create an awareness, attract and induce the consumers to buy the product, in preference
over others. The following are the most common medium in promoting a product and this
is called promotional mix. PROMOTIONAL MIX
1. ADVERTISING
• Radio
Advertising by means of radio gives the advantage of selecting the territory and
audience to which the message is to be directed. It is also cheaper than TV
advertising.
• Television
This is the latest and the fast-developing medium of advertising and is getting
increased popularity these days. It is more effective as compared to radio as it has the
advantages of sound and sight. On account of pictorial presentation, it is more
effective and impressive and leaves a lasting impression on the mind of the viewer.
• Print
The print media carry their messages entirely through the visual mode. These
media consist of newspapers, magazines and direct mail.

• Electronic
 You can also advertise electronically through your company website and provide
important and pertinent information to clients and customers. You can protect some
parts of your website through passwords and give access to member customers. You
can also send advertisements via direct e-mail as part of your promotional strategy.
• Word of Mouth
Word-of-mouth advertising is important for every business, as each happy
customer can steer dozens of new ones your way. And it's one of the most credible
forms of advertising because a person puts their reputation on the line every time
they make a recommendation and that person has nothing to gain but the
appreciation of those who are listening.
• Generic
The promotion of a particular commodity is without reference to a specific
producer, brand name or manufacturer. Producers join together to expand total
demand for the commodity, thereby helping their own sales. These activities are often
self-funded through assessments on marketing called check-off programs.

2. PUBLIC RELATIONS OR PR
In public relations, the article that features your company is not paid for. The
reporter, whether broadcast or print, writes about or films your company as a result of
information he or she received and researched.
Many people use the term PR and advertising interchangeably, PR involves
sharing information with the public using platforms that do not require a payment,
such as social media or through press releases shared with magazines and
newspapers. PR professionals package information and disseminate it in the hopes
that it will be organically shared. The goal of public relations is to shape public
perception of a business, presenting a positive image through various strategies to its
various constituents.

3. PERSONAL SELLING
Personal selling occurs when an individual salesperson sells a product, service
or solution to a client. Salespeople match the benefits of their offering to the specific
needs of a client. Today, personal selling involves the development of longstanding
client relationships.

Personal selling involves a selling process that is summarized in the following

Five Stage Personal Selling Process. The five stages are:

• Prospecting
• Making first contact
• The sales call
• Objection handling
• Closing the sale
4. SALES PROMOTIONS
Sales promotion is any initiative undertaken by an organization to promote an increase
in sales, usage or trial of a product or service (i.e., initiatives that are not covered by
the other elements of the marketing communications or promotions mix).

Sales Promotion Technique

• Free Gifts
There are many ways to utilize this particular sales promotion technique. A
newly opened store, for example, may offer the first 10 customers free items worth
100 pesos.
• Free Samples
Providing free samples is a technique used to introduce new products to the
marketplace. Samples give the consumer a chance to see how well they like a product
or try something they otherwise would not normally buy.
• Free Trial
A free trial is a way for a consumer to try a new product while eliminating risk. It
may be used when a product is unique to the marketplace.
 • Customer Contests
Contests offer the customer a chance to win prizes like cash or store
merchandise.
• Special Pricing
Special pricing is used to offer consumers a lower price for a period of time or to
purchase in multiple quantities. For example, a retailer may offer a product that
normally costs 35 pesos at a price of 3-for-100-pesos during the promotional period.
5. DIRECT MARKETING
Direct marketing is a promotional method that involves presenting information about
your company, product, or service to your target customer without the use of an
advertising middleman. It is a targeted form of marketing that presents information of
potential interest to a consumer that has been determined to be a likely buyer.

Forms of Direct Marketing

Brochure Coupons Catalogs Email Fliers Phone calls Newsletters Text messages Post
cards

5. PEOPLE
The fifth P in the Marketing mix is People. Your team, the staff that makes it
happen for you, your audience, and your advertisers are the people in marketing. This
consist of each person who is involved in the product or service whether directly or
indirectly. People are the ultimate marketing strategy. They sell and push the product.
People are one of the most important elements of the marketing mix today. This is
because of the remarkable rise of the services industry. Products are being sold
through retail channels today. If the retail channels are not handled with the right
people, the product will not be sold. Services must be first class nowadays. The people
rendering the service must be competent and skilled enough so that that the clients
will patronize your service. The marketing efforts of people are to create customer
awareness, to arouse customer interest, to educate customers, to close the sale and
to deliver the product. Therefore, the right people are essential in marketing mix in the
current marketing scenario.
6. PACKAGING
Packaging is the sixth P in the Marketing Mix. Packaging is a silent hero in the
marketing world. Packaging refers to the outside appearance of a product and how it is
presented to the customers. The best packaging should be attractive enough and cost
efficient for the customers. Packaging is highly functional. It is for protection,
containment, `information, utility of use and promotion.

Five Basic Functions of Packaging

1) Protection: One of the major functions of packaging is to provide for the effects of
time and environment for the natural and manufactured products. The protection function
can be divided into some classes.
A. Natural deterioration: It is caused by the interaction of products with water, gases
and fumes, microbiologic organisms like bacteria, yeasts and molds, heat, cold, dryness,
contaminants and insects and rodents.
B. Physical protection: The packaging is also used for physical protection, which
include improving shock protection, internal product protection and reducing shock damage
caused from vibration, snagging, friction and impact.
C. Safety: A special kind of protective packaging is required for products that are
deemed harmful to those who transport them or use them. These products include extremely
inflammable gas and liquid, radioactive elements, toxic materials etc. The packaging should
also be done so that children could not easily use or dispose them.
D. Waste reduction: Packaging also serves to reduce the amount of waste especially in
case of food distribution.

2) Containment:
This involves merging of unit loads for shipping. It starts with spots of adhesives on
the individual shippers that stick them together, straps of steel and plastic, entire coverings
of shrinkable or stretchable plastic films and paper or corrugated wraps that surround an
entire pallet of product. There are some special bulk boxes or pallet bins made from
 unusually strong corrugated board or fabricated form plastics or metal, the method of which
depends on the type and weight of product and its protective needs. The cargo containers
made of aluminum used to hold many pallet loads of goods can be transferred to or from
ships, trains and flatbed trucks by giant cranes.
3) Information:
The packaging conveys necessary information to the consumers. The common information
that packaging provides include general features of the product, ingredients, net weight of the
contents, name and address of the manufacturers, maximum retail price (MRP). Packaging of
medicine and some food products is required to provide information on methods of preparations,
recipes and serving ideas, nutritional benefits, and date of manufacturing, date of expiry, warning
messages and cautionary information. Sometimes, the color of the packaging itself provides some
information.
4) Utility of use: The convenience packaging has been devised for foods, household
chemicals, drugs, adhesives, paints, cosmetics, paper goods and a host of other products. This type
of packaging includes dispensing devices, prepackaged hot metals, and disposable medical
packaging.
5) Promotion: Companies use attractive colors, logos, symbols and captions to promote the
product that can influence customer purchase decision.

Packaging Decisions:
i. Packaging concept: This defines what the package should be or do for the particular
product in terms of size, shape, materials, color, text, and brand mark and
tamperproof ability
ii. Engineering tests: This will ensure that the package stands up under normal conditions
iii. Visual tests: This is to ensure that the script is legible and colors are harmonious
iv. Dealer tests: This is to ensure that the dealers find the packages attractive and easy
to handle
v. Consumer tests: This is to ensure favorable consumer response

7. POSITIONING
Finally, the seventh P in the Marketing Mix is Positioning. When a company presents a
product or service in a way that is different from the competitors, they are said to be “positioning”
it. Positioning refers to a process used by marketers to create an image in the minds of a target
market.
Solid positioning will allow a single product to attract different customers for not the same
reasons. For example, two people are interested in buying a phone; one wants a phone that is
cheaper in price and fashionable while the other buyer is looking for a phone that is durable and
has longer battery life and yet they buy the same exact phone.
There are three basic concepts for positioning. These are Functional Positions, Symbolic
Positions and Experiential Positions. Functional Positions deal with solving a problem, providing
benefits and getting a favorable perception from investors, stockholders and consumers. Symbolic
Positions deal with self-image enhancement, ego identification, belongingness, social
meaningfulness and affective fulfilment and Experiential Positions deal with providing sensory or
cognitive stimulation.
At the start of the positioning process, you need a firm understanding of your target market and
answers to the following questions: In which product, service, or market category (also called the
“frame of reference”) do you plan to use this positioning? Which target segment is your focus for
the positioning you are developing? What factors do these buyers evaluate when they make a
purchasing decision? How do these buyers view your competitors in the category? If you don’t have
answers to these questions, you should consider conducting formal or informal marketing research
to reach a better understanding of your target market and the market dynamics around it.

Step 2: Identify Your Competitive Advantages

A competitive advantage is some trait, quality, or capability that allows you to outperform the
competition. It gives your product, service, or brand an advantage over others in purchasing
decisions. Competitive advantage may come from and or all of the following: Price: Something in
your production process or supply chain may make it possible for you to provide comparable value
at a lower cost than competitors. Features: You may provide tangible or intangible features that
your competitors do not: for example, more colors, better taste, a more elegant design, quicker
delivery, personalized service, etc. Benefits: You may provide unique benefits to customers that
your competitors cannot match. Benefits are intangible strengths or outcomes your customer gets
when they use your offering. For example, time savings, convenience, increased control,
enjoyment, relaxation, more choices, feeling better about oneself, being more attractive, etc.
Create a list of the things that make you different from competitors in positive ways. Then identify
which of these factors are also competitive advantages: the influential factors that help you
perform better in the marketplace and cause customers to choose your product, service, or brand
over other options.

Step 3: Choose Competitive Advantages

That Define Your Niche Your list of competitive advantages represents a set of possible positioning
strategies you could pursue for your product, service, or brand. The next step is to examine how
these factors fit into customer perceptions of your broader competitive set. Your goal is to pick a
positioning approach that gives you a unique and valued position in the market that competitors
are not addressing.

How to Create an Effective Market Positioning Strategy?

Create a positioning statement that will serve to identify your business and how you want the brand
to be perceived by consumers.
1. Determine company uniqueness by comparing to competitors Compare and contrast differences
between your company and competitors to identify opportunities. Focus on your strengths and how
it can exploit these opportunities.
2. Identify current market position Identify your existing market position and how the new
positioning will be beneficial in setting you apart from competitors.
3. Competitor positioning analysis Identify the conditions of the marketplace and the amount of
influence each competitor can place on each other. 4. Develop a positioning strategy Through the
preceding steps, you should achieve an understanding of what your company is, how your
company is different from competitors, the conditions of the marketplace, opportunities in the
marketplace, and how your company can position itself.

Developing a Brand Name

Brand Name is a name, symbol, or other feature that distinguishes a seller's goods or
services in the marketplace. Your brand is one of your greatest assets because your brand is your
customers' over-all experience of your business. Brand strategy is a long-term design for the
development of a popular brand in order to achieve the goals and objectives. A well-defined brand
strategy shakes all parts of a business and is directly linked to customer needs, wants, emotions,
and competitive surroundings. Experts believe that a good brand can result in better loyalty for its
customers, a better corporate image and a more relevant identity. As more customers continue to
differentiate between emotional and experienced companies, a brand may be the first step forward
in your competition instead of price points and product features. The question is, can you build a
brand which truly talks to your audience? Branding is a powerful and sustainable high-level
marketing strategy used to create or influence a brand. Branding as a strategy to distinguish
products and companies and to build economic value to both customers and to brand owners, is
described by Pickton and Broderick in 2001.
Commonly Used Branding Strategies
1) Purpose
"Every brand makes a promise. But in a market in which customer confidence is little and
budgetary observance is great, it’s not just making a promise that separates one brand
from another, but having a significant purpose," (Allen Adamson). How can you define
your business purpose? According to Business Strategy Insider, purpose can be viewed in
two ways:
a. Functional. This way focuses on the assessments of success in terms of fast and profitable
reasons. For example, the purpose of the business is to make money.
b. Intentional. This way focuses on fulfillment as it relates to the capability to generate
money and do well in the world.
2) Consistency
The significance of consistency is to avoid things that don’t relate to or improve your
brand. Consistency aids to brand recognition, which fuels customer loyalty.
3) Emotion
There should be an emotional voice, whispering "Buy me". This means you allow the
customers to have the chance to feel that they are part of your brand. You should find ways
to connect more deeply and emotionally with your customers. Make them feel part of the
family and use emotion to build relationships and promote brand loyalty.
4) Flexibility
Marketers should remain flexible too in this rapidly changing world. Consistency
targets at setting the standard for your brand, flexibility allows you to adjust and
differentiate your approach from your competition. According to Kevin Budelmann, "Effective
identity programs require sufficient consistency to be identifiable, but sufficient variation to
keep things fresh and human," so if your old tactics don't work anymore, don't be afraid to
change. It doesn’t mean it worked in the past it may still work now.
5) Employee
Involvement It is equally important for your employees to be well versed in how they
communicate with customers and represent the brand of your product.
6) Loyalty
Loyalty is an important part of brand strategy. At the end of the day, the emphasis on
a positive relationship between you and your existing customers sets the tone for what
potential customers can expect from doing business with you.
7) Competitive Awareness
Do not be frightened of competition. Take it as a challenge to improve your branding
strategy and craft a better value in your brand.

Module 6 – 4M’S OF PRODUCTION AND BUSINESS MODEL

An entrepreneurial venture may either be a sole proprietorship, a partnership, or a

corporation, engaged in merchandising, manufacturing, or service. Nevertheless, whatever type
and nature of business ventures is opened to exploit different business opportunities, innovation or
creativity defines the distinction between an entrepreneur and an ordinary business person.
Thus, the concept of innovation or creativity must, in almost all instances, be introduced and
practiced. An entrepreneur finds way to introduce innovation from the production process to the
marketing stage, while an ordinary businessperson simply imitates business practices and
procedures.
The concept of innovation or creativity can easily be practiced and highly noticeable in a
manufacturing operation since raw materials are transformed to finished goods through the
production process. Innovation can be introduced from the production phase up to packaging and
delivery.
The three important elements in the production system are; the input, the transformation of
production process and the output.
The Input includes the following:
1. Manpower
2. Materials
3. Machine
4. Design
5. Instructions
The Production process, also referred to as the transformation or conversion process, is the stage
of production where the materials are transformed into the final product with the aid of manpower
and machine.

The output represents the final product from the production process and distributed to the
customers.

4 M’s of Production
The most serious issues in the whole production system are the inputs and the
transformation process. Their quality determines the quality of the output.
The factors involved in the input and the production process are usually referred to as the
Four M’s of production, namely Manpower, Method, Machine, and Materials.

Manpower
Manpower talks about human labor force
involved in the manufacture of products. It is
measured as the most serious and main factor
of production.
The entrepreneur must determine, attain and
match the most competent and skilled employees with the jobs at the most appropriate time
period. Educational qualifications and experience, status of employment, number of workers
required, skills and expertise required for the job are some of the manpower criteria that must be
highly considered by the entrepreneur.
Materials
It simply refers to the raw materials necessary in the production of a product. Materials
mainly form part of the finished product. Just in case the resources are below standard, the finished
product will unsatisfactory as well. The entrepreneur may consider cost, quality, availability,
credibility of suppliers and waste that the raw materials may produce.

Machine
Machine is about manufacturing equipment used in the production of goods or delivery of
services. In the process of selecting the type of equipment to purchase, the entrepreneur may
consider types of products to be produced, production system to be adopted, cost of the
equipment, capacity of the equipment, availability of spare parts in the local market, efficiency of
the equipment and the skills required in running the equipment.
Method
Method or production method is the process or way of transforming raw materials to finished
products. The resources undergo some stages before it is finalized and become set for delivery to
the target buyers. The selection of the method of production is dependent on product to produce,
mode of production, manufacturing equipment to use and required skills to do the work.
 The product is the physical output of the
whole production process. It should be
valuable and beneficial to the consumers
and should satisfy their basic needs and
wants. A product can be heterogeneous or
homogeneous. A heterogeneous
product has dissimilar characteristics,
parts, and physical appearance. It can be
easily identified from other products.
Entrepreneurial ventures that produce
heterogeneous products include makers of
furniture, bags, and home decors. On the
other hand, a homogeneous product has a physical appearance, taste, or chemical content that
can hardly be distinguished from that of the other products. Businesses that produce homogeneous
products include makers of soft drinks, and medicines. After knowing the production process and
system, and how the product is being processed, not it is important to know about product
description, wherein product description promotes and explains what a product is and why it’s
worth buying. The purpose of a product description is to provide customers with details around the
features and benefits of the product so they’re obliged to buy. Know who your target market is,
focus on the product benefits, tell the full story, use natural language and tone, use power words
that sell, and use good images. These are guidelines for you to have a good product description;
since some customers are very particular with it since they consider the welfare of their family, if it
is safe to use.
Prototype is created before the massive production of such product; an entrepreneur must
consider prototyping. One of the important early steps in the inventing process is making a
prototype. A prototype is a duplication of a product as it will be produced, which may contain such
details as color, graphics, packaging and directions. Benefits are the reasons why customers will
decide to buy the products such as affordability, efficiency or ease of use. The features of the
product or service merely provide a descriptive fact about the product or service. Most importantly,
it is better to test your product prototype to meet customers’ needs and expectations; and for your
product to be known and saleable. Pretesting of the product or service is similar to a sample of the
product or service given to the consumer free of cost in order that he/she may try the product
before committing to a purchase. The entrepreneur’s main concern is the satisfaction of a
customer, for they are the life blood of the business. Without them, all the efforts, will be wasted as
well as the chance to venture into a new business.
In a manufacturing venture, the supplier plays a vital role. They are your business partners,
without them your business will not live. You need them as much as you need your customers to be
satisfied. But as an entrepreneur you have to choose a potential supplier who has loyalty and
values your partnership: a supplier who would lead you to the fulfillment of your business
objectives, mission and vision. This entity is part of a supply chain of a business, which may offer
the main part of the value contained within its products. Certain suppliers may even involve in drop
shipping, where they ship goods directly to the customers of the buyer. How do supply chain
management systems coordinate planning, production, and logistics with suppliers? Supply chain
management systems automate the flow of information among members of the supply chain so
that they can use it to make better decisions about when and how much to purchase, produce, or
ship.
Value chain is a method or activities by which a company adds value to an item, with
production, marketing, and the provision of after-sales service. The main goal and benefit of a value
chain, and therefore value chain analysis, is to make or support a competitive benefit.
A supply chain is a structure of organizations, people, activities, data, and resources
involved in moving a product or service from supplier to customer. The main objective of supply
chain management includes management of a varied range of components and procedures, for
instance, storing of raw materials, handling the inventory, warehousing, and movement of finished
product from the point of processing to the point of consumption.
When value chain management is implemented effectively, the flow of products and
materials is improved through the accurate forecasting of sales and demand as well as improved
inventory management. Delays are also minimized and products are visible and traceable
throughout the supply chain.
 Supply chain management decreases purchasing cost. Retailors depend on supply chains to
quickly distribute costly products to avoid sitting on expensive inventories. Any delay in production
can cost a company tens of thousands of pesos. This factor makes supply chain management ever
more important. Value chains help increase a business's efficiency so the business can deliver the
most value for the least possible cost. The end goal of a value chain is to create a competitive
advantage for a company by increasing productivity while keeping costs reasonable.

Business model describes the factors of how an

organization creates, delivers, and captures value in
economic, social, cultural or other contexts. The
development of business model construction and
variation is also called business model innovation and
forms part of a business plan. It is a company's plan on
how it will make revenues and make a profit. It
describes what products or services the business plans
to manufacture and market, and how it plans to do so,
as well as what expenses it will incur. There are
important phases in developing your business model, namely: identifying the specific audience;
establishing business process; recording business resources; developing strong value proposition;
determining key business partners; and creating demand for today’s generation strategy and being
open for innovations. After developing a business model, we will proceed in developing a business
plan. To be able to successfully complete this module, you need to prepare a business plan and
operate your plan and finally keep records of your business transactions.

Business Plan

What is a Business Plan For?

Entrepreneurs who plan to enter any business endeavor must have a business plan on hand
to guide them throughout the process. Different business plans are prepared for different purposes.
There are business plans written prior to setting up an enterprise, which are similar to a
prefeasibility study and a feasibility study. Many new enterprises need to convince prospective
business investors about the soundness and potential of their business.
There are business plans that are written during the first few years of the enterprise in order
to guide the entrepreneur on which strategies would be most beneficial for the enterprise to take.
And there are business plans that are focused on bringing the enterprise to a higher level of
growth, a period where the enterprise has already reached its peak and would want to enter into
another endeavor by creating and re-establishing itself.
Clearly, a business plan serves many masters. First, it serves the entrepreneur who must set
a navigational course. Second, it serves investors and cautious financiers. And third, it serves the
managers and staff of the organization so that they will know the strategies and programs of the
enterprise.
Read the different scenarios below to fully understand the importance of having a business
plan. Scenario 1: “Jessie is the eldest of the five children of Mr. & Mrs. Natividad. The family is
having difficulty to support their everyday needs. Because of this, Jessie tried selling banana cue
and with his dream to make his business grow, he put up many stalls in the community without
considering the advises of his friends to make a business plan before implementing his decision.
After a few months his stalls shutdown.”
Scenario 2: “Mercy is the youngest in the family. She found out that she loves to cut hair and
apply make up on her friends. Until such time that her friends introduced her to their friends too for
haircut and make up when there are occasions. A few months after, Mercy was told by her friends
to put up a beauty parlor in their place. So she asks her mother who is also a businesswoman to
teach her how to make a business plan and eventually ended with a successful business.”
Scenario 3: “Monna is a diligent student: because of her knowledge gained from school about
business plan she was able to enhance her skills in business and finally found herself into her
laundry shop business.”
Each scenario taught us that a business is not just about how much income or profit you can get,
but it’s about the life of your business. And in having a business, you also have to consider
Technological forces, Social forces, Political forces, Cultural forces, Economic forces and Legal
forces.
The following are the components found in a Business Plan.
 Introduction - this part discusses what is the business plan all about.
 Executive Summary - is part of the business plan which is the first to be presented but the last to
be made.
 Management Section - shows how you will manage your business and the people you need to
help you in your operations.
 Marketing Section - shows the design of your product/service; pricing, where you will sell and how
you will introduce your product/service to your market.
 Financial Section - shows the money needed for the business, how much you will take in and how
much you will pay out.
 Production Section - shows the area, equipment and materials needed for the business.
 Competitive Analysis - is the strategy where you identify major competitors and research their
products, sales and marketing strategies.
 Market – refers to the persons who will buy the product or services
 Organizational chart - is the diagram showing graphically the relation of one official to another, or
others of a company.

Module 7 Forecasting Revenues and Costs Department

Making informed estimates requires careful considerations on several factors that might
affect the outcome of your travel such as, distance from home to school, the means of
transportation you will be taking, the number of passengers and etc. Traveling from home to school
on a regular basis had helped you arrive with an estimate that was very close to the actual time of
arrival.
Considering these factors is essential in making informed estimates by the entrepreneur.
Since the business he/she is venturing hasn’t started yet, it is important that these factors affecting
forecasting will be determined to better help him/her in making the best decisions for the business.
 For the entrepreneur, after realizing the potential for profit of his/her business concept, the
next step is to estimate how much the revenue is on a daily, monthly and annual basis. Before
going to forecasting and projecting the revenues of the business, let us determine first what
revenue is.
Revenue is a result when sales exceed the cost to produce goods or render the services.
Revenue is recognized when earned, whether paid in cash or charged to the account of the
customer. Other terms related to revenue include Sales and Service Income. Sales is used
especially when the nature of business is merchandising or retailing, while Service Income is used
to record revenues earned by rendering services.
Now that you know about revenue, Let us determine the factors to consider in forecasting
revenues. You have just learned about what revenue is. This time, let us study the various factors to
consider in forecasting revenues.
The entrepreneur would want his/her forecasting for his/her small business as credible and as
accurate as possible to avoid complications in the future. In estimating potential revenue for the
business, factors such as external and internal factors that can affect the business must be
considered. These factors should serve as basis in forecasting revenues of the business. These
factors are:
1. The economic condition of the country. When the economy grows, its growth is
experienced by the consumers. Consumers are more likely to buy products and services.
The entrepreneur must be able to identify the overall health of the economy in order to
make informed estimates. A healthy economy makes good business.
2. The competing businesses or competitors. Observe how your competitors are doing
business. Since you share the same market with them, information about the number of
products sold daily or the number of items they are carrying will give you idea as to how
much your competitors are selling. This will give you a benchmark on how much products
you need to stock your business in order to cope with the customer demand. This will also
give you a better estimate as to how much market share is available for you to exploit.
3. Changes happening in the community. Changes happening in the environment such as
customer demographic, lifestyle and buying behavior give the entrepreneur a better
perspective about the market. The entrepreneur should always be keen in adapting to
these changes in order to sustain the business. For example, teens usually follow popular
celebrities especially in their fashion trend. Being able to anticipate these changes allows
the entrepreneur to maximize sales potential.
4. The internal aspect of the business. Another factor that affects forecasting revenues in
the business itself. Plant capacity often plays a very important role in forecasting. For
example, a “Puto” maker can only make 250 pieces of puto every day; therefore, he can
only sell as much as 250 pieces of puto every day. The number of products manufactured
and made depends on the capacity of the plant, availability of raw materials and labour
and also the number of salespersons determine the amount of revenues earned by an
entrepreneur.
Now that all factors affecting forecasting revenues are identified, you can now calculate
and project potential revenues of your chosen business. The table below shows an
example of revenues forecasted in a Ready to Wear Online Selling Business.

Example: Ms. Fashion Nista recently opened her dream business and named it Fit
Mo’to Ready to Wear Online Selling Business, an online selling business which specializes
in ready to wear clothes for teens and young adults. Based on her initial interview among
several online selling businesses, the average number of t-shirts sold every day is 10 and
the average pair of fashion jeans sold every day is 6. From the information gathered, Ms.
Nista projected the revenue of her Fit Mo’to Ready to Wear Online Selling Business.
She gets her supplies at a local RTW dealer in the city. The cost per piece of t-shirt is
90 pesos, while a pair of fashion jeans costs 230 pesos per piece. She then adds a 50
percent mark up to every piece of RTW sold.
 Mark up refers to the
amount added to the cost to
come up with the selling price.
The formula for getting the
mark up price is as follows:
Mark Up Price = ( Cost x
Desired Mark Up Percentage)
Mark Up for T-shirt =
( 90.00 x .50)
Mark Up for T-shirt = 45.00

In calculating for the selling

price, the formula is as
follows:
Selling Price = Cost + Mark Up
Selling Price = 90.00 + 45.00
Selling Price for T-shirt = 135.00

Table 1 shows the projected daily revenue of Ms. Nista’s online selling business.
Computations regarding the projected revenue is presented in letters in upper case A, B,
C, D, and E.

Table 2 shows the

projected monthly and
yearly revenue of Ms.
Nista’s online selling
business. Computations
about the monthly
revenue is calculated by
multipying daily revenues
by 30 days ( 1 month).

For example, in Table 1

the daily revenue is
3,420.00. To get the
monthly projected revenue
it is multiplied by 30 days.
Therefore,

Projected Monthly Revenue = Projected Daily Revenue x 30 days

Projected Monthly Revenue = 3,420.00 x 30
Projected Monthly Revenue = 102,600.00

On the other hand, the projected yearly revenue is computed by multiplying the
monthly revenue by 12 months. The calculation for projected yearly revenue is as follows.

Projected Yearly Revenue = Projected Daily Revenue x 365 days

Projected Yearly Revenue = 3,420.00 x 365
Projected Yearly Revenue = 1,248,300.00
Table 3 shows the projected
monthly revenues covering
one year of operation. The
table shows an average
increase of revenue every
month by 5 percent except
June, July to October and
December. While the month of
June has twice the increase from the previous month by 10 percent, let us consider that
months covering July to October are considered to be Off-Peak months, therefore sales
from July to October are expected to decrease. It is assumed that there is no increase in
 revenue from July to August, while from August to October the decrease in revenues is 5
percent from previous month. Since revenues from sales of RTW’s are considered to be
seasonal, it assumed that there is a 10 percent increase in revenue from November to
December.

Computation for assumed increase of reveneue on specific months is as follows:

Projected Monthly Revenue (Increase) = Revenue (January) x 5 %
Increase Projected Monthly Revenue (Increase) = 102,600.00 x .05
Projected Monthly Revenue (Increase) = 5,130.00
Projected Revenue for February = Revenue (January) + Amount of Increase
Projected Revenue for February = 102,600.00 + 5,130.00
Projected Revenue for February = 107,730.00

On the other hand, decrease in revenue is computed as follows:

Projected Monthly Revenue (Decrease) = Revenue (August) x 5 % Increase Projected

Monthly Revenue (Increase) = 144,041.14 x .05
Projected Monthly Revenue (Increase) = 7,202.06
Projected Revenue for September = Revenue (August) - Amount of Decrease
Projected Revenue for September = 144,041.14 – 7,202.06
Projected Revenue for September = 136,839.08

Important Assumptions:

February to May Increase of 5% from previous revenue

June Increase of 10% from previous revenue
July to August The same Revenue
September to October Loss of 5% from previous revenue
November Increase of 5% from previous revenue
December Increase of 10% from previous revenue

The numbers in the last table are very attractive, having revenues that are increasing
in numbers is a good sign that a business is growing. However, an entrepreneur should
not be overwhelmed by these revenues, as these are just gross revenue, this is not the
final amount of profit or income an entrepreneur will get at the end of every period. Take
note that the amount of net revenue is still subjected to the expenses incurred in the
operation of business.

Module 8 Computation of Gross Profit

Computing the Gross

Profit The profitability ratios are a group of financial statements that primarily determine the
profitability of the business operation. The gross profit rate on a product is computed as:
 Net Sales xxxxxxx
Less: Cost of Sales xxxxxxx
Gross Profit xxxxxxx

By using the formula, the gross of XYZ Trading in the year 2017 is as follows:

Net Sales P 734, 000.00

Less: Cost of Sales 577, 000.00
Gross Profit P 157,000.00
_________________________________

Profit is the gross income. The amount of gross profit provides information to the
entrepreneur about revenue earned from sales.
The term cost refers to the purchase price of the product including the total outlay required
in producing it.

The gross profit margin is computed as follows:

Gross Profit
Gross Profit Rate =
Net Sales
The gross profit rate measures the percentage of gross profit to sales,
indicating the profit that the business realizes from the sale of the product.
The gross profit rate of XYZ Trading for the year 2017 is computed as follows:

46,900.00
gross profit rate =

734,000.00

The gross profit rate may signal to the entrepreneur that the amount of
margin on sales is 21.39%. This rate will be used to determine whether the amount
of gross profit can cover the operating of the business. Since the gross profit rate of
XYZ Trading is 21.39%, the cost ratio to sales will be 78.61%. This information will
help the entrepreneur in assessing whether the cost is too high or too low. Any
product with a very high cost will not become competitive in the market.

The gross profit rate will also help the entrepreneur set the selling price.
Operating Profit Margin Rate
The operating profit margin is the excess of gross profit from operating
expenses.

Gross Profit xxxxx

Less: Operating Expenses xxxxx
Operating Profit Margin xxxxx

The operating profit margin is the second level of revenue in the income
statement. At this stage, not only is the cost of buying or making the product that has
been deducted is included but also the operating expenses. These are expenses incurred
during a particular period only, and are not expected to provide benefits to any future
period. The operating expenses are also period costs.

In case there are no financing charges like interest, expenses, and income tax,

the amount of the operating profit margin is equal to the net income.

Gross Profit P 157,000.00

Less: Operating Expenses 90,000.00

Operating Profit Margin P 67,000.00

This information states that the business realized an income of P 67,000.00

during the year after deducting the cost and operating expenses from the sales
made.
The operating profit margin of the business
measures the percentage of profit available after
deducting the cost of sales and operating
expenses of the business. A higher operating profit
margin is favorable to the business.

Net Profit Margin Rate

Operating Profit Margin xxxxxx

x
Add: Interest Income xxxxxx
x
Total
Less: Interest Expense xxxxxx

Income Tax xxxxxx xxxxxx

Net Profit xxxxxx
margin

The income statement is the net profit margin and the third level in the revenue.
The business is only given consideration like interest expense and income tax.
Operating Profit Margin P67,000.00
Less: Income tax 20,000.00
Net Profit Margin P46,900.00
 The income statement of XYZ Trading does not reflect any data on interest
expense. Only income tax has been deducted from the operating profit

margin.

Net Profit
Net profit margin rate =
Net Sales

By applying the formula, the profit margin of XYZ

46,900.00
Net profit margin rate =
734,000.00

XYZ Trading appears to have earned 6.39% of its total sales of P734,000
during the year. This profits rate must be compared with those of other similar
businesses within the industry.

Analyzing the Liquidity Status of the Business

Liquidity Ratios

Current Ratio = Current assets / Current Liabilities

Quick Ratio = (Current Assets – Inventories) / Current Liabilities
Current liabilities= (Cash and Equivalents + Marketable Securities + Accounts Receivable)

The quick ratio measures its short-term obligations with its most liquid
assets and therefore excludes inventories from its current assets.

. Financial statements are important in a company management as a means of

communicating past successes as well as future expectations. The financial
statement records all the operating results such as sales, expenses and profits or
losses.

Return of Investment (ROI)

The Return of investment (ROI) measures the amount of net income per
peso invested to the business.

The formula to compute ROI is as follows:

 The average total asset is calculated by dividing the sum of the total assets at
the beginning and end of the period.

Table 1

Projected Five Year Balance Sheet

Fit Mo'to Ready to Wear Online Selling Business

Year 1 Year 2 Year 3 Year 4 Year 5

ASSET

Cash
337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89

Total Assets
337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89

Liability - - - - -

Owner’s
equity 337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89

Total
Liabilities
and Owner's
Equity
337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89

Table 1
Projected Five Year Income Statement
Fit Mo'to Ready to Wear Online Selling Business

Year 1 Year 2 Year 3 Year 4 Year 5

 Revenu 1,545,673.9 1,622,957.6 1,704,105.5 1,789,310.8 1,878,776.34
e 5 4 3 0

Cost 1,213,275.3 1,273,939.1 1,337,636.1 1,404,517.9 1,474,743.81

8 5 1 1
Gross Profit
Before tax 332,398.56 349,018.49 366,469.42 384,792.89 404,032.53

Yearly increase in revenue is assumed at 5% Yearly

increase in cost is assumed at 5%

As a future entrepreneur, one should always remember that nothing is

permanent in the field of entrepreneurship. What is applicable to one entrepreneur
may not be applicable to another. Certain things may happen to one entrepreneur
but may not happen to another.

Entrepreneurship should be practiced not as a science but as an art. Creativity

should always be applied by an entrepreneur through regularly evaluating the
market and the environment and responding to the changes in them.
The owner of an ordinary small business has the freedom to manage and
operate. Ideally, he/she prefers business activities which are done easily. However,
the entrepreneur has to perform the entrepreneurial activities correctly regardless of
whether they are undertaken easily or not. The importance in entrepreneurship is
that the business activities are performed correctly.

Module 9 Business Implementation

Before you proceed, let us first recall our previous lesson. Profit is the amount you gain after selling
your product.
In computing your profit, you just simply follow this formula:
 Sales - Cost of Goods Sold = Gross Profit
The gross profit represents the difference between net sales and cost of sales.
Variable costs are those things that change based on the amount of product being made and are
incurred as a direct result of producing the product.

Variable costs include:

1. Materials used
2. Direct labor
3. Packaging
4. Freight
5. Plant supervisor salaries
6. Utilities for a plant or a warehouse
7. Depreciation expense on production equipment
8. Machinery
Fixed costs generally are more static in nature. They include:
1. Office expenses such as supplies, utilities, a telephone for the office, etc.
2. Salaries and wages of office staff, salespeople, officers and owners
3. Payroll taxes and employee benefits
4. Advertising, promotional and other sales expenses
5. Insurance
6. Auto expenses for salespeople
7. Professional fees
8. Rent

Guidelines for Successful Business Plan Implementation:

1. Objectives – the entrepreneur should have a clear idea on what is his purpose of putting up his
enterprise.
2. Tasks – this means that the entrepreneur must know what are the tasks he has to perform in
order to realize his objectives.
3. Time allocation – This means that the entrepreneur should have a time table or a schedule to
follow for every task so that the tasks will be accomplished timely and he can realize his objectives.
4. Progress – This means the entrepreneur should monitor the development of the tasks and the
accomplishment of the objectives.

In operating a business, the entrepreneur should first consult professionals for advices, like
accountants or consultants from small enterprises. In your case, you can consult your teacher in
Entrepreneurship or anyone you think who could help you.
The following are the basic requirements to start a business in the Philippines:
 Securities and Exchange Commission (SEC) Registration - for partnership or Corporation
 Department of Trade and Industry (DTI) Registration - for your business tradename
 Mayor’s Business Permit - for getting the license to operate in the city or municipality and
payment of your local business taxes
 Bureau of Internal Revenue (BIR) Registration - for getting TIN, official receipts and invoices,
registering your books of accounts and paying your national Internal revenue taxes
 SSS, PhilHealth, and Pag-Ibig Fund registration - for registering yourself or your company as an
employer and for remitting your employees’ contribution together with your employer’s share

Other steps to follow before operating a business are as follows:

1. Set up an accounting system or hire an accountant. Knowing how the business is doing
financially is important for planning and survival.
2. Advertise the business. No one will buy the products or services if customers do not know that
the company exists. You can make use of the social media.
3. Secure insurance for the business. Liability insurance protects the business in the event of
litigation. Consider life and disability insurance, health insurance and fire insurance when you are
leasing an office or storefront.

Keeping Business Records

 Good record keeping can help protect the business, measure the performance and maximize
profit.
Records are the source documents, both physical and electronic, that specify transaction
dates and amounts, legal agreements and private customer and business details.
Developing a system to log, store and dispose of records can benefit the business. A
systematic recording allows you to:
A. plan and work more efficiently;
B. meet legal and tax requirements;
C. measure profit and performance;
D. protect your rights; and
E. manage potential risks.