Internet Cafe Business Case

Categories: Internet Cafe Business.

Internet Cafe Business Case

If you’re planning to start an Internet Cafe, a business case will help you to :

  1. Map out how long it will take to regain your capital.
  2. What’s the best per hour rate to use.
  3. Verify if this project is worthy to pursue – “Lugi or Hindi”
  4. Identify all expenses and it’s impact on revenue

A Business Case is used to define, assess and evaluate the best approach to either proceed or not proceed with a product delivery program or initiative. The business case is an examination of a potential market opportunity on a product level – Gabriel Steinhardt, writer of “The Product Managers Toolkit” and Blackblots’s managing director

If you have an existing Internet Cafe, I advise you to create a business case using my template. Like me, I was operating for years without accurately knowing my cash flows. It’s irresponsible for a business owner to be ignorant of such important matters. Remember, an Internet Cafe – no matter how small – is a business. So you better act a true blue business owner.

What’s important to see in a Internet Cafe business case?

Revenue (or sales) refers to all the money your Internet Cafe takes in — whether from computer rentals, other services or sale of goods. Other sources of funds — including investment gains — are usually labeled as such but also included as revenue. (Occasionally, you’ll see this number referred to as “gross income.”)

Income or Net income refers to your Internet cafe’s profits. It represents how much money you have left after paying all expenses needed to run the business e.g electricity bill, payroll, tax, etc.

Basically, an Internet Cafe should return all investment by end of the 2nd year of operation. The entire 3rd year should all be profit. After the 3rd year and you still want to continue with the business. You can sell existing computers then re invest on new hardware and repeat the process.

Let’s assume that you can double your investment by the 3rd year. Meaning you gain back your entire capital (e.g. Php 1M) plus the same amount (Php 1M). This means that you traded time (3 years) for money (Php 1M).

Now, Php 1M seems a lot of money but take note that you invested 3 years of your life to gain this. Php 1M divided by 3 Years is only Php 333K per year or Php 27K per month. 

Php 27K per month is like having an office job or maybe crazy-like Grab driving. It’s enough to sustain you, but not enough to make you rich.

The Case for Php 10 per Hour Internet Cafes

The reason I started this article. The proliferation of Internet Cafes with a super low hourly rental of Php 10 per hour. In the late 1990s to early 2000, you can even find ICafes with a Php 60 per hour rate. Then the business kinda settled to Php 25, then Php 20, then Php 15 per hour.

Most owners would tell you – me included – that Php 15 per hour should be the lowest rate for an ICafe to be profitable.

But I kept reading successful owners using a Php 10 per hour rate — sometimes even lower! Note that as of June 2018, $ 1.00 (USD) is equal to Php 53.00, so that’s about $ 0.20 per hour. Crazy low rates.

So let’s be logical and find out using a simple business case or revenue vs expense analysis.

Let’s dive in and set the assumptions. You need to set these before you plot the numbers. I suggest you use my assumptions and if you find that a certain detail is not applicable to you – then change it to suit your business situation.

 

Additional Details on Assumptions

  • % Occupancy – I would set this at 50% lowest and 80% highest.
  • Operating Hours – If you are renting, it’s advisable to operate between 16 to 24 hours a day.
  • Electric Bill – You can set higher if you have other appliances (e.g. Refrigerator)
  • Monthly Venue Rent – Set this to whatever value, my assumption is Php 20,000
  • Manpower Rate – Check for latest rates, but for starters this can be between Php 150 to Php 300.
  • Internet – This based on PLDT Inc’s FIBR Biz 100 Mbps rate as of June 2018

Personal Remarks

  • % Occupancy – I won’t set this at 90% or more because it’s not
  • Operating Hours – The big ones like TNC and Mineski operate for 24 hours to maximize rent and franchise fee. If you are an independent owner, I would recommend operating for no more than 20 hours to “rest” your appliances and computers.
  • Electric Bill – Monitor your consumption and change this if necessary.
  • Monthly Venue Rent – Set this to whatever value, my assumption is Php 20,000
  • Manpower Rate – The rates that I’m using are below the minimum salary which I think is ok since this considered a micro business (under Php 3M capital)
  • Internet – For 40 to 50 computer units. It’s your discretion to use dual Internet Connections. For 50 or more, I think it’s best to use dual and balanced connections.

The Results

The first table tells us that if you are operating for only 16 hours with a hourly rate of Php 10, only an occupancy rate of 80% or more will be profitable. BUT, if you have 40 Units or less, then the profits after 3 years is not worth the effort.

The second table tells us that if you operate for 20 Hours with a rate of Php 10 per hour, then you have more leeway. The business is profitable even at 70% occupancy rate. Also, at 70% occupancy and above, internet cafes with 30 to 40 units can make a decent profit.

Now, let’s assume that you can increase the rates a little bit…How little? Just add Php 2.00 per hour!

The table below tells us that an hourly rate of Php 12 per hour can DRAMATICALLY increase your profits.

I’ll make the excel file available for download. You can edit the figures to better suite your situation. You can further improve the accuracy of this table by adding costs for permits and other local government fees.

That’s it! Sana makatulong ito sa mga kapwa Internet Cafe/Shop owners.

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