Operating Costs

Last time, we looked at the Revenue side – how your app might generate income or funding. Today, we need to look at the other side of the coin: the Costs. To understand if your project can be sustainable, you need to estimate how much money it will take to run it. This involves understanding Operating Costs and, ultimately, calculating your projected Profit. This is the final piece of your financial puzzle for the Technovation Business Plan!

Section 1: Startup vs. Operating Costs

There are two main types of costs to think about:

1. Startup Capital: This is the money you might need before you even launch or start earning revenue, just to get things off the ground. Examples could include a one-time fee to register for the Google Play Store, buying essential software, or maybe costs for initial large-scale data collection.
   • Often, startups get this capital from Investors (people or firms who give money expecting a return or ownership), through Crowdfunding (like GoFundMe or Kickstarter), or sometimes through Grants or personal savings.
   • For your Technovation project, you likely won’t need significant startup capital, and you don’t have to detail complex funding plans. But it’s good to be aware of the concept. The lesson’s resources explain more if you’re interested.
2. Operating Costs: This is our main focus today. These are the ongoing, regular expenses required to keep your app running, maintained, and growing after it has launched.

Section 2: What Will it Cost? (Common Operating Cost Categories)

Think realistically about the ongoing costs your specific project might incur over the next 5 years, considering the Ugandan context:

• Technology Costs:
  • Software/Services: Are there any paid tools you need? Will your cloud database (like Firebase) exceed the free usage limits if you get many users? Is website hosting needed? Any API fees? Often, you can use free tiers initially.
  • Online Fees: The main one might be the Google Play Developer account registration (a one-time ~$25 USD fee if you publish there). Apple Developer Program is much more expensive (~$99 USD/year). Any fees for processing Mobile Money payments if you integrate that?
• Marketing Costs: (Refer to your Marketing Plan – Lesson 6.1)
  • Cost of printing posters or flyers?
  • Transport costs for community demos or meetings in Jinja or nearby areas?
  • Any small budget for boosting social media posts (optional)?
• People Costs (Salaries):
  • Year 1: This is likely ZERO (0 UGX) for your team as students!
  • Years 2-5 (Projection): If your app grows significantly and you plan to hire help (e.g., a part-time customer support person, someone to update content), you need to estimate their salary. Research typical part-time wages in Uganda for similar roles. Be realistic – only include salaries if your revenue projection supports it!
• Utilities/Overhead:
  • Office Rent: Assume ZERO initially. You’ll work from home or school. Only add rent in later years if massive growth requires a dedicated space.
  • Internet Data: This is a key cost! Estimate the monthly cost of internet data bundles your team needs for development, uploading updates, managing cloud services, and potentially data costs associated with the app’s function (if it uses a lot of online data). Research current bundle prices from providers like MTN, Airtel.
  • Electricity: Consider if project work significantly increases electricity usage beyond normal levels.
  • Phone Airtime: Costs for making calls related to the project (e.g., contacting partners, user support).
• Equipment: Assume you use existing phones/laptops initially. Only factor in costs for upgrades or replacements in later years if essential and supported by projected revenue.

Action: You’ll need to do some quick research for realistic local costs (internet bundles, printing, potential future salaries in UGX).

Section 3: Planning for Growth & Saving Money

• Costs Grow: As your app gets more users (and hopefully more revenue), some costs will naturally increase. More users might mean higher cloud database costs or needing more support. Your marketing efforts might expand. Your cost projections should reflect this potential growth, linking back to your revenue projections.
• Be Frugal! (Okukekereza!): Especially when starting, keep costs as low as possible!
  • Work from home/school.
  • Use free software and services whenever possible.
  • Focus on free or very low-cost marketing strategies.
  • Bootstrapping (building and growing using only your own resources and revenue) is a common and respectable approach.

Section 4: The Bottom Line (Calculating Profit)

Now you can put the two sides together: Income (Revenue) and Expenses (Operating Costs).

Profit = Total Revenue – Total Operating Costs

• What it means: This calculation, done for each of the 5 years, shows whether your project is projected to make more money than it spends (positive profit), break even (zero profit), or spend more than it earns (negative profit, or a loss).
• What about Non-Profits? Non-profit organizations still calculate this! If they have a “profit” (a surplus where revenue/funding exceeds costs), they don’t distribute it to owners. Instead, they reinvest it back into their mission:
  • Improving or expanding their services/app features.
  • Reaching more beneficiaries.
  • Supporting their operational costs for the future.
  • Maybe improving staff welfare (if they have paid staff).
• Social Enterprise Reminder: If your project has a strong social mission but also looks like it could generate significant profit, the Social Enterprise model might be the best fit, allowing you to explicitly reinvest profits into your mission.
• Negative Profit is Okay (Initially): Don’t panic if your projections show a loss in Year 1 or Year 2. Many new ventures take time to become profitable. However, your 5-year plan should show a clear trend towards positive profit (or breaking even for non-profits relying solely on grants/donations equal to costs) by Year 3, 4, or 5. If you project losses continuing indefinitely, you need to revisit your Revenue Model (can you earn more?) or your Operating Costs (can you spend less?).

Section 5: Let’s Estimate Costs! (Activity – Operating Costs & Profit)

Time to complete your financial picture for the Business Plan!

Your Mission: Estimate your operating costs and calculate your projected profit for 5 years.

Tool: Continue using the Business Finances worksheet you started in the Revenue lesson.

Task:

1. Identify Potential Costs: Using the categories in Section 2, list the likely operating costs for your project for each of the next 5 years. Be specific (e.g., “Internet Data Bundles,” “Poster Printing,” “Google Play Fee Year 1”).
2. Estimate Costs (Research!): Find realistic local (UGX) costs for each item. Factor in potential cost increases over the 5 years (e.g., hiring someone in Year 3, increased server costs). Document your estimates and any sources.
3. Calculate Total Operating Costs: Sum up all the estimated costs for Year 1, Year 2, Year 3, Year 4, and Year 5 separately.
4. Calculate Profit: For each year, take the Total Revenue you calculated in the previous lesson and subtract the Total Operating Costs you just calculated for that same year. (Profit = Revenue – Costs).
5. Fill Worksheet: Enter your estimated costs and calculated profits into the appropriate sections of the worksheet for all 5 years.

Section 6: Thinking About the Numbers (Reflection)

Look at your completed financial projections (Revenue, Costs, Profit). Consider:

• How much money (if any) might be needed for startup before you even launch?
• Looking at your revenue model and your cost structure together, does your plan seem financially sustainable in the long run (by Year 5)?
• What are the biggest assumptions you made in your revenue and cost estimates? How confident are you in them?
• How does your projected growth look over the 5 years? Is it realistic based on your market and plans?

Section 7: Quick Review (Key Terms)

• Operating Cost: Ongoing expenses needed to run your business/app.
• Profit Projection: An estimate of future profit (Revenue – Costs) over several years.
• Startup Capital: Initial funds needed to start the business.
• Investors: People/firms providing startup capital, often expecting a return.
• Bootstrapping: Starting/growing a business using minimal external resources.

Section 8: More Resources

The lesson’s Additional Resources section provides more detail on different ways businesses get Startup Capital (Crowdfunding, Angel Investors, Venture Capital) – useful background knowledge even if not directly applicable to your initial phase.

You’ve now mapped out the full financial picture for your project by estimating both revenue and operating costs. This Profit Projection is a critical piece of your Business Plan, showing the judges you’ve thought carefully about sustainability. Remember to base your cost estimates on research and be realistic. A well-reasoned financial plan makes your whole project more credible! Mutukirire! (May you succeed!)