Why You Should Simulate Your New Business Idea

Do you have a new business idea? Looking for a risk-free and cost-free way to evaluate BEFORE you invest? Then SIMULATION is the answer.

What is Simulation?

Simulation is when you design a profit model representing your new business idea and subject it to computer analysis to determine how productive it will be in the real world when it is implemented.

Does Simulation Work? Why does it Work?

Simulation works because you use the same variables and parameters (settings) as you would in the real world and you subject your 'model', which represents your actual business idea, to the same kind of scenarios that would apply in real life.

An Example

Say you wanted to open a doughnut business and you have absolutely no idea how it will (or if it will) work. You need to simulate (perform calculations by computer) to determine how productive it will be. Here is the scheme:

A profit simulation works by evaluating CLIENT SIDE, COMPANY SIDE, and JOB SIDE parameters as follows:

CLIENT SIDE

How many types of doughnut ordered per day (types_prod)

Average price of each doughnut (avg_price_prod)

Average number of doughnuts ordered per day (avg_number_ppd)

Commission (total client payment) per day (comm_pd) = (types_prod)*(avg_number_ppd)*(avg_price_prod)

COMPANY SIDE

Working days per month (days_pm)

Internal costs per day - power/machinery (int_costs_pd)

Operational costs per day (op_costs_pd)

Petty expenses per day (oth_exp_pd)

Company daily expenses (com_exp_pd) = (int_costs_pd)+(op_costs_pd)+(oth_exp_pd)

JOB SIDE

Staff to product ratio (staff_prod_ratio)

Average staff wage per hour (wage_ph)

Avg. hours to make product (avg_prod_time)

Total daily Job Cost (daily_job_cost)= (types_prod)*(avg_number_ppd)*(avg_prod_time)*(wage_ph)/(staff_prod_ratio)

PROFIT PER MONTH = (days_pm)*[(comm_pd) - [(com_exp_pd) + (daily_job_cost)]]

Which broken down completely becomes:

Equation for simulating profit (above)

Testing the Model

OK, now we have our profit simulation model all set up – that’s the equation above! Now let’s test it to see if it works.

Let’s say these are typical values for the variables we need:

How many types of doughnut ordered per day (types_prod) = 3

Average price of each doughnut (avg_price_prod) = $12.50

Average number of doughnuts ordered per day (avg_number_ppd) = 50

Working days per month (days_pm) = 30

Internal costs per day - power/machinery (int_costs_pd) = $30

Operational costs per day (op_costs_pd) = $100

Petty expenses per day (oth_exp_pd) = $50

Staff to product ratio (staff_prod_ratio) = 1

Average staff wage per hour (wage_ph) = $10.50

Avg. hours to make product (avg_prod_time) = 0.5

Simply plug these values into the simulation model to get the expected profit per month from this business.

What’s your answer?

$27,225 per month. Now that’s a business I’d LOVE to get into!

Can you see why this is important? Well, that's why you need the free profit simulation service from MDS that takes this data and gives you a free simulation, so you can know how much profit your new business idea will generate per month. Other analytics options are also provided.

Want to get a free simulation for your business? Fill this form HERE or visit http://www.montydimkpa.com/Business+Modeling to get started!