Cigar Box method: Difference between revisions

Revision as of 03:21, 16 December 2018

Revision as of 16:02, 14 October 2019

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''The '''Cigar Box Method''' is a toolkit which consists of a series of spreadsheets to help entrepreneurs, notably those in [[agribusiness]] in emerging markets, to calculate the costs of goods, margins, contribution, break-even quantity and profitability. It can be used for a single product or a complete portfolio of products. There are 6six Cigar Box (CB) categories:

* CB1: cost price for one single product,

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== Origins ==

The Cigar Box Method has beenwas developed by Olivier van Lieshout and Anushik Tadevosyan, and is actively being used by agro-entrepreneurs worldwide. Recent examples are from EBRD-sponsored projects in Morocco, Ukraine, Egypt, Montenegro and Bosnia as well from ITC-sponsored projects in Romania, Armenia, Central Asia, Bangladesh, Senegal, Guinea, Benin, Kenya, Tanzania, Jamaica and Argentina.

The method derived its name from Dutch pioneers in the 17th Golden Century who were discussing foreign business deals while sipping coffee and smoking a cigar. When they needed to make quick business calculations, they often used the bottom side of the cigar box to convince investors about the profitability of their business ideas in a quick, concise and convincing manner.<!-- Deleted image removed: [[File:Cigar Box method.JPG|thumb|Cigar Box Scribblings]] -->.

== History and current use ==

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The Cigar Box Method of profit calculation uses only five parameters:

*P = Price (per unit)

*VC = Variable cost (per unit)

*FC = Fixed cost (per period)

*q = Quantity (in units per period)

*T = Tax (as % of profit).

More specifically, in (food) processing business, there are three types of [[variable cost]]: VC1 = Raw Materials and Ingredients, VC2 = costs of processing inputs into outputs, VC3 = costs of packaging materials. The [[fixed cost]] (FC) are also divided into three types: FC1 = depreciation of fixed assets, FC2 = interests paid, FC3 = overheads (salaries, transport, maintenance, marketing, ...). Using these 5 parameters in simple formulas, a trained person can do a Cigar Box Profit analysis in half an hour. When data are missing assumptions can be made using educated guesses.

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There are three different methods to calculate profit. All use the same parameters and lead to the same result.

1. = ==Bookkeeping method===

Sales - Total cost

P*q - (VC*q + FC)

2. = ==Trader's method===

Profit per unit * units sold

(P - VC - FC/q) * q

3. = ==Cigar Box method===

Contribution - Fixed cost

(P - VC) * q - FC

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== References ==

<references />

https://bakeryinitiatives.com/5p-profit-program/planning/bakery-feasibility-study/

== External links ==

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* [http://www.wageningenuniversity.nl/UK Wageningen University]

* [http://www.bakeryinitiatives.com Bakery Initiatives : we bake profit!]

* https://bakeryinitiatives.com/5p-profit-program/planning/bakery-feasibility-study/

[[Category:Agricultural economics]]