Cost & Budget

The manufacturing cost for the Trap-Ease, including freight and packaging costs, was about 31 cents per unit. The company paid an additional 8.2 cents per unit in royalty fees. Martha priced the traps to retailers at 99 cents per unit (two units to a package) and estimated that, after sales and volume discounts, Trap-Ease would produce net revenue from retailers of 75 cents per unit.

To promote the product, Martha had budgeted approximately $60,000 for the first year. She planned to use $50,000 of this amount for travel costs to visit trade shows and to make sales calls on retailers. She planned to use the remaining $10,000 for advertising. So far, however, because the mousetrap had generated so much publicity, she had not felt that she needed to do much advertising. Still, she had placed advertising in Good Housekeeping (after all, the trap had earned the Good Housekeeping Seal of Approval) and in other "home and shelter" magazines. Martha was the company's only salesperson, but she intended to hire more salespeople soon. Martha had initially forecasted Trap-Ease's first-year sales at five million units. Through April, however, the company had only sold several hundred thousand units. Martha wondered if most new products got off to such a slow start, or if she was doing something wrong. She had detected some problems, although none seemed overly serious. For one, there had not been enough repeat buying. For another, she had noted that many of the retailers upon whom she called kept their sample mousetraps on their desks as conversation pieces—she wanted the traps to be used and demonstrated. Martha wondered if consumers were also buying the traps as novelties rather than as solutions to their mouse problems.

Martha knew that the investor group believed that Trap-Ease America had a "once-in-a-lifetime chance" with its innovative mousetrap, and she sensed the group’s impatience with the company’s progress so far. She had budgeted approximately $250,000 in administrative and fixed costs for the first year (not including marketing costs). To keep the investors happy, the company needed to sell enough traps to cover those costs and make a reasonable profit.