Back of Napkin - Worksheet
Notebook/ Microsoft Word
Back of the Napkin is a quick and easy way to employ your math skills to assess the feasibility of a business. The “Back of the Napkin” is a powerful tool to help students engage with self-interest and subjective value, motivating them to move towards action throughout their life.
- For any opportunity they encounter, you should stop and consider if you are using sound judgment by calculating whether the opportunity is worth the effort in terms of your scarce resources (time, attention, money).
- There are legends of businesses and big ideas that got their start on the back of a napkin. Bad ideas and unfruitful ventures have also been avoided thanks to these simple calculations. When an entrepreneur wants to capture an idea in the moment, she can grab the nearest piece of paper and begin to sketch it out. During Back of the Napkin, you will use quick math, based on your knowledge of costs and prices, to assess an opportunity and decide if it is “worth it” to pursue.
- Determine how you will share the activity with your students.
- Review the Back of the Napkin instructions below.
- View the videos to see an instructor walk through this activity with students.
- Determine how students will get the COGS number (Will it come from a previous activity like Dirt and Worms? Will you provide it for the sake of practicing the calculation steps?)
- Review the debrief questions shared in this guide and decide if you would like to share any of those as additional reflection questions or bring the class together via Zoom and debrief using breakout rooms.
- Protip: Consider adding to the instructions any parameters around student writing (grammar mechanics, number of sentences, etc.).
- Post the activity to your classroom platform for students to access and complete or set up a Zoom classroom session to walk your student through the activity.
- If engaging students virtually, deciding how you will visually demonstrate the steps as you are walking through them. Will you screen share and type in a Word document? Do you have a dry erase board to display?
(NOTE: These directions are written for a collaborative session with students virtually – if not collaborating as a class virtually, you can post pieces of the directions online with the resources listed above.)
- Explain that we will be walking through a set of very basic calculations to determine if an opportunity to sell a product is worth it.
- Explain what product students will be completing the calculations for based on how you prepped for the activity. (Will it come from a previous activity like Dirt and Worms? Will you provide it for the sake of practicing the calculation steps?)
- Students should write that at the top of their paper. For this explanation, we will refer to it as a “widget.”
- Have student(s) write down the amount of profit they would like to make if they were to sell this product.
- Protip: It is helpful to give students some context of what this selling window looks like. Is it in one hour at a local shopping mall? Online? Is it taking place over the course of one month?
- See the worksheet if you would like to provide students with a more structured document. If not, they can follow these steps by writing them on any blank piece of paper.
- You may need to remind them that businesses need to make a profit to continue to create value.
- Breaking-even is working for free, essentially. Ask your students if they would be willing to work for free at a job.
- Ask the group for how much they think they can sell each “widget”.
- Once they settle on an assumption for this number, identify it as the “price of one unit”. Write this number on the paper or virtual note pad and label it “Price of One Unit”.
- Ask the group how much they think it will cost them to buy or produce one “widget”.
- This is the Cost of Goods Sold (COGS) for One Unit (refer to previous COGS calculation activity or the number you are providing for COGS). Write this number and label it “Cost of Goods Sold per Unit” or “COGS per Unit”.
- Tell the group we need to isolate the gross profit of one unit of sale. To do that, we subtract the COGS of the “widget” from the price of the “widget”. Write the result below all of the other numbers.
- Now ask the group, at this gross profit per unit, how many units must you sell to reach your profit goal?
- To calculate, you must divide the profit goal by the gross profit per unit. The result is the Units Sold goal of “widgets” they must sell to reach their profit goal. Write this number and label.
- Ask the group, do you think you can sell that many “widgets”?
- If the students don’t believe that it is feasible to sell that many units to reach their profit goal during the designated selling window, have student(s) brainstorm solutions to the problem they are now facing. You want to help them realize they have options other than lowering their profit goal.
- Can they get the “widget” at a lower cost? They may need to purchase more in bulk to get them at a lower per unit cost.
- Can they charge their customer a higher price for the “widget”? Will the customer buy the “widget” if they charge them more?
- If they answer yes to either or both questions, redo the calculations with their new numbers.
- If they answer no or maybe to either or both questions, challenge them to do more research and find out. Then redo calculations.
- Once the group has settled on numbers for price, cost of goods sold, and volume, ask how much money they would need in order purchase their Units Sold goal.
- Multiply “COGS per Unit” by the “Units Sold goal” to determine the total Cost of Goods. This Cost of Goods sold represents the upfront cost of producing the number of units needed to reach their profit goal.
Students can complete the debrief on paper by answering the following questions or be put into groups via Zoom to discuss their learnings.
- How did you feel when you saw how many units it was going to take to meet your goal?
- How did we use economic calculations to make a better decision about our plan?
- How does this approach to an opportunity make sure it is a win-win for you and your customers?
- Describe how you or your group used sound judgment in setting your profit goal?
- How does using sound judgment correlate to your decision-making process when pricing your products or services?
- How important is being willing to pivot as you work your way through the Back of the Napkin activity?
- Is the willingness to pivot a way the entrepreneur can demonstrate sound judgment?