Thursday, January 17, 2013

Franchise VS Self Managed Cybercafe which one can give you more income? Part 3 - Comparison


The following calculation are estimates, as different location has different market response.
Also, it is based on the following conditions and assumptions:
  • Big sized cybercafe are harder to fill up to 100 % occupancy a.k.a full house, and the cumulative hours of full house is shorter.
  • Medium sized cybercafe are easier to reach full house, and the cumulative hours of full house is longer.
  • Small sized cybercafe doesn't need a supervisor, whereas a big one need a supervisor to make sure every computer, game, internet works.
  • Franchise will send a professional or experienced technical to assist, as they pool all the technicians from different area, and share their experience, that way all technician will have cumulative knowledge and experience.
  • Franchise has strategic business partners, assuming game publisher is one of them.
  • Franchise fees are the same regardless more or less.
  • No diskless, no game server, all using hard disk.
  • A budget for hardware repair and upgrade is prepared to refresh the old PCs or for expansion, business is all about moving forward.
  • The business area has no other competitor, only you.
The number highlighted in red indicates least favorable value.


Comments:
  • After the ROI, the business owner has extra net income every month.
  • Self managed cybercafe's net income after ROI is relatively lower than franchise. 
  • To invest or expand further,the budget for hardware repair can be used for expansion.
In the end, setting up a cybercafe together with a group of cybercafe is better as they can provide additional technical support and share the latest technology to improve their service. As a cybercafe operator, everyone will go through hard times, it's part of business life cycle. The self managed cybercafe are actually the initial stage of cybercafe business, once the business is ready to expand, it takes on the franchise modal, or forms a group of cybercafe.

On the next post, how Michaelsoft DDS can make everyone achieve lower ROI.

Franchise VS Self Managed Cybercafe which one can give you more income? Part 2: Self Managed

Self Managed Cybercafe - How they operate?

A sustainable cybercafe managed solely by the owner. They handle everything in the cybercafe.
  • Pre Opening 
    • Location scouting
    • Business license application
    • Outlet rental negotiating
    • Game publisher negotiation
    • Furniture ordering
    • Computer hardware ordering
    • Software license
    • Internet Service Provider application
    • Insurance for business against theft, fire, etc
    • Electrical wiring, cabling and fixings of furniture and computers
    • Recruit supervisor, cashier and technician.
    • Decoration
    • Pricing
    • Promotion
  • Operation
    • Standard of procedures for handling customer complaints for games, computer hardware, payments.
    • Cashiering procedures and reports.
    • Standard practice of monitoring the outlet, CCTV, closing the outlet with alarm system
    • Hardware and software management, especially, upgrades, updates and maintenance.
    • In house promotion and event making.
    • Additional service managing such as selling snacks and stationary.
    • Staff scheduling
    • Handling legal documentation on staff (Socso, KWSP)

What should a cybercafe owner do well in managing the outlet?

In order to manage a cybercafe outlet well, the cost center and revenue center must be managed.

Revenue center:
Computers, Internet and Games. These hardware and software are the one that will directly bring in revenue. Without them, the revenue generated will be lesser or none.


Cost center:
Customer service and marketing.  If the customer service is bad, then the customer will not come back. Without marketing, student promotion or other promotion will not attract customers in, generating lesser revenue indirectly.

The customer service must be perfect. They paid a fee to play in the outlet, therefore there are a few factors that the owner must be aware of.
  • Players needs:
    • Good ambiance, air conditioned, good chairs, nice lighting, decorations, background music, clean toilet, smoke free, no rude and annoying players.
    • Large games variety, lots of latest and updated games.
    • Computer's speed to play a perfect game, good PC hardware specification.
    • Good internet connection and bandwidth management, ensuring no LAG occurrence.
    • Good customer service, polite and help when players have problem. Especially handling refunds.
    • Reasonable pricing for gaming.
    • Convenience for game reload and mobile reload, etc
Therefore, to keep revenue coming in, the player needs above must be addressed.

Hardware management

Problems happens with all sorts of reason, it can be due to the game incompatible with hardware drivers. 

Keeping inventory of the computers, modem, switch, router, load balancer, cache servers, game server, movie server, billing and cashiering computer.


Map network device chances are useful for troubleshooting for the network devices.

These inventory information will be easy for the technician to troubleshoot problems encounter.

Software management


Software includes games, especially online games updates. With the recent hit of Ragnarok Online 2, a popular online game with constant game updates, if the game updates were not done, players will have to spend their time (money) wasted on updating the game themselves where the cybercafe themselves could have done it.

There are few ways how owners can manage the game folders. But the most effective and efficient way is to use a Game Server.

If they don't there will be a lot of work.

To get things done faster, get a Auto Game Update service where game updates are done by third party while you work on other things.

Licensing


One of the cost drivers, depending on the games that is demanded by players, the game publishers will collect a fee from the owner and pays it back to the original game creator.

Possible risk of self managed cybercafe [Important]

Revenue generation- Without proper management system in place, owners tend to resort cheaper pricing to keep attracting customer to come back. This is an action that cybercafe will eventually take, and the outcome of cheaper pricing without fixing the root cause of problem will lead to business closure.

The picture below will illustrate the common root cause of problems. 

Fig.1 Root Cause of Cybercafe Net Profit Decreasing 1

Fig.2 Root Cause of Cybercafe Net Profit Decreasing 2



If the owners know how to solve the root cause of problems, then the business is sustainable. The next post is about the comparison in cash flow between the 2, franchise VS self managed cybercafe.

Monday, January 14, 2013

Franchise VS Self Managed Cybercafe which one can give you more income? Part 1: Franchise

In this post I want share with you, what are the odds that a Franchise (group) Cybercafe can be better than a Self Managed Cybercafe. I will let you know what are they, so that you can compare.



Cybercafe Franchise System
How they operate?

Definition

According to wiki's definition, "Franchise is the practice of using another firm's successful business model."
Which means, a proven successful business already exist, and they, the franchisor will provide "successful" training and advice to franchisee. Not only operational advice were given, supplier liability will also bear by the franchisor. Franchisee don't need to look for supplier and deal with them, anything that franchisee need, a ordering sheet will be submitted to the head quarters and they will dispatch the supplies to the franchisee. The franchisor represent a brand itself, therefore the marketing will be handled by franchisor. All the franchisee need to do is to operate the outlet according to their standards and requirements. Example of franchise are like, MacDonalds, Subway, KFC.


Therefore, the criteria of a franchise:
  • operation training and advice are given to the staffs
  • supplier investment and liability bear by franchisor
  • franchisee pays royalty fee for using the brand to the franchisor

In practice, a cybercafe group is also like a franchise, the first cybercafe was a successful one, and they decided to open another one and will provide training and technical support, network of people such as game publisher, hardware supplier, software dealer and many more so that the chain cybercafe can be successful as well.

The franchise system require the operator to pay the franchisor a fee, it's a one time fee for an outlet, and on top of that they will collect a percentage of gross profit of the outlet as a royalty fee.

What do owner get after paying the royalty fees?

Cybercafe who signed contract with them will have the following:
  • Training on how to become a cashier and give proper customer service.
  • Training given to handle technical problems.
  • If hardware/software encounter problem, a professional technician will go on site and solve the problem.
  • Hardware/software management system and process will be given.
  • Hardware supplier to handle hardware problems. 
  • Best practises to cut cost
  • Strategic alliance with other game publisher, furniture, hardware supplier, getting everything in a lower price.


What does cybercafe operator doesn't have when they pay the royalty fee:

  • Business operating license, the owner must have the consent from local municipal to open a cybercafe, where the franchisor is only providing the business modal, not the business application process. Franchisor have to focus on improving their standard of procedures so that they can yield more gains with lower operating cost.
  • Lower rental cost, the business location and outlet is solely operator's responsibility. 
  • The franchisor's brand, the operator must follow everything the franchisor advised as it's for getting the best outcome, rather than experimenting the market by the inexperienced  business owner. Operator are not allowed to act on their own, otherwise stated in the agreement. 

Who should go for the franchising?

Who? 

Business owner who doesn't have lots of knowledge on operating the cybercafe business or business network, or relatively none, but wants to spend their money on higher investment gains.

High investment gains?

Franchise has lower operating cost as they have strategic business partners to lower down the cost. Therefore, with lower cost, earning the same amount of revenue, the net profit is definitely higher compared to those inexperienced cybercafe owners manages. A cash flow comparison is provided at the end of this post.

Why?

  1. Because of a group of cybercafe collectively pool their technical resources, any technical problem arise will be discussed and handled by those experienced technician, and the rest of the technical will follow those who already solved the problem. 
  2. Not only it saves the newbie's time thinking about the solution, it also helps increase every technician's knowledge, and the amount of problem reported is more too.
  3. Due to the monthly expenses such as technical support is a high, it will make a big impact on net profit on the long run. However with a franchise technician, he can be traveling to different cybercafe without staying in a cybercafe doing nothing. 
  4. The bulk buying advantage, as a franchise group, the volume already existed, therefore they have the bargaining power. Imagine if a computer shop suddenly have a large quantity of orders, that worth the computer shop's 3 months sales. A discount can be given when there's a big volume ordering.
The next post is about the self managed cybercafe. It has a check list what he needs to be able to manage it independently.