FOXY ORIGINALS
What is the question?
What is the question?
 Should Foxy Originals expand into the U.S. by
way o f trade shows or sales representatives?
 Given the additional workload, the owners
would expect the expansion to provide a
target profit of $100,000.
Background
 Foxy Originals sells necklaces and earrings in
250 boutiques in Canada.
 Three customer segments
 Reversible enamel ladies
 Bridge ladies
 Chain-lovin ladies
 U.S. jewelry market is 10 times larger than
Canadian market
Trade Shows
(Benefits and Risks)
Trade Shows
(Benefits and Risks)
 Foxy Originals owners could interact directly
with U.S. customers.
 Build rapport with customers
 Spot trends quicker
 Retain control of brand image
 Time commitment is substantial
 50 days of prep work
 30 days attending shows
 Orders may be geographically dispersed
Sales Representatives
(Benefits)
Sales Representatives
(Benefits)
 Requires limited time commitment from




owners.
Commission-based compensation eliminates
the need for fixed cost investment, thereby
lowering the company’s risk.
Sales reps can sell to all key retailers in each
geographic location, resulting in stronger
brand recognition.
Sales reps already have many contacts
Sales reps approach can be easily expanded.
Sales Representatives
(Risks)
Sales Representatives
(Risks)
 Sales reps already carry 10-15 brands, so how
committed will they be to Foxy Originals?
 Foxy will lose control of how its brand is
portrayed to customers.
 Foxy will not have direct interaction with U.S.
customers.
 Sales reps may have substantial turnover
thereby wasting Foxy’s training resources.
Let’s build the Inputs Tab in Excel.
The Inputs
(Sales Data)
The Inputs
(Sales Data)
The Inputs
(Trade Show Data)
The Inputs
(Trade Show Data)
The Inputs
(Trade Show Variable Cost per Order)
The Inputs
(Trade Show Variable Cost per Order)
The Inputs
(Trade show fixed costs)
The Inputs
(Trade show fixed costs)
The Inputs
(Sales representative data)
The Inputs
(Sales representative data)
The Inputs
(Sales reps variable cost per order)
The Inputs
(Sales reps variable cost per order)
The Inputs
(Sales reps fixed costs)
The Inputs
(Sales reps fixed costs)
Let’s build the Trade Shows Tab in
Excel.
Trade Shows
(Contribution Format Income Statements)
Trade Shows
(Contribution Format Income Statements)
Breakeven in orders
Breakeven in orders
Breakeven in orders
Target Profit in Orders
Target Profit in Orders
Margin of Safety
(Minimum Scenario)
Margin of Safety
(Minimum Scenario)
Let’s build the Sales Reps Tab in
Excel.
Sales Representatives
(Contribution Format Income Statements)
Sales Representatives
(Contribution Format Income Statements)
Breakeven in orders
Breakeven in orders
Target Profit in Orders
Target Profit in Orders
Margin of Safety
(Minimum Scenario)
Margin of Safety
(Minimum Scenario)
What are the revised net operating
incomes if the trade show travel costs
actually end up being $3,000 per
show?
What-If Analysis
What are the revised net operating
incomes if the rental space per rep per
month actually ends up being $300
instead of $200?
What-If Analysis
What are the revised net operating
incomes if the actual number of
necklaces and earrings per order ends
up being 20 and 15, respectively?
What-If Analysis
(Trade Shows)
What-If Analysis
(Sales Representatives)
The Original Scenario
 Why is there a wider gap between the
minimum and maximum net incomes for the
trade shows when compared to the sales
representatives?
The Original Scenario
 Why is there a wider gap between the
minimum and maximum scemarios for the
trade shows when compared to the sales
representatives?
 The two alternatives have different cost
structures.
 Trade shows is higher fixed costs and lower
variable costs
 Sales reps is lower fixed costs and higher variable
costs.
Operating leverage
Minimum Scenario
Trade Shows
Sales Reps
Contribution margin
$120,700
$103,872
Net operating income
÷ $26,367
÷ $78,352
4.58
1.33
Degree of operating leverage