If you fail to plan, you plan to fail.- Benjamin Franklin
The sections below are the parts of a typical business plan.
Each section has:
Theoretical tips on how to write that section
Practical suggestions on how to approach that part of the business strategy for the real-world execution of your business
An example excerpt of that section from a full business plan
Analysis of that excerpt
This way you get a combination of theoretical and practical advice on how to approach each section of the business plan, have a template to work from and have an example and its analysis for reference.
In my opinion, the biggest value is practical advice on how to approach each of the issues in the real world. When you start your business, execution will be the biggest factor in making your business successful.
Even if you don’t want the practical advice and just want to learn to write a business plan, this post works as a template with an example and an explanation for how to write each section.
NOTE: Since the business plan is broken up through the sections of this post, if you want to see the full business plan in its entirety, you can find it in the appendix after the last poste of this of thes posts.
Executive summary
The executive summary should be one or two paragraphs. It is an introduction to your business plan. It explains the problem your business is solving. It can also contain your company’s mission statement. Use the executive summary to prepare the reader for what you will cover in the rest of your business plan. You should briefly explain what your product is, but do not go into too much detail about the product or other components of your business. You will have a chance to get into details in subsequent sections.
Quick note: some industries have another meaning for the term “executive summary,” which is a very shortened business plan that is only about 1-2 pages. Don’t get these confused.
Example of an executive summary from a business plan for my mobile app;
I am building a full 4-app mobile app series on Android and iPhone that will help people plan their business and support them through planning, starting, and growing their business.
This is a revolutionary new take on mobile apps where the apps become the business coach, the guide for entrepreneurs, and give entrepreneurs the support they need to succeed.
The reason there are 4 apps in the series is that each app covers one of the biggest challenges for entrepreneurs:
Business idea stage
Business planning stage
Fundraising guide
Marketing
The comprehensive scope of the apps positions them to be the dominant mobile apps for entrepreneurs.
Analysis of the executive summary from the business plan for a mobile app:
My goal with this executive summary was to clearly explain what the product was and to make the business sound intriguing and unique to the reader to make them want to continue reading. I emphasized the uniqueness of this project and how it can become a go-to tool for entrepreneurs. That signals to the reader that this will be a big opportunity.
Your product or service
This is the section where you should be more precise about your product. Explain your company’s product or service. Is it a website? A physical store or service? A widget or a mobile app? What is special and different about it?
Explain why this product or service should exist, and why it is needed. Does it entertain? Does it make someone feel better? Does it solve a problem for someone? Does it teach something? What is the benefit of this product or service?
It may sound like a silly way to pose the question, but surprisingly many companies create a product or service that is not really needed, which causes difficulties when trying to sell, promote, or get people to use it.
Additionally, if your product or service is only needed a little bit, and doesn't necessarily solve a huge pain point or provide great value, it may be difficult to get people to pay for it.
Lastly, but very importantly, unless your product or service is very self-explanatory, explain how your product achieves what it promises to achieve. Don’t leave that question unanswered or vague.
Example of the product section of a business plan for a mobile app:
These are mobile apps for Android and iOS. There are 4 apps on Android and 4 apps on iOS. The apps help people plan, start, and grow their businesses.
The reason there are 4 apps on each platform is that each of the 4 apps helps entrepreneurs with a specific stage of starting a business. The 4 apps cover:
Business ideas
Business planning
Fundraising
Marketing
Each of the 4 apps helps new businesses in these 4 ways:
A software tool to help people plan and save their plans right on the app. People will be able to create small business plans, fundraising plans, and marketing plans on the app.
3. Ability to plan parts of their business with partners and invite their whole team to collaborate via the app.
Tutorials to teach the entrepreneurs about the business stage they are in: business ideas, business planning, marketing, and raising money.
Live business coaching and advice provided by an expert. In most cases, until the app has sufficiently grown and to ensure the quality of help, the coaching will be provided via text chat on the app by the founder, Alex Genadinik.
Analysis of the product section of a business plan for a mobile app:
My goal for this section of the business plan was to clearly explain what the products are and how they help people. I tried to make the product sound intriguing or different to make the product compelling. I also wanted to paint the picture that these apps have the potential to be dominant or best within their product category.
Even if your product is a commodity service like lawn care, you can still make it interesting and unique by highlighting something compelling about it. Maybe you design the lawns using cutting edge modern art principles, have award-winning customer service, or use organic grass products. These are just examples to show that any product can have something unique about it - no matter how commoditized it might be.
What stage of the business are you in?
Are you in the idea stage? Or have you started your business and maybe you have a prototype of your product? Or do you already have some revenue and a team, and your focus is on growth?
Do not get into too many specifics here. Simply establish where you are in the process of building the company to provide context for the reader.
It makes a big difference if your company is just being planned, or if it is already established and has achieved some level of success. The further you are in starting and growing your business, the more credibility your strategies garner.
Even though it is advantageous to be further along, don’t be shy if you are just at the idea stage. It is OK to be at any stage, even the planning or the idea stage. Every successful company has at some point been in the planning stages. Just be honest about where you are in the process.
Example of the business stage section of a business plan for a mobile app:
Founded in 2012
50-100% growth year over year in the first 3 years
25% growth last year due to saturation on Android and lack of growth on iOS
Next year focusing on iOS growth
Over 1,000,000 downloads
Revenue last year: $125,000 (Fictitious due to privacy)
Analysis of the business stage section of a business plan for a mobile app:
In my version of this section, I was able to outline a few years of progress since these apps are live. That gives the reader a sense of the trajectory of the business in addition to the company’s current status.
This section will be much simpler for you to write if you are just starting your business. All you will have to say is that you are either in the planning stages or mention some initial accomplishments you’ve achieved after starting.
If you are at the beginning stages of your business, the more you can say that you did, the better you will look. This is because many people do not end up actually starting their business. So the more you can set yourself apart and show accomplishments and progress, the better.
Even if you have not started, you can talk about your market research, customer development (I’ll explain what this is in a later post), or anything else you’ve done. Anything you actually accomplished will boost your credibility.
Your target market
It is easy and tempting to think that everyone can use your product, but that would be a mistake. Of course, you would like and encourage everyone to be your customer, but there are some people for whom your product will be a better fit. Identifying who those people are and focusing on that particular consumer base will also help you better target your marketing efforts and form your product or service.
Especially in the beginning, try to understand who will be the ideal customers for your product. Once you identify your target consumer, market your business effectively to them, and get them to love your product, then you can expand to other types of consumers.
You can identify potential customers in three ways: demographics, psychographics, and geolocation.
Demographics are things like age, sex, income, education level, marital and parental status, car or homeownership, and many other measurable attributes.
Psychographics are people’s attributes that can’t be measured precisely but are still important. These include desires, wants, hopes, fears, hobbies, interests, insecurities, mental blocks, common emotions they are prone to, and even things like confusion and delusion.
Geolocation targeting is self-explanatory. Some businesses draw clients from local areas and some businesses draw clients globally. A local liquor store draws most of its customers from the surrounding five-block area while an average restaurant draws most of its customers from a slightly larger surrounding neighborhood. A handyman business can attract customers from anywhere in a city or a few neighboring towns because the handyman is able to travel there. An online business has a wider reach, sometimes attracting clients globally, although some countries tend to be far better target markets because they are wealthier and usually have more people with disposable incomes, or speak a language that is best suited to consume your product.
Let me give you a concrete example of how I identified a target market for my business plan app.
I’ll explain what the geographic targeting, demographics, and psychographics are for the users of this app so that you can see my thought process for identifying them.
First, let’s cover the geographic targeting. The app is an English-only app so the best countries for this app are ones with a large base of English language speakers and Android users. These countries are USA, Canada, UK, Australia, South Africa, India, Indonesia, Malaysia, and a few other large countries that have large populations because even if a small percentage of people in those countries speak English, that would still make for a significant user base of English language speakers.
The demographics for this app are a little more nuanced. Most people who use apps are generally younger. Most entrepreneurs tend to be younger. Most of the users for this app are under 30 years old, and often under 25 years old. They are typically not wealthy since usually younger people are less affluent than older people, and entrepreneurs are not known to be wealthy when they first start out either. The users for this app are almost always first time entrepreneurs, single, and often still in college, just out of college, or even in high school.
Psychographics are where things get interesting. What are the app users like as people? What do they need and want in life? Over time, I have gotten to know my app users pretty well. Very often they aren’t necessarily interested in starting a business as much as they just need to make some money. Usually, that happens to people when they are in somewhat dire and stressful life circumstances. They need advice and direction because they usually have very little support in their business ventures or careers, and are generally thankful when the app provides them with some support. Usually, the types of businesses that people on my apps try to start are not too technical. Most of the businesses being planned on the app are different kinds of local services or other traditional businesses.
By combining the geolocation, demographics, and psychographics, we can understand a lot about the average app user. Once we have a deep understanding of our target customers, we can create a product that pleases them, and we can better understand how to promote our product to reach people who are in our target market.
WHAT NOT TO WRITE IN THE TARGET MARKET SECTION: Don’t write something like “everyone” or “all women” or “all men”, or “all people in some country or city”. You have to show a much deeper understanding of your target consumer and their consumption behavior.
Understanding your consumer makes it easier and cheaper to reach them in large volume with targeted marketing and advertising. It also makes it easier to create a product that better satisfies their needs, and is used in a manner that is convenient to them (important for product adoption and customer retention). It also helps you better understand your market size, which enables you to make more accurate financial estimates.
Point to realize: Narrowing down your target market to some specific group is not the same thing as limiting the potential of your opportunity. Narrowing down is the process of identifying your ideal customers.
Another consideration is your addressable market vs. the overall market.
A subset of your market is people who are more likely to become your customers.
The total addressable market is the entire market which your business services. The target market for your start-up is the subset of the total market that your start-up is in.
If, for example, you are opening a fine dining restaurant, the overall market for people who visit restaurants is probably everyone in your city. But your target market is much narrower. The market you can realistically target is only people who like to eat the kind of cuisine served in your restaurant, people who can afford to eat out, and who live within a few mile radii of your restaurant. Since in this example we are discussing a fine dining restaurant, the target demographic may also be over 30 or 40 years old.
Here is another example. The total United States shoe market is in the billions of dollars per year. But if you made a shoe that is a slipper for men, you could only sell that to a portion of men in the United States.
It might be tempting to say that your target market is all men because there is nothing preventing all men from wearing slippers. But it would not be correct to say that your target market is all men. Many men hate wearing slippers, and it can be difficult to force kids and teens to wear slippers. Some men 18-45 years old might not like wearing slippers because they might make them feel like a grandfather. Plus, some people prefer to walk around their homes barefoot. Older men tend to wear slippers at home, but as a demographic, they statistically shop less often. It turns out that older people who would like your product the most, belong to a demographic that spends the least. And that is not a great business situation.
The deeper you understand the spending and behavior of different consumer groups, the better you will be able to estimate who you can sell to and identify a target market that can be advantageous to pursue.
Additionally, if you said that the target market for slippers was all men, and if you tried to market the slippers to all men, that would result in quite a bit of wasted money, time, and effort since not all men wear slippers. Instead of saying that your target market is all men, you may make older men your target market, promote it in places they shop, and make the style and feel specifically tailored to their preferences.
Example of the target market section of a business plan for a mobile app:
The target market is first-time entrepreneurs who need help with topics like business ideas, business planning, marketing, and fundraising.
Demographics:
Largely under 35 years old (app users are usually younger)
35% the US, 10% India, 5% UK, 5% Canada, 5% South Africa, 4% Australia, 4% Malaysia, 3% Indonesia, the remaining 29% are in rest of the world, largely concentrated in the developing world since for many people there the smartphone is the only computing device they own.
Low income
Low education
Not married
No children
Psychographics:
Don’t necessarily need to start a business, just need to make money one way or another
Largely low tech businesses
Typically not the Silicon Valley start-up types
Under financial stress and pressure
Low confidence in business, maybe told by others not to do business
Little family support
No ability to make in-app purchases with a credit card due to being in the developing world. PayPal may be okay for some.
Need a solution fast
Have limited funds
Prefer free
Analysis of the target market section of a business plan for a mobile app:
It is important to emphasize that while you can get demographic data from market research firms and analytics software, to understand the psychographics of your customers you must be “nose deep” in their business. Find as many ways to talk to them as possible to understand their needs. By offering free help to my app users early on (I don’t do that anymore), I got an invaluable insight into what my customers needed and was able to create a product that satisfied them. Finding ways to talk to current and potential clients will give you great insight into what they need, which will help you create a more useful product for them that you can more easily promote.
Your target market size
This is the total dollar amount of your company’s industry. Some markets are multi-billion dollar markets. Some markets total tens or hundreds of millions of dollars. You have to show that you understand your market and its size.
If you are building a company that sells a niche product, your market size may be small, but if you are selling computers or cars, your market size is in the tens or hundreds of billions of dollars and is obviously very large.
This section reassures the reader that you have done due diligence and understands the business environment in which you are operating.
WHAT NOT TO WRITE IN THIS SECTION: Do not provide vague approximations and write something like “huge, very big, millions, or billions.” You must research and know the statistics of your industry. You have to be as specific as possible with the dollar amount of your market size. The closer you get to the actual dollar amount, the better.
After you’ve noted the overall market size, narrow it down to your specific target market, which is a subset of the total market.
Example of the market size section of a business plan for a mobile app:
The full potential for my apps will be reached when they dominate search and recommendation algorithms on both Android and iOS.
Just by dominating in search, these apps can reach approximately 1,000,000 people per year.
Once the apps are widely recognized, they can get big publicity from industry websites, magazines, and by being featured in the Apple App Store and the Google Play store. That would result in 100,000-300,000 additional downloads per year.
An average download generates $1.00 of revenue, which means that at its peak, these apps will generate $1,100,000 to $1,300,000 per year.
(Reminder: The financial data in this example is fictitious. Actual financial data is private.)
Analysis of the market size section of a business plan for a mobile app:
The challenge I faced when writing this section was that there is no research on the total market size for business apps. I had to make an educated guess about the full potential of my apps based on data I already had. The only metric that was possible to get was to look at download numbers of comparable apps.
Marketing plan: How will you market to your target users?
The marketing plan is one of the most important sections of a business plan. It was one of our three core components in the 3-sentence business plan.
There are many ways to promote a product or service, but not all marketing techniques work for all companies. Your marketing plan must contain the most effective marketing strategies you will use to consistently reach your target market and convert them to clients at a scale required for your business to succeed.
If your marketing plan does not contain viable and effective strategies, you may spend your time and money making misguided marketing efforts, which might result in wasted funds, effort, and many months of work without getting clients. Needless to say that many businesses don’t recover from such errors and fail precisely due to having an ineffective marketing plan.
COMMON MISTAKE AND WHAT NOT TO SAY: If your marketing plan reads something like “I will promote my business by posting on Instagram, Facebook, Twitter, and handing out flyers and business cards” then my initial guess would be that you are on your way to making a very common mistake. This strategy is commonly used by novice entrepreneurs and first-time marketers, not because it’s the best way to promote their unique business, but because they don’t know any better. This is a big red flag that marks inexperienced marketers.
Later in this book, we’ll go over the most common marketing strategies for common types of businesses. For now, just understand that your marketing strategies should be in sync with how your potential clients naturally discover your product or service.
If an investor or an experienced business person reads your business plan, they will put emphasis on the marketing plan because they understand that if you don’t know the best ways to promote your business, there is no business. A common way investors spot inexperienced entrepreneurs is when their plans don’t include an effective marketing plan.
Example of the marketing plan section of a business plan for a mobile app:
The marketing of these apps will be through:
Mobile app store search (Apple App Store and Google Play Store)
Publicity and PR
Social sharing from people inviting business partners to help plan their businesses on the apps
My website Problemio.com
Google search
YouTube channel
Podcast
Facebook, Instagram, and AdWords Ads
Ads on the Android and Apple app stores
Since for most apps, the bulk of downloads comes from Android and Apple app store searches, that is where I will concentrate.
Analysis of the marketing plan section of a business plan for a mobile app:
My apps have gotten 95% of their downloads from app store searches. Another 4.9% of the downloads came from promoting them through various publicity and PR sources, social sharing, my YouTube channel, and my website.
I didn’t try to create a podcast or use many other marketing strategies to promote my apps because secondary and tertiary marketing strategies tend to have a steep drop in their effectiveness. It is better to double down on the most effective marketing strategies to ensure that you execute them to your best ability than chase ineffective strategies.
This marketing plan is effective because its strategies work for most types of apps. If you’ve never promoted anything before, and aren’t sure which strategies will be best to promote your business, get an experienced professional to help with your marketing strategy before you start your business.
Revenue model
In this section, you must outline how and when you will generate revenue. How many revenue streams will you have? What will be your strongest revenue stream?
There is quite a bit of confusion around terms like a business model, revenue model, and revenue stream. They often get mixed up. The term business model is often incorrectly used to express how your business generates revenue. As we covered earlier, a business model is something greater. A business model takes all the components of your business into account and evaluates how they work with one another. The revenue model is just a part of the business model, and a revenue model can contain one or more revenue streams.
Now let’s go over some of the most common revenue streams and examine when and how they should be applied to your overall revenue model.
THE AD REVENUE STREAM
The ad revenue stream is the simplest revenue stream. All you do is create an ad, publish it on your website, billboard, or any other property, and you are set. But the truth is that your customers hate ads, and ignore them as much as possible. That makes ads so ineffective that they can only make a reasonable amount of money if the website, billboard, or other media on which they are placed gets a very high volume of views. And the per view revenue is typically atrociously low.
On the web, the most commonplace to get ads that you can place on your website is Google’s AdSense program:
http://www.google.com/adsense
For most sites, AdSense earns somewhere from $5.00-$10.00 per 1,000 page views. A thousand page views are the common unit of measurement for ads. It is denoted by CPM.
If a typical CPM (cost per thousand views) is $5, then you need 10,000 views to make $50. To make $500, you need 100,000 page views. And to make $5,000 - which is getting close to the vicinity of a middle-class monthly salary for one person in the United States - you need to generate one million page views, which is extremely difficult for most websites.
If you decide to monetize your business with ads, your site will need to attract millions of people for you to be able to make any real money and grow your business. What you can do to increase your revenue potential is to think of another revenue stream that can work together with your ad revenue stream to improve results or replace it entirely.
A common mistake in choosing a revenue model is having a mismatch of business type to the revenue model.
To be effective, just like with the case of the marketing plan, the revenue strategy must reflect the reality of the business.
For example, the ad revenue stream needs many views to generate a reasonable income. If you don’t have a high-traffic website or business, the ad revenue stream might not be ideal for the situation.
AFFILIATE REVENUE STREAM
The affiliate revenue stream is a popular one, especially on the web. An affiliate is a reseller of products or services provided by another company. Online, the affiliate reseller promotes relevant products and collects sales commission.
An example of an affiliate is when my clients need project management software. Since I don’t make such software myself, instead of recommending other software without being rewarded for it, I can become an affiliate reseller of this software for companies that create such software and collect a commission when I recommend it to my clients and they sign up.
This can work in conjunction with ads or separately.
If you get it working, selling affiliate products can make an order of magnitude more money than publishing ads because the commissions can be substantial depending on what you promote. But that is not a guarantee because it isn’t easy to sell products. Pound for pound, selling affiliate products is more lucrative than publishing ads if you had to choose one over the other.
TRANSACTIONAL REVENUE STREAMS
A transactional revenue stream is one where you get paid directly in exchange for goods or services. This includes most kinds of commerce. Most traditional services also use the transactional revenue stream. For example, doctors’ offices, cleaning businesses, restaurants, etc.
The transactional revenue stream is a very simple and direct way to get paid. Its strength is its simplicity and direct path to revenue. There is no need for publishing ads or referring people to other websites or businesses, and in many cases, there is also no waiting. You often get paid immediately.
Usually, there are two challenges to this kind of revenue stream. The first challenge is that people have to pay. Since they typically don’t like to do that, they have to either really need what you are selling, or you would have to perfect your sales skills. The second challenge is that as soon as something can be sold for a profit, others jump on the opportunity and the business environment becomes crowded and competitive, making it difficult to promote the business effectively or bring in new customers in high volume.
Additionally, competition is often followed by price deterioration, which causes everyone to make less money. Consumers love this because they get more options at cheaper prices, but this is bad for your business because you make less money.
Nevertheless, if you can sell something, that is a great option. You just have to beat all your competitors.
Many people don’t think of themselves as being able to make a product, but I’d argue that you are able to make more kinds of products than you think.
There are many different kinds of products. There are written works like books and information products like online courses. There are arts and crafts that you can make at home and sell online. There are mobile apps or software products you can create on your own or by outsourcing. You can even use 3-D printing and create 3-D products that can be sold online. There are many different kinds of things you can make and sell. Imagination is the limit. Just think of your talents. I am sure you will be able to come up with something great. An idea for a product may not come to you today, but if you think about it, a good idea will come to you sooner than you might think. Once you can create something, there are likely many places online and offline where you can sell it.
SUBSCRIPTION-BASED REVENUE
This is a favorite of business owners. Not only does this mean recurring and somewhat predictable revenue, but it also means that revenue can accumulate every month as you grow your subscriber base.
If you can maintain a higher sign-up rate than your unsubscribe rate, you will have a beautiful revenue growth graph that is always up and to the right, with more subscribers and revenue each month.
Plus, the dirty little secret of subscription-based revenue is that many people simply don’t unsubscribe because they are lazy or uncertain of whether they want to completely cut off the service. Think about how many people maintain their gym memberships, but have not been to the gym in months (or years, ouch!).
MAXIMIZING THE POTENTIAL OF ANY REVENUE STREAM YOU CHOOSE
There are three common ways to maximize the earnings from your revenue streams:
Sell more to customers either immediately or overtime
Charge more
Optimize the rate at which you get new paying customers
Let’s explore each of these in more detail.
Think about how to extend the lifetime relationship you have with your customers. For example, when buying a car, does your relationship with the car dealer end there? It doesn’t. The dealer encourages you to come in every six months to service your car which gets you into a habit of going back to that dealer. When it is time to buy your next car, you are likely going to consider buying from them again. Plus, any time you visit them, they can sell you add-ons such as car accessories, earning them additional revenue. Plus, if anything in the car breaks that isn’t under warranty, there is a chance you might use their mechanic services or someone they refer you to while they collect a commission on that referral.
As another example, let’s consider an example of a blog that makes money with ads. If you visit the blog once, they will have one chance to make money from you by showing you ads. If you never come back, they lose the chance to show you more ads. But if you like the blog and become a daily reader, they can show you ads 364 more times that year. That is an increase in earnings by a multiple of 364!
If you look at almost any established business, you will notice a way in which that business tries to extend the length of the relationships with its clients. Even my business does it. I structured it to be able to help entrepreneurs over the long-term, whether they are at the idea stage or the growth stage of their businesses. If a person has a business idea, I am able to offer business planning products and coaching, help with starting the business, website creation, and long-term marketing. Many clients have worked with me for years and I recommend that you begin thinking about how to create similar long-lasting customer relationships in your business.
Whether or not you are able to increase the duration of your relationship with your customers, think about how to charge more for your products or services. You can charge more by improving the quality of your offering and by targeting a more affluent market in which people can afford higher rates.
Lastly, always work to maximize the new customer acquisition rate and the percentage of people who you convert from inquiries to paying clients. Let’s take a look at how to optimize your sales funnel as a way to improve sales conversion.
A sales funnel is the series of steps a person goes through from first learning about your business to becoming a customer. Sales funnels come in many shapes and sizes and just about every business has one. Optimizing your sales funnel can mean the difference between life and death for a business because the more effective your sales funnel is at converting visitors to buyers the less money it takes to acquire each new customer, making your business more profitable.
When you are marketing your business, you probably send people to your website or a physical location. That initial point where your direct traffic is at the top of your sales funnel. Once people get to the top of your sales funnel, you must have a clear path for those people to follow in order to purchase something or perform some action that you want them to perform.
The first step to improving your sales funnel is to measure everything.
If your business has a website, use web analytics software to measure and understand what those website visitors are doing. The most common free analytics software on the web is Google Analytics. You can sign up for it and start using it here:
http://www.google.com/analytics
If you are not familiar with web analytics, it would behoove you to familiarize yourself with it. It will help your business and it is an industry-standard. If you don’t use analytics software, you are literally “driving with your eyes closed” because you have no idea what people are doing on your website.
Web analytics will help you understand how many people visit your website and what they do on each page of your website. On each page of your site, you need those website visitors to go to the next step of your sales funnel. With analytics, you will be able to see whether people are taking the steps you need them to take or whether the funnel breaks down somewhere, causing them to quit and leave your website. Knowing what your website visitors are doing will allow you to make adjustments to get your visitors to successfully progress through the sales funnel.
You may be asking how you can increase the rate at which people move forward through the sales funnel. What you have to do is make the steps clear and have strong calls to action (usually a big button somewhere on the page) letting people know where they need to go.
Experiment with where on your site the calls to action are and what text should surround them so more website visitors make it all the way through your funnel. Also, experiment with different page layouts to see what design and color schemes might give better results.
The best way to experiment is to use something called A/B testing. A/B testing is a technique in which you have two or more versions of a web page. You then drive people to those versions of the page and test which version generates a higher rate of desired behavior. The version of the page that works best is the one you keep on your site.
Another way to improve your sales funnel is to shorten it. You can create a single page optimized for a single action that you want people to take. That kind of page is called a landing page because once you create that page, you can drive people to land on it. It typically produces satisfactory results because prior to driving people to it, you are able to extensively test its effectiveness using A/B testing, and only drive people to it once you are satisfied with its effectiveness.
Landing pages are a great tool to help you minimize the steps in your sales funnel and, therefore, increase the conversion of website visitors to buyers. Fewer steps mean fewer people veering off the desired path in your sales funnel.
Example of the revenue plan section of a business plan for a mobile app:
Note: the numbers here are fictitious due to privacy.
In-app purchases of content
In-app subscriptions to coaching
Up-selling coaching services of the app
Up-selling my books and online courses
Selling affiliate products like website hosting for new businesses and legal and accounting services
Sponsors
Annual revenue: $125,000
In-app purchases of content ........................ $45,000
In-app subscriptions to coaching ................. $30,000
Up-selling coaching services of the app ....... $20,000
Up-selling books and online courses ............. $10,000
Services ...................................................... $10,000
Sponsors ...................................................... $5,000
Selling affiliate products................................. $5,000
Next year projected annual revenue: $161,000
In-app purchases of content ........................ $60,000
In-app subscriptions to coaching ................. $40,000
Up-selling coaching services of the app ....... $25,000
Up-selling books and online courses ............. $12,000
Services ...................................................... $12,000
Sponsors ...................................................... $7,000
Selling affiliate products................................. $5,000
Analysis of the revenue plan section of a business plan for a mobile app:
Just like in the marketing plan section of the business plan where I identified the most effective marketing strategies for my industry and product, I’ve identified the top revenue sources for apps and chose the ones that would be the best fit for my unique app.
The lesson here is that you have to understand your industry, how comparative companies generate revenue, take into account the uniqueness of your situation, and come up with the most effective ways to monetize your customers and retain them long-term.
Financials
Before you start your business and as it grows, you must have a clear view of its overall financial picture.
There are three sections of a financial statement:
Cash Flow Statement
Income Statement
Balance Sheet
Maintaining a cash flow statement, income statement, and balance sheet can help you keep track and have a better understanding of the overall financial picture of your business.
Large businesses typically have accountants who work on this section of the business plan, but if your business is small or you are just starting, you can create basic versions of these financial statements.
Let’s start by creating your own cash flow statement. A cash flow statement for a new business is a glorified itemized list of ways cash (and cash equivalents) comes in and out of your business.
For new businesses, I recommend creating two such statements. The first statement is for the time period before you open your business, and the second statement will deal with cash flow after you open the business. Finances for these two periods are very different.
As an example, let’s say that you are opening a restaurant in the United States. First, let’s focus on the cash flow before the business is open.
Some (not all) of the cash flows out of the business are:
- Renting of the physical space
- Legal fees
- Business registration fees and other license fees
- Salaries of few early employees
- Remodeling of the space and furniture
- Food inventory
- Tools, machinery, and supplies
The cash flows into the business will be from funding sources like investments, loans, grants, donations, etc.
Now let’s focus on the cash flow statement after the business has started. Some (not all) of the cash flows out are:
- Monthly rent
- Employee salaries
- Utilities
- Liability insurance
- Ingredients for the food
- Marketing costs
The cash flows into the business are the different revenue streams like alcohol sales, food sales, and maybe catering.
The reason that creating this document is so important is that it gives you a clear sense of the financial picture for your business and enables you to make financial projections. It gives you a way to understand how much money you will need to start and run your business until you reach desired milestones which are often the break-even point and the point of profitability.
Creating a cash flow statement also helps you understand how much money to ask for when pitching investors. Depending on the type of business you have, you can ask for enough money to get you to a particular milestone or to get your business off the ground if cash is what you need. Aim to secure about 9-16 months of the financial runway after the business has started.
Example of the cash flow statement of a business plan for a mobile app:
Note: A small business should monitor cash flows monthly. More established businesses often track cash flows on a quarterly basis (every 3 months), but in this case, I made an annual statement.
Cash Flows In (fictitious):
In-app purchases $20,000
Coaching sold through the app $50,000
Ads $10,000
Product sales through the app $40,000
Subtotal: $120,000
Cash Flows Out (fictitious):
Outsourcing development $2,000
Marketing costs $1,000
Apple developer renewal $100
Subtotal: $3,100
That was a basic cash flow statement. Your cash flow statement might have more line items, but the premise will be exactly the same.
Now let’s take a look at the second of the important financial statements which is the income statement. Once you understand how to create a cash flow statement, the income statement is only a small step up in complexity from the cash flow statement.
The difference between the cash flow statement and the income statement is that the income statement has more types of items that are included. Some examples of additional types of items in the income statement that are interesting you might accrue, loans, stock transactions, donations, and depreciation.
To simplify things, think of the cash flow statement as an aid to understanding the operational financial health of your business while the income statement gives you a broader picture of your company’s financial health.
If you are just starting out or planning for a small business, your cash flow statement and your income statement might be identical or look very similar.
Example of an income statement:
Cash Flows In (fictitious):
In-app purchases $20,000
Coaching sold through the app $50,000
Ads $10,000
Product sales through the app $40,000
Subtotal: $120,000
Cash Flows Out (fictitious):
Outsourcing development $2,000
Marketing costs $1,000
Apple developer renewal $100
Loan interest payment $1,000
Computer deprecation $500
Donation $500
Subtotal: $5,100
In this example of an income statement, I took our existing cash flow statement and added interest, deprecation, and donations. In this particular case, this showed that the business is slightly less profitable than the cash flow statement showed because there are a couple of additional expenses.
The last of the three financial statements in a business plan is the balance sheet.
There are three things that go into your balance sheet:
Assets - Cash and property owned by the business
Liabilities - Money coming out of your business
Equity - Assets minus liabilities
There are two types of assets: Current assets and fixed assets. Current assets are the cash your business has in the bank, accounts receivable (money owed to you), stocks your business owns, or anything you’ve paid in advance. Fixed assets are things like the inventory you might have on hand, supplies you own, and intangible assets like intellectual property such as patents or trademarks.
Now let’s talk about liabilities. Just like with assets, there are two types of liabilities: Current and fixed liabilities. Examples of current liabilities your company might have are payroll and other bills you have to pay. Examples of fixed liabilities are debt, bonds you owe, or even owed pension payments to employees.
Once you add up your assets and liabilities, it is simple to calculate the equity of the business. To get equity, you simply subtract the liabilities from assets.
Balance sheet (fictitious)
Assets:
Current assets:
Cash in the bank $50,000
Coaching clients payments owed to me: $3,000
Total: $53,000
Fixed Assets:
Laptop: $1,000
Office supplies and furniture: $1,000
Trademark: $500
Total: $2,500
Liabilities:
Outsourcing freelance tasks: $500
Equity: $55,500 - $500
Subtotal: $55,000
Now let’s calculate the profit margin. The formula for profit margin is:
Profit Margin = Net Profit / Revenue
First, a few definitions:
Gross Profit: Income remaining after accounting of goods sold
Operating Profit: Subtracts additional costs of your business
Costs:
Under $2,000 per year in outsourcing for design and development of features that need to be coded
Under $1,000 per year for marketing costs
After the apps are built, 5 hours of my time per month
Profitability:
In the fictitious finances of this business, that would be $123,000 annually since the only cost is a design and minor outsourcing.
Operating Profit:
Since my business has only minimal other costs, after taxes on $120,000 (minus cost of design AND marketing AND accounting), I make $65,000.
Net Profit:
After I pay myself ($50,000 annually) the business profit is $15,000
Profit Margin:
Net profit / revenue: $15,000 / $125,000 = 0.12 = 12%
Note that if I paid myself less, my business would have been immediately more profitable and with a healthier margin:
Net profit / revenue: $35,000 / $125,000 = 0.28 = 28%
Net profit / revenue: $65,000/ $125,000 = 0.52 = 52%
Forecasting for future years/months
Before getting into forecasting, it is important to understand the difference between a financial statement and a forecast. A statement means the data in the document is from the past and a forecast means that the data is estimated/projected future data.
Let’s start by discussing how to create revenue and profit projections for an existing business. Later in this section, we’ll go over how to create forecasts for a new business.
Revenue and profit forecasts are two very similar calculations with the only difference being that when you calculate profits, the revenue is offset by expenses.
It is important to acknowledge that when you make projections, you are dealing with the future and no matter how accurate you try to be, no one can predict the future with 100% certainty.
The first thing you do when working on a forecast is to identify a time period you want to forecast. A time period can be 3 months, a year, or a few years. Once you define a time period, the next step is to identify all the ways in which money comes in and out of your business. You can do that very similar to the way you made your income statement and your cash flow statement.
Some costs and revenue sources will be fixed and some will be variable. For example, if a long-term contract, (revenue or an expense) is a fixed cost or revenue. Marketing budgets or revenue from expansion into new niches would be a variable cost since it is hard to predict how much it would be month to month.
Next, add fixed costs, variable costs, and revenue sources. Make sure you give yourself a range when calculating the variable costs as these costs can fluctuate.
Also, look at your industry’s and general economic trends as this can impact your forecast. Plus, consider whether your business has aggressive expansion plans. For example, if the past statements were based on one product but you are launching five new products, you might incur significantly higher costs or the new products might impact the existing ones.
Once you take the growth rates for previous months, quarters, (3-month spans), or years and adjust them to anticipate changing market conditions or business strategy, you can use the growth rates from the past to project future growth rates.
Now let’s discuss how to make projections and forecasts for a business that has not been started. It is much harder to create an accurate forecast for a new business because there is no previous data on which to base projections. But some parts of the process are similar to forecasting for an established business. You also have to set a time period and instead of looking in the past for data, what you can do is anticipate costs and expenses. Those can be relatively easy to predict because you probably have an idea of the number of employees you will have, office space you will need to rent, and inventory you must purchase.
Revenue is harder to predict. To make a revenue projection, look at how companies similar to yours started. You can also ask industry experts what might be reasonable to expect and base your revenue projections on your competitor research, the guidance of industry experts, and your own industry expertise.
And just like you would consider market conditions when creating forecasts for an existing business, you also have to do that when forecasting for a new business.
Unit economics overview
This section outlines the financial dynamics of each transaction, giving you insight into how profitable your business is on a per-transaction basis, which will help you assess operational efficiency and identify what needs to be improved.
For example, imagine selling a widget. You sell the widget for a certain price, but it takes you time and money to produce, market, and sell the widget, all while incurring costs such as paying your employees, rent, materials, and other bills.
You must figure out what it costs to put a widget into the customer's hands, and the price you will charge for the widget. That is a single transaction. Once you dissect a single transaction this way, you can understand if it was profitable or lost money.
Your job is to figure out the number of widgets you need to sell in order to 1) break-even financially on a month-to-month basis, 2) turn a profit, 3) finance further business growth, or reach other business goals.
Also, consider whether selling as many widgets as you need in order to meet your financial goals is viable through your available marketing channels and the size of your target market.
Example of the unit economics section of a business plan for a mobile app:
Since the product is a digital product and 99% of my marketing is from free sources, there is no cost of goods or marketing costs. Every download brings in (fictitious) $0.10 on average LTV (lifetime value of a customer).
The LTV per customer is on par with other apps. Most apps struggle to make significant money per customer and offset that by focusing on generating large volumes of downloads.
Since an app is a digital good and there is no cost to reproduce it like there is with physical products, any revenue is pure profit.
How I will extend the lifetime customer value (LTV)
I use a “catalog” model to extend LTV by offering many upsells in the apps. I list all of my 20 books and 100+ online courses in the apps so when a person buys one, and they like it, they might buy a few more. Some rare individuals even buy my full catalog which immediately increases the revenue earned from them by thousands of percent compared to if they just purchased one product.
I offer a subscription service on one of the apps. If a person subscribes for a year, that is 12 times more revenue than from a one-time purchase. This represents a 1200% increase in annual revenue. A two-year subscription represents a 2400% increase in revenue from the same customer, and so on as the subscription length grows.
As one of the up-sells in the app, I offer long-term off-app business coaching which can generate thousands of dollars with the right client.
I am working on improving LTV (lifetime customer value) by supporting the customers better, having them use the app longer by improving the design, making features more useful and generally more beneficial. Longer engagement will boost monetization per customer.
Email collection and email marketing to get people to re-engage with the app.
Analysis of the unit economics section of a business plan for a mobile app:
Since the apps are free and there is no immediate transaction when people download the apps, the goal is to retain the user long-term, make them a super-user to a point where they eventually warm up to the idea of paying for something on the apps. Once they warm up to the idea of engaging with paid options, those paid options are designed to maximize purchasing.
Current team
Provide a brief professional background of each member of your executive team, and discuss the current size of the team. Explain why each team member's experience is the right fit for this business. Bonus points if the team has worked together before and if members of the team have relevant experience in your industry. If you have great mentors or advisers, list them in this section as well.
Example of the current team section of a business plan for a mobile app:
This is a single founder business.
Alex Genadinik: 5+ years of software engineering, 10+ years marketing, 5+ years product creation, successful entrepreneur.
Analysis of the current team section of a business plan for a mobile app:
This section is simple. Simply list the top members of your team, any board members, or notable advisors or mentors.
Your competition
It is important to understand the competitors in your business environment. Your competitors are to be respected, understood, and serve as examples if they are successful. You must understand why they are successful as well as their shortcomings. Where they fail may present an opportunity for your business to succeed by carving out a niche. Wherever your competition is strong is an opportunity to learn from them. You do not need to be better than your competitors at everything, but you do need to understand how your business will be different, and what part of the market you may satisfy better. You must have strategies for what you will do to compete against your competitors and come out on top long-term.
WHAT NOT TO DO: Don't obsess over your competitors or hyperfocus on their model. There will always be someone competing with you. Understand and learn from your competitors, but keep the focus on making your own business better. In the beginning, there are far more dangerous things than the competition. New businesses are much more likely to fail from basic implosion if they do not offer a great product or service and sell it effectively.
Example of the competition section of a business plan for a mobile app:
Other business plan templating apps. My apps are different in that they help entrepreneurs create higher quality business plans by educating entrepreneurs and discouraging an overreliance on templates that fill up the business plan with reused content.
Gimmicky business plan apps that promise business plans in 5 minutes. Since my apps focus on the quality of the business plan and entrepreneur education, the business plans created with my apps are more effective.
Pen and paper planners. Apps are more easily portable, offer cloud storage for natural backup, and can be used to plan a business with partners remotely.
Business card apps, business news apps, productivity apps, and other big-budget apps. These apps are not direct competitors, but I compete with them for similar searches in the Apple App Store and Google Play Store.
Analysis of the competition section of a business plan for a mobile app:
The right thing to do in this section is to list competitive products or companies. I didn’t list any specific companies because I didn’t want to give them extra promotion. Instead, I listed types of companies, products, or consumer behavior. In your business plan, list competitive companies, products, and user behaviors, and explain how you set yourself apart.
Previous investors and funding
Give an overview of how your business has been funded so far. Depending on who will be reading your business plan, you can add or remove sensitive information from this section (as well as other sensitive financial information throughout your business plan).
Example of the funding section of a business plan for a mobile app:
There is no previous funding. The apps were self-funded and created by Alex Genadinik, who retains 100% ownership.
Analysis of the funding section of a business plan for a mobile app:
This section is easy to write, but difficult to get right in the real world because it is stressful and difficult to create your business without the necessary funding. But the problem with the funding is that it is difficult to secure and even if you get it, you sometimes have to give away a part of your company ownership and with that, some of the decision-making power. On the other hand, you don’t want to go into personal debt to start a business.
In most cases, while it is understandably difficult to create a business without raising money, it is better to go as long as possible without outside funding. It leaves you in control of your business and debt-free.
In the early stages of creating my apps, I did approach some investors. Luckily they said no and I retained all the decision-making power, collected all the revenue, and never had to make strategic decisions that investors would want to force on me in order to get a return on their investment.
What you are seeking with your plan
If you are handing the business plan to someone, you may want to add a section explaining why you are writing the business plan. Are you raising money? Are you hiring employees? Use this section as a closing to your business plan. If the reader got this far, they are likely interested. Let them know how they can get involved.
Example of the “what I am looking for” section of a business plan for a mobile app:
My company is looking to get into a start-up incubator and gain access to software development and app usability experts. That help will take the 4-app series to the next level in terms of quality and help it dominate in the app stores.
Analysis of the “what I am looking for” section of a business plan for a mobile app:
In my case, I don’t need money. I need a very high level and senior-level advice on important details of my apps, but most people create a business plan because they need funding. If you are looking to gain funding, list how much money you are looking to raise, and which milestone you are hoping to achieve with that funding.
Business plan appendix
If you have sensitive information in your business plans like private financial data, investor information, or business secrets, you can place them in the appendix section of a business plan. The purpose of an appendix is to easily add and remove information depending on who you will be showing the business plan.
Example of the appendix section of a business plan for a mobile app:
My business plan example didn’t have an appendix because I put all the financial information in the body of the business plan. In your case, you have the choice to move that information to this section.