Internet Marketing Success Requires a Business Plan (Part II)

Formal business planning is a process that takes that "great idea" and subjects it to rigorous scrutiny. It either validates your premise or else shows you where the idea falls apart. Business planning forces you to identify costs and develop a sensible marketing strategy before you start spending money. Having a solid business plan will also help you to acquire funding, if necessary.

So what should an Internet marketing business plan address? At minimum, it should be a written document that covers:

Product/Service

  • A precise description of the product or service you wish to market on the Internet. What is it, and what are its ingredients? What (if anything) makes it unique? Are you sure you can actually provide this?

    • Marketplace

  • A clear definition of the target market(s) in terms of characteristics and numbers. That is, what need are you going to fulfill and who are your prospective customers? Is the market big enough to justify your investment? Is the market wide open or is it already saturated? Are there any entry barriers to prevent competitors from easily imitating your success? What industry associations, directories, agencies, clubs or events can be leveraged to reach your target market(s)?

  • Are there any distinct prerequisites to participating in the target market(s), such as industry certifications or association memberships?

  • Who are your competitors, and how are they addressing the market? What do their Websites offer and how are they constructed? How successful are they (check SEC filings if they are a public company)?

    • Strategy

  • Given what you have learned about the market and the competition, how are you going to differentiate yourself? Is it through better service, lower pricing, more features, by offering different models for each market segment, improved convenience?what is your "edge?" Why should a customer buy from you rather than an established competitor with a proven track record? Unless it is a huge, unsaturated market, save yourself a lot of time and expense by stopping here if you don't have a good answer.

  • What is the most effective way to reach your targeted audience on the Internet? Through niche directories or search engines? By search engine optimization? Advertising in targeted online ezines? Email marketing? How?!

    • Pricing

  • What is the going price for the service or product that you wish to sell on the Internet? What will the market bear? Is this sufficient to yield the margins you need to have a profitable business?

  • What will be your pricing by model or type of service?

  • If you are considering consulting services, how will you provide timely bids?

    • Operations

  • If you intend to market a tangible product, how will it be produced at the required volumes and turnaround times?

  • How will orders be processed? By e-commerce, email, phone, or fax? Are merchant accounts necessary?

  • How are you going to fulfill orders? Will you have orders drop-shipped or handle them yourself? Is electronic downloading required?

  • Do you envision establishing a distribution channel, such as resellers or affiliates? If so, what is required and how long will it take?

  • How will customer service be handled? What is your guarantee to the customer? How will returns be processed?

    • Costs

  • What start-up investments are necessary (talent, hardware, software, outsource services, office space, etc.)?

  • Where will the start-up funds come from?

  • What are your production costs?

  • What are your ongoing costs (Web hosting, PPC advertising, etc.)?

  • What type of legal entity will your "company" be (e.g., sole proprietorship or LLC), and what cost and effort is necessary to make that happen?

    • Launch Plan

  • Identify all the major steps that must be undertaken to launch your Internet operation and determine which steps must be accomplished before others (i.e., what are the prerequisites for each step). Use Microsoft Excel or Project to sequence these by time.

  • Who is responsible for each step?

  • Determine your "go live" target date.

    • Expected Return on Investment

  • Create a spreadsheet model to determine when you can expect to break-even on your investment costs and what your estimated profitability will be over the next two or three years (preferably on a monthly or quarterly basis). Format the model so that it shows:

  • Expected Gross Revenues by model or type of service, taking into account a start-up curve. Construct it so that you can easily enter different variables (e.g., number of monthly sales by units) to ascertain the impact on expected revenues and variable costs.

  • Less Fixed Costs and Variable-Costs-per-unit or service (tied to expected sales).

  • Equals Gross Profits Before Taxes.

  • Then compute Net Profits after Taxes (taking into account allowable IRS deductions).

  • When finalized, use standard Excel features to generate at least two graphs:

  • A line or bar chart showing the expected revenues, operational costs and anticipated gross profit on an annual basis.

  • A break-even chart, illustrating when profits are expected to exceed costs.

  • If you are seeking funding, factor in future values using appropriate discount rates. If you don't understand this, get someone with a financial background to assist you.

    • If your "great idea" still makes sense after going through this sobering process, then by all means proceed. You are way ahead of someone who just jumps on the Internet with no knowledge of where they are headed. Unlike those unfortunate souls, you will know your target, what you are doing (and why), and have a barometer against which to gauge your progress. Bon Voyage!

    About the Author

    Al Kernek is an Internet marketing consultant and the author of "Put Your Business Online," a step-by-step guide for successfully creating and promoting a low-cost Website.

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