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I often get a lot of hits/visits on the original post I did almost 2 years ago. From there, I’ve responded to a lot of emails and comments (225 as of last count) and hopefully, helped would-be entrepreneurs to start out. Sana, by this time, kumikita na ang mga cafe nyo.
After that original post, I augmented it with a follow-up post; Internet Cafe Business where I helped a reader on her question of whether to buy brand new PCs or buy an already furbished shop.
In this installment, I’ll tackle some of the most-often asked questions; Capital: How much do you need to start out? and Return on Investment (ROI)
Start An Internet Cafe Business in the Philippines (Part 2)
A) CAPITAL? How much is “enough”?
The bulk of your capital will go to 2 things; first are the computers. Syempre, an Internet Cafe is useless without them, diba? The second would be deposits and advances for rent or lease. The first thing to do is decide on the SCALE of your operations. Based on feedback, reports, my own feasibility studies, and experience, it’s best to start with at least 20 or more PC units. Starting with less will mean less income and you won’t be able to recoup or head to that sweet spot – the R.O.I or Return on Investment. Why? Because the number of seats will be finite. Meaning, you will never be able to cope up with demand whenever you have a lot of “waiting” customers.
So, how much capital is “enough”? Let’s just base it on the current market price of a PC. According to this online PC store, a gaming rig will cost you around PHP 37,000. This already includes the LCD monitor (it’s a complete set). This means that for 20, you will need to invest P740,000 for the units alone.
A lot of readers and would-be business owners ask me online if cutting back on costs on PCs is a good idea… meaning, that they try to look for the cheapest PC set and buy that. My advise: No, no, no!!! Why? Because your primary investment are the computers. Cutting down on costs will only be more expensive in the long run. Take note that games and applications will be more powerful in mere months, this means that you have to constantly upgrade your PC to stay competitive (because you don’t want your competitors to have the better machines). This translates to more costs rather than investing it at the start.
Now, back to the example…
Let’s do a simple computation on capital based on the following assumptions
- Number of PCs: 20
- Monthly Rental or lease for shop: P20,000.00
- Operation Hours” 9am to 12 midnight (15 hours daily)
- Number of employees: 2
- Connection: DSL 3-4 MBPS (costs roughly P4,000 per month)
- Rental Rate: P20 / hour
As you can see, the capital needed is nearly a million bucks. That’s ok. I’ll help you plan your work and work your plan on how to get back that investment.
Let’s go to the next topic, shall we?
B) RETURN ON INVESTMENT
In order to figure out how to get your ROI (the period it takes na bawi na puhunan mo), you have to think in terms of occupancy. This is the single, measurable metric you have in the I-Cafe business. Occupancy will come in a percentage. Simply put, how much will your cafe gross in a day if the computers were rented 100% during your day’s operation hours.
Using that thought, here’s the answer;
20 PCs X 20 Pesos per hour x 15 hours in a day = P6,000
Now we know that you will gross 6K a day assuming na walang tatayo and occupied ka whole day. This translates to around P180,000 in a month gross income.
Now that we know this value, let’s set some goals. Let’s target around 40% occupancy on the first half of the year and then increase that to around 50% to 60% before the end of the first year. Btw, 50% occupancy rate for a cafe is actually good enough.
Once we have a goal, we have to know what tabs to pick up on a regular basis to know our Net Revenue (Gross income less Expenses). Let’s make a list with some projections. This will also allow us to see the B.E.V (or Break Even Value – how much we need to earn daily/monthly to pay for the expenses.) In short, ito ung “bawi-bawi lang” mode.
The electric bill is no joke. Trust me.
At any rate, let’s go back to the tutorial…
We already know that we will spend around 75k a month. With this value, let’s compute the BEV first.
P74,500 / 30 days = P2,483.33 per day or around 124 hours of rental time. This is roughly 6.21 hours rental (124 divided by P20 per hour) per PC, an occupancy rate of 41%. Hey! That’s almost exactly what we projected on the first 6 months.
Now, we know that we have to gross around P2.5k a day to stay afloat. Anything in excess of that is profit.
That’s a good start. Let’s now go into computing HOW SOON we can recoup the initial investment of almost P1M.
I’ve made a simple study based on an average of 60% occupancy rate (monthly) for the entire year;
You will get back your investment in around 2 years and 3 months. Not bad for a 1M investment, right?
The key here is to increase your occupancy rate. You could do this via several things
- Marketing
- Value Added Services – LU top up cards selling, food, etc
- Better service than your competitors – faster PC and connection, kind and knowledgeable staff, etc
- Expansion (if you can loan money from a bank, this is a good idea)
…but that’s another article.
I hope you guys learned a thing or two with this topic. Don’t hesitate to comment below or contact me should you have any questions.
I’d also appreciate it if you can share this to your friends or relatives who would like to invest in an Internet Cafe by emailing them the link or posting it in your Facebook, Friendster, Twitter etc.
All the knowledge here is free! All I ask is for you to be my fan on Facebook or follow me on Plurk, Twitter
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Thanks and best of luck in your Internet Cafe Business!
Mon Macutay aka GM Tristan (http://gmtristan.com)
(c) October 2009
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