May 3, 2011
Dr. Jerry King
Final Business Proposal
I spent some time looking for a service that I can offer to clients from the comforts of my home and still earn a decent income to support my family. After a while, I came across the real estate note business. To understand this paper, let me explain what a real estate note is. A real estate note is a promise to pay. What you and I consider a mortgage or IOU that is registered at your local county courthouse. What I do is find these notes, determine their true value based off a formula and notify my list of buyers to see who is interested ...view middle of the document...
Understanding the latest trends and techniques in finding these notes and how to connect them to potential buyers is critical for the success of my business.
How will you determine the profit-maximizing quantity?
In order to calculate the quantity that will maximize profits, I must understand the economic concept of marginal analysis. Marginal analysis is the study of incremental changes in profit. The quantity that maximizes profit is where marginal profits shifts from positive to negative. So, I assume that quantity is the amount of product or service that a business owner hopes to sell. As my service demand increases, so do expenses. When the expenses increase to an amount that no longer maximizes profits, the marginal profit becomes negative.
In this particular industry, it is very hard to have your expenses overcome your profits especially if you work out of the comfort of your own home. However, it is still possible. So, determine the profit at each level of sales. Assume I sell an average note of $100,000.00. My profit is a 10% fee off the total note balance. 10% of $100,000.00 is $10,000.00. So my fee earned from that sale is $10,000 minus the expenses my business incurs while operating (utility bills, office supplies, taxes, medical benefits, etc.). So say for the sake of argument the monthly expenses to operate my business is an average of $4,000.00. Take the difference of $10,000 minus $4,000.00 and the profit for that month is $6,000.00.
Other methods to maximize my profits would be to reduce my expenses, which is discussed under the methods to minimize costs for the product/service.
How could you use the concepts of marginal cost and marginal revenue to maximize profits? What information do you need to determine this? Without this information, how would you make a decision?
Since my business is not producing an actual product but a service, I am not expending too much in material supply and demands to perform my services. I do need to use the internet and other office equipment in order to operate my business so the profit earned needs to surpass the expenses of my business's expenses in order to have a profit. But to maximize my profits I will need to run the business efficiently as to not waste any time or energy on useless endeavors. Poor notes is one way to cost me time, energy, and money (since we all know that time is money). The largest expense I risk is my personal time. Knowing how to maximize my time and learning how to identify productive and useful real estate notes will be the most effective way to maximize profits for my business.
What is your suggested mix of pricing and non-pricing strategies? Explain you answer.
I consider my style to vary between cost-plus, limit and predatory pricing. My mix in pricing and non-pricing strategies are contingent upon my sales performance. I have a set percentage I take out as a fee for my services off the real estate note balance at time of transaction. ...