Running head: BUSINESS 1

Business

Student Name:

University Affiliation:
BUSINESS 2

Economics of business

Economics of a business refers to the application of both economic theory and

quantitative methodologies so as to effectively analyze a certain business enterprise. Moreover,

business economics tries to bring out the factors that contribute to the diversification of various

structures of an organization and company’s or the organizations relationship with labor, capital

and the probable markets for a certain product. Predominantly, the economics of business is

concerned with economic problems that a business faces (Grammenos, 2013).

In this regard, the economics of Agilita Inc revolves around the sources of income

generation and profit realization and all the costs that will be involved as far as day to day

business activities are concerned. As for this paper, we will explore on the economics of Agilita

Inc. while considering its revenue drivers and profit margins, fixed and operational costs,

operating leverage and the implication of the leverage. Moreover, we will also check on the start-

up costs and finally the break even chart calculation.

Revenue drivers and profit margins

To commence with the revenue drivers and profit margins. Apparently, Agilita Inc mainly

depend on the sales leads so as to generate their profits and increase the profit margins. On the

other hand, profit margins for the fashion design company are mainly determined by fluctuation

in prizes of clothes, the inventory, variable business cost, and fixed costs. Mostly, profit is

usually expressed as a percentage (Agatz et al., 2013).

As far as the company is concerned some of the revenue drivers include, corporate focus,

customer alignment, the pricing for value and finally the speed of execution. To begin with the

corporate focus, a business that tries to move away from their main base of customers and
BUSINESS 3

products usually face a lot of challenges especially when it comes to achieving growth in profits.

This is because of the deviation from their core competencies which is essential in creating the

connection between a business or company with its customers. As a matter of fact a business that

specializes and concentrates on what it does best has a higher chance of excelling as compared to

the other that engages itself in various things. As for the case with Agilita Inc. it is important that

it concentrates its efforts in retailing women clothing since deviating from its specialization can

pose a risk on the revenue obtained and finally the profit margin (Grammenos, 2013).

Secondly, for a business to be in a position of reaching more of its customers, it is equally

important for its products or services to be aligned. Furthermore through customer alignment

business are in a position of choosing the right channel mix that facilitates profit growth from

customer relations. In this regard, it is critically important for businesses and especially Agilita

Inc to do a comprehensive evaluation of the consumer buying behavior and the demographics

within their portfolio. As a matter of fact many high performing companies in the fashion

industry effectively utilize the information obtained from customer demands to realize high

profits.

On the other hand pricing for value will be a challenging process for Agilitia Inc.

However, the management will ensure that it comes up with a strategy that will dictate the prices

with consideration to factors such as trending fashions. As for the profit margin, every factor that

determines the profit of the company starting from sales to the inventory and the operational

costs will be evaluated. As for the prices, they will be adjusted to ensure that they meet the

percentage profit expected from them.

Last but not least, the speed of execution will be of great impact on the profit margin

realized by the business. As a result of the changing business conditions at an exponential rate,
BUSINESS 4

technology and life cycles of products in the fashion industry are also changing at a speed that

requires agility of execution. Consequently, the businesses will be required to move at a

relatively fast speed so as to from losing its market position to other aggressive clothing stores

especially in a macro economy environment that is prevalent nowadays (Corstjens & Lal, 2012).

Fixed and operational cost

Fixed costs usually remain the same regardless of how much output that a company or a

business produces. Typically, it does not change with either the amount of goods or services that

a company produces whereas operational costs refers to the costs that are involved in the

maintenance and administration of a day-to-day activities of a certain business. For example

bank charges, marketing and sales costs, office supply costs and travel expenses among others.

As for Agilita Inc some of the fixed costs will be the payment made for leasing a

particular component that will be essential for the business whereas operational cost include rent,

utility expenses, repairs and maintenance costs, salaries and wages among others. Generally,

during its first days Agilita Inc. will try and investigate on the various loopholes that the

company can seal and increase their profit margin. The results from the feasibility study will

when making future decisions about both fixed and operation costs.

Operating leverage and its implications

BUSINESS 5

Operating leverage refers to a measurement of the extent to which a business or a project

incurs a combination of both the fixed and variable costs. In regard to Agilita Inc. if it makes few

sales which each of the sales made providing high gross margin then the company will be

described as highly leveraged. In a situation whereby the business will be found to have a higher

proportion of fixed cost and a lower proportion of variable costs then automatically the business

will be using more of its operating leverage. As a matter of fact, businesses with lower fixed

costs and relatively higher variable costs are describes as businesses that employ less operating

leverage ("Operating Leverage - AccountingTools," n.d.).

Startup costs

The startup costs for Agilita Inc will be obtained from the contribution of the two

founders that is Shannon Hines and Barbara Chirol. Moreover, the shares that each of the

partners owns will largely depend on the contribution that one has made towards startup capital.

During the start of the company it will have several expenses such as insurance, licenses and

permit fees, advertising and promotion expenses among others ("Estimating Startup Costs | The

U.S. Small Business Administration | SBA.gov," n.d.).

Break even chart calculation

Break-even refers to the stage or situation whereby the business revenue that is received

is equal to the expenses that are associated with receiving the revenue. The company’s initial

capital investment is $5,800, $47 in average sales, and $23 is average variable costs it requires

$11,700 per month in sales so as to break even. ("Break-Even Analysis Definition |

Investopedia," n.d.).
BUSINESS 6

References

Agatz, N., Campbell, A. M., Fleischmann, M., van Nunen, J., & Savelsbergh, M. (2013).

Revenue management opportunities for Internet retailers. Journal of Revenue and Pricing

Management, 12(2), 128-138.

Break-Even Analysis Definition | Investopedia. (n.d.). Retrieved from

http://www.investopedia.com/terms/b/breakevenanalysis.asp

Corstjens, M., & Lal, R. (2012). Retail Doesn't Cross Borders: Here's Why and What to do about

it.

Estimating Startup Costs | The U.S. Small Business Administration | SBA.gov. (n.d.). Retrieved

from https://www.sba.gov/starting-business/business-financials/estimating-startup-costs

Grammenos, C. (2013). The handbook of maritime economics and business. Taylor & Francis.

Operating Leverage - AccountingTools. (n.d.). Retrieved from

http://www.accountingtools.com/operating-leverage