What Should A Solid Business Plan Look Like? What Are Some Of The Key Components That You Look For In A Solid Business Plan?
- There are seven major aspects of a basic business plan. These are: the product/service, marketing, sales, people, physical location, metrics, and the expectations of the owner.
- Many aspects of a business (and a business plan) depend on what the owner wants from the company (both generally and in terms of their own income/lifestyle).
- Pricing is incredibly important to a business, but it is not based on the feelings or desires of the owner. Rather, it is based on the value that the product or service provides to the customer. Higher priced goods or services should provide a greater value to the customer. If you want to adjust pricing, you need to do requisite research into the value of the product or service—both in the market generally and as provided to your customers specifically—relative to the price.
I have a simple, but effective way to analyze the business plans of my clients.
I sit down with the client, and I circle and discuss the seven parts of every business.
What are the Seven Working Parts? I’ll explain.
- Product or Service: Every business has at least one product or service that they sell. It may take some time to identify which product or service (or, which products or services) that your business sells, and you may add or subtract to this list of produced products or services at any time. However, it is essential to establish what you actually produce and/or provide before you can do anything else.
- Marketing: Once you have your product or service that you want to sell, you have to establish your marketing. Marketing is essentially getting the word out that you have a product or service available, then asking people if they’re interested in that product or service. The goal is to get them to raise their hands and say, “Yes, I am interested in that product or service!”
- Sales: After you have done your marketing and spread the word about the product or service you are offering, you have to develop your sales. At this point, people have raised their hands and said, “Yes, I want to give you money because I want whatever service or product you’re selling.” Your sales is the system by which you take the service or product that you are offering and exchange it for money, thereby creating value for your customer and bringing in dollars to your business. You sell your service or product, your “widget”, so to speak, at a profitable price, so that your business can continue to grow. Therefore, the sales process involves setting prices, which involves understanding what your service or product is, and understanding what the value of that service or product is, considering the price.
- People: Once you have conceived of, marketed, and sold your product or service, you actually have to deliver that product or service to the people who purchased it. In order to do this, you need people. Whether they are contractors, vendors, or employees, and whether they are thinkers and strategists or more hands-on laborers, you have to have the right people in the right seats to deliver the product or service to the people who have purchased it or want to purchase it.
- Physical Location: When you have people either manufacturing a product or providing a service, you have to have a place for them to work. This means that you need to plan for an appropriate physical location.This location doesn’t have to be traditional. It could be a work-from-home environment, or a traveling contractor environment, especially if you’re offering a service. If you’re manufacturing a product, you need to figure out exactly what your requirements are for your production setup. You need to consider whether you are going to invest in a single location set up for growth, or if you are going to plan to out-grow your initial location and move to a larger location if all goes according to plan.
I always suggest that my clients project their needs outward for the next 12 to 18 months, and act according to their needs during that time, in addition to framing what they set up initially based on how much they expect to grow. That physical location is an extraordinarily important part of the business plan, especially when manufacturing products or offering services in a brick-and-mortar establishment.
- Metrics: Your money and your metrics are how you measure how well your business is doing. These are the measures that guide all the different small shifts, changes, and pivots that need to be made in order to keep the business on the right track with respect to your growth quotas.
- Owner: At the center of all of these essential elements of a business plan, I always put you—and when I say you, I mean you as the owner, as the entrepreneur, as the decision-maker, as the person whose business this is.We want to make sure that this is a plan for the type of business you want to run, that is designed to allow you to live the life that you want to live.
In the end, the owner is at the center of all of this. What does this business need to produce, and how, for you to live the life that you want to live? Everything else is built around that. Your product/service, your marketing, your sales, the pricing of the product, the people, your physical plans, and your money and metrics are all designed around you.
This is where we start for a very simple business plan—and we often start with a question from the owner.
They might say, “I want this business to produce at least $250,000 for me every year. How many people do I need to get to raise their hand for my product/service to make that happen?”
In response, we help them break it down. For example, in the above case, it depends on several other factors. Of those people that raise their hand, what percentage of them are actually going to make a purchase through the sales system? How many products/services are you going to need to sell in order to pay your people, pay for your physical location, pay for your metrics and money services, and pay the rest of your expenses and still have $250,000 going back into your household so that you can live the life you want to live?
It may seem complicated but it’s actually very simple. A business plan following all those guidelines doesn’t have to be more than a few pages long. However, it does need to tell the story, and it needs to be written in such a way that I could give it to your spouse, your child, your investors and say, “Here’s my plan for my business. Are you okay giving up your time/money/effort for this? Are you okay doing this for a period of time in order for us to achieve the end result?”
How Important Is Pricing To A Business? If We Notice That Our Pricing Is Too Low, Can We Easily Fix It By Simply Increasing The Price Right Away?
Pricing is extraordinarily important to a business. If you lose money on everything that you sell, you’re going to go out of business rather quickly.
However, I think people misunderstand what the term “profitable” actually means in this context, and I take a bit of a different approach in trying to explain it.
Pricing is so important because you need to understand the value you’re providing to your customers. If you’re not pricing correctly—whether you’re underpricing or overpricing—you will begin to lose customers or cash, because either you’re undervaluing your product or service (losing cash) or you’re overvaluing the product or service (losing customers). Either way, you’re losing.
The way that you determine what the appropriate value and pricing is for your product or service comes from one main source: your customers.
So, if you notice that your prices are too low, you do not necessarily raise the price right away. What you do is you survey customers and ask questions, collecting data to understand where you are in relation to your customers and their understanding of the value of your product or service relative to the price.
You look at your market, and you understand where the market is at that moment, and then you look at what distinguishes you from everyone else. If you’re creating more value, then you should raise your prices to balance the exchange. If you’re creating less value than the price you’ve set as soon as you recognize it, you change it.
This is not something I advise owners to change simply based on how they feel. This is one of the few parts of the business that is not really about the owner and their feelings. It’s about the value you create for your customers, who will be the source of the information on which you make your eventual changes (or not).
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