Set the decision boundary before using the numbers
Inputs and records to align
- A reconciled first-store baseline for sales, contribution, capacity and operating cost. (not complete)
- Evidence of the current constraint: demand, conversion, capacity, assortment, hours or execution. (not complete)
- Second-store setup, occupancy, labour, systems and duplicated management costs. (not complete)
- Inventory commitment and working-capital timing for both paths. (not complete)
- Lower, base and higher incremental-sales scenarios with cannibalisation shown separately. (not complete)
- Ramp period, exit costs and stop conditions for the expansion case. (not complete)
Build one transparent decision model
Incremental location profit = new-store contribution - cannibalised first-store contribution - new fixed operating cost - duplicated support cost
- new-store contribution
- New-store sales less included variable product and selling costs (CU per period) — explicit scenario or later operating records
- cannibalised first-store contribution
- Contribution shifted from the existing store under the scenario (CU per period) — scenario or matched observation
- new fixed and duplicated support cost
- Occupancy, labour, systems and support costs caused by the location (CU per period) — quotes, lease proposal and operating plan
Setup cash and ramp losses belong in a dated cash plan in addition to the steady-period profit view.
- Diagnose what limits profitable sales at the first store.
- Model the contribution available from improving that constraint.
- Build the second-store contribution and complete incremental cost boundary.
- Show cannibalisation and duplicated support as separate rows.
- Map setup, inventory and ramp cash on dates.
- Compare downside cases and define go, pause and exit conditions before commitment.
Worked example: compare a second-store period
Invented steady-period case: 30,000 CU new-store contribution, 4,000 cannibalised contribution, 18,000 fixed operating cost and 3,000 duplicated support cost.
| Line | Calculation | CU |
|---|---|---|
| New-store contribution | entered sales and variable-cost scenario | 30,000 |
| Cannibalised contribution | entered overlap scenario | (4,000) |
| New fixed operating cost | entered period cost | (18,000) |
| Duplicated support cost | entered period cost | (3,000) |
| Incremental location profit | 30,000 - 4,000 - 18,000 - 3,000 | 5,000 |
| Case | Changed input | Result | Decision signal |
|---|---|---|---|
| Lower sales | New-store contribution 22,000 | (3,000) | Do not rely on base case |
| Base | Entered steady-period case | 5,000 | Add ramp cash plan |
| Higher cannibalisation | Cannibalised contribution 9,000 | 0 | Reconsider catchment overlap |
Review the operational trade-offs before acting
- Copying first-store revenue into a second location forecast.
- Omitting cannibalisation or management duplication.
- Using gross margin without occupancy and labour recovery.
- Ignoring setup, inventory and ramp cash timing.
- Assuming current first-store weakness is caused by space rather than execution or demand.
- Treating a positive steady-period case as proof the project is financeable.
Decision questions
- Should I maximise the first store before expanding?
- Diagnose the current constraint and compare the incremental economics of improving it with the expansion case; “maximised” needs a measurable definition.
- Where does setup cost belong?
- Show setup and ramp cash in a dated funding plan and apply the business’s documented investment treatment separately from period operating profit.
Sources and methodology
- Location Expansion methodology — Margin101: Incremental contribution, cannibalisation, duplicated-cost and ramp boundaries.
- Location Break-Even methodology — Margin101: Fixed-cost recovery and volume threshold mechanics.
Test the editable scenario
- Location Expansion Scenario Planner
Test the incremental economics and payback of an additional location
- Location Break-even Planner
Test one location break-even threshold
- Occupancy Break-even Planner
Find the occupied-capacity threshold required to cover period fixed cost
- Inventory Funding Gap Planner
Identify the peak cash funding gap between inventory payments and customer collections