Market information is key in a business plan. You need to convince the private equity firm that there is a real commercial opportunity for the business and its products and services. This requires a careful analysis of the market potential for your products or services and how you plan to develop and penetrate the market.
Market analysis form critical part of market information required in the business plan. This information will be scrutinized carefully; market analysis should therefore be as specific as possible, focusing on believable, verifiable data. Include under market research a thorough analysis of your company’s industry and potential customers.
Include data on the size of the market, growth rates, recent technical advances, Government regulations and trends – is the market as a whole developing, growing, mature, or declining?
Include details on the number of potential customers, the purchase rate per customer, and a profile of the typical decision-maker who will decide whether to purchase your product or service. This market information drives the sales forecast and pricing strategy in your plan. Finally, comment on the percentage of the target market your company plans to capture, with justification in the marketing section of the plan.
The primary purpose of the market information section of the business plan is for you to convince the private equity firm that the market can be developed and penetrated.
The sales projections that you make will drive the rest of the business plan by estimating the rate of growth of operations and the financing required. Explain your plans for the development of the business and how you are going to achieve those goals. Avoid using generalized extrapolations from overall market statistics.
The plan should include an outline of plans for pricing, distribution channels and promotion.
How you plan to price a product or service provides an investor with insight for evaluating your overall strategy. Explain the key components of the pricing decision – i.e. image, competitive issues, gross margins, and the discount structure for each distribution channel. Pricing strategy should also involve consideration of future product releases.
• Distribution channels
If you are a manufacturer, your business plan should clearly identify the distribution channels that will get the product to the end-user. If you are a service provider, the distribution channels are not as important as are the means of promotion. Distribution options for a manufacturer may include:
- Distributors- Wholesalers- Retailers (including on-line)- Direct sales – such as mail order and ordering over the web, direct contact through salespeople and telemarketing.- Original Equipment Manufacturers (OEM), integration of the product into other manufacturers’ products.
Each of these methods has its own advantages, disadvantages and financial impact, and these should be clarified in the business plan. For example, assume your company decides to use direct sales because of the expertise required in selling the product. A direct sales force increases control, but it requires a significant investment.
An investor will look to your expertise as a salesperson, or to the plans to hire, train and compensate an expert sales force. If more than one distribution channel is used, they should all be compatible. For example, using both direct sales and wholesalers can create channel conflict if not managed well.
Fully explain the reasons for selecting these distribution approaches and the financial benefits they will provide. The explanation should include a schedule of projected prices, with appropriate discounts and commissions as part of the projected sales estimates. These estimates of profit margin and pricing policy will provide support for the investment decision.
The marketing promotion section of the business plan should include plans for product sheets, potential advertising plans, internet strategy, trade show schedules, and any other promotional materials.
The private equity firm must be convinced that the company has the expertise to move the product to market. A well-thought-out promotional approach will help to set your business plan apart from your competitors.
It is important to explain the thought process behind the selected sources of promotion and the reasons for those not selected.
A discussion of the competition is an essential part of the business plan. Every product or service has competition; even if your company is first-to-market, you must explain how the market’s need is currently being met and how the new product will compete against the existing solution.
The investor will be looking to see how and why your company can beat the competition. The business plan should analyze the competition (who are they, how many are there, whatproportion of the market do they account for?). Give their strengths and weaknesses relative to your product.
Attempt to anticipate likely competitive responses to your product. Include, if possible, a direct product comparison based on price, quality, warranties, product updates, features, distribution strategies, and other means of comparison. Document the sources used in this analysis.
All the aspects included in the market information section of your business plan must be rigorously supported by as much verifiable evidence as possible. In addition to carrying out market research and discussions with your management team, customers and potential customers, you may need input from outside marketing consultants.
Market information should be included in business plan executive summary