SM – E3

Is this business viable

Vinod Jain was a Coke distributor in Lower Parel (Mumbai). He did not have any other
distribution line
Business Operation
His monthly turnover was Rs.60 lakhs and he earned a gross margin of Rs.3 lakhs ( 5%
margin). His working capital investment at Rs.12 lakhs was equally split between credit to
trade and paid inventory at his warehouse.
There was no capex as all the resources were rented
He engaged 20 Sales Executives (SE) and serviced ‘A’ category outlets every day, ‘B ‘category
once in 2 days week and other outlets twice in a week.
The SEs collected payment from the outlets for invoices made in their very next visit to the
outlet
He paid his SEs Rs.8000 per month.

Business Market
Total number
Number of Market servicing Turnover Credit
Class of outlets of calls made
outlets frequency (Rs. Lakhs) ( Rs.
in a month
Lacs)
Daily ( excluding 30
350 1.2 9100
A Sunday)
B 600 Twice a week 20 2.5 4800
C 1500 Weekly 10 2.5 6000
Total of all
2450 19900
outlets
Number of
outlets covered 40
per day    
Number of man-
497
day’s required    

Number of working days per executive: 26

Opex and Net Margin
Vinod’s monthly operating cost (Opex) which included rent, electricity, manpower, Phone,
office admin and fuel for market servicing was Rs.2.7 lakhs and he earned net Rs.30000 per
month.
Joseph who was ASM for Coke executive reviewed the monthly business and ROI and
commented: “Vinod, that is a return of Rs.3.6 lakhs per annum ---- 30% ROI. Good. Isn’t it?”

Case prepared by Prof. Surya Mahadevan

Vinod shot back “Hold it. My Salary is not factored in the Opex. I spend full time in this
business and my time/remuneration is not factored in the Opex. Don’t you think I deserve
minimum Rs.30000 per month as Salary? As an entrepreneur and investor my return is nil”.
Vinod’s assessment of his business
o He had Rs.4 lacs available in his bank in liquid form but that may be inadequate
to invest in an additional business line
o He cannot reduce the investment in stock which is at a bare minimum 5 days
level.
o He cannot reduce market credit without increasing service frequency
o He can ask his banker to fund additional working capital and add new business
lines but that will require strong justification

What are the options for Vinod? What should he do?

Case prepared by Prof. Surya Mahadevan