On course for profit

Liam Robb and Robert Frazer run Golfbidder, the inspiration of a group of friends in south-west London.

They knew how the golf club business worked and turned it to their advantage.

Every golf course has a shop to sell the kit. They often take sets of clubs in part exchange when they make a sale.

Top notch golf shops take in top of the range equipment as their members always want the best.

Liam and Robert decided that they could benefit from this.

Their Golfbidder website sells kit they have bought from golf club shops and customers.

Have a look at the website to see how it works.

Just think...

The front page has a list of stock. Click on any item to find out how the price is set.

What will happen to the price if lots of people want to buy a club and are prepared to pay a high price?

How do you think Golfbidder decides on the reserve price?

What happens to the price if only a few people want to buy a club?

Making a profit

Liam and Robert had looked carefully at the reserve price they set for each club.

They decided that a margin of 30% was the right figure to cover their costs so they set prices accordingly.

This worked on the good clubs but they found it hard to meet on poorer quality clubs - so they were paying too much when they bought them.

It took a while to get things right.

Just think...

Why is it so important to get the margin right?

Covering costs

When the business was first set up, Liam and Robert had a lot of costs to cover - from website costs to marketing costs and paying salaries.

Most businesses can't cover all their costs immediately so it takes a while to break even.

Golfbidder's been going for two years and is about to get there.

They have to cover two sorts of costs.

Fixed costs - these don't change. If they sell no clubs or a million clubs, the costs stay the same.

Variable costs - when Golfbidder buys clubs, its costs go up. The more clubs it buys, the higher the costs.

When it sells them, it has to post them to buyers so the cost of postage and packing has to be paid as well. Variable costs rise as the business grows.

When you add fixed and variable costs together, you get total costs.

To cover the costs, Golfbidder had to sell some clubs. In the first two years, it didn't do this but it will do very soon.

Every club it sells adds to its revenue. It takes a while to sell enough to cover both fixed and variable costs.

Liam and Robert certainly have something to celebrate. Once the breakeven point has been passed, the company is turning over enough to make a profit on a regular basis if sales stay at the same level and the margin stays the same.

Just think...

Liam and Robert are cracking open the champagne but they need to be careful. All sorts of things can change.

Breakeven tells you about what is happening now.

What might change to make things both better and worse?

Draw up a spider diagram for both a happy future and a gloomy one.