I-Café Return On Investment
Return On Investment (ROI) is a term that is mentioned very often in the business world but sad to say, it is often misunderstood by many people. Business ROI, expressed in percentage (%), is a measure of how lucrative a business is. The higher the % ROI of a business, the better for its investors. It means their investments are making good money for them. As much as possible, businessmen would want a high ROI for their investment but it cannot be guaranteed all the time.
We will not discuss here about the projected or actual return on investment of the internet café business. My purpose in coming out with this blog article is to make my readers especially the internet café owners understand what ROI is and conclude for themselves whether they are really making money on their investments.
Earlier on, I saw a lengthy discussion in a forum on the subject of whether or not an internet café owner is getting any return on investment at the current prevailing computer rent of PhP10 to 15 per hour. The members in the forum literally quarreled with the discussants trying to justify their sides on the issue. There are those who say that they are still making money at say PhP10/hour computer rental because they are not paying for the space, they tend the café by themselves and some other reasons. The other side simply say that there is no way they could make money at that rate per hour of computer usage.
I won’t argue on the issue of whether a certain price level is still making money for some café owners. What I would present here is a cost-profit analysis on the legal establishment and operation of a purely gaming internet café on a rented space located in an area with reasonable number of customers. We will try to establish the ROI of the business using realistic income and expense figures.
Let us say that a new internet café owner will invest PhP360,000 on a 15-station gaming shop which will operate for sixteen (16) hours a day, seven (7) days a week. To be able to determine the return on his investment based on currently prevailing market conditions, let us assume some reasonable monthly expense figures in operating the gaming café as follows:
- Permits, Taxes and Licenses – local tax, percentage tax and other license fees can easily average PhP1,500 per month.
- Electricity Consumption – a 15-station café operating in a fully air-conditioned area can easily consume PhP15,000 worth of electricity per month.
- Space Rent – A descent space in a high human traffic area for a café used in our study can easily fetch a monthly rent of PhP10,000.
- Telephone and Internet Connection - the highest rated Internet Service Provider nowadays charges PhP5,500 per month for its telephone and DSL connection.
- Manpower Cost – to tend the shop on its two-shift operation will require two (2) persons with a minimum expense of PhP6,000 each or a monthly total of PhP12,000.
- Miscellaneous Expense – let us provide PhP2,000 per month for contingent expenses that may be needed keep the café operational at all time.
- Depreciation Costs – three (3) years is the reasonable depreciation period for the PhP360,000 investment which are mostly on fixed assets so a monthly depreciation cost of PhP10,000 will have to be shouldered by the business.
All in all, the above monthly expenses add up to PhP56,000. At the current rate of PhP15/hour for computer rent, the operation of the gaming shop will break-even if a station will gross PhP124.44 per day or it must be rented by customers for 8.30 hours in a day. At the lower rate of PhP10/hour, a computer station must be used by customers for 12.44 hours in one day while it will only require 6.22 hours of usage to break-even if the rental is PhP20.00/hour.
If the café owner would want a 36% ROI or double his money in the three (3) years of the expected life of his computers, the monthly gross income of his shop must increase by 3% to PhP57,680 or PhP1,922.67 per day.
Rounding up, a PhP2,000/day gross income of a 15-station gaming i-café capitalized at PhP360,000 should have a 36% return on investment. The 36% ROI which roughly translate to double-your-money in three (3) years requires a computer station in a gaming café to be rented 8-1/2 hours per day at PhP15 per hour.