INTERHOUSE.COM is a start-up created last year to provide real estate valuation and brokerage services (this last service is going to use the data on properties collected during the development of the quarterly valuations).

For these kinds of companies, it is very important to hire qualified and well-known professionals to make contact with all the decision makers in the big real estate companies. It is also very important to invest a lot of money in marketing and advertising in order to be known by private individuals.

Real estate valuations are usually requested by larger companies that own a lot of assets that are valued quarterly or annually and by private customers when they want to sell the asset.

The database developed for the INTERHOUSE is going to register all the average sale prices per m2 for the properties sold by the company (in all the different areas of the country). Obviously, these average prices are going to be used in the future as comparisons for valuations and potential new deals.

A customer that needs a valuation calls INTERHOUSE, where a commercial agent analyses the data provided and inputs them in the database.

Once these agents decide that the valuation is viable and profitable for the company, they call a valuation manager, who will go visit the building / property, take some pictures for the final valuation report, and check the location and the accesses. When the valuation report is completed, the data from the valuation can be used as a comparison for new valuations (average euros / m2 for a specific area).

INTERHOUSE has just started its activity this month (without having made any investment in marketing yet) and they have three different customers, one of which is BUILDALIA, the largest real estate developer in the country. The owner of BUILDALIA is a believer in new technologies and wanted to try this new kind of online valuation.

One of the partners of INTERHOUSE, Eva Gimeno, has recently finished an MBA at the Instituto de Empresa and she wanted to control the use of the resources assigned and be able to calculate the profitability of these customers.

INITIAL DATA

The sale price (fee) of each valuation report is 3,000 euros.

CUSTOMER 1 is the owner of a flat in Madrid, where INTERHOUSE has its headquarters.

CUSTOMER 2 is BUILDALIA, the real estate developer, which wants a valuation for a building with 20 flats.

There is a third customer (CUSTOMER 3) from Barcelona, with one flat in Barcelona and another one in Valencia.

Total indirect costs to be allocated: 40,000 euros.

The other partner told Eva that these indirect costs should be allocated as follows:

1. Customer 1: 1/23 of the costs.
2. Customer 2 (BUILDALIA): 20/23 of the costs.
3. Customer 3: 2/23 of the costs.

Eva calculated the allocation of the indirect costs (please do the same and determine whether the customers are profitable) with these data.

Eva has decided that this is not the best way to allocate indirect costs and has split the indirect costs into four groups:

1. The cost of collecting and recording the data in the database is 18,000 euros.
2. 3,000 euros are for travel and meals (1,500 for a trip to Barcelona and another 1,500 for a trip to Valencia).
3. 10,000 euros for the buildings inspections (one flat inspection for customer A in
4. Madrid, one inspection for the flat in Barcelona and another for the Valencia asset. As the flats owned by BUILDALIA are all in the same building and are identical, so 8 valuations are going to be carried out).
5. 9,000 euros are invoicing costs: 5,000 euros (Customer 2), 1,000 euros (Customer 1) and 3.000 (Customer 3).

After this breakdown of indirect costs, Eva realised that not all of them were consumed by costumers in the same way.

She decided to calculate the profitability of the customers using an ABC system this time.

Questions:

1. Describe the activities that are carried out by the company
2. Calculate the cost of each customer
3. Which are the costumers this company must focus on? Why?