Internet Cafe Business in the Philippines

 

In my post, How To Start Your Own Internet Cafe Business, I get a lot of questions. I’m happy to help and answer whenever I can. Consider it as a free consultancy =)

Anyways, I recently got a tough question from Aileen Suerte. She asks if it’s better to buy an already-built cafe rather than starting on her own.

Although I already sent her some notes (c/o the comments section), I’m gonna republish her question here and have more detailed analysis. Hopefully, Aileen (and many others like her) can make a sound decision.

On May 2, 2009 Aileen wrote:

halu… we’re planning to start an internet cafe business. we already made a budget plan of establishing a new one, but starting only with 10 computers. now, we learned that there’s this existing internet cafe business for sale. the business is in a very good location. it existed for more than 4 years already. we observed that the business is doing good. the reason for the sale is the owner is leaving. it had 23 computers in good condition. which do you think is practical? establishing a new one or buying an existing one? they cost almost the same – 300-350K. thank you in advance for the advice.

GM Tristan’s Answer

Yup. A tough one alright. Here are some notes to help you, Aileen.

  1. Location – this is a very important Key Factor for Success (of in the marketing world, KFS). Location can make or break your business. If the existing cafe’s location is sound, you’ve got one less problem to worry about. Things to consider; is it near a school? Is foot traffic heavy? Do an ocular yourself. Since I can’t see where it is, you’ll be the best judge of that. I guess you have to ask yourself; which location is better? Yours or the existing cafe?
  2. Computers - Now, since the cafe is already 4 years, chances are, the PCs there will be old. Would you prefer old PCs over the new ones that you’ll buy? Will the units be adequate enough to run the latest games and applications. What about the cost of acquisition? Factor in the depreciation cost too. You should know what the FMV (Fair Market Value) of the units should you, in turn, want to resell them. Now, if you’re going to buy 10 brand new ones, that’s good. But this is a perfect segue into the next topic.
  3. Operating Cost – Aileen, let’s do some basic “number crunching” to see if it will be feasible. Okay… say you operate 12 hours a day. 10am to 10pm. And let’s target 50% occupancy rate… that means that your PCs are rented by customers half of the time. Let’s also assume that you charge P20/hour. With those info, let’s go compute
    • YOUR 10 PCs: P20 x 5 hours per day = P100 per PC per day. P100 x 10 PCs = P1,000 per day (or P30,000 monthly)
    • THE EXISTING CAFE of 23 PCs: P20 x 5 hours per day = P100 per PC/day/ P100 x 23 PCs = P2,300/day (or P69,000 monthly). That’s more than 100% increase over the 10 computers!
    • Once you have the gross, subtract the following regular expenses
      • Rental
      • Electricity (more for the 23 PCs)
      • DSL fee
      • Taxes
      • Salary (if you have a “bantay”)
      • Others
    • You should then be able to see which set-up is more profitable
  4. Customers - buying the existing cafe will also mean buying the user-base. If the cafe already has a load of “suki” customers, then it’s akin to discovering a gold vein. Ask the owner or observe for a few days.

In the end, it all boils down to making a sound business decision. You’re the one that’s going to do it, Aileen. Whatever you choose, it should be able to cover the costs and I hope that you have an expansion plan.

It seems that going after the existing one looks more promising since it has more PCs. The simple logic here being, more PCs = more customers. If you can get a loan and upgrade the PCs (even if it’s just a couple every month), then that will be a great goal.

Maybe the other readers will have some ideas to help you too. Best of luck in your business, Aileen!

Glad to be of service.

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Author: Mon Macutay

Mon Macutay is a geek, gamer and technie at heart. He is also the CEO and founder of startup Big Ideas Social Media Inc., a Digital Marketing and Social Media Services company based in Makati, Philippines.

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