But before you become the next Jeff Bezos (and definitely before you quit your job!), it’s worth spending some time to think about a business plan. In this article, we’ll dive into the key elements of an
We know that starting an e-commerce business is exciting and it can be tempting to jump right in, without constructing a business plan.
Ifyou haven’t put your ideas, questions, and concerns on paper, then you haven’t given your business model enough thought.
Taking the time to write a business plan might seem like a lot of work but it can save you a lot of time and money in the long-run by better preparing you for potential challenges and opportunities that you’ll face as a first time entrepreneur.
When writing a business plan, YOU are your target audience! The point of a business plan is to help you get your ideas down on paper – so don’t worry about making it fancy or excessively long.
Startup book: zero to one
So what should one hope to get out of a business plan?
- Knowledge. A better sense of what you know and more importantly, what you don’t know.
- Resources. The resources you’ll need to make your business successful (e.g. money, partners, employees).
- Road map. Helping you set clear goals for your business from the outset.
- Viability. Probably the most important thing – once you write your business plan, you should have a better sense of the viability of the opportunity.
Now that you know you need a business plan lets jump into the sections you need to think about. I’ll be here to help each step of the way.
- Simple to Explain
- Business Model
- Market Analysis
- Market and Sales
- Right Technology
- Product and Services
- Financial management
Before you start diving into the weeds, it’s a good idea to first develop a framework for your business model. Once you go through the different sections of the business plan and conducted extensive research, you will definitely want to make some tweaks to your business model so no need to make this perfect.
There are a number of ways to sell a product on the internet and several different business models one could employ. Depending on what you intend to sell, it’s important to think through which business model makes the most sense for your product.
What are you selling?
- Physical products: clothing, shoes, home goods
- Digital products: Software as a Service product,
- Services: Consulting services, home cleaning
Who are you selling to?
- Business to Business (B2B): You are selling to organizations, corporations and non-profits rather than individual customers
- Business to Consumer (B2C): This means you are selling to individual consumers rather than businesses
- Marketplace: You are acting as a middleman by bringing businesses and (B2B or B2C) customers to one website.
How are you sourcing your product?
- Manufacture In-house: You make your product or service in-house
- Third party manufacturer: You outsource manufacturing of your product or service to a third party manufacturer
- Dropship: You partner with a dropship manufacturer. Basically this means that they make your product, package it and ship it directly to your customer while your company handles the entire customer relationship
- Wholesale:You buy goods or services from other companies in bulk and re-sell those products on your website
Here’s a fact you can bank on: there has never been a successful e-commerce entrepreneur that didn’t understand his/her market, cold. That’s why this section is one of the most important in the entire business plan. It will force you to understand the industry in which you operate, the overall industry outlook, the existing competition, and your target customer demographic.
there has never been a successful e-commerce entrepreneur that didn’t understand his/her market, cold
Before you even get started in writing this section, you need to spend several hours researching the market.
Here are some of the most efficient ways to research a particular market:
There’s only so much you can read online. Go to a nearby store that sells similar products to yours and interview the store representative. The store rep has interacted with hundreds of interested customers which can lead to thousands of valuable insights! It’s amazing how these insights can translate into a meaningful business opportunity.
Here’s an example:
If I was going into a Billy’s Outdoor Store to research the outdoor apparel market, I would probably ask Billy the following:
- What are your best selling products?
- What are your worst selling products?
- Find products similar to yours and ask the representative his/her favorite features on products similar to yours.
- How much are customers generally willing to spend on these types of products?
- Do customers make repeat orders of any of these products?
- Do you get a lot of customers that are looking to buy
last-minutehiking gear before they go on a hike?
Create an excel spreadsheet of all of your competitors. In your excel spreadsheet, you should have the following columns:
- Competitor Name
- Price point
- Product Description
- Key Features (e.g. fabric, waterproof, slimfit, etc.)
What is the competition missing? Is there a gap in the offering? Where you can add some additional value?
After conducting the competitor analysis, Atlas Hiking Co. might find that the competition’s hiking shirts offer very few features at a low price point, but no one offers a luxury hiking shirt with additional features at a higher price point.
This is just an example of the types of insights one can gain from market research which can drastically alter your business model
By using Google’s keyword planner and trends pages, you can get a good sense of how in demand your product is and whether it’s trending upward, or downward. Google is great for a general idea, just don’t bank on it!
- How big is the overall industry?
- How big is the specific sub-industry in which you intend to operate?
- Where has most of the historic growth in the market come from?
- Why is this the right time to enter this market?
- What are the sub-segments that are poised for future growth (e.g. youth apparel)?
- How crowded is the product category with competition?
- How is your competition distributing their product (online, retail, wholesale etc.)?
- What’s missing from the competition’s product offering?
- Who is your target more customer (population size, age, geography, education, ethnicity, income level)?
- Are consumers comfortable with buying your product category online?
Marketing and SalesT
In order to come up with a marketing strategy, you need to first know your customer inside out . You should be able to answer such questions as:
- How old is your customer?
- Where does your customer live?
- What is the population of your customer base?
- What is their education level?
- What is their income level?
- What are your customers’ pain points?
With so many channels to reach your customer, which one is best for you?
Once we know pretty much everything there is to know about our target customer, we can shift focus to our marketing strategy. What channels should you use to grab the attention of your customer demographic? Some of the key marketing channels include:
- Social media (Facebook, Instagram, Pinterest etc.): Which is your strategy for social media and where will you dedicate your attention?
- Search Engine Optimization – Create and promote awesome content so people find your product organically through search.
- What is your content marketing strategy? Come up with a content roadmap that lists the next 10-15 articles you want to create as well as your strategy for creating such content (in-house vs. outsource). How will you persuade people to buy your product once they get to your site?
- Blogger networks – could be organic or paid through affiliate sale programs.
- Develop a list of the key bloggers in your product category. For Atlas Hiking Co., this might be an influencer that blogs about the best hiking trails in America.
Finding the optimal mix of these advertising tools depends 100% on your customer segment as well as your product type. For example, a SaaS product targeting millennials will require an entirely different marketing strategy than an e-commerce physical product targeting baby boomers. Perhaps that should be a post on its own for another day!
How much should you spend to acquire a customer?
In order to understand this, we need to first discuss a concept known as Lifetime Value of Customer or LTV. In essence, this is a formula that helps you better understand how much an average customer will spend over time.
It’s important to remember that for new businesses, you don’t have a lot of data on customer purchase habits so it’s a good idea to be more conservative with your assumptions in calculating LTV.
Let’s say, for Atlas Hiking Co., I determine that the average LTV per customer is $300. This means that over time, the average customer will spend $300. Let’s say on average, if I receive $300 in revenue, $100 of that will translate to gross profit before I factor in my marketing costs (basically I’m just subtracting out the cost making the shirts).
Knowing that my gross profit is $100 per shirt is a critical piece of information because it tells me that I can spend up to $100 in marketing to acquire a customer and still be profitable!
Choose The Right Technology
With so much technology and SaaS products out there, it’s important to understand the various moving parts and diagram how they all integrate with one another.
Some of the different elements include:
Come up with a detailed list of the different products and services you need to run your business as well as the monthly and per transaction cost of each of them. This will be important in understanding the impact of these services to your margins.
- Shopping Cart – e.g. Shopify, Volusion
- Payment Processor – e.g. Stripe, Paypal
- Fulfillment Center – e.g. Amazon, Shipwire
- Social Media Planning Tools – e.g. Buffer, ViralTag
- Accounting – e.g. Quicken, Xero
- Newsletter – e.g. Mailchimp
- Customer Loyalty Programs
Product and Services
So we know we want to sell hiking shirts, that’s great!
But for some of us, we’re not quite sure as to what we should sell. To succeed in online retail, you need a product that is trending upwards in a growing niche.
Come up with detailed specifications for each product or service you intend to sell. If it’s a hiking shirt we’re selling, we would want to have:
- Detailed sketches of the shirt
- Fabric weight, materials, type
- Key features (e.g. pre-shrunk, water-proof, SPF 40)
Future product pipeline
What are other products that you have in the pipeline? Perhaps once you’ve successfully sold hiking shirts, you’re able to leverage your manufacturing relationships to provide hiking socks and shorts. Include that information in this section.
The financial section is used to forecast sales, expenses and net income of the business. Ideally, you’ll want to create a monthly excel schedule showing the following:
- Projected revenue: first come up with your projected number of units sold and then come up with your projected revenue (Projected Revenue = # of Units Sold * Average Sales Price).
- Fixed expenses: these are expenses that are fixed no matter how much you sell. Typically, these relate to monthly SaaS subscriptions, employee salaries or rent.
- Variable expenses – these expenses change in direct proportion to how much you sell. Common examples include cost of goods sold and payment processing fees.
This helps business owners better understand what they need to achieve to hit their profit goals. In reality, projections are usually always off the mark, but it’s good to give yourself some measurable goals to strive for.
This section should aim to answer the following questions about your product offering:
- How much product do you need to sell per year to meet your income goals for the business?
- What are the margins on your product? If you sell 1 hiking shirt for $50, how much do you make after paying your supplier, employees and marketing costs?
- What is the lifetime value of a customer (see marketing section)?
- How much can you spend to acquire customers? If you conservatively project that the average customer will spend $300
overtimeon your shirts, then you can afford to spend an amount less than $300 to acquire that customer using the paid marketing channels described previously
- Do you have any big capital expenditures early on that would require you to need to bring in investors?
- Can you improve gross margins by making bigger orders from your suppliers?
Your turn! Have you written a business plan for your e-commerce website? Do you have anything to add? Tell us about it in the comments below!
Hello Friends, Welcome to our technology blog “zoloroots“. This is Shaik Nadeem a professional Blogger, Digital Marketer & Entrepreneur. I love doing work which makes me happy. I’m a content writer, developer, gamer, and Linux fan. You will love exploring educational stuff on our blog.