Business Model
Process Flow, Price Estimations and Future Steps
By Group 5
Process Flow
The process flow explains the steps taken in our business model.
Above, our full process flow is shown. All the red boxes indicate process handled by InstruRental and the blue boxes are processes done by the customers. Some of these processes will be explained with more depth below.
Subscribe
The subscription costs are based on the type of instrument bought and the accessories attached (more will be explained in the price estimations below). The subscription also includes free maintenance and access to the member website, where music lessons can be followed and the community forum can be joined.
Learning to play the instrument is mainly done with the pre-recorded selection of lessons available on the member website. These lessons are made by our (future) team of professional teachers, who will also be available 3 times a week in a feedback session. For questions or feedback on progress members can post on the community forum, where the whole community, including the teachers can react on your post.
Playing
Instrument
Quality Check
The quality check is performed on the returning products from the customers. Some parts will be repaired or replaced when needed by our employees. The product & the packaging will also be cleaned and will be ready for reuse.
The gathering is the process of collecting all the products needed to complete the kits in our storage place (more information about that in the Design Process). Our products will be provided by several (future) partnerships with music stores.
Gathering
Price Estimations
The price estimations will analyse and determine the subscription costs.
InstruRental as the name suggests is a rental business. Not only does it rent out good quality instruments to beginners it also provides the service of online and recorded lessons and maintenance of the instruments. It is an all-in-one business. To be able to estimate the finances needed to start this business up and determine at what price customers can subscribe to each instrument, a price analysis is made in an excel sheet which is linked below.
It is divided into two major parts: the indirect and the direct costs. Under indirect costs we grouped aspects such as storage space, van rental and recorded lesson prices. Under direct costs we calculated the costs of each individual instrument: digital piano, electronic drum set, acoustic western, acoustic spanish, Les paul and the stratocaster (the model not the brands).
Indirect vs
Direct costs
The kits
Each kit contained the instrument price and the according accessories to make the experience smooth and complete. The prices are for the most part chosen from the Bax Music online shop. Hypothetically we would try to set up a partnership with them (or another music store) to be able to provide our services at a cheaper rate to our customers. A partnership where we could get the instruments at a reduced rate is not only profitable for us. The music stores would profit from advertisement and also potential new customers, since our PSS specifically only targets beginner musicians. Once they would have ‘aged out’ of our subscription they would then need to purchase their own instruments and accessories. (To see an example of a kit, you can click on the instruments in the excel sheet.)
We can also assume that the prices would be lower than indicated here, as bax-shop mostly caters to the individual and some items we could purchase in bulk. As example: the capo is currently listed at €10 in the excel sheet, but if we were to buy in bulk we could purchase them at €0.52 a piece. This applies to most accessories of each instrument.
What also should be kept in mind is that these kits would only be needed to be purchased a certain amount of times. Once someone stops their subscription we would then collect everything, control the quality, fix, replace and fine tune what is needed and then the same kit can be relocated to the next subscriber. So overtime our business would become more profitable.
Lower costs
Lesson prices
The live online lessons costs for each lesson was researched on dutch music school websites. The average price for half an hour guitar and piano lessons is at €35 whereas the drums are more expensive at €60 for every 20 minutes. We calculate these prices at one live lesson per month on average. The live lessons will be held as weekly master classes, where everyone can join the according class. Since multiple people can join the master classes, the price of them per person will also be lower.
For the recorded lessons we estimated that filming and editing a 10 minute video would take about two hours at an average rate of 75€/h (from the music teacher wages)(so €150 per recorded video). We also want to start off with 10 videos per instrument to provide the basic knowledge and skills. The number of videos can also be adjusted in the excel sheet if needed.
It of course would be ideal to be able to partner with a music school as to again provide a cheaper service but also then maybe only provide lessons upto a certain level and then encourage the customers to join a music school. The added value for the customer would be that the prices are lower and that they already know the music teacher they would learn from. The music school would get new customers that might not have wanted to commit to a music school at the beginning but after an initial taste of an instrument (which we provided) they would feel ready to join a music school. (We would then also have a look at adjusting the subscription so that they could still make use of our instrument kits without having to pay for the lessons anymore.) Unfortunately we have not managed to make contact with music schools nor with music stores, so all of this is still hypothetical.
Partnerships
Employees, van and warehouse
The employee wages are retrieved from the dutch government website concerning minimum wages (you can adjust the number of employees on the excel sheet to adjust the cost). Van and warehouse rentals are also researched, but we can only make guesses at how much space we would actually need.
We are also thinking of adding a monthly insurance rate (of maximum €5 a month) as a deposit. If the instrument at the end of the subscription is of adequate quality the customer will get this deposit back. Otherwise, we would use the deposit to repair or in the worst case repurchase an instrument for the next customer.
Insurance
Adjusting the price
Calculating the subscription rate (taking only 20% off the calculated prices to take into account stock purchases and partnerships) the drum kit would range at around €80, the piano at €54, the acoustic guitars at €40 and the electric guitars at €50 per month.
Comparing our prices to other rental possibilities for instruments we found that we are in an acceptable range. A digital piano as example would cost you €39 or €49 a month and this price does not include lessons. Electronic drums you can rent for €75 per week, which is a lot more expensive than what we offer. Guitars on the other hand you have a bigger renting market for. It is possible to rent an acoustic guitar for €20 a month. All of these renting options do not provide included lessons nor access to an online platform with a community.
In our research we also found a company that rents out electronic drum kits while also providing online lessons. They only provide this service for one instrument, they do not include full kits and their prices range from €50 to €80 a month.
Competition
First investment
Our actual subscription price could also be lower depending on possible partnerships and bulk purchases. Initial inventory will have to be rather high, because everything needs to be purchased but most things will pay themselves off after some time. Most of the items are reusable (like the instruments that just change owners) or will pay for themselves (like the recorded lessons: they only need to be made and paid once and then they will/can be watched and are paid by each subscriber).
Future Steps
Addressing what some risks and future steps are of our start-up project.
There are some risks associated with our PSS that need consideration and discussion, were we to realistically implement our idea fully.
Competition
The main issue is that our service runs an increased risk of competition from already established music schools and free tutorials that can already be found on sites like YouTube. Would customers see the added benefit in an all-in-one package? We need to strike a sweet spot that combines the quality of a music school (or close to it), without increasing the cost to a point that free online tutorials outweigh the added value of our service.
This means that we really need to convey our added value to the market. We can also work with existing music schools instead of against them. This can come in the form of a business collaboration, where they would supply their teaching knowledge and we can direct our students to the school for more advanced strides in their learning. Or we can set up a program where we run a pilot for different instruments that the teachers can teach at a lower stakes environment on our platform, and use that knowledge to start teaching more niche instruments in the school.
Added value
Run on a loss
We would also be running the service at a loss for the first year, this is because of the large overhead cost of starting up the service, with all the instruments that need to be purchased and all the lessons that need to be constructed and recorded.
In order to get our service in a state that would be profitable quickly, we can advertise it through sites like YouTube. Here we can set up trial lessons much like the free ones that already exist to inspire customers, and refer to our service if our viewers would like to continue or need an instrument to apply the information they have just learned. We can also expand on this by sponsoring prominent content creators in the online music teaching industry. Where we could use them to refer their viewerbase to our service, have the instruments or accessories they use branded by us and also to have them set up tutorials specifically for our service and have them as faces of the company. In return we would pay them for sponsorship, as well as continued compensation if we can use their likeness and expertise.
Lastly, we can try to set up partnerships with companies like Bax Music, in order to reduce the costs of the instruments and decrease the fixed costs of the company.
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Operating area
The area that we would be operating in would start off small, only providing our service to customers in Enschede and Hengelo.
As our company increases in popularity and revenue, we can start to look at different areas where possible consumers are concentrated, cities with a large group of students for example. Especially when we reach a point where a lot of the overhead costs have been paid for, we can seek to expand the business, using the revenue of the original operating area to purchase new warehouses, trucks and instruments. Since the service aspect of our company resides mostly online and regardless of volume, this will not prohibit us from expanding as much as the fixed costs do.
Expanding