Business Plans

This section gives you the chance to describe what products or services the company is in the business of providing to its customers. You’ll answer these questions: exactly what is the product or service you’re selling and why does the customer need it? How will you provide that product or service to your customer and how will you do this better than your competition?

After reading this section, the reader should know exactly what the company sells; from where the company gets its inventory, if any (or from where it sources them); and the gross margin for each product.

Your Business Plan Writing Assignment:

Write a paragraph describing each product or service the company will offer. At the end of each paragraph, state how much the company will charge for each product (which is the retail price or revenue). Make sure your retail price is realistic, based on your competitor’s pricing.

Then write down how much the product will cost the company to buy or manufacture (this is called the cost of goods). Make sure your cost for that product is realistic, based on quotes from suppliers. Now, subtract the revenue from the cost of goods to figure out the gross margin per unit for each product. The gross margin is how much money you keep, before paying the company’s expenses (like your salary).

The section will look something like this:

Product/Service #1: Write a product description and discuss realistically why customers will buy the product (and not just because ‘it’s great!’). Discuss briefly why customers will choose your product over your competitor’s product. Then state from where the company will purchase the product or how the product will be manufactured (or describe the service providers the company will employ.) Then do the math to come up with each product’s gross margin:

Gross Margin per Product

Retail Price (Revenue): $10.00
Cost of Goods:             -$ 5.50
Gross Margin:               $ 4.50

Do this for each product or service you’ll offer. You’ll need this information for completing the Financial Forecast section.

Use this information to find your Gross Profit Margin percentage, commonly referred to simply as your ‘margin’. The margin is how much money you keep from each sale. The money you keep is what you use to pay the bills. Generally, it’s easier to make a living selling high-margin products. Anything less than 15-20% leaves little left over to pay salaries and expenses. Here’s the math to find your margin:

(Revenue-Cost of Sales)/Revenue

Here’s how that translates using our example:

$10.00 minus $5.50 = $4.50 divided by $10.00 = .45 (or 45%)

 
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