how to write pricing in business plan

Take a look at all our Webinars and Events!

Elevate Pricing with Elasticity

Optimise Pricing with Sensitivity

Blogs & articles, how to write a pricing strategy for my business plan.

In this blog you will learn about the importance of choosing the right pricing strategy for a successful business plan.

Why is a pricing strategy important for a business plan?

A business plan is a written document outlining a company’s core business practices – from products and services offered to marketing, financial planning and budget, but also pricing strategy. This business plan can be very lengthy, outlining every aspect of the business in detail. Or it can be very short and lean for start ups that want to be as agile as possible.

This plan can be used for external investors and relations or for internal purposes. A business plan can be useful for internal purposes because it can make sure that all the decision makers are on the same page about the most important aspects of the business.

A 1% price increase can lead to an 8% increase in profit margin.

A business plan could be very lengthy and detailed or short and lean, but in all instances, it should have a clear vision for how pricing is tackled. A pricing strategy ultimately greatly determines the profit margin of your product or service and how much revenue the company will make. Thorough research of consultancy agencies also show that pricing is very important. McKinsey even argues that a 1% prices increase can lead up to an 8% increase in profits. That is a real example of how small adjustments can have a huge impact!

It is clear that each business plan should have a section about pricing strategies. How detailed and complicated this pricing strategy should be depends for each individual business and challenges in the business environment. However, businesses should at least take some factors into account when thinking about their pricing strategy.

What factors to take into account?

The pricing strategy can best be explained in the marketing section of your business plan. In this section you should describe what price you will charge for your product or service to customers and your argumentation for why you ask this. However, businesses always balance the challenging scale of charging too much or too little. Ideally you want to find the middle, the optimal price point.

The following questions need to be answered for writing a well-structured pricing strategy in your business plan:

What is the cost of your product or service?

Most companies need to be profitable. They need to pay their expenses, their employees and return a reasonable profit. Unless you are a well-funded-winner-takes-all-growth-company such as Uber or Gorillas, you will need to earn more than you spend on your products. In order to be profitable you need to know how much your expenses are, to remain profitable overall.

How does your price compare to other alternatives in the market?

Most companies have competitors for their products or services, only few companies can act as a monopoly. Therefore, you need to know how your price compares to the other prices in the market. Are you one of the cheapest, the most expensive or somewhere in the middle?

Why is your price competitive?

When you know the prices of your competitors, you need to be able to explain why your price is better or different than that of your competitions. Do you offer more value for the same price? Do you offer less, but are you the cheapest? Or does your company offer something so unique that a premium pricing strategy sounds fair to your customer? You need to be able to stand out from the competition and price is an efficient differentiator.

What is the expected ROI (Return On Investment)?

When you set your price, you need to be able to explain how much you are expeciting to make. Will the price you offer attract enough customers to make your business operate profitable? Let’s say your expenses are 10.000 euros per month, what return will your price get you for your expected amount of sales?

Top pricing strategies for a business plan

Now you know why pricing is important for your business plan, “but what strategies are best for me?” you may ask. Well, let’s talk pricing strategies. There are plenty of pricing strategies and which ones are best for which business depends on various factors and the industry. However, here is a list of 9 pricing strategies that you can use for your business plan.

• Cost-plus pricing
• Competitive pricing
• Key-Value item pricing
• Dynamic pricing
• Premium pricing
• Hourly based pricing
• Customer-value based pricing
• Psychological pricing
• Geographical pricing

Most of the time, businesses do not use a single pricing strategy in their business but rather a combination of pricing strategies. Cost-plus pricing or competitor based pricing can be good starting points for pricing, but if you make these dynamic or take geographical regions into account, then your pricing becomes even more advanced!

Pricing strategies should not be left out of your business plan. Having a clear vision on how you are going to price your product(s) and service(s) helps you to achieve the best possible profit margins and revenue. If you are able to answer thoughtfully on the questions asked in this blog then you know that you have a rather clear vision on your pricing strategy.

If there are still some things unclear or vague, then it would be adviceable to learn more about all the possible pricing strategies . You can always look for inspiration to our business cases. Do you want to know more about pricing or about SYMSON? Do not hesitate to contact us!

Do you want a free demo to try how SYMSON can help your business with margin improvement or pricing management? Do you want to learn more? Schedule a call with a consultant and book a 20 minute brainstorm session!

Get your CEO Book for Intelligent Pricing

• How to become a Hyperlearning organisation
• How to develop your organisational processes
• How to choose an algorithm that fits your business

Get your playbook for behavior-Based Pricing and using AI Driving Tooling

• Increase margin & revenue
• Become a Frontrunner in your market
• Be agile, use AI pricing software & learn from it to become a Hyperlearning Organisation

HAVE A QUESTION?

Frequently asked questions, related blogs.

4 Tips for keeping your pricing manageable

How to implement a new pricing strategy in 4 steps

How To Price Your Products: 5 Most Common Strategies

Hyperlearning

500+ business plans and financial models

Pricing Strategy in a Business Plan: Deep Dive

• March 21, 2024
• Business Plan , How to Write

In this blog post, we’re diving into how to choose and explain your pricing strategy in your business plan. We’ll cover different pricing models like penetration, premium, and value-based. We’ll also dive into how to present your pricing strategy in your business plan.

Whether you’re starting a new business or preparing a business plan for an existing company, getting your pricing right is key to attracting customers and making a profit. Let’s break down how to make your pricing strategy clear and effective. Let’s dive in!

What are the different pricing strategies?

Different pricing strategies can significantly influence demand, profitability, and market positioning for businesses. Here’s an overview of some common pricing strategies:

• Cost-Plus Pricing: Adds a markup percentage to the cost of producing a product or delivering a service. It’s simple to calculate and ensures a profit margin.
• Value-Based Pricing: Sets prices based on the perceived value to the customer rather than the cost of production. This strategy focuses on the benefits and value the product or service brings to the customer.
• Competitive Pricing: Prices are set based on competitors’ pricing structures. Businesses might price their products slightly lower than competitors to gain market share or at a similar level to match the market rate.
• Penetration Pricing: Involves setting lower prices to enter a competitive market and attract customers quickly. The goal is to gain market share and then gradually increase prices.
• Premium Pricing: Setting the price of a product or service higher than the competitors. This strategy is used to signal superior quality or exclusivity to justify the higher cost.
• Dynamic Pricing: Adjusting prices in real-time based on market demand, competition, and other factors. Common in industries like hospitality and airlines.
• Freemium Pricing: Offering a basic product or service for free while charging for premium features. This strategy is often used by software and service companies to attract users.
• Bundle Pricing: Combining several products or services and selling them at a single price, often lower than the total cost of buying each item separately. This can increase the perceived value and encourage sales.

How to choose a pricing strategy

Here’s how to come up with an efficient pricing strategy:

Align Pricing with Market Strategy

Begin by articulating how your pricing strategy complements your overall market strategy. If you’re aiming for market penetration, explain how your pricing is designed to attract a large volume of customers by being more affordable than competitors.

For a premium pricing strategy, discuss the exceptional quality, exclusivity, or unique value your offerings bring, justifying higher price points.

If you’re adopting a value-based pricing model instead, illustrate how your pricing directly correlates with the perceived value to the customer, possibly through superior benefits or cost savings they provide.

Relate Pricing to the Target Market

Your pricing strategy should be closely tied to your understanding of your target market .

For instance, if your target market highly values sustainability and is willing to pay more for eco-friendly products, your pricing should reflect this. Similarly, if you’re targeting a price-sensitive segment, explain how your pricing strategy enables you to offer competitive value while maintaining profitability.

Consider the Competitive Landscape

A comprehensive pricing strategy also considers the competitive landscape . Analyze your competitors’ pricing and how your strategy positions you within this context.

Are you offering a more affordable alternative to premium products, or are you introducing a higher-quality option in a market segment dominated by low-cost competitors?

Discuss how your pricing strategy gives you a competitive edge, whether it’s by filling a gap in the market, offering better value, or challenging the status quo with innovative pricing models.

Where to include your prices in your business plan?

In your business plan, prices should be detailed under “Products or Services” within the Business Overview section of your business.

This part of the plan not only describes what you are offering but also provides an ideal opportunity to outline your pricing strategy and the specific prices or price ranges of your products or services.

Here, you can explain how your pricing fits into the market and aligns with your overall business strategy, giving potential investors or lenders a clear understanding of your approach to generating revenue.

Remember your pricing strategy should align with your financial projections (projected income statement, cash flow statement, and balance sheet). Indeed, you will need to give some high-level explanation of how you came up with these financial projections, based on your pricing strategy too.

Privacy Overview

Business growth

Business tips

15 pricing strategies and how to set yours

Hopefully, you enjoy what you do, and that's why you do it. But unfortunately, business isn't just about doing what you love—it's also about making money. And of course, making money means pricing your products or services correctly.

For your business to be sustainable, you'll need a pricing strategy that generates adequate income while also being attractive to customers.

Here's a guide to creating a pricing strategy that will keep your profits moving up and to the right.

What is a pricing strategy?

A pricing strategy is a plan for setting the best price for your products or services. The goal is to set a price that will entice customers to buy, but that isn't so low that you're not making a profit. 

Sure, you could just trial-and-error a bunch of prices until you find the price that maximizes profit without deterring potential customers—and there will probably still be some of that even after you choose a pricing strategy for your business. But you'll spend a lot less time and money starting with a pricing analysis than you will taking a complete shot in the dark.

15 common pricing methods and examples

Your core pricing strategy has to do with what you're selling: a luxury, a bargain, or just a good product for a good price. Once you have that figured out, you'll move on to choosing a pricing method, which is the how of your pricing strategy.

Pricing methods are sort of like plays in a playbook. Your product probably isn't going to switch from being a luxury to a bargain and back again, but you can (and, in some cases, should) switch up the pricing method you're using to better meet your market demands.

Here, we'll look at 15 of the most common pricing methods, plus how and when to use them.

1. Value-based pricing

The first pricing method is probably the one you're most familiar with: value-based pricing. You might think of it as the "default" pricing method since it consists of finding what the customer is willing to pay (the WTP price), making sure it's higher than the cost of production, and setting your price somewhere in between.

If you need to make a price adjustment, you can do so as long as the new price falls within the WTP range. If the new price surpasses this range, you'll need to explore avenues to expand the WTP range. You can do this by incorporating additional value into your product or service to increase the customer's willingness to pay the new price.

Takeaway: Charge what you can without turning off the customer to your product. 

2. Cost-plus pricing

A very similar method to value-based pricing is cost-plus pricing. Instead of basing prices on what the customer is willing to pay, businesses set prices by determining the cost of production and their ideal profit margin. For example, if a product costs $100 to make and a company's target margin is 15%, then the product will sell for $115. 

Cost-plus prices still need to fall within the WTP range, but they're not chosen based specifically on what the customer is willing to pay. If the cost-plus price falls outside the WTP range, the company either needs to adjust its target margin or find a way to lower production costs.

Takeaway: Ensure all costs are covered and don't keep you from reaching your desired profit margin.

3. Competitive pricing

When Norm McLaughlin formulated the pricing model for his business, Norm's Computer Services , he decided that he wanted to be considered competitive but not cheap. That meant his pricing was on par with his peers, but he avoided the use of any terminology like "budget," "cheap," or "cheapest" in his small business's marketing .

One of the things he tried early on was offering the first 15 minutes of work free of charge—if he solved the issue within that first quarter of an hour, the job would be completely free. It worked. Clients told him they wanted to pay even if he solved the issue in under 15 minutes because they didn't feel good about paying nothing for a service that involved someone coming to their home. It was an attractive offer that increased his competitive edge without negatively impacting his bottom line.

Takeaway: Maintain or gain market share from your competitors.  

4. Economy pricing

Similar to competitive pricing, economy pricing involves setting the lowest prices among your competitors to attract bargain buyers. But unlike competitive pricing, economy pricing specifically targets people who will consciously sacrifice quality in exchange for a cheaper price. Knowing this, you can source cheaper supplies, eliminate extra features, and make other changes to lower your production costs so that you can offer extremely low prices while continuing to make a profit. 

The fast fashion industry is infamous for its reliance on economy pricing. Clothes are created quickly using cheap (and often ethically questionable) labor, and they wear out quickly. This allows stores to sell highly trend-conscious clothing, since customers need to replace their clothes more frequently. Unfortunately, it also causes major environmental damage —and usually doesn't even save customers money compared to buying more expensive but longer-lasting clothing.

Takeaway: Attract price-sensitive customers while achieving high sales volume and cost efficiencies.

5. Penetration pricing

As a new business , you may find that you need to set your prices toward the lower end of the spectrum. Penetration pricing is when a business sets the price of a product or service low at the beginning, then raises the price once the company is more established.

Businesses that provide a service can draw customers in with low pricing, then win their loyalty with great service. Introductory offers can be a great way to entice new clients or customers. For example, you could offer a fixed price or percentage off the first job, or a portion of free labor. At least one of Norm's competitors offered a 10% reduction on labor for returning customers. In Norm's view, a better approach to customer retention was to offer them that 10% off the first job—and then do such good work that they wouldn't mind paying the full price for subsequent jobs.

Takeaway: Gain market share and attract customers quickly with low initial prices, then raise prices once you've established a strong customer base. 

6. Dynamic pricing

Have you ever pulled out your phone intending to grab a rideshare on a busy weekend night or (I wince just thinking about it) a holiday? Those jaw-dropping price surges are the result of what's called dynamic pricing, or pricing that changes fluidly according to availability and demand.

Truly dynamic pricing requires an algorithm that can automatically adjust prices according to purchasing activity. Uber's CEO isn't sitting behind a Wizard of Oz curtain declaring price surges; the app automatically increases prices when demand is higher than the number of drivers on the road. A less immediate version of dynamic pricing can be seen at the gas pump, where prices change frequently in response to demand but aren't automatic (in some states, like New Jersey, they can't change more than once per day). 

For small businesses, dynamic pricing works best with services or custom products that require a price quote, since customers expect prices to be different depending on the project and circumstances. If your prices are listed on your site and you change them constantly, you'll drive away potential customers who perceive you as unpredictable or unreliable.

Takeaway: Maximize revenue while adjusting for real-time factors like demand, competition, and market conditions. 

7. Price skimming

Price skimming is the opposite of penetration pricing, where you start by setting the maximum price and gradually lower it over time. This strategy works best with products that have major releases, like laptops or cars. By price skimming, you'll be able to capture early buyers willing to pay top dollar for the latest and greatest; then, as you gradually lower the price, you'll be able to sell the maximum number of products at each price before dropping it again. 

One of the most well-known price skimmers is Apple, which has made its product launches into full events with tickets and fans to build as much hype as humanly possible. Mega-fans buy the newly unveiled products the moment they're available, even waiting in lines overnight outside Apple Stores to do so. As each new product is released, the older models get shunted down the pricing ladder to capture buyers with lower WTP points. 

Takeaway: Capture early adopters and maximize revenue with high initial prices before gradually reducing prices to attract more price-sensitive customers.

8. Hourly pricing

Often used in service-based industries, hourly pricing establishes prices based on the time spent on a particular task or service. This aligns the price directly with the effort or resources dedicated to the project. It's a straightforward method for you and the client to understand and agree upon the service's value.

Having said that, if your projects' complexity or required resources vary quite a bit, a flat hourly rate may not be best for your business.

Takeaway:   Ensure customers are billed fairly based on the actual hours worked.

9. Project-based pricing

Project-based pricing is also common in service-based industries. This method determines prices based on the scope, complexity, and resources required for each project. Rather than charging a fixed or hourly rate, companies assess the unique needs of each project and provide a tailored quote. That way, businesses are accounting for factors like resources, expertise, and time commitment required to complete the project successfully.

This pricing model is common for architects. When a client approaches an architecture firm with a request to design and construct a building, the firm will assess the project's scale, complexity, materials, and other specific requirements to provide a project-based quote. Obviously, the process and requirements for designing a public bathroom vs. a skyscraper will be very different, beyond just time discrepancies. 

Takeaway: Make sure profitability and effort are accounted for in your pricing structure.  

10. High-low pricing

I've taught all my loved ones that we don't walk into Michael's without a coupon or buy anything at JOANN that hasn't been marked down to at least 40% off.

These stores use high-low pricing, where they offer products or services at a higher price initially and periodically discount them. This approach attracts price-sensitive customers who are motivated by discounts (me) while also maximizing revenue from customers willing to pay higher prices to get their hands on the product before it starts flying off the shelves once it's been discounted.

Companies can maintain a balance between profitability and reaching a larger range of customers by driving traffic to their stores or websites during promotional periods.

Takeaway: Create a perception of value to encourage customer purchases. 

11. Bundle pricing

You've probably seen the Progressive commercials practically begging you to bundle your car and home insurance for a better deal. Or maybe you bundled your cable and phone services back in the day. 

Bundle pricing is when a company combines multiple products or services and offers them at a lower overall price than what each item would individually cost. This creates a perception of added value, convenience, and savings for customers. If you sell a lot of small items or are trying to spread the love to an overlooked service, this pricing strategy may help you increase your sales.

Takeaway: Sell items together in a package deal that's slightly cheaper than if you were to sell the items individually to increase sales and customer satisfaction.

12. Geographic pricing

I follow a candy shop on TikTok with the most delicious-looking candy I've ever seen. They're located in the U.K. and I'm in the U.S., which means I'd have to pay outrageous prices to account for the shipping costs.

Geographic pricing involves setting prices based on different geographic regions or markets, considering factors like local market conditions, competitive landscape, and transportation costs like shipping. While this strategy makes it harder for a candy lover like me to get their hands on some delectable sweets, if you want to expand outside of your own geographic region, this strategy may be inevitable to keep your profits stable.

Takeaway: Maintain profitability across all your geographic markets by adjusting for variable factors.

13. Psychological pricing

A book priced at $20? I'll pass. A book for $19.99? I'll take 10. This common phenomenon that we all fall for time and time again is called psychological pricing. Also known as charm pricing, this strategy leverages consumers' perceptions and emotions to make them think they're getting a better deal than they actually are. 

Making the price seem more appealing or affordable to customers effectively influences customer behavior and increases sales, even if the price difference is negligible (and even if the customer knows in their heart of hearts that it's negligible). You can combine this strategy with another method since it's a common standard in many industries.

Takeaway: Create the illusion of a lower price so customers perceive your price as fairer.  

14. Freemium pricing

If you're like me, you started out with the free version of Spotify until the ads were so grating on your soul that you gave in and shelled out the cash for the paid ad-free version. This method of offering a basic version of a product or service for free and charging for additional premium features or advanced functionality is called freemium pricing. 

By offering a free version, companies can give customers a taste of the value their product or service offers, build brand awareness, and create a larger user base. They then monetize their user base with an enhanced experience for a subscription fee or one-time purchase. If you're new to the market, this is a great way to get buy-in from people who would otherwise be unwilling to convert.

Takeaway: Attract a large user base and convert some into paying customers. 

15. Premium pricing

Some people enjoy the prestigious vibe and social appearance of luxury brands. For example, luxury car companies, like BMW or Mercedes-Benz, position their vehicles as high-end, offering advanced technology, luxurious interiors, and superior performance. (Although I'd love to see what they have that my Honda CR-V doesn't.) 

With those high-end features comes a high-end price tag, otherwise known as premium pricing. This strategy positions the company as exclusive and superior in value in comparison to lower-priced competitors. It appeals to a target market willing to pay a premium for the perceived benefits. If that's your target market, then this is your ticket.

Takeaway: Target affluent customers and generate higher profit margins. 

Factors to consider when pricing a product

You likely know off the bat that you'll need to consider your own business costs and competitor prices so that you can find a price that earns a profit but isn't so high that it drives potential customers to other businesses with better deals. But unfortunately, it's not that simple: there are a lot of factors you'll need to consider in order to determine the best pricing strategy for you.

I know I just said cost wasn't the only factor to consider, but it is the most important one to start with. If your prices aren't higher than your costs, you'll be out of business before you even get your company off the ground.

When calculating costs, make sure you include:

Product materials

Employee wages (that includes what you pay yourself!)

Overhead costs (rent, insurance, utilities, taxes, etc.)

Software and services for things like accounting, marketing, and legal

Shipping and transportation

Economic factors

When costs change, your prices will have to change in order to stay competitive and keep making a profit. Businesses that rely directly on commodities as supplies—so things like lumber, oil, and metals—will be most vulnerable to economic fluctuations , but all industries are affected in some way or another by global, political, and social changes. 

Conduct thorough research to identify what economic conditions your business thrives in, and recession-proof your business . Be proactive about anticipating events that could affect your supply and demand . You especially need to incorporate a safety net into your profit margins to ensure you have enough funds to stay in business during slow periods if you're in a more temperamental industry.

Competitor pricing

Your prices don't always need to be lower than your competitors', but if they're higher, you need to be able to justify it with added quality. Your products don't always need to be quality, but if they're low-quality, you'll need to be able to justify it with lower prices. Where you fall on either side of this trade-off determines your value position , which we'll discuss in a bit. But no matter how you decide to position your product, you'll need to stay up-to-date on what your competitors charge, pricing trends in your industry, and what pricing models work best for your market.

It's usually not difficult to find out what your competitors charge—either by visiting their websites or by calling them to ask. As you gather information for your competitor analysis , keep a spreadsheet where you can record prices and note things like introductory offers, loyalty programs, and discounts.

Positioning

It's a common misconception that businesses have to sell good-quality products to be successful. There are buyers at every price and quality level; what matters is how your product quality and price are positioned with respect to each other.

One of the easiest industries for demonstrating this concept is the airline industry, because there's no way to mistake the difference between a high- and low-quality purchase when there's a literal curtain dividing them. Normally, price and quality will align with one another. First-class tickets offer high quality at a high price, economy tickets offer low quality at a low price, and everyone else gets piled into coach. 

Value prices occur when quality is higher than price—when you fly during off-peak times or get upgraded to first class for free. When demand is high and seats are limited, the airlines can afford to charge higher prices for lower-quality seats, counting on the fact that you'll pay full price for a terrible seat if it's your only option.

When you apply this to your own pricing, ask yourself what kind of value your product or service offers. Are you solving an urgent problem , or is your product more for comfort and enjoyment? If you sell a first-class product, you'll lose money by selling it at economy prices. If you sell an economy product, you'll need to sell it for a bargain price.

As you start off in business, it's important to remember that you can change your pricing strategy as you go along. This is a marathon, not a sprint, so it's more about building a client base of satisfied customers who will come back to you again and again than it is to make as much money as possible as quickly as possible. 

And the good news is that you don't have to get everything right from the very beginning. You can try different approaches and make adjustments as you go until you're achieving the outcomes you want. To continue optimizing for success, learn how you can automate your small business .

Related reading:

The best eCommerce website building platforms for online stores

Optimizing your small business product mix

The best CRMs for small businesses

The best project management software for small businesses

This article was originally published in December 2020 by Norm Mclaughlin. It was most recently updated in July 2023.

Get productivity tips delivered straight to your inbox

We’ll email you 1-3 times per week—and never share your information.

Cecilia Gillen

Cecilia is a content marketer with a degree in Media and Journalism from the University of South Dakota. After graduating, Cecilia moved to Omaha, Nebraska where she enjoys reading (almost as much as book buying), decor hunting at garage sales, and spending time with her two cats.

• Small business
• Sales & business development

Related articles

How to choose the best automation software

AI in customer service: 11 ways to automate support

AI in customer service: 11 ways to automate...

How to write a letter of introduction for your freelance business

How to write a letter of introduction for...

What is prompt engineering?

Improve your productivity automatically. Use Zapier to get your apps working together.

The Ultimate Guide to Pricing Strategies & Models

Discover how to properly price your products, services, or events so you can drive both revenue and profit.

FREE SALES PRICING CALCULATOR

Determine the best pricing strategy for your business with this free calculator and template.

Updated: 08/16/23

Published: 08/16/23

Pricing your products and services can be tough. Set prices too high, and you miss out on valuable sales. Set them too low, and you miss out on valuable revenue.

Thankfully, pricing doesn’t have to be a sacrifice or a shot in the dark. There are dozens of pricing models and strategies that can help you better understand how to set the right prices for your audience and revenue goals.

That’s why we’ve created this guide.

Whether you’re a business beginner or a pricing pro, the tactics and strategies in this guide will get you comfortable with pricing your products. Bookmark this guide for later and use the chapter links to jump around to sections of interest.

Pricing Strategy

Types of pricing strategies, how to create a pricing strategy, pricing models based on industry or business.

Conducting a Pricing Analysis

Pricing Strategy Examples

A pricing strategy is a model or method used to establish the best price for a product or service. It helps you choose prices to maximize profits and shareholder value while considering consumer and market demand.

If only pricing was as simple as its definition — there’s a lot that goes into the process.

Pricing strategies account for many of your business factors, like revenue goals, marketing objectives, target audience, brand positioning, and product attributes. They’re also influenced by external factors like consumer demand, competitor pricing, and overall market and economic trends.

It’s not uncommon for entrepreneurs and business owners to skim over pricing. They often look at the cost of their products (COGS) , consider their competitor’s rates, and tweak their own selling price by a few dollars. While your COGS and competitors are important, they shouldn’t be at the center of your pricing strategy.

The best pricing strategy maximizes your profit and revenue.

Before we talk about pricing strategies, let’s review an important pricing concept that will apply regardless of what strategies you use.

Free Sales Pricing Strategy Calculator

• Cost-Plus Pricing
• Skimming Strategy
• Value-Based Pricing

You're all set!

Click this link to access this resource at any time.

Determine the Best Pricing Strategy For Your Business

Fill out this form to access the free template., price elasticity of demand.

Price elasticity of demand is used to determine how a change in price affects consumer demand.

If consumers still purchase a product despite a price increase (such as cigarettes and fuel) that product is considered inelastic .

On the other hand, elastic products suffer from pricing fluctuations (such as cable TV and movie tickets).

You can calculate price elasticity using the formula:

% Change in Quantity ÷ % Change in Price = Price Elasticity of Demand

The concept of price elasticity helps you understand whether your product or service is sensitive to price fluctuations. Ideally, you want your product to be inelastic — so that demand remains stable if prices do fluctuate.

Cost, Margin, & Markup in Pricing

To choose a pricing strategy, it’s also essential to understand the role of cost, margin, and markup — especially if you’d like your pricing to be cost-based . Let’s dive into the definition for each.

Cost refers to the fees you incur from manufacturing, sourcing, or creating the product you sell. That includes the materials themselves, the cost of labor, the fees paid to suppliers, and even the losses. Cost doesn’t include overhead and operational expenses such as marketing, advertising, maintenance, or bills.

Margin (in this case, gross margin) refers to the amount your business earns after you subtract manufacturing costs.

Markup refers to the additional amount you charge for your product over the production and manufacturing fees.

Now, let’s cover some common pricing strategies. As we do so, it’s important to note that these aren’t necessarily standalone strategies — many can be combined when setting prices for your products and services.

• Competition-Based Pricing
• Dynamic Pricing
• High-Low Pricing
• Penetration Pricing
• Skimming Pricing
• Psychological Pricing
• Geographic Pricing

Now, let's dive into the descriptions of each pricing strategy — many of which are included in the template below — so you can learn about what makes each of them unique.

Discover how much your business can earn using different pricing strategies with HubSpot's free sales pricing calculator so you can choose the best pricing model for your business.

Download Template

1. competition-based pricing strategy.

Competition-based pricing is also known as competitive pricing or competitor-based pricing. This pricing strategy focuses on the existing market rate (or going rate ) for a company’s product or service; it doesn’t take into account the cost of their product or consumer demand.

Instead, a competition-based pricing strategy uses the competitors’ prices as a benchmark. Businesses who compete in a highly saturated space may choose this strategy since a slight price difference may be the deciding factor for customers.

With competition-based pricing , you can price your products slightly below your competition, the same as your competition, or slightly above your competition. For example, if you sold marketing automation software , and your competitors’ prices ranged from $19.99 per month to $39.99 per month, you’d choose a price between those two numbers.

Whichever price you choose, competitive pricing is one way to stay on top of the competition and keep your pricing dynamic.

Competition-Based Pricing Strategy in Marketing

Consumers are primarily looking for the best value which isn’t always the same as the lowest price. Pricing your products and services competitively in the market can put your brand in a better position to win a customer’s business. Competitive pricing works especially well when your business offers something the competition doesn’t — like exceptional customer service, a generous return policy, or access to exclusive loyalty benefits .

2. Cost-Plus Pricing Strategy

A cost-plus pricing strategy focuses solely on the cost of producing your product or service, or your COGS . It’s also known as markup pricing since businesses who use this strategy “markup” their products based on how much they’d like to profit.

To apply the cost-plus method, add a fixed percentage to your product production cost. For example, let’s say you sold shoes. The shoes cost $25 to make, and you want to make a $25 profit on each sale. You’d set a price of $50, which is a markup of 100%.

Cost-plus pricing is typically used by retailers who sell physical products. This strategy isn’t the best fit for service-based or SaaS companies as their products typically offer far greater value than the cost to create them.

Cost-Plus Pricing Strategy in Marketing

Cost-plus pricing works well when the competition is pricing using the same model. It won’t help you attract new customers if your competition is working to acquire customers rather than growing profits. Before executing this strategy, complete a pricing analysis that includes your closest competitors to make sure this strategy will help you meet your goals.

3. Dynamic Pricing Strategy

Dynamic pricing is also known as surge pricing, demand pricing, or time-based pricing. It’s a flexible pricing strategy where prices fluctuate based on market and customer demand.

Hotels, airlines, event venues, and utility companies use dynamic pricing by applying algorithms that consider competitor pricing, demand, and other factors. These algorithms allow companies to shift prices to match when and what the customer is willing to pay at the exact moment they’re ready to make a purchase.

Dynamic Pricing Strategy in Marketing

Dynamic pricing can help keep your marketing plans on track. Your team can plan for promotions in advance and configure the pricing algorithm you use to launch the promotion price at the perfect time. You can even A/B test dynamic pricing in real-time to maximize your profits.

4. High-Low Pricing Strategy

A high-low pricing strategy is when a company initially sells a product at a high price but lowers that price when the product drops in novelty or relevance. Discounts, clearance sections, and year-end sales are examples of high-low pricing in action — hence the reason why this strategy may also be called a discount pricing strategy.

High-low pricing is commonly used by retail firms that sell seasonal items or products that change often, such as clothing, decor, and furniture. What makes a high/low pricing strategy appealing to sellers? Consumers enjoy anticipating sales and discounts, hence why Black Friday and other universal discount days are so popular.

High-Low Pricing Strategy in Marketing

If you want to keep the foot traffic steady in your stores year-round, a high-low pricing strategy can help. By evaluating the popularity of your products during particular periods throughout the year, you can leverage low pricing to increase sales during traditionally slow months.

5. Penetration Pricing Strategy

Contrasted with skimming pricing, a penetration pricing strategy is when companies enter the market with an extremely low price, effectively drawing attention (and revenue) away from higher-priced competitors. Penetration pricing isn’t sustainable in the long run, however, and is typically applied for a short time.

This pricing method works best for brand new businesses looking for customers or for businesses that are breaking into an existing, competitive market. The strategy is all about disruption and temporary loss … and hoping that your initial customers stick around as you eventually raise prices.

(Another tangential strategy is loss leader pricing , where retailers attract customers with intentionally low-priced items in hopes that they’ll buy other, higher-priced products, too. This is precisely how stores like Target get you — and me.)

Penetration Pricing Strategy in Marketing

Penetration pricing has similar implications as freemium pricing — the money won’t come in overnight. But with enough value and a great product or service, you could continue to make money and scale your business as you increase prices. One tip for this pricing strategy is to market the value of the products you sell and let price be a secondary point.

6. Skimming Pricing Strategy

A skimming pricing strategy is when companies charge the highest possible price for a new product and then lower the price over time as the product becomes less and less popular. Skimming is different from high-low pricing in that prices are lowered gradually over time.

Technology products, such as DVD players, video game consoles, and smartphones, are typically priced using this strategy as they become less relevant over time. A skimming pricing strategy helps recover sunk costs and sell products well beyond their novelty, but the strategy can also annoy consumers who bought at full price and attract competitors who recognize the “fake” pricing margin as prices are lowered.

Skimming Pricing Strategy in Marketing

Skimming pricing strategy can work well if you sell products that have products with varying life cycle lengths. One product may come in and out of popularity quickly so you have a short time to skim your profits in the beginning stages of the life cycle. On the flip side, a product that has a longer life cycle can stay at a higher price for more time. You’ll be able to maintain your marketing efforts for each product more effectively without constantly adjusting your pricing across every product you sell.

7. Value-Based Pricing Strategy

A value-based pricing strategy is when companies price their products or services based on what the customer is willing to pay. Even if it can charge more for a product, the company decides to set its prices based on customer interest and data.

If used accurately, value-based pricing can boost your customer sentiment and loyalty. It can also help you prioritize your customers in other facets of your business, like marketing and service.

On the flip side, value-based pricing requires you to constantly be in tune with your various customer profiles and buyer personas and possibly vary your prices based on those differences.

Value-Based Pricing Strategy in Marketing

Marketing to your customers should always lead with value, so having a value-based pricing model should help strengthen the demand for your products and services. Just be sure that your audiences are distinct enough in what they’re willing to pay for — you don’t want to run into trouble by charging more or less based on off-limits criteria .

8. Psychological Pricing Strategy

Psychological pricing is what it sounds like — it targets human psychology to boost your sales.

For example, according to the " 9-digit effect ", even though a product that costs $99.99 is essentially $100, customers may see this as a good deal simply because of the "9" in the price.

Another way to use psychological pricing would be to place a more expensive item directly next to (either, in-store or online) the one you're most focused on selling . Or offer a "buy one, get one 50% off (or free)" deal that makes customers feel as though the circumstances are too good to pass up on.

And lastly, changing the font, size, and color of your pricing information on and around your products has also been proven, in various instances, to boost sales.

Psychological Pricing Strategy in Marketing

Psychological pricing strategy requires an intimate understanding of your target market to yield the best results. If your customers are inclined to discounts and coupons, appealing to this desire through your marketing can help this product meet their psychological need to save money. If paying for quality is important to your audience, having the lowest price on the shelf might not help you reach your sales goals. Regardless of the motivations your customers have for paying a certain price for a product, your pricing and marketing should appeal to those motivations.

9. Geographic Pricing Strategy

Geographic pricing is when products or services are priced differently depending on geographical location or market.

This strategy may be used if a customer from another country is making a purchase or if there are disparities in factors like the economy or wages (from the location in which you're selling a good to the location of the person it is being sold to).

Geographic Pricing Strategy in Marketing

Marketing a geographically priced product or service is easy thanks to paid social media advertising. Segmenting by zip code, city, or even region can be accomplished at a low cost with accurate results. Even as specific customers travel or permanently move, your pricing model will remain the same which helps you maintain your marketing costs.

Download our free guide to creating buyer personas to easily organize your audience segments and make your marketing stronger.

Like we said above, these strategies aren’t necessarily meant to stand alone. We encourage you to mix and match these methods as needed.

Below, we cover more specific pricing models for individual products.

Pricing Models

While your pricing strategy may determine how your company sets fees for its offerings overall , the below pricing models can help you set prices for specific product lines. Let's take a look.

1. Freemium

A combination of the words “free” and “premium,” freemium pricing is when companies offer a basic version of their product hoping that users will eventually pay to upgrade or access more features.

Unlike cost-plus, freemium is a pricing model commonly used by SaaS and other software companies. They choose this model because free trials and limited memberships offer a peek into a software’s full functionality — and also build trust with a potential customer before purchase.

With freemium, a company’s prices must be a function of the perceived value of their products. For example, companies that offer a free version of their software can’t ask users to pay $100 to transition to the paid version. Prices must present a low barrier to entry and grow incrementally as customers are offered more features and benefits.

Freemium Pricing in Marketing

Freemium pricing may not make your business a lot of money on the initial acquisition of a customer, but it gives you access to the customer which is just as valuable. With access to their email inboxes, phone number, and any other contact information you gather in exchange for the free product, you can nurture the customer into a brand loyal advocate with a worthwhile LTV .

2. Premium Pricing

Also known as prestige pricing and luxury pricing, a premium pricing model is when companies price their products high to present the image that their products are high-value, luxury, or premium. Prestige pricing focuses on the perceived value of a product rather than the actual value or production cost.

Prestige pricing is a direct function of brand awareness and brand perception. Brands that apply this pricing method are known for providing value and status through their products — which is why they’re priced higher than other competitors. Fashion and technology are often priced using this model because they can be marketed as luxurious, exclusive, and rare.

Premium Pricing in Marketing

Premium pricing is quite dependent upon the perception of your product within the market. There are a few ways to market your product in order to influence a premium perception of it including using influencers, controlling supply, and driving up demand.

3. Hourly Pricing

Hourly pricing, also known as rate-based pricing, is commonly used by consultants, freelancers, contractors, and other individuals or laborers who provide business services. Hourly pricing is essentially trading time for money. Some clients are hesitant to honor this pricing strategy as it can reward labor instead of efficiency.

Hourly Pricing in Marketing

If your business thrives on quick, high-volume projects, hourly pricing can be just the incentive for customers to work with you. By breaking down your prices into hourly chunks, customers can make the decision to work with you based on a low price point rather than finding room in their budget for an expensive project-based commitment.

4. Bundle Pricing

Bundle pricing is when you offer (or "bundle") two or more complementary products or services together and sell them for a single price. You may choose to sell your bundled products or services only as part of a bundle, or sell them as both components of bundles and individual products.

This is a great way to add value through your offerings to customers who are willing to pay extra upfront for more than one product. It can also help you get your customers hooked on more than one of your products faster.

Bundle Pricing in Marketing

Marketing bundle deals can help you sell more products than you would otherwise sell individually. It’s a smart way to upsell and cross-sell your offerings in a way that is beneficial for the customer and your revenue goals.

5. Project-Based Pricing

Project-based pricing is the opposite of hourly pricing — this approach charges a flat fee per project instead of a direct exchange of money for time. It is also used by consultants, freelancers, contractors, and other individuals or laborers who provide business services.

Project-based pricing may be estimated based on the value of the project deliverables. Those who choose this pricing model may also create a flat fee from the estimated time of the project.

Project-Based Pricing in Marketing

Leading with the benefits a customer will derive from working with your business on a project can make project-based pricing more appealing. Although the cost of the project may be steep, the one-time investment can be worth it. Your clients will know that they’ll be able to work with you until the project is completed rather than until their allotted hours are depleted.

6. Subscription Pricing

Subscription pricing is a common pricing model at SaaS companies, online retailers, and even agencies who offer subscription packages for their services.

Whether you offer flat rate subscriptions or tiered subscriptions, the benefits of this model are endless. For one, you have all but guaranteed monthly recurring revenue (MRR) and yearly recurring revenue. That makes it simpler to calculate your profits on a monthly basis. It also often leads to higher customer lifetime values .

The one thing to be wary of when it comes to subscription pricing is the high potential for customer churn . People cancel subscriptions all the time, so it's essential to have a customer retention strategy in place to ensure clients keep their subscriptions active.

Subscription Pricing in Marketing

When marketing your subscription products, it's essential to create buyer personas for each tier. That way, you know which features to include and what will appeal to each buyer. A general subscription that appeals to everyone won't pull in anyone.

Even Amazon, which offers flat-rate pricing for its Prime subscription, includes a membership for students. That allows them to market the original Prime more effectively by creating a sense of differentiation.

Now, let’s discuss how to build a pricing strategy of your own liking.

1. Evaluate pricing potential.

You want to make a strategy that is optimal for your unique business. To begin, you need to evaluate your pricing potential. This is the approximate product or service pricing your business can potentially achieve in regard to cost, demand, and more.

Some factors that can affect your pricing potential include:

• Geographical market specifics
• Operating costs
• Inventories
• Demand fluctuations
• Competitive advantages and concerns
• Demographic data

We’ll dive deeper into demographic data in the next step.

2. Determine your buyer personas.

You have to price your product on the type of buyer persona that’s looking for it. When you look at your ideal customer, you’ll have to look at their:

• Customer Lifetime Value
• Willingness to Pay
• Customer Pain Points

To aid in this process, interview customers and prospects to see what they do and like, and ask for your sales team’s feedback on the best leads and their characteristics.

3. Analyze historical data.

Take a look at your previous pricing strategies. You can calculate the difference in closed deals, churn data , or sold product on different pricing strategies that your business has worked with before and look at which were the most successful.

4. Strike a balance between value and business goals.

When developing your pricing strategy, you want to make sure the price is good to your bottom line and your buyer personas. This compromise will better help your business and customer pool, with the intentions of:

• Increasing profitability
• Improving cash flow
• Market penetration
• Expanding market share

5. Look at competitor pricing.

You can’t make a pricing strategy without conducting research on your competitors’ offerings. You’ll have to decide between two main choices when you see the price difference for your same product or service:

• Beat your competitors’ price - If a competitor is charging more for the same offering as your brand, then make the price more affordable.
• Beat your competitors’ value - Also known as value-based pricing , you can potentially price your offering higher than your competitors if the value provided to the customer is greater.

To see the competition’s full product or service offering, conduct a full competitive analysis so you can see their strengths and weaknesses, and make your pricing strategy accordingly.

So we’ve gone over how to create a pricing strategy, now let’s discuss how to apply these steps to different businesses and industries.

Not every pricing strategy is applicable to every business. Some strategies are better suited for physical products whereas others work best for SaaS companies. Here are examples of some common pricing models based on industry and business.

Product Pricing Model

Unlike digital products or services, physical products incur hard costs (like shipping, production, and storage) that can influence pricing. A product pricing strategy should consider these costs and set a price that maximizes profit, supports research and development, and stands up against competitors.

👉🏼 We recommend these pricing strategies when pricing physical products : cost-plus pricing, competitive pricing, prestige pricing, and value-based pricing.

Digital Product Pricing Model

Digital products, like software, online courses, and digital books, require a different approach to pricing because there’s no tangible offering or unit economics (production cost) involved. Instead, prices should reflect your brand, industry, and overall value of your product.

👉🏼 We recommend using these pricing strategies when pricing digital products: competition-based pricing, freemium pricing, and value-based pricing.

Restaurant Pricing Model

Restaurant pricing is unique in that physical costs, overhead costs, and service costs are all involved. You must also consider your customer base, overall market trends for your location and cuisine, and the cost of food — as all of these can fluctuate.

👉🏼 We recommend using these pricing strategies when pricing at restaurants: cost-plus pricing, premium pricing, and value-based pricing.

Event Pricing Model

Events can’t be accurately measured by production cost (not unlike the digital products we discussed above). Instead, event value is determined by the cost of marketing and organizing the event as well as the speakers, entertainers, networking, and the overall experience — and the ticket prices should reflect these factors.

👉🏼 We recommend using these pricing strategies when pricing live events: competition-based pricing, dynamic pricing, and value-based pricing.

Services Pricing Model

Business services can be hard to price due to their intangibility and lack of direct production cost. Much of the service value comes from the service provider’s ability to deliver and the assumed caliber of their work. Freelancers and contractors , in particular, must adhere to a services pricing strategy.

👉🏼 We recommend using these pricing strategies when pricing services: hourly pricing, project-based pricing, and value-based pricing.

Nonprofit Pricing Model

Nonprofits need pricing strategies, too — a pricing strategy can help nonprofits optimize all processes so they’re successful over an extended period of time.

A nonprofit pricing strategy should consider current spending and expenses, the breakeven number for their operation, ideal profit margin, and how the strategy will be communicated to volunteers, licensees, and anyone else who needs to be informed. A nonprofit pricing strategy is unique because it often calls for a combination of elements that come from a few pricing strategies.

👉🏼 We recommend using these pricing strategies when pricing nonprofits: competitive pricing, cost-plus pricing, demand pricing, and hourly pricing.

Education Pricing Model

Education encompasses a wide range of costs that are important to consider depending on the level of education, private or public education, and education program/ discipline.

Specific costs to consider in an education pricing strategy are tuition, scholarships, additional fees (labs, books, housing, meals, etc.). Other important factors to note are competition among similar schools, demand (number of student applications), number and costs of professors/ teachers, and attendance rates.

👉🏼 We recommend using these pricing strategies when pricing education: competitive pricing, cost-based pricing, and premium pricing.

Real Estate Pricing Model

Real estate encompasses home value estimates, market competition, housing demand, and cost of living. There are other factors that play a role in real estate pricing models including potential bidding wars, housing estimates and benchmarks (which are available through real estate agents but also through free online resources like Zillow ), and seasonal shifts in the real estate market.

👉🏼 We recommend using these pricing strategies when pricing real estate: competitive pricing, dynamic pricing, premium pricing, and value-based pricing.

Agency Pricing Model

Agency pricing models impact your profitability, retention rates, customer happiness, and how you market and sell your agency. When developing and evolving your agency’s pricing model, it’s important to take into consideration different ways to optimize it so you can determine the best way to boost the business's profits.

👉🏼 We recommend using these pricing strategies when pricing agencies: hourly pricing, project-based pricing, and value-based pricing.

Manufacturing Pricing Model

The manufacturing industry is complex — there are a number of moving parts and your manufacturing pricing model is no different. Consider product evolution, demand, production cost, sale price, unit sales volume, and any other costs related to your process and product. Another key part to a manufacturing pricing strategy is understanding the maximum amount the market will pay for your specific product to allow for the greatest profit.

👉🏼 We recommend using these pricing strategies when pricing manufacturing: competitive pricing, cost-plus pricing, and value-based pricing.

Ecommerce Pricing Model

Ecommerce pricing models are how you determine the price at which you’ll sell your online products and what it'll cost you to do so. Meaning, you must think about what your customers are willing to pay for your online products and what those products cost you to purchase and/or create. You might also factor in your online campaigns to promote these products as well as how easy it is for your customers to find similar products to yours on the ecommerce sites of your competitors.

👉🏼 We recommend using these pricing strategies when pricing ecommerce: competitive pricing, cost-based pricing, dynamic pricing, freemium pricing, penetration pricing, and value-based pricing.

Pricing Analysis

Pricing analysis is a process of evaluating your current pricing strategy against market demand. Generally, pricing analysis examines price independently of cost. The goal of a pricing analysis is to identify opportunities for pricing changes and improvements.

You typically conduct a pricing analysis when considering new product ideas, developing your positioning strategy, or running marketing tests. It's also wise to run a price analysis once every year or two to evaluate your pricing against competitors and consumer expectations — doing so preemptively avoids having to wait for poor product performance.

How to Conduct a Pricing Analysis

1. determine the true cost of your product or service..

To calculate the true cost of a product or service that you sell, you’ll want to recognize all of your expenses including both fixed and variable costs. Once you’ve determined these costs, subtract them from the price you’ve already set or plan to set for your product or service.

2. Understand how your target market and customer base respond to the pricing structure.

Surveys, focus groups, or questionnaires can be helpful in determining how the market responds to your pricing model. You’ll get a glimpse into what your target customers value and how much they’re willing to pay for the value your product or service provides.

3. Analyze the prices set by your competitors.

There are two types of competitors to consider when conducting a pricing analysis: direct and indirect.

Direct competitors are those who sell the exact same product that you sell. These types of competitors are likely to compete on price so they should be a priority to review in your pricing analysis.

Indirect competitors are those who sell alternative products that are comparable to what you sell. If a customer is looking for your product, but it’s out of stock or it’s out of their price range, they may go to an indirect competitor to get a similar product.

4. Review any legal or ethical constraints to cost and price.

There’s a fine line between competing on price and falling into legal and ethical trouble. You’ll want to have a firm understanding of price-fixing and predatory pricing while doing your pricing analysis in order to steer clear of these practices.

Analyzing your current pricing model is necessary to determine a new (and better!) pricing strategy. This applies whether you're developing a new product, upgrading your current one, or simply repositioning your marketing strategy.

Next, let’s look at some examples of pricing strategies that you can use for your own business.

Dynamic Pricing Strategy: Chicago Cubs Freemium Pricing Strategy: HubSpot Penetration Pricing Strategy: Netflix Premium Pricing: AWAY Competitive Pricing Strategy: Shopify Project-Based Pricing Strategy: Courtney Samuel Events Value-Based Pricing Strategy: INBOUND Bundle Pricing: State Farm Geographic Pricing: Gasoline

Pricing models can be hard to visualize. Below, we’ve pulled together a list of examples of pricing strategies as they’ve been applied to everyday situations or businesses.

1. Dynamic Pricing Strategy: Chicago Cubs

I live in Chicago five blocks away from Wrigley Field, and my friends and I love going to Cubs games. Finding tickets is always interesting, though, because every time we check prices, they’ve fluctuated a bit from the last time. Purchasing tickets six weeks in advance is always a different process than purchasing them six days prior — and even more sox pricing at the gate.

This is an example of dynamic pricing — pricing that varies based on market and customer demand. Prices for Cubs games are always more expensive on holidays, too, when more people are visiting the city and are likely to go to a game.

(Another prime example of dynamic pricing is INBOUND , for which tickets get more expensive as the event nears.)

2. Freemium Pricing Strategy: HubSpot

HubSpot is an example of freemium pricing at work. There's a free version of the CRM for scaling businesses as well as paid plans for the businesses using the CRM platform that need a wider range of features .

Moreover, within those marketing tools, HubSpot provides limited access to specific features. This type of pricing strategy allows customers to acquaint themselves with HubSpot and for HubSpot to establish trust with customers before asking them to pay for additional access.

3. Penetration Pricing Strategy: Netflix

Netflix is a classic example of penetration pricing : entering the market at a low price (does anyone remember when it was $7.99?) and increasing prices over time. Since I joined a couple of years ago, I’ve seen a few price increase notices come through my own inbox.

Despite their increases, Netflix continues to retain — and gain — customers. Sure, Netflix only increases their subscription fee by $1 or $2 each time, but they do so consistently. Who knows what the fees will be in five or ten years?

4. Premium Pricing: AWAY

There are lots of examples of premium pricing strategies … Rolex, Tesla, Nike — you name it. One that I thought of immediately was AWAY luggage .

Does luggage need to be almost $500? I’d say no, especially since I recently purchased a two-piece Samsonite set for one-third the cost. However, AWAY has still been very successful even though they charge a high price for their luggage. This is because when you purchase AWAY, you’re purchasing an experience. The unique branding and the image AWAY portrays for customers make the value of the luggage match the purchase price.

5. Competitive Pricing Strategy: Shopify

Shopify is an ecommerce platform that helps businesses manage their stores and sell their products online. Shopify — which integrates with HubSpot — has a competitive pricing strategy.

There are a number of ecommerce software options on the market today — Shopify differentiates itself by the features they provide users and the price at which they offer them. They have three thoughtfully-priced versions of their product for customers to choose from with a number of customizable and flexible features.

With these extensive options tailored to any ecommerce business' needs, the cost of Shopify is highly competitive and is often the same as or lower than other ecommerce platforms on the market today.

6. Project-Based Pricing Strategy: Courtney Samuel Events

Anyone who's planned a wedding knows how costly they can be. I'm in the midst of planning my own, and I've found that the bundled, project-based fees are the easiest to manage. For example, my wedding coordinator Courtney charges one flat fee for her services. This pricing approach focuses on the value of the outcome (e.g., an organized and stressless wedding day) instead of the value of the time spent on calls, projects, or meetings.

Because vendors like Courtney typically deliver a variety of services — wedding planning, day-of coordination, physical meetings, etc. — in addition to spending time answering questions and providing thoughtful suggestions, a project-based fee better captures the value of her work. Project-based pricing is also helpful for clients and companies who'd rather pay a flat fee or monthly retainer than deal with tracked hours or weekly invoices.

7. Value-Based Pricing Strategy: INBOUND

While INBOUND doesn't leave the ultimate ticket price up to its attendees, it does provide a range of tickets from which customers can choose. By offering multiple ticket "levels," customers can choose what experience they want to have based on how they value the event.

INBOUND tickets change with time, however, meaning this pricing strategy could also be considered dynamic (like the Cubs example above). As the INBOUND event gets closer, tickets tend to rise in price.

8. Bundle Pricing: State Farm

State Farm is known for its tongue-in-cheek advertisements and its bundle deals for home and auto insurance. You can receive a quote on one or the other, but getting a quote on both can save you money on your premiums.

State Farm benefits from bundle pricing by selling more policies, and consumers benefit by paying less than they normally would if they used two different insurance providers for home and auto coverage.

9. Geographic Pricing: Gasoline

Gasoline is notorious for having a wide range of prices around the world, but even within the United States, prices can vary by several dollars depending on the state you live in. In California for example, gas prices have consistently hovered around $3 in the summer months for the past 10 years. On the other hand, gas prices in Indiana have been in the $2 range during the same time period. Laws, environmental factors, and production cost all influence the price of gasoline in California which causes the geographic disparity in the cost of the fuel.

Get Your Pricing Strategy Right

Thinking about everything that goes into pricing can make your head spin: competitors, production costs, customer demand, industry needs, profit margins … the list is endless. Thankfully, you don’t have to master all of these factors at once.

Simply sit down, calculate some numbers (like your COGS and profit goals), and figure out what’s most important for your business. Start with what you need, and this will help you pinpoint the right kind of pricing strategy to use.

More than anything, though, remember pricing is an iterative process. It’s highly unlikely that you’ll set the right prices right away — it might take a couple of tries (and lots of research), and that’s OK.

Editor's note: This post was originally published in March 2019 and has been updated for comprehensiveness.

Don't forget to share this post!

Related articles.

Want to Build A Subscription Business? Ask Yourself These 3 Questions

Competition-Based Pricing: The Ultimate Guide

How To Price A SaaS Product

Penetration Pricing: Meaning, Goals, Top Tips, & Examples

Price Skimming: All You Need To Know [+ Pricing Calculator]

Psychological Pricing and the Big-Time Boost It Offers Businesses

How to Price a Product That Your Sales Team Can Sell

B2B Pricing Models & Strategies [+ Pros and Cons of Each]

What Is Captive Product Pricing?

Everything You Need to Know About Value-Based Pricing

Determine the best pricing strategy for your business with this free calculator.

Powerful and easy-to-use sales software that drives productivity, enables customer connection, and supports growing sales orgs

The pricing strategy guide: Choosing pricing strategies that grow (not sink) your business

Choosing the pricing strategy for your business requires research, calculation, and a good amount of thought. Simply guessing may put you out of business. Here's what you need to know.

Definition of pricing

What are pricing strategies.

• Importance of pricing strategy

Top 7 pricing strategies

• 3 real-world examples
• How to create your strategy
• Determine value metric
• Customer profiles & segments
• User research & experiments
• Bonus: 10 data-driven tips
• Industry differences
• Final takeaway

Pricing strategies FAQs

Join our newsletter for the latest in saas.

By subscribing you agree to receive the Paddle newsletter. Unsubscribe at any time.

Too many businesses set their pricing without putting much thought into it. This is a mistake causing them to leave money on the table from the beginning. The good news is that taking the time to get your product pricing right can act as a powerful growth lever.  If you optimize your pricing strategy so that more people are paying a higher amount, you'll end up with significantly more revenue than a business who treats pricing more passively. This sounds obvious, but it's rare for businesses to put much effort into finding the best pricing strategy.

This guide will cover everything you need to know about setting a pricing strategy that works for your business. 

Check out this introduction video made by the Paddle Studios team.

Price Intelligently is Paddle’s dedicated team of pricing and packaging experts for SaaS and subscription companies. We combine unrivaled expertise and first-party data to solve your unique pricing challenges, break the mold, and catapult your growth.  Learn more

Pricing is defined as the amount of money that you charge for your products, but understanding it requires much more than that simple definition. Baked into your pricing are indicators to your potential customers about how much you value your brand, product, and customers. It's one of the first things that can push a customer towards, or away from, buying your product. As such, it should be calculated with certainty.

Pricing strategies refer to the processes and methodologies businesses use to set prices for their products and services. If pricing is how much you charge for your products, then product pricing strategy is how you determine what that amount should be. There are different pricing strategies to choose from but some of the more common ones include:

• Value-based pricing
• Competitive pricing
• Price skimming
• Cost-plus pricing
• Penetration pricing
• Economy pricing
• Dynamic pricing

Pricing is an underutilized growth lever

Many companies focus on acquisition to grow their business, but studies have shown that small variations in pricing can raise or lower revenue by 20-50%. Despite that, even among Fortune 500 companies, fewer than 5% have functions dedicated to setting the best price possible. There's a missed opportunity in the business world to see immediate growth for relatively little effort. 

Navigating PLG billing and pricing? Read our latest guide on product-led SaaS

Because most businesses spend less than 10 hours per year thinking about pricing, there's a lot of untapped growth potential in optimizing what you charge. In fact, choosing the best pricing method is a more powerful growth lever than customer acquisition. In some cases, it can be up to 7.5 times more powerful than acquisition. 

The importance of nailing your pricing strategy

Having an  effective pricing strategy  helps solidify your position by building trust with your customers, as well as meeting your business goals. Let's compare and contrast the messaging that a strong pricing strategy sends in relation to a weaker one.

A winning pricing strategy:

• Portrays value

The word cheap has two meanings. It can mean a lower price, but it can also mean poorly made. There's a reason people associate cheaply priced products with cheaply made ones. Built into the higher price of a product is the assumption that it's of higher value.

• Convinces customers to buy 

A high price may convey value, but if that price is more than a potential customer is willing to pay, it won't matter. A low price will seem cheap and get your product passed over. The ideal price is one that convinces people to purchase your offering over the similar products that your competitors have to offer.

• Gives your customers confidence in your product 

If higher-priced products portray value and exclusivity, then the opposite follows as well. Prices that are too low will make it seem as though your product isn't well made.

A weak pricing strategy:

• Doesn't accurately portray the value of your product

If you believe you have a winning product, and you should if you are selling it, then you need to convince customers of that. Setting prices too low sends the opposite message.

• Makes customers feel uncertain about buying

Just as the right price is one that customers will pull the trigger on quickly, a price that's too high or too low will cause hesitation.

• Targets the wrong customers

Some customers prefer value, and some prefer luxury. You have to price your product to match the type of customer it is targeted towards.

Let's now take a closer look at the seven most common pricing strategies that were outlined above with more from Paddle Studios .

Click on any of the links below for a more in-depth guide to that particular pricing strategy.

1. Value-based pricing

With value-based pricing, you set your prices according to what consumers think your product is worth. We're big fans of this pricing strategy for SaaS businesses.

2. Competitive pricing

When you use a competitive pricing strategy, you're setting your prices based on what the competition is charging. This can be a good strategy in the right circumstances, such as a  business just starting out , but it doesn't leave a lot of room for growth.

3. Price skimming  

If you set your prices as high as the market will possibly tolerate and then lower them over time, you'll be using the price skimming strategy. The goal is to skim the top off the market and the lower prices to reach everyone else. With the right product it can work, but you should be very cautious using it.

4. Cost-plus pricing 

This is one of the simplest pricing strategies. You just take the product production cost and add a certain percentage to it. While simple, it is less than ideal for anything but physical products.

5. Penetration pricing

In highly competitive markets, it can be hard for new companies to get a foothold. One way some companies attempt to push new products is by offering prices that are much lower than the competition. This is penetration pricing. While it may get you customers and decent sales volume, you'll need a lot of them and you'll need them  to be very loyal  to stick around when the price increases in the future.

6. Economy pricing 

This strategy is popular in the commodity goods sector. The goal is to price a product cheaper than the competition and make the money back with increased volume. While it's a good method to get people to buy your generic soda, it's not a great fit for SaaS and subscription businesses.

7. Dynamic pricing 

In some industries, you can get away with constantly  changing your prices  to match the current demand for the item. This doesn't work well for subscription and SaaS business, because customers expect consistent monthly or yearly expenses.

Three real-world pricing strategy examples

Real-world pricing strategy examples are the best way for a business to better understand the above-listed pricing strategies. Evaluating other businesses' approaches can be a good starting point but keep in mind that the right pricing strategy is based on math, market research, and consumer insights. For now, let’s look at the pricing strategy examples of some of the biggest brands of today: 

1. Streaming services 

Have you noticed that you pay roughly the same amount for Netflix, Amazon Prime Video, Disney+, Hulu, and other streaming services? That's because these companies have adopted competitive pricing , or at least a form of it, called  market-based pricing .

2. Salesforce

When Salesforce first came out, they were the only CRM in the cloud. (It wasn't even called 'the cloud' back then!) Armed with ground-breaking deployment and a target customer of a large enterprise, Salesforce could charge what they wanted. Later, after they'd grown, they were able to lower prices so small businesses could sign up. This is a classic example of  price skimming . 

3. Dollar Shave Club

At one time, you couldn't turn on your TV without an ad for Dollar Shave Club telling you how much cheaper they were than razors at the store. Although an aggressive  marketing strategy  and advertising like that is unusual for the pricing model, they were nevertheless employing economy pricing. It worked out well for them. They were acquired by Unilever in 2016 for a reported $1 billion.

How to create a winning pricing strategy

In the beginning, the actual number you're charging isn't that important.

There are some exceptions, but for the most part, you should first be figuring out the range you're in: a $10 product, $100 product, $1k product, etc. Don't waste time debating $500 vs. $505, because this doesn't matter as much until you have a stronger foundation beneath you.

Instead, understanding the following is much more important:

• Finding your  value metric
• Setting your ideal  customer profiles and segments
• Completing  user research + experimentation

This video from Paddle Studios goes deep on mastering a winning pricing strategy.

Step 1: Determine your value metric

A “ value metric ” is essentially what you charge for. For example: per seat, per 1,000 visits, per CPA, per GB used, per transaction, etc. 

If you get everything else wrong in pricing, but you get your value metric right, you'll do ok . It's that important. Partly because it bakes lower churn and higher expansion revenue into your monetization.

A pricing strategy based on a value metric (vs. a tiered monthly fee) is important because it allows you to make sure you're not charging a large customer the same as you'd charge a small customer.

If you remember your high school or college economics class, the professor put a point on a demand curve for the perfect price and said “the revenue a firm gets is the area under that point.” The problem here is: what about all that other area under the curve?  You’re missing out on that revenue by charging a flat monthly fee.

“Good, better, best” pricing strategy is a bit more advantageous, because you end up with three points on our trusty demand curve, and thus more revenue potential. You see this problem among many eCommerce businesses and retailers whose products are constrained by being physical goods—the car with the basic package vs. the car with the stereo and sunroof vs. the car with everything. In software, it’s thankfully dying out, but you’ll still see it with mass-market products:  Netflix, Adobe Creative Cloud, etc.

A value metric, however, allows you to have essentially infinite price points—maximizing your revenue potential. In practice, you’ll never show infinite price points on your pricing page , sales deck, or mobile conversion page, but you may have a new customer come in at a certain level and then grow.

Value metrics also bake growth directly into how you charge because as usage or the amount of value received goes up (and those are not the same thing), the customer pays more. If they end up using or consuming less, they pay less (and thus avoid churning). This is why companies using value metrics are typically growing at  double the rate with half the churn and 2x the expansion revenue  when compared to companies that charge a flat fee or where the only difference between their pricing tiers are features.

To determine your value metric, think about the  ideal essence of value  for your product—what value are you directly providing your customer?

In B2B, it's likely going to be money saved, revenue gained, time saved, etc. In  DTC , it may be the joy you bring them, fitness achieved, increased efficiency, etc. Obviously, we can't measure all of these, but if you can,  and  your customer trusts your measurement (meaning you say you saved them $100 and they agree you saved them $100), that’s your value metric.

As an example, the perfect value metric for  Paddle Retain  (our churn recovery product) is how much churn we recover for you. We can measure this, and our customers agree to the measurement, so we can charge on that axis. Other pure value metric products include  MainStreet , which handles government paperwork to automatically get you back tax credits—you pay a percentage of the money saved.

Most of you won't have a pure value metric, so the next step is to find a proxy for that metric. Take for example  HubSpot ’s marketing product. Their pure value metric is the amount of revenue their tool drives for your business. This is hard to measure and hard for the customer to agree to in terms of what percentage of credit HubSpot deserves for revenue from a blog post. Proxies for HubSpot are things like the number of contacts, number of visits, number of users, etc.

To find the right proxy metric, you want to come up with 5-10 proxies and then talk to your customers and prospects. You’ll typically find 1-2 of these pricing metrics will be most preferred amongst your target customers. You then want to make sure those 1-2 also make sense from a growth perspective. Your larger customers should be using/getting more of the metric, whereas your smaller customers should be using/getting less of the metric. You also want to make sure the metric encourages retention.

When we look at HubSpot, if they were to primarily price on “number of seats”, folks could share a login and HubSpot wouldn’t make much more money on large customers vs. small. Ironically they wouldn’t get as many people invested in HubSpot, because there’d be friction to adding additional seats. Instead, if they give unlimited seats and price based on “number of contacts” there’s minimal friction to getting as many people into HubSpot as possible to do activities (e.g., blog posts,  email campaigns , landing pages, etc.) that then produce contacts.

The result: HubSpot’s marketing product’s value metric is “contacts”, which ensures growth is baked directly into how they make money. The usage drives the metric, which therein drives revenue. Most importantly customers small, medium, and large are all paying at the point they see the value and then can grow.

Some other examples:

• Wistia  charges by the number of videos or channels you use/have
• Zapier  invented the concept of zap (connection of software) and charge based on time to connect
• Theater in Barcelona charged based on the number of laughs
• Husqvarna  charges based on time for lawn care products vs. making you buy them
• Rolls Royce  charges per mile for airplane engines. They own the engines on the plane you own and do all the maintenance. Cool model.
• Fresh Patch  charges based on the amount of grass you want per month for your dog—yes they deliver grass to you monthly

As a side note, you should stop pricing based on seats for products where each seat doesn’t provide a unique experience. For instance, imagine you're an AE using a CRM. If you log into the account of the AE sitting next to you, you can’t really do your work because you are only seeing their leads and accounts. Conversely, if you were a marketing exec and were to log in to another marketing manager’s account in HubSpot, you could do all the work you need to. Thus, for the latter, seats are not the right value metric.

Per-seat pricing is a relic of the  perpetual license  era when we couldn’t measure usage or value enough within our products. We’re beyond that point, so use the above as a good litmus test.

Step 2: Determine your customer profiles and segments

The second key component of your pricing strategy is determining your target segment and ideal customer profile. We've all heard about personas, and you may be rolling your eyes at the concept, but most personas are useless because they aren’t quantitative enough. When used properly, quantified personas and segments are beautiful tools. The information needs to go beyond just cute names like “Startup Steve" with a cute avatar, and cute meetings where people tell you they’re targeting "developers."

To get quantified personas, you need to pull out a spreadsheet.  Here’s a template  you can use.

1. Columns: Customer profiles you're targeting

These can take many forms, but the ultimate goal is to be as specific as possible so that you not only know who you’re targeting but how to monetize and retain them. Pragmatically, you typically separate these customer profiles based on size or role (or both). For example, a marketing automation product may target the following profiles:

• Marketing leaders (Director and higher) at companies $1M to $10M
• Marketing leaders (Director and higher) at companies $10.01M to $50M
• Marketing leaders (Director and higher) at companies $50.01M to $100M

The point is you can’t be everything to all people and you need to understand who you’re targeting in order to make better decisions.

2. Rows: Characteristics of each profile to help you differentiate between them

• Most valued features
• Least valued features
• Willingness to pay
• Lifetime value (LTV)
• Customer acquisition costs (CAC)
• ... and any other metric or category you think could be useful

If you're just starting out or you don't have some of this data, it’s fine. Still fill it out though with your hypotheses. You know  something  about your customers.

Next, you then need to validate (or invalidate) the most pressing hypothesis in that spreadsheet based on the decisions you’re going to make. If you're going to validate a new feature for a particular segment, then that's where you should start. Price point the biggest question? Start by researching the price point with each of these roles/segments.

If you don't know who your key roles/segments are, there's no way in hell you’ll set up an efficient growth flywheel, let alone an optimized pricing strategy. Personas act as a constitution within your business to centralize your focus and arguments about direction.

If you don't do segment and persona analysis, you better be able to raise a ton of money. I guarantee you there's some persona or segment on some vision document or in that euphoric part of your entrepreneurial brain that is completely wrong for your business. I see it all the time. Even I—someone who thinks about segments and customer research all the time—fall prey to being an absolute idiot with who we should target.

When we built  ProfitWell Metrics (our free subscription metrics tool) I thought we were geniuses who were going to be billionaires. Turns out analytics products are terrible. Willingness to pay for them is terrible; retention for them is terrible; NPS is terrible. Everything is just terrible, mainly because customers don't appreciate graphs or at least aren't willing to pay much for them. When we did our research this became obvious and put us 18 months ahead of our competitors, pushing us to change up the positioning of the product to freemium, which has fueled our business ever since (oh and our NPS is 70, because we massively over-deliver a free product better than the paid competition).

Never underestimate the power of focusing on the customer through research. You should never, ever just do what they ask, but you need to be an anthropologist who knows them better than anyone else.

Step 3: User research + experimentation

Beyond your value metric and core segments, the monetization game becomes extremely tactical and research-based. Figuring out your price point involves researching those segments and then making decisions in the field. Same with discounting, add-on, and packaging strategies. The point: monetization is never finished because it’s the very essence of translating your value into an optimal framework for your target customer segments.

Practically this is why you should be experimenting with your monetization every quarter. Experimentation can get tricky and have a few quirks, but you’ll find it’s similar to most growth frameworks out there (which are all versions of the scientific method).

Here’s a good prioritization list of what business owners should attack in optimizing their  monetization strategy  once they have the core segments and value metric figured out:

Priority 1: Foundational [see above]

• Core customer segments
• Value metrics

Priority 2: Core

• Order of magnitude price point (are you a $10 product vs. a $500 product)
• Positioning and value props

Priority 3: Optimizations

• Add-on strategy
• Specific price point (are you a $10 product vs. a $11 product)
• Price localization/internationalization
• Discounting strategy
• Contract Term optimization

Priority 4: Growth accelerators

• Market expansion (going up or down market)
• Vertical expansion
• Multi-Product

Your true order of operations with monetization will vary, but for the most part, all companies should work through the foundational and core sections before moving to the optimizations and growth accelerators. If you’re larger or there’s a fire, you may start with an optimization. In fact, this is sometimes a good idea. Something more scoped like “price localization” can help get momentum, be a forcing function to clean up tech and experimentation stacks, and mitigate political conversations. Remember, monetization is something that’s important, uncomfortable, and something you likely don’t know much about, so progress is better than nothing. Start small. You can (and should) always do more.

Bonus: 10 rapid-fire pricing strategy tips rooted in data⚡

In case you're still hungry for more tips on nailing your pricing strategy and achieving maximum profitability, look no further. We've got you covered:

1. You should  localize your pricing  to the currency and willingness to pay of the prospect's region

• Revenue per customer is 30% higher when you just use the proper currency symbol
• Having different price points in different regions increases revenue per customer further, and is justified based on different consumer demands in different regions

2. Freemium is an acquisition model, not a part of pricing

• Think of  freemium  as a premium ebook driving leads, not another pricing tier
• Don't do freemium until you truly understand how to convert leads to customers, because you’ll end up increasing noise or false positives when you’re trying to figure out your segment beachheads. The best folks who deploy free typically don’t implement freemium until two to three years into their business. The exceptions to this notion are if you have a very specific need or network effect (eg., marketplaces, social networks, etc.) or if you have a top 50 growth person on your team.
• To be clear, we're not saying DON’T do freemium. we're saying it's a scalpel, not a sledgehammer that requires thought. A lot of people end up reading our articles on freemium and end up going, “Cool, let’s do freemium and we’ll be a unicorn.” I’m being pragmatic in that you need to realize freemium is fantastic, but doing freemium properly takes a lot of effort and nuance.
• Paid users who convert from free tend to have higher NPS, better retention, and much lower CAC .

3. Value propositions matter oh so much

In B2B value propositions can swing willingness to pay ±20%, in DTC it's ±15%

4. Don't discount over 20%

In some verticals discounting over 20% may be fine, but you're likely not in one of them (although you may think you are), but the size of the discount almost perfectly correlates with higher churn. Large  discounts  get people to convert, but they don't stick around.

5. For upgrades to annual discounts, don't use percentages and try offers

Percentages don't work as well as whole dollar amounts for discounts (ie., "one month" will work better than "X percent off"). Annuals see much lower churn rates.

6. Should you end your price in 9s or 0s? Depends on your price point

Ending your prices in 9s evokes a discount brand, making the customer feel like they're getting something. Ending in 0 evokes luxury or premium, making them feel like they're getting a high-end product. Studies on this for technology products are inconclusive. We have seen it increase conversion in lower-cost products, but retention isn't as good with those customers.

7. You should experiment with your pricing in some manner every quarter

This doesn't mean change you should the price point each quarter, but experiment with variable costs. More changes correlate with increasing revenue per customer. Like all things, focusing on something makes you improve it.

8. Case studies boost willingness to pay quite a bit

Social proof is important.  Case studies  that offer proof of the high quality of your products can boost willingness to pay by 10-15% in both B2B and in DTC.

9. Design helps boost willingness to pay by 20%

This graph didn't look this way 10 years ago when design didn't do much for willingness to pay. Today, affinity for a company's design can boost willingness to pay considerably.

10. Integrations boost retention and willingness to pay

The more integrations a customer is using, typically the higher their willingness to pay and the better their retention. I wouldn't charge for the integrations, but I'd use this as a tool to get people hooked in and paying more or buying different add-ons.

Pricing strategies for different industries

Pricing strategies are not one size fits all. Finding the proper pricing strategy is dependent on your industry, as well as your company's unique objectives. But to give you an idea, we've listed a couple of industries and strategies that are well suited for each other. 

SaaS/Subscriptions

For SaaS and subscription-based businesses, value-based pricing is the winner hands down. As long as your customers are willing to pay, you can charge much more than your competitors.  Because your price is based on how much customers will spend, it isn't artificially lowered like other methods that fail to account for that. 

We also like value-based pricing for B2B companies. Value-based pricing requires you to look outward and understand your customers better. This is good for finding the optimal price, but it's also good for building optimal relationships that will also help grow your company. 

No more price guessing, just pricing that works

Accurately pricing your product for maximum growth requires a lot of market research and even more expertise on how to conduct and analyze that research. Our Price Intelligently  service combines our years of experience in the field with powerful machine learning tools to understand your target customer base and what makes them tick. We know the data to collect, the questions to ask, and the people to ask them of. This is important because businesses in different stages of growth need different strategies for evaluating pricing. Additionally, every business has a unique set of potential selling points and a unique target audience to pitch to.

You need someone in your corner who knows how to evaluate pricing options for your specific businesses. With our help, you can be confident that your pricing strategy and chosen price points will unlock growth levers at your company that have been sitting idle, because they'll be tailored to finding and maximizing the value propositions that are unique to your business. 

Which pricing strategy is best? 

This depends on your business model. For SaaS and subscription companies, as well as many others, we recommend value-based pricing.

How do you determine the selling prices of a product?

First, find a pricing strategy that fits well with your business model and product. As you've seen, pricing strategies differ, but they all give clear instructions for how to use them to set prices.

What is the simplest pricing strategy?

Since you only need to add up the cost to make your product and add a percentage to it, cost-plus pricing is the simplest form of pricing to use.

What is a pricing curve?

A pricing curve is a graph that shows you the number of people who are willing to pay a given price for a product.

What are the 4 major pricing strategies?

Value-based,  competition-based , cost-plus, and  dynamic pricing are all models  that are used frequently, depending on the industry and business model in question.

Related reading

• Brand Inspiration
• Brand Differentiation
• Brand Positioning
• Brand Architecture
• Brand Audit
• Brand Strategy Implementation
• Brand Naming
• Marketing Guides
• Share on Facebook
• Share on Twitter
• Share on Google+

Strategic Planning

Pricing strategy.

Pricing is one of the classic “4 Ps” of marketing (product, price, place, promotion). It’s one of the key elements of every B2C strategy.

Yet for many B2B marketers, the pricing strategy in their marketing plan is challenging to write; many aren’t even involved in creating their pricing strategy.

There are many factors to consider when developing your pricing strategy, both short- and long-term . For example, your pricing needs to:

• Reflect the value you provide versus your competitors
• Match what the market will truly pay for your offering
• Support your brand
• Enable you to reach your revenue and market share goals
• Maximize your profits

When you offer a truly unique product or service with little direct competition, it can be challenging to establish your price. Define a strong strategy and competitive analysis so you can view:

• What your prospects might pay for other solutions to their problems
• Where your price should fall in relation to theirs

When your price, value proposition and positioning are aligned, you’re in the best situation to maximize revenue and profits.

Deviating from Your Pricing Strategy

If sales are slow, many companies lower their price. That’s not always the best option. Here are three price change examples:

What would happen if these companies used a different pricing strategy?

Do you see your company in one of these scenarios?

Not Sure Where to Start with Your Pricing Strategy?

Access detailed step-by-step plans in our new marketing website. It’s free to use

Pricing Strategy Key Concepts & Steps

Before you begin.

It’s best to define your positioning, create your brand strategy, and identify your distribution channels before you develop your pricing strategy in the marketing plan. By doing so, you’ll ensure that your pricing reflects your value and reinforces your brand.

For example, if your method for delivering value is product leadership, you shouldn’t discount heavily or compete on price; you should also minimize pricing conflicts with any channel partners.

Your pricing influences how the market perceives your offering. If you’re perceived as a commodity, you must either change the market’s perception via a new positioning strategy, or compete on price and focus on innovating to keep costs low so you can still make a profit. You may need to gather market research and market intelligence – either via your own efforts, via third-party toolkits or applications, or by hiring a market research firm.

Match your pricing strategy to your value proposition

Your price sends a strong message to your market – it needs to be consistent with the value you’re delivering.

• If your value proposition is operational efficiency, then your price needs to be extremely competitive.
• If your value proposition is product leadership or customer intimacy, a low price sends the wrong message. After all, if a luxury item isn’t expensive, is it really a luxury?

Understand your cost structure and profitability goals

Companies calculate these costs differently, so verify the exact calculations your company uses for

• Cost of goods sold (COGS): the cost to physically produce a product or service
• Gross profit: the difference between the revenue you earn on a product and the cost to physically produce it

In addition, understand how much profit the company needs to generate. You’ll be far more effective when considering discount promotions – you’ll know exactly how low you can go and still be profitable.

Analyze your competitors’ prices

Look at a wide variety of direct and indirect competitors to gauge where your price falls. If your value proposition is operational efficiency, evaluate your competitors on a regular basis to ensure that you’re continually competitive.

Determine price sensitivity

A higher price typically means lower volume. Yet you may generate more total revenue and/or profit with fewer units at the higher price; it depends on how sensitive your customers are to price fluctuations. If they’re extremely sensitive, you may be better off at a much lower price with substantially greater volume.

Estimate how sensitive your customers are to fluctuations – it will help you determine the right price and volume combination. More importantly, you can estimate how a price change can impact your revenue.

After Designing Your Pricing Strategy

Once you’ve finalized your pricing strategy in the marketing plan , it’s time to design your marketing campaigns . But first, it’s always a good idea to craft your brand strategy. Learn more about our brand strategy toolkit .

Powerful Brand Strategy Tools

Everything You Need for Your Branding Strategy Project

Step-by-Step Instructions for Your Entire Brand Strategy

Access step-by-step guidance for completing your brand audit, along with your entire brand strategy. Our comprehensive brand strategy toolkit guides your:

• Brand audit
• Brand inspiration, purpose, values and promise
• Brand differentiators
• Brand architecture
• Positioning statements and your brand story
• Visual and operational branding guidelines
• You brand strategy implementation plan

Toolkit Modules

• Qlutch – Plans for Marketing

Stay Connected

• Search Search Please fill out this field.
• Building Your Business
• Becoming an Owner
• Business Plans

The Marketing Plan Section of the Business Plan

Writing The Business Plan: Section 5

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

• Products, Services, and Your USP

Pricing and Positioning Strategy

Sales and distribution plan, advertising and promotion plan.

The marketing plan section of the business plan explains how you're going to get your customers to buy your products or services. The marketing plan, then, will include sections detailing your:

• Products and services and your unique selling proposition (USP)
• Pricing strategy
• Sales and distribution plan
• Advertising and promotions plan

The easiest way to develop your marketing plan is to work through each of these sections, referring to the market research you completed when you were writing the previous sections of the business plan . (Note that if you are developing a marketing plan on its own, rather than as part of a business plan, you will also need to include a target market and a competitors' analysis section.)

Let's look at each of these four sections in detail.

Products, Services, and Your Unique Selling Proposition

Focus on the uniqueness of your product or service and how the customer will benefit from what you're offering. Use these questions to write a paragraph summarizing these aspects for your marketing plan:

• What are the features of your product or service?
• Describe the physical attributes of your product or service and any other relevant features such as what it does or how it differs from competitors' offerings.
• How will your product or service benefit the customer?
• Remember that benefits can be intangible as well as tangible; for instance, if you're selling a cleaning product, your customers will benefit by having a cleaner house, but they may also benefit by enjoying better health. Brainstorm as many benefits as possible to begin with, then choose to emphasize the benefits that your targeted customers will most appreciate in your marketing plan.
• What is it that sets your product or service apart from all the rest? In other words, what is your USP, the message you want your customers to receive about your product or service? This will be at the heart of your marketing plan.

Examples of Unique Selling Propositions

Unique selling propositions should be short (no more than a sentence) and concise. Here are a few great examples:

• Domino's Pizza : "We deliver hot, fresh pizza in 30 minutes or less, or it's free."
• FedEx Corporation : "When it absolutely, positively has to be there overnight."
• M&Ms : "The milk chocolate melts in your mouth, not in your hand ."
• Dollar Shave Club: “Everything you need in the bathroom—from razor blades to grooming products—automatically delivered to your door. It doesn’t get any simpler than that.”

The pricing strategy portion of the marketing plan involves determining how you will price your product or service. The price you charge has to be competitive but still allow you to make a reasonable profit.

Being reasonable is key—you can charge any price you want to, but for every product or service there's a limit to how much the consumer is willing to pay. Your pricing strategy needs to take this consumer threshold into account.

The most common question small business people have about the pricing strategy section of the marketing plan is, "How do you know what price to charge?" Basically, you set your pricing through a process of calculating your costs, estimating the benefits to consumers, and comparing your products, services, and prices to others that are similar.

Set your pricing by examining how much it cost you to produce the product or service and adding a fair price for the benefits that the customer will enjoy. You may find it useful to conduct a  breakeven analysis to determine your minimum threshold. Competitor pricing will also help guide you toward the fair market value and help you determine how high you can reasonably go.  

The pricing strategy you outline in your marketing plan will answer the following questions:

• What is the cost of your product or service? Make sure you include all your fixed and variable costs when you're calculating this. The costs of labor and materials are obvious, but you may also need to include freight costs, administrative costs, and selling costs, for example.
• How does the pricing of your product or service compare to the market price of similar products or services?
• Explain how the pricing of your product or service is competitive. For instance, if the price you plan to charge is lower, why are you able to do this? If it's higher, why would your customers be willing to pay more? This is where the strategy aspect comes into play; will your business be more competitive if you charge more, less, or the same as your competitors, and why?
• What kind of return on investment (ROI) are you expecting with this pricing strategy, and within what time frame?

Remember, the primary goal of the marketing plan is to get people to buy your products or services. Here's where you detail how this is going to happen.

There are usually three parts to the sales and distribution section, although all three parts may not apply to your business.

Distribution Methods

• How is your product or service going to get to the customer? Will you distribute your product or service through a website, through the mail, through sales representatives, home delivery, or through retail?
• What distribution channel is going to be used? In a direct distribution channel, the product or service goes directly from the manufacturer to the consumer. In a one-stage distribution channel, it goes from manufacturer to retailer to consumer. The traditional distribution channel is from manufacturer to wholesaler to retailer to consumer. Outline all the different companies, people and technologies that will be involved in the process of getting your product or service to your customer.
• What are the costs associated with distribution?
• What are the delivery terms?
• How will the distribution methods affect production time frames or delivery? How long will it take to get your product or service to your customer?

If your business involves selling a product, you should also include information about inventory levels and packaging in this part of your marketing plan. For instance:

• How are your products to be packaged for shipping and for display?
• Does the packaging meet all regulatory requirements (such as labeling)?
• Is the packaging appropriately coded, priced, and complementary to the product?
• What minimum inventory levels must be maintained to ensure that there is no loss of sales due to problems such as late shipments and backorders?

Transaction Process

• What system will be used for processing orders, shipping, and billing?
• What methods of payment will customers be able to use?
• What credit terms will customers be offered? If you will offer discounts for early payment or impose penalties for late payment, they should be mentioned in this part of your marketing plan.
• What is your return policy?
• What warranties will the customer be offered? Describe these or any other service guarantees.
• What after-sale support will you offer customers and what will you charge (if anything) for this support?
• Is there a system for customer feedback so customer satisfaction (or the lack of it) can be tracked and addressed?

Sales Strategy

• What types of salespeople will be involved (commissioned salespeople, product demonstrators, telephone solicitors, etc.)?
• Describe your expectations of these salespeople and how sales effectiveness will be measured.
• Will a sales training program be offered? If so, describe it in this section of the marketing plan.
• Describe the incentives salespeople will be offered to encourage their achievements (such as getting new accounts, the most orders, etc.).

Essentially the advertising and promotion section of the marketing plan describes how you're going to deliver your USP to your prospective customers. While there are literally thousands of different promotion avenues available to you, what distinguishes a successful plan from an unsuccessful one is the focus—and that's what your USP provides.

So think first of the message that you want to send to your target audience. Then look at these promotion possibilities and decide which to emphasize in your marketing plan:

Advertising

The best approach to advertising is to think of it in terms of media—specifically, which media will be most effective in reaching your target market. Then you can make decisions about how much of your annual advertising budget you're going to spend on each medium.

What percentage of your annual advertising budget will you invest in applicable methods of advertising, such as:

• The internet (including business website, email, social media campaigns, etc.)
• Direct mail
• Door-to-door flyer delivery
• Cooperative advertising with wholesalers, retailers, or other businesses
• Directories
• Bench/bus/subway ads

Include not only the cost of the advertising but your projections about how much business the advertising will bring in. 

Sales Promotion

If it's appropriate to your business, you may want to incorporate sales promotional activities into your advertising and promotion plan, such as:

• Offering free samples
• Point of purchase displays
• Product demonstrations

Marketing Materials

Every business will include some of these in its promotion plans. The most common marketing material is the business card, but brochures, pamphlets, and service sheets are also popular.

This is another avenue of promotion that every business should use. Describe how you plan to generate publicity. While press releases spring to mind, that's only one way to get people spreading the word about your business. Consider:

• Product launches
• Social media
• Special events, including community involvement
• Writing articles
• Getting and using testimonials

Your Business's Website

If your business has or will have a website and a business Facebook page, describe how these fit into your advertising and promotion plan.

Trade Shows

Trade shows can be incredibly effective promotion and sales opportunities if you pick the right ones and go equipped to put your promotion plan into action.

Other Promotion Activities

Your promotion activities are limited only by your imagination. But whether you plan to teach a course, sponsor a community event, or conduct an email campaign, you'll want to include it in your advertising and promotion plan. Sporadic, disconnected attempts to promote your product or service are bound to fail. Your goal is to plan and carry out a sequence of focused promotion activities that will communicate the message you want to send about your products or services.

No business is too small to have a marketing plan. After all, no business is too small for customers or clients. And if you have these, you need to communicate with them about what you have to offer.

Harvard Business Review. " How to Find Out What Customers Will Pay ." Accessed Jan. 16, 2020.

Essential guide to pricing strategy: how to, types and examples

Mar 17th, 2022

What is a pricing strategy?

Types of pricing strategies, how to create a pricing strategy .

• Share this article

Pricing is one of the paramount challenges faced by companies. Prices should not only correspond to the existing market conditions but also cover the company’s expenses, take into account the competitors’ pricing and allow the organization to make a profit. A pricing strategy should also maintain balance while addressing customers’ needs and generating revenue. 

Moreover, when it comes to pricing, there is no one-size-fits-all solution. Instead, you need to continuously review the pricing strategy and adapt it to changing market conditions and competitive environment. Thankfully, a variety of pricing models and approaches will help you identify the best pricing that will help you find the sweet spot between your clients’ ability to pay and your financial goals. This article will describe the most common pricing strategies and provide examples of their successful implementation.

Pricing strategy is a method of determining the most appropriate price for a product or service. This process takes into consideration market and consumer demand and focuses on maximizing profits and shareholder value. When developing a pricing strategy, businesses consider various factors, such as marketing goals, financial objectives, target customers, brand positioning , input costs, trade margins, and product characteristics. The external factors that affect pricing strategy include competitor pricing, economic and market trends.

When selling a product or service, a company may employ a range of pricing strategies. Before deciding on the most suitable pricing strategy, senior executives need to analyze the brand positioning with respect to its competitors and to the customers’ perspective, price segmentation or establishing different prices for the same products or services and competitive pricing response strategy or the way to respond to competitor price changes. It should also be noted that pricing strategy greatly depends on economic, cultural, and industrial conditions and varies from one organization to another.

Many articles on pricing use the terms pricing strategy and pricing model interchangeably. However, there are some notable differences. A pricing model deals with the implementation of a pricing strategy. Pricing models rely on quantitative data. Some of the most popular pricing models include hourly, project-based, retainer, and performance-based approaches. The retainer model, for example, is when a business owner charges a monthly fee for a specific amount of time spent on the task or deliverables. 

Pricing strategy, in contrast, is how the seller utilizes pricing to accomplish defined business goals. The term refers to a consumer’s reaction to particular prices. In this guide, we will review pricing strategies and the steps needed to create one. 

An effective pricing strategy allows you to strengthen your position in the market by gaining consumers’ trust and meeting your business objectives. The listed approaches will be based on various characteristics, such as product value, expenses you need to cover, the purchasing power of your target market, and competitors’ pricing. Let us compare different types of pricing strategies, their advantages and disadvantages. 

Penetration pricing strategy

The main idea of the penetration pricing strategy is to encourage potential buyers to purchase the product by offering a lower price during the initial release. This pricing strategy helps new businesses enter the market and attract customers. Penetration pricing utilizes low prices to raise awareness about a new product among a large number of clients. After some time, the company raises prices to maximize profits and demonstrate the increasing value of the product.

According to penetration strategy, a brand initially lowers prices to gain market share and build a customer base with the goal of keeping new clients once the prices go back to normal. Due to this reason, penetration pricing is usually applied for a limited time, and it is not suitable as a long-term strategy. Moreover, there is a considerable risk that the buyers may prefer the brand at first but then choose the competitor as prices rise. 

Landlocked Airlines employed a penetration pricing strategy to encourage customers to use its services during certain seasons. This approach proved to be effective for a small airline company. Landlocked Airlines promoted its services during the winter holidays. The company reduced prices for inter-state trips, which helped it earn a good reputation and attract many new customers who would book more expensive tickets in the future.

Competitive pricing strategy

A competitive pricing strategy is based on using competitors’ prices as a reference point to set your product prices. This strategy does not take into account consumer demand or product cost. The approach is suitable for an over-saturated market as slightly different prices can play a critical role for the customers while the characteristics of the products remain the same. 

There are three options for businesses that follow a competitive pricing strategy. The companies may set prices below the competition, at the competitors' level, or above the competition.

If the company sets higher prices for the products than its competitors, it should justify the pricing by providing additional features or special payment terms. When the company is going to charge a price below the market, there is a chance of potential losses. The profits from the additional products can compensate for the expenses on the product priced below the market. If a business sets the same prices as its competitors for similar products, it may distinguish itself through outstanding product marketing .

Pepsi and Coca-Cola are perfect examples of competitive pricing strategy. This is because the brands are very similar in terms of the quality and characteristics of the products. However, Pepsi is usually slightly more expensive than Coca-Cola. So will typically have smaller total sales volumes with better profit margins, while Coke will usually achieve necessary overall profits through larger sales volumes.

Skimming (or high-low) pricing strategy

Skimming strategy is when a business sets the highest initial price for a new product and then cuts it once there is lower demand. The skimming pricing strategy is widely used in technology markets where companies aim to reimburse R&D costs. The tech companies producing devices like smartphones and video game consoles usually price their products according to this strategy as gadgets tend to lose relevance over time.

This approach targets early adopters or customers who have lower price sensitivity. It happens for several reasons: these people’s need for the product outweighs their desire to save money, they usually have higher income or better knowledge of the product’s value. Companies apply a skimming strategy for a limited period to recover their investments in product development. To obtain greater market share, businesses should use other approaches like penetration pricing strategy after some time. However, the skimming method may irritate consumers who purchased the product initially and attract competitors who notice the sudden decrease in prices.

Apple uses a skimming pricing strategy to gain the highest profit in a short time instead of getting the maximum sales. The company also applies this strategy to differentiate itself from the competitors in the market. Furthermore, Apple made minor adjustments in the skimming pricing strategy. The company charges high prices for the new products and then justifies them by increasing the value of the products in future versions. 

Premium (or prestige) pricing strategy

Premium pricing strategy is also known as prestige pricing or luxury pricing. According to this strategy, companies artificially increase prices to create the perception that the products are exclusive, high-end, or luxurious. The strategy is based on consumers’ belief that expensive products have a solid reputation, are more trustworthy or attractive, and symbolize excellent quality and distinction. Premium pricing focuses more on the product’s perceived value than its actual value.

Customers of the brands sticking to the premium pricing strategy are typically not price-sensitive, so they are ready to pay more for the latest trends. Technology and fashion brands use this approach as they aim to provide value and status through their products. The drawback of the strategy is the difficulty of implementation. The success depends on the physical locations of the stores and target customers.

Starbucks is an example of a premium pricing strategy. The coffee company’s customers choose its lattes and signature coffee products over lower-priced competitors, such as Dunkin’ Donuts and smaller or local coffee chains.

Value-based pricing strategy

This strategy relies on determining the price of the product according to its value for the customer. A value-based pricing strategy is often used when the value of the product to the customer exceeds the cost of production. The businesses that use this strategy always target one specific customer segment or a single customer if it is a B2B company . The value-based approach is not applicable in the case of multiple segments as it would be difficult for marketers to determine the appropriate price for each one.

The strategy will not work well for the “blue ocean” products as this pricing method works if the product has a competitor’s alternative offer. First, the marketers have to use the competitor’s product as the criterion for establishing a value-based price. Then it is essential to determine the product’s unique features that distinguish it from the competing option. Finally, the marketers need to calculate the value of the differentiated features. 

Supreme , an American streetwear brand, differentiates itself from competitors by emphasizing the exclusivity of clothing while maintaining prices relatively cheap and affordable. The brand always keeps a minimal inventory and never produces a large number of items. You cannot buy Supreme clothing in large retail stores, their supply is restricted. Owning limited items sold by Supreme makes its owner a much more fashion-conscious person. This strategy creates a sense of originality of the products while increasing their desirability. As a result, the brand has a unique value that you cannot get from owning any other piece.

Dynamic pricing strategy

Dynamic pricing strategy, sometimes also known as time-based pricing, surge pricing, and demand pricing, establishes prices based on various factors, such as competitor pricing, customer demand, market, and supply. When implementing a dynamic pricing strategy, the companies use data collected from customers or react to changing market conditions. Then businesses adjust the prices for comparable goods to correspond to consumers’ capacity to pay. 

The companies that typically use dynamic pricing strategy are hotels, airline companies, and entertainment facilities. These organizations apply specific machine learning algorithms that analyze demand, competitor prices, and other factors to customize prices to current market conditions or customers’ willingness to pay. The dynamic method is also suitable for large businesses like eCommerce platforms and retail stores as implementing the strategy can be quite expensive.

Uber charges a price for a ride depending on the route, traffic, and rider-to-driver demand at the moment. The algorithm or service rules consider these factors when determining the prices. 

Cost-plus (or economy) pricing strategy

A cost-plus strategy is one of the easiest methods to set up the price for the product. The strategy takes into account only the cost of producing the product. Then you need to add the set markup percentage to the costs and sell the product for the total. Thus, to derive the price of the product, you need to add material costs, labor costs, shipping costs, marketing, and overhead costs to a markup percentage. 

Retailers who sell physical goods often use this method. The advantage of the cost-plus strategy is that it is easy to calculate. If all your production and labor costs are fixed, this pricing strategy can generate consistent profits. However, the method does not consider market factors, such as customer perceived value or competitors’ prices.

Let us imagine the company that produces jellies and jams. The production cost of a jar of wild blueberry jelly is $1.50 per 250 ml. The company is going to add a markup of 40%. Thus, the price of the jelly in the shop will be $2.10.

Target pricing strategy

Target pricing strategy is a method used by companies to establish the product price on the basis of market prices. A target price is an expected price the potential buyers are willing to pay for a product. To set the price for the product, the company conducts market research and analyzes the prices for similar offers. Then the company determines the profit margin or the amount of profit it aims to gain from a product or service. After setting the profit margin, the business evaluates whether the cost of manufacturing the product is within the budget. 

This strategy can guarantee that the company gets reasonable profit as the business sells the product at a price that corresponds to market demand. Large companies like automobile manufacturers choose target pricing strategy as it is not related to product demand as they sell the complete stock volume. Furthermore, target pricing increases the profitability of the companies by lowering the cost of manufacturing the product while the selling price is fixed and determined beforehand. 

Toyota uses target pricing to save costs at the development stage and increases the quality of the products at the same time. The goal of the company is manufacturing costs reduction, so Toyota strives to meet the goal through design adjustments of the vehicles.

Discount (or low-cost) pricing strategy 

Discount pricing strategy is a method of reducing the prices for original products or services to increase traffic, move inventory and generate additional sales. Discount pricing creates a sense of urgency and a feeling that a customer is making a good deal, so this approach attracts many potential buyers. However, a discount pricing strategy is used very often by various brands and may create a reputation that your company is a bargain retailer. In addition, it may lead to a negative perception of your products’ quality. Discount pricing strategy, which is based on cost advantage can also be used as a barrier to entry for new businesses, coming to the market.

There are three common types of discount pricing: seasonal, clearance, and volume discounts. During the seasonal discounts, companies usually provide special discounts on seasonal products. Sometimes businesses apply seasonal discounts to out-of-season products to sell old inventory. Companies use the term “clearance” to denote that the products are available at exceptionally low prices and only for a limited time, like “buy two items and get one for free”. A volume discount is also known as bundling or selling goods in bulk.

Beardbrand , a company that produces brand care products, promotes discounted bundles of its goods. The bundles are different kinds of one product. They are less expensive if purchased as a set than purchased separately. Customers can test different product variations to choose the most favorite one.

Seasonal pricing strategy

The seasonal pricing strategy sets the prices for the products depending on the demand during the high season or low season. The goal is to balance the demand by attracting customers with low prices during less busy times and increasing income in peak periods by charging higher prices. The peak seasons typically include annual holiday periods like New Year and Christmas, public holidays, school holidays, and local events like festivals and concerts.

To implement the strategy, you need to adapt to fluctuations in customer demand by breaking the year into low, mid, and peak periods. Then, determine the minimum and maximum prices you are going to charge. Try different prices to ensure that seasonal discounts do not motivate people to wait until the end of the peak period. Thus, the extra fees would not drive away customers seeking greater value.

Hotels, online travel agencies, and booking systems like Airbnb and Booking.com adjust their pricing to meet consumer demands. In addition, some services utilize artificial intelligence and machine learning to determine seasonal prices with the help of the algorithm.

Psychological pricing strategy

Psychological pricing aims to create a positive psychological impact to increase sales. According to psychological studies , when customers make purchases, they experience pain or loss. Therefore, the sellers can reduce this effect, improving the chances that the customers will buy the product.

The companies employ psychological pricing strategy by setting prices ending in 9, such as $8.99 instead of $9. It looks like the seller reduced the price as much as possible, taking into account every cent. As a result, the customer perceives the price as if purchasing the product for $8 instead of $9. 

Another way to use this strategy is to put more expensive items right next to the ones you are trying to sell in a physical shop or online. For example, suppose you use it in combination with discount pricing and offer a 50% discount when buying two products. In that case, customers will consider this a favorable situation to buy a product. 

McDonald's uses psychological pricing by selling combination meals that seem like a good deal compared to purchasing a single product. The brand encourages people to spend money on additional products they might not otherwise buy. 

Geographic pricing strategy

Geographic pricing is when a company sets different prices on its products or services depending on the market or geographical location. This strategy is suitable for multinational companies. The price for the product may be based on customers’ disposable income or the economic conditions of a particular country. 

Paid social media advertising makes it simple to market a product or service using a geographic pricing strategy. You can create your pricing model focusing on the city, region, or zip code of your target customers. If some clients travel and relocate permanently, it will not influence your overall strategy to a large extent.

In 2019 Apple stores in China were selling the latest iPhones at discounts. Apple faces many challenges in the Chinese market as there are low-cost phone manufacturers like Huawei . Due to these obstacles, geographical pricing strategy allows the brand to compete effectively.

Map pricing strategy

Although MAP pricing might seem like a variation of the geographic pricing strategy, it is, in fact, something completely different. MAP is an acronym for Minimum Advertised Price. Some countries, for example, the United States, allow brands or manufacturers to establish MAP policies to define the lowest prices at which the retailers can promote their products. A MAP policy is a document that prevents price erosion which typically leads to lower seller margins and reduced value of the goods. In addition, MAP policy allows for identifying fraud and protects customers from purchasing fake goods. The minimum advertised price policy also specifies the consequences for companies that violate the established rules as well as the procedure for enforcing the policy.

There are MAP regulations for almost every product in the world. The policy is helpful for both manufacturers and retailers as it allows standardizing the prices and differentiating the product from the competition by focusing on its unique features like service and customer support. In addition, it helps small and mid-sized retailers compete against larger companies.

If a backpack manufacturer establishes a minimum advertised price of $50 for the best-selling item, all product resellers should advertise this product at $50 or more. However, if a reseller decides to promote the item at a $35 price, this will violate MAP regulations.

It might be challenging to develop a successful pricing strategy as it requires considering various characteristics of your business. True, creating a pricing strategy is a complicated task, so we broke the process into five steps.

1. Determine your business objectives. Your goals might include increasing profitability, introducing a new product, gaining more significant market share, or reaching a new market segment . Consider what you want your company to contribute to the economy and the world.

2. Perform a comprehensive market pricing analysis. Analyze the market in which your product or service is going to compete. If the market is over-saturated and you have many competitors offering similar products or services, the price will be your key to success. Try to reduce operational costs to maximize profit margins. If you produce a highly differentiated product, you can use premium pricing and focus on better customer service.

3. Make a list of your competitors. Competitors’ pricing strategies have a notable impact on yours. So, you need to identify several direct competitors and analyze their pricing. Then consider the alternatives that consumers may use to solve the problem instead of your product or service. Next, study the pricing of these substitute products. Finally, develop your pricing strategy based on all of the above.

4. Understand your target customers. At this stage, you need to determine why and how your target audience will use your product or service. The most important issue is the perceived value of the product. You need to understand the task your product or service solves for the customer, how it alleviates the pains related to this task, and what benefits the customer will get by using the product.

5. Set your prices and review them regularly. Finally, set the prices for your product or products based on your goals and the data you have collected. Set lower prices if you believe in market potential and want to quickly grab a larger share of it. Or set higher prices if the product you offer is superior to the competition. And make sure to review your results and update the prices if there is an opportunity to improve your results.

Now you have a better grasp of the most common pricing strategies. You can choose the most effective one for your business from the above-listed methods and then make adjustments to create more personalized experiences for your audience. It is time to offer the customers the best price for value!

• Marketing Strategy & Branding
• Content Marketing & SEO
• Product Focused Marketing
• Digital Experience Design
• Marketing Automation
• Video Production

© 2023 Awware

• Sources of Business Finance
• Small Business Loans
• Small Business Grants
• Crowdfunding Sites
• How to Get a Business Loan
• Small Business Insurance Providers
• Best Factoring Companies
• Types of Bank Accounts
• Best Banks for Small Business
• Best Business Bank Accounts
• Open a Business Bank Account
• Bank Accounts for Small Businesses
• Free Business Checking Accounts
• Best Business Credit Cards
• Get a Business Credit Card
• Business Credit Cards for Bad Credit
• Build Business Credit Fast
• Business Loan Eligibility Criteria
• Small-Business Bookkeeping Basics
• How to Set Financial Goals
• Business Loan Calculators
• How to Calculate ROI
• Calculate Net Income
• Calculate Working Capital
• Calculate Operating Income
• Calculate Net Present Value (NPV)
• Calculate Payroll Tax

How to Write a Business Plan in 9 Steps (+ Template and Examples)

Every successful business has one thing in common, a good and well-executed business plan. A business plan is more than a document, it is a complete guide that outlines the goals your business wants to achieve, including its financial goals . It helps you analyze results, make strategic decisions, show your business operations and growth.

If you want to start a business or already have one and need to pitch it to investors for funding, writing a good business plan improves your chances of attracting financiers. As a startup, if you want to secure loans from financial institutions, part of the requirements involve submitting your business plan.

Writing a business plan does not have to be a complicated or time-consuming process. In this article, you will learn the step-by-step process for writing a successful business plan.

You will also learn what you need a business plan for, tips and strategies for writing a convincing business plan, business plan examples and templates that will save you tons of time, and the alternatives to the traditional business plan.

Let’s get started.

What Do You Need A Business Plan For?

Businesses create business plans for different purposes such as to secure funds, monitor business growth, measure your marketing strategies, and measure your business success.

1. Secure Funds

One of the primary reasons for writing a business plan is to secure funds, either from financial institutions/agencies or investors.

For you to effectively acquire funds, your business plan must contain the key elements of your business plan . For example, your business plan should include your growth plans, goals you want to achieve, and milestones you have recorded.

A business plan can also attract new business partners that are willing to contribute financially and intellectually. If you are writing a business plan to a bank, your project must show your traction , that is, the proof that you can pay back any loan borrowed.

Also, if you are writing to an investor, your plan must contain evidence that you can effectively utilize the funds you want them to invest in your business. Here, you are using your business plan to persuade a group or an individual that your business is a source of a good investment.

2. Monitor Business Growth

A business plan can help you track cash flows in your business. It steers your business to greater heights. A business plan capable of tracking business growth should contain:

• The business goals
• Methods to achieve the goals
• Time-frame for attaining those goals

A good business plan should guide you through every step in achieving your goals. It can also track the allocation of assets to every aspect of the business. You can tell when you are spending more than you should on a project.

You can compare a business plan to a written GPS. It helps you manage your business and hints at the right time to expand your business.

3. Measure Business Success

A business plan can help you measure your business success rate. Some small-scale businesses are thriving better than more prominent companies because of their track record of success.

Right from the onset of your business operation, set goals and work towards them. Write a plan to guide you through your procedures. Use your plan to measure how much you have achieved and how much is left to attain.

You can also weigh your success by monitoring the position of your brand relative to competitors. On the other hand, a business plan can also show you why you have not achieved a goal. It can tell if you have elapsed the time frame you set to attain a goal.

4. Document Your Marketing Strategies

You can use a business plan to document your marketing plans. Every business should have an effective marketing plan.

Competition mandates every business owner to go the extraordinary mile to remain relevant in the market. Your business plan should contain your marketing strategies that work. You can measure the success rate of your marketing plans.

In your business plan, your marketing strategy must answer the questions:

• How do you want to reach your target audience?
• How do you plan to retain your customers?
• What is/are your pricing plans?
• What is your budget for marketing?

How to Write a Business Plan Step-by-Step

1. create your executive summary.

The executive summary is a snapshot of your business or a high-level overview of your business purposes and plans . Although the executive summary is the first section in your business plan, most people write it last. The length of the executive summary is not more than two pages.

Generally, there are nine sections in a business plan, the executive summary should condense essential ideas from the other eight sections.

A good executive summary should do the following:

• A Snapshot of Growth Potential. Briefly inform the reader about your company and why it will be successful)
• Contain your Mission Statement which explains what the main objective or focus of your business is.
• Product Description and Differentiation. Brief description of your products or services and why it is different from other solutions in the market.
• The Team. Basic information about your company’s leadership team and employees
• Business Concept. A solid description of what your business does.
• Target Market. The customers you plan to sell to.
• Marketing Strategy. Your plans on reaching and selling to your customers
• Current Financial State. Brief information about what revenue your business currently generates.
• Projected Financial State. Brief information about what you foresee your business revenue to be in the future.

The executive summary is the make-or-break section of your business plan. If your summary cannot in less than two pages cannot clearly describe how your business will solve a particular problem of your target audience and make a profit, your business plan is set on a faulty foundation.

Avoid using the executive summary to hype your business, instead, focus on helping the reader understand the what and how of your plan.

View the executive summary as an opportunity to introduce your vision for your company. You know your executive summary is powerful when it can answer these key questions:

• Who is your target audience?
• What sector or industry are you in?
• What are your products and services?
• What is the future of your industry?
• Is your company scaleable?
• Who are the owners and leaders of your company? What are their backgrounds and experience levels?
• What is the motivation for starting your company?
• What are the next steps?

Writing the executive summary last although it is the most important section of your business plan is an excellent idea. The reason why is because it is a high-level overview of your business plan. It is the section that determines whether potential investors and lenders will read further or not.

The executive summary can be a stand-alone document that covers everything in your business plan. It is not uncommon for investors to request only the executive summary when evaluating your business. If the information in the executive summary impresses them, they will ask for the complete business plan.

If you are writing your business plan for your planning purposes, you do not need to write the executive summary.

2. Add Your Company Overview

The company overview or description is the next section in your business plan after the executive summary. It describes what your business does.

Adding your company overview can be tricky especially when your business is still in the planning stages. Existing businesses can easily summarize their current operations but may encounter difficulties trying to explain what they plan to become.

Your company overview should contain the following:

• What products and services you will provide
• Geographical markets and locations your company have a presence
• What you need to run your business
• Who your target audience or customers are
• Who will service your customers
• Your company’s purpose, mission, and vision
• Information about your company’s founders
• Who the founders are
• Notable achievements of your company so far

When creating a company overview, you have to focus on three basics: identifying your industry, identifying your customer, and explaining the problem you solve.

If you are stuck when creating your company overview, try to answer some of these questions that pertain to you.

• Who are you targeting? (The answer is not everyone)
• What pain point does your product or service solve for your customers that they will be willing to spend money on resolving?
• How does your product or service overcome that pain point?
• Where is the location of your business?
• What products, equipment, and services do you need to run your business?
• How is your company’s product or service different from your competition in the eyes of your customers?
• How many employees do you need and what skills do you require them to have?

After answering some or all of these questions, you will get more than enough information you need to write your company overview or description section. When writing this section, describe what your company does for your customers.

The company description or overview section contains three elements: mission statement, history, and objectives.

• Mission Statement

The mission statement refers to the reason why your business or company is existing. It goes beyond what you do or sell, it is about the ‘why’. A good mission statement should be emotional and inspirational.

Your mission statement should follow the KISS rule (Keep It Simple, Stupid). For example, Shopify’s mission statement is “Make commerce better for everyone.”

When describing your company’s history, make it simple and avoid the temptation of tying it to a defensive narrative. Write it in the manner you would a profile. Your company’s history should include the following information:

• Founding Date
• Major Milestones
• Location(s)
• Flagship Products or Services
• Number of Employees
• Executive Leadership Roles

When you fill in this information, you use it to write one or two paragraphs about your company’s history.

Business Objectives

Your business objective must be SMART (specific, measurable, achievable, realistic, and time-bound.) Failure to clearly identify your business objectives does not inspire confidence and makes it hard for your team members to work towards a common purpose.

3. Perform Market and Competitive Analyses to Proof a Big Enough Business Opportunity

The third step in writing a business plan is the market and competitive analysis section. Every business, no matter the size, needs to perform comprehensive market and competitive analyses before it enters into a market.

Performing market and competitive analyses are critical for the success of your business. It helps you avoid entering the right market with the wrong product, or vice versa. Anyone reading your business plans, especially financiers and financial institutions will want to see proof that there is a big enough business opportunity you are targeting.

This section is where you describe the market and industry you want to operate in and show the big opportunities in the market that your business can leverage to make a profit. If you noticed any unique trends when doing your research, show them in this section.

Market analysis alone is not enough, you have to add competitive analysis to strengthen this section. There are already businesses in the industry or market, how do you plan to take a share of the market from them?

You have to clearly illustrate the competitive landscape in your business plan. Are there areas your competitors are doing well? Are there areas where they are not doing so well? Show it.

Make it clear in this section why you are moving into the industry and what weaknesses are present there that you plan to explain. How are your competitors going to react to your market entry? How do you plan to get customers? Do you plan on taking your competitors' competitors, tap into other sources for customers, or both?

Illustrate the competitive landscape as well. What are your competitors doing well and not so well?

Answering these questions and thoughts will aid your market and competitive analysis of the opportunities in your space. Depending on how sophisticated your industry is, or the expectations of your financiers, you may need to carry out a more comprehensive market and competitive analysis to prove that big business opportunity.

Instead of looking at the market and competitive analyses as one entity, separating them will make the research even more comprehensive.

Market Analysis

Market analysis, boarding speaking, refers to research a business carried out on its industry, market, and competitors. It helps businesses gain a good understanding of their target market and the outlook of their industry. Before starting a company, it is vital to carry out market research to find out if the market is viable.

The market analysis section is a key part of the business plan. It is the section where you identify who your best clients or customers are. You cannot omit this section, without it your business plan is incomplete.

A good market analysis will tell your readers how you fit into the existing market and what makes you stand out. This section requires in-depth research, it will probably be the most time-consuming part of the business plan to write.

• Market Research

To create a compelling market analysis that will win over investors and financial institutions, you have to carry out thorough market research . Your market research should be targeted at your primary target market for your products or services. Here is what you want to find out about your target market.

• Your target market’s needs or pain points
• The existing solutions for their pain points
• Geographic Location
• Demographics

The purpose of carrying out a marketing analysis is to get all the information you need to show that you have a solid and thorough understanding of your target audience.

Only after you have fully understood the people you plan to sell your products or services to, can you evaluate correctly if your target market will be interested in your products or services.

You can easily convince interested parties to invest in your business if you can show them you thoroughly understand the market and show them that there is a market for your products or services.

How to Quantify Your Target Market

One of the goals of your marketing research is to understand who your ideal customers are and their purchasing power. To quantify your target market, you have to determine the following:

• Your Potential Customers: They are the people you plan to target. For example, if you sell accounting software for small businesses , then anyone who runs an enterprise or large business is unlikely to be your customers. Also, individuals who do not have a business will most likely not be interested in your product.
• Total Households: If you are selling household products such as heating and air conditioning systems, determining the number of total households is more important than finding out the total population in the area you want to sell to. The logic is simple, people buy the product but it is the household that uses it.
• Median Income: You need to know the median income of your target market. If you target a market that cannot afford to buy your products and services, your business will not last long.
• Income by Demographics: If your potential customers belong to a certain age group or gender, determining income levels by demographics is necessary. For example, if you sell men's clothes, your target audience is men.

What Does a Good Market Analysis Entail?

Your business does not exist on its own, it can only flourish within an industry and alongside competitors. Market analysis takes into consideration your industry, target market, and competitors. Understanding these three entities will drastically improve your company’s chances of success.

You can view your market analysis as an examination of the market you want to break into and an education on the emerging trends and themes in that market. Good market analyses include the following:

• Industry Description. You find out about the history of your industry, the current and future market size, and who the largest players/companies are in your industry.
• Overview of Target Market. You research your target market and its characteristics. Who are you targeting? Note, it cannot be everyone, it has to be a specific group. You also have to find out all information possible about your customers that can help you understand how and why they make buying decisions.
• Size of Target Market: You need to know the size of your target market, how frequently they buy, and the expected quantity they buy so you do not risk overproducing and having lots of bad inventory. Researching the size of your target market will help you determine if it is big enough for sustained business or not.
• Growth Potential: Before picking a target market, you want to be sure there are lots of potential for future growth. You want to avoid going for an industry that is declining slowly or rapidly with almost zero growth potential.
• Market Share Potential: Does your business stand a good chance of taking a good share of the market?
• Market Pricing and Promotional Strategies: Your market analysis should give you an idea of the price point you can expect to charge for your products and services. Researching your target market will also give you ideas of pricing strategies you can implement to break into the market or to enjoy maximum profits.
• Potential Barriers to Entry: One of the biggest benefits of conducting market analysis is that it shows you every potential barrier to entry your business will likely encounter. It is a good idea to discuss potential barriers to entry such as changing technology. It informs readers of your business plan that you understand the market.
• Research on Competitors: You need to know the strengths and weaknesses of your competitors and how you can exploit them for the benefit of your business. Find patterns and trends among your competitors that make them successful, discover what works and what doesn’t, and see what you can do better.

The market analysis section is not just for talking about your target market, industry, and competitors. You also have to explain how your company can fill the hole you have identified in the market.

Here are some questions you can answer that can help you position your product or service in a positive light to your readers.

• Is your product or service of superior quality?
• What additional features do you offer that your competitors do not offer?
• Are you targeting a ‘new’ market?

Basically, your market analysis should include an analysis of what already exists in the market and an explanation of how your company fits into the market.

Competitive Analysis

In the competitive analysis section, y ou have to understand who your direct and indirect competitions are, and how successful they are in the marketplace. It is the section where you assess the strengths and weaknesses of your competitors, the advantage(s) they possess in the market and show the unique features or qualities that make you different from your competitors.

Many businesses do market analysis and competitive analysis together. However, to fully understand what the competitive analysis entails, it is essential to separate it from the market analysis.

Competitive analysis for your business can also include analysis on how to overcome barriers to entry in your target market.

The primary goal of conducting a competitive analysis is to distinguish your business from your competitors. A strong competitive analysis is essential if you want to convince potential funding sources to invest in your business. You have to show potential investors and lenders that your business has what it takes to compete in the marketplace successfully.

Competitive analysis will s how you what the strengths of your competition are and what they are doing to maintain that advantage.

When doing your competitive research, you first have to identify your competitor and then get all the information you can about them. The idea of spending time to identify your competitor and learn everything about them may seem daunting but it is well worth it.

Find answers to the following questions after you have identified who your competitors are.

• What are your successful competitors doing?
• Why is what they are doing working?
• Can your business do it better?
• What are the weaknesses of your successful competitors?
• What are they not doing well?
• Can your business turn its weaknesses into strengths?
• How good is your competitors’ customer service?
• Where do your competitors invest in advertising?
• What sales and pricing strategies are they using?
• What marketing strategies are they using?
• What kind of press coverage do they get?
• What are their customers saying about your competitors (both the positive and negative)?

If your competitors have a website, it is a good idea to visit their websites for more competitors’ research. Check their “About Us” page for more information.

If you are presenting your business plan to investors, you need to clearly distinguish yourself from your competitors. Investors can easily tell when you have not properly researched your competitors.

Take time to think about what unique qualities or features set you apart from your competitors. If you do not have any direct competition offering your product to the market, it does not mean you leave out the competitor analysis section blank. Instead research on other companies that are providing a similar product, or whose product is solving the problem your product solves.

The next step is to create a table listing the top competitors you want to include in your business plan. Ensure you list your business as the last and on the right. What you just created is known as the competitor analysis table.

Direct vs Indirect Competition

You cannot know if your product or service will be a fit for your target market if you have not understood your business and the competitive landscape.

There is no market you want to target where you will not encounter competition, even if your product is innovative. Including competitive analysis in your business plan is essential.

If you are entering an established market, you need to explain how you plan to differentiate your products from the available options in the market. Also, include a list of few companies that you view as your direct competitors The competition you face in an established market is your direct competition.

In situations where you are entering a market with no direct competition, it does not mean there is no competition there. Consider your indirect competition that offers substitutes for the products or services you offer.

For example, if you sell an innovative SaaS product, let us say a project management software , a company offering time management software is your indirect competition.

There is an easy way to find out who your indirect competitors are in the absence of no direct competitors. You simply have to research how your potential customers are solving the problems that your product or service seeks to solve. That is your direct competition.

Factors that Differentiate Your Business from the Competition

There are three main factors that any business can use to differentiate itself from its competition. They are cost leadership, product differentiation, and market segmentation.

1. Cost Leadership

A strategy you can impose to maximize your profits and gain an edge over your competitors. It involves offering lower prices than what the majority of your competitors are offering.

A common practice among businesses looking to enter into a market where there are dominant players is to use free trials or pricing to attract as many customers as possible to their offer.

2. Product Differentiation

Your product or service should have a unique selling proposition (USP) that your competitors do not have or do not stress in their marketing.

Part of the marketing strategy should involve making your products unique and different from your competitors. It does not have to be different from your competitors, it can be the addition to a feature or benefit that your competitors do not currently have.

3. Market Segmentation

As a new business seeking to break into an industry, you will gain more success from focusing on a specific niche or target market, and not the whole industry.

If your competitors are focused on a general need or target market, you can differentiate yourself from them by having a small and hyper-targeted audience. For example, if your competitors are selling men’s clothes in their online stores , you can sell hoodies for men.

4. Define Your Business and Management Structure

The next step in your business plan is your business and management structure. It is the section where you describe the legal structure of your business and the team running it.

Your business is only as good as the management team that runs it, while the management team can only strive when there is a proper business and management structure in place.

If your company is a sole proprietor or a limited liability company (LLC), a general or limited partnership, or a C or an S corporation, state it clearly in this section.

Use an organizational chart to show the management structure in your business. Clearly show who is in charge of what area in your company. It is where you show how each key manager or team leader’s unique experience can contribute immensely to the success of your company. You can also opt to add the resumes and CVs of the key players in your company.

The business and management structure section should show who the owner is, and other owners of the businesses (if the business has other owners). For businesses or companies with multiple owners, include the percent ownership of the various owners and clearly show the extent of each others’ involvement in the company.

Investors want to know who is behind the company and the team running it to determine if it has the right management to achieve its set goals.

Management Team

The management team section is where you show that you have the right team in place to successfully execute the business operations and ideas. Take time to create the management structure for your business. Think about all the important roles and responsibilities that you need managers for to grow your business.

Include brief bios of each key team member and ensure you highlight only the relevant information that is needed. If your team members have background industry experience or have held top positions for other companies and achieved success while filling that role, highlight it in this section.

A common mistake that many startups make is assigning C-level titles such as (CMO and CEO) to everyone on their team. It is unrealistic for a small business to have those titles. While it may look good on paper for the ego of your team members, it can prevent investors from investing in your business.

Instead of building an unrealistic management structure that does not fit your business reality, it is best to allow business titles to grow as the business grows. Starting everyone at the top leaves no room for future change or growth, which is bad for productivity.

Your management team does not have to be complete before you start writing your business plan. You can have a complete business plan even when there are managerial positions that are empty and need filling.

If you have management gaps in your team, simply show the gaps and indicate you are searching for the right candidates for the role(s). Investors do not expect you to have a full management team when you are just starting your business.

Key Questions to Answer When Structuring Your Management Team

• Who are the key leaders?
• What experiences, skills, and educational backgrounds do you expect your key leaders to have?
• Do your key leaders have industry experience?
• What positions will they fill and what duties will they perform in those positions?
• What level of authority do the key leaders have and what are their responsibilities?
• What is the salary for the various management positions that will attract the ideal candidates?

Additional Tips for Writing the Management Structure Section

1. Avoid Adding ‘Ghost’ Names to Your Management Team

There is always that temptation to include a ‘ghost’ name to your management team to attract and influence investors to invest in your business. Although the presence of these celebrity management team members may attract the attention of investors, it can cause your business to lose any credibility if you get found out.

Seasoned investors will investigate further the members of your management team before committing fully to your business If they find out that the celebrity name used does not play any actual role in your business, they will not invest and may write you off as dishonest.

2. Focus on Credentials But Pay Extra Attention to the Roles

Investors want to know the experience that your key team members have to determine if they can successfully reach the company’s growth and financial goals.

While it is an excellent boost for your key management team to have the right credentials, you also want to pay extra attention to the roles they will play in your company.

Organizational Chart

Adding an organizational chart in this section of your business plan is not necessary, you can do it in your business plan’s appendix.

If you are exploring funding options, it is not uncommon to get asked for your organizational chart. The function of an organizational chart goes beyond raising money, you can also use it as a useful planning tool for your business.

An organizational chart can help you identify how best to structure your management team for maximum productivity and point you towards key roles you need to fill in the future.

You can use the organizational chart to show your company’s internal management structure such as the roles and responsibilities of your management team, and relationships that exist between them.

5. Describe Your Product and Service Offering

In your business plan, you have to describe what you sell or the service you plan to offer. It is the next step after defining your business and management structure. The products and services section is where you sell the benefits of your business.

Here you have to explain how your product or service will benefit your customers and describe your product lifecycle. It is also the section where you write down your plans for intellectual property like patent filings and copyrighting.

The research and development that you are undertaking for your product or service need to be explained in detail in this section. However, do not get too technical, sell the general idea and its benefits.

If you have any diagrams or intricate designs of your product or service, do not include them in the products and services section. Instead, leave them for the addendum page. Also, if you are leaving out diagrams or designs for the addendum, ensure you add this phrase “For more detail, visit the addendum Page #.”

Your product and service section in your business plan should include the following:

• A detailed explanation that clearly shows how your product or service works.
• The pricing model for your product or service.
• Your business’ sales and distribution strategy.
• The ideal customers that want your product or service.
• The benefits of your products and services.
• Reason(s) why your product or service is a better alternative to what your competitors are currently offering in the market.
• Plans for filling the orders you receive
• If you have current or pending patents, copyrights, and trademarks for your product or service, you can also discuss them in this section.

What to Focus On When Describing the Benefits, Lifecycle, and Production Process of Your Products or Services

In the products and services section, you have to distill the benefits, lifecycle, and production process of your products and services.

When describing the benefits of your products or services, here are some key factors to focus on.

• Unique features
• Translating the unique features into benefits
• The emotional, psychological, and practical payoffs to attract customers
• Intellectual property rights or any patents

When describing the product life cycle of your products or services, here are some key factors to focus on.

• Upsells, cross-sells, and down-sells
• Time between purchases
• Plans for research and development.

When describing the production process for your products or services, you need to think about the following:

• The creation of new or existing products and services.
• The sources for the raw materials or components you need for production.
• Assembling the products
• Maintaining quality control
• Supply-chain logistics (receiving the raw materials and delivering the finished products)
• The day-to-day management of the production processes, bookkeeping, and inventory.

Tips for Writing the Products or Services Section of Your Business Plan

1. Avoid Technical Descriptions and Industry Buzzwords

The products and services section of your business plan should clearly describe the products and services that your company provides. However, it is not a section to include technical jargons that anyone outside your industry will not understand.

A good practice is to remove highly detailed or technical descriptions in favor of simple terms. Industry buzzwords are not necessary, if there are simpler terms you can use, then use them. If you plan to use your business plan to source funds, making the product or service section so technical will do you no favors.

2. Describe How Your Products or Services Differ from Your Competitors

When potential investors look at your business plan, they want to know how the products and services you are offering differ from that of your competition. Differentiating your products or services from your competition in a way that makes your solution more attractive is critical.

If you are going the innovative path and there is no market currently for your product or service, you need to describe in this section why the market needs your product or service.

For example, overnight delivery was a niche business that only a few companies were participating in. Federal Express (FedEx) had to show in its business plan that there was a large opportunity for that service and they justified why the market needed that service.

3. Long or Short Products or Services Section

Should your products or services section be short? Does the long products or services section attract more investors?

There are no straightforward answers to these questions. Whether your products or services section should be long or relatively short depends on the nature of your business.

If your business is product-focused, then automatically you need to use more space to describe the details of your products. However, if the product your business sells is a commodity item that relies on competitive pricing or other pricing strategies, you do not have to use up so much space to provide significant details about the product.

Likewise, if you are selling a commodity that is available in numerous outlets, then you do not have to spend time on writing a long products or services section.

The key to the success of your business is most likely the effectiveness of your marketing strategies compared to your competitors. Use more space to address that section.

If you are creating a new product or service that the market does not know about, your products or services section can be lengthy. The reason why is because you need to explain everything about the product or service such as the nature of the product, its use case, and values.

A short products or services section for an innovative product or service will not give the readers enough information to properly evaluate your business.

4. Describe Your Relationships with Vendors or Suppliers

Your business will rely on vendors or suppliers to supply raw materials or the components needed to make your products. In your products and services section, describe your relationships with your vendors and suppliers fully.

Avoid the mistake of relying on only one supplier or vendor. If that supplier or vendor fails to supply or goes out of business, you can easily face supply problems and struggle to meet your demands. Plan to set up multiple vendor or supplier relationships for better business stability.

5. Your Primary Goal Is to Convince Your Readers

The primary goal of your business plan is to convince your readers that your business is viable and to create a guide for your business to follow. It applies to the products and services section.

When drafting this section, think like the reader. See your reader as someone who has no idea about your products and services. You are using the products and services section to provide the needed information to help your reader understand your products and services. As a result, you have to be clear and to the point.

While you want to educate your readers about your products or services, you also do not want to bore them with lots of technical details. Show your products and services and not your fancy choice of words.

Your products and services section should provide the answer to the “what” question for your business. You and your management team may run the business, but it is your products and services that are the lifeblood of the business.

Key Questions to Answer When Writing your Products and Services Section

Answering these questions can help you write your products and services section quickly and in a way that will appeal to your readers.

• Are your products existing on the market or are they still in the development stage?
• What is your timeline for adding new products and services to the market?
• What are the positives that make your products and services different from your competitors?
• Do your products and services have any competitive advantage that your competitors’ products and services do not currently have?
• Do your products or services have any competitive disadvantages that you need to overcome to compete with your competitors? If your answer is yes, state how you plan to overcome them,
• How much does it cost to produce your products or services? How much do you plan to sell it for?
• What is the price for your products and services compared to your competitors? Is pricing an issue?
• What are your operating costs and will it be low enough for you to compete with your competitors and still take home a reasonable profit margin?
• What is your plan for acquiring your products? Are you involved in the production of your products or services?
• Are you the manufacturer and produce all the components you need to create your products? Do you assemble your products by using components supplied by other manufacturers? Do you purchase your products directly from suppliers or wholesalers?
• Do you have a steady supply of products that you need to start your business? (If your business is yet to kick-off)
• How do you plan to distribute your products or services to the market?

You can also hint at the marketing or promotion plans you have for your products or services such as how you plan to build awareness or retain customers. The next section is where you can go fully into details about your business’s marketing and sales plan.

6. Show and Explain Your Marketing and Sales Plan

Providing great products and services is wonderful, but it means nothing if you do not have a marketing and sales plan to inform your customers about them. Your marketing and sales plan is critical to the success of your business.

The sales and marketing section is where you show and offer a detailed explanation of your marketing and sales plan and how you plan to execute it. It covers your pricing plan, proposed advertising and promotion activities, activities and partnerships you need to make your business a success, and the benefits of your products and services.

There are several ways you can approach your marketing and sales strategy. Ideally, your marketing and sales strategy has to fit the unique needs of your business.

In this section, you describe how the plans your business has for attracting and retaining customers, and the exact process for making a sale happen. It is essential to thoroughly describe your complete marketing and sales plans because you are still going to reference this section when you are making financial projections for your business.

Outline Your Business’ Unique Selling Proposition (USP)

The sales and marketing section is where you outline your business’s unique selling proposition (USP). When you are developing your unique selling proposition, think about the strongest reasons why people should buy from you over your competition. That reason(s) is most likely a good fit to serve as your unique selling proposition (USP).

Target Market and Target Audience

Plans on how to get your products or services to your target market and how to get your target audience to buy them go into this section. You also highlight the strengths of your business here, particularly what sets them apart from your competition.

Before you start writing your marketing and sales plan, you need to have properly defined your target audience and fleshed out your buyer persona. If you do not first understand the individual you are marketing to, your marketing and sales plan will lack any substance and easily fall.

Creating a Smart Marketing and Sales Plan

Marketing your products and services is an investment that requires you to spend money. Like any other investment, you have to generate a good return on investment (ROI) to justify using that marketing and sales plan. Good marketing and sales plans bring in high sales and profits to your company.

Avoid spending money on unproductive marketing channels. Do your research and find out the best marketing and sales plan that works best for your company.

Your marketing and sales plan can be broken into different parts: your positioning statement, pricing, promotion, packaging, advertising, public relations, content marketing, social media, and strategic alliances.

Your Positioning Statement

Your positioning statement is the first part of your marketing and sales plan. It refers to the way you present your company to your customers.

Are you the premium solution, the low-price solution, or are you the intermediary between the two extremes in the market? What do you offer that your competitors do not that can give you leverage in the market?

Before you start writing your positioning statement, you need to spend some time evaluating the current market conditions. Here are some questions that can help you to evaluate the market

• What are the unique features or benefits that you offer that your competitors lack?
• What are your customers’ primary needs and wants?
• Why should a customer choose you over your competition? How do you plan to differentiate yourself from the competition?
• How does your company’s solution compare with other solutions in the market?

After answering these questions, then you can start writing your positioning statement. Your positioning statement does not have to be in-depth or too long.

All you need to explain with your positioning statement are two focus areas. The first is the position of your company within the competitive landscape. The other focus area is the core value proposition that sets your company apart from other alternatives that your ideal customer might consider.

Here is a simple template you can use to develop a positioning statement.

For [description of target market] who [need of target market], [product or service] [how it meets the need]. Unlike [top competition], it [most essential distinguishing feature].

For example, let’s create the positioning statement for fictional accounting software and QuickBooks alternative , TBooks.

“For small business owners who need accounting services, TBooks is an accounting software that helps small businesses handle their small business bookkeeping basics quickly and easily. Unlike Wave, TBooks gives small businesses access to live sessions with top accountants.”

You can edit this positioning statement sample and fill it with your business details.

After writing your positioning statement, the next step is the pricing of your offerings. The overall positioning strategy you set in your positioning statement will often determine how you price your products or services.

Pricing is a powerful tool that sends a strong message to your customers. Failure to get your pricing strategy right can make or mar your business. If you are targeting a low-income audience, setting a premium price can result in low sales.

You can use pricing to communicate your positioning to your customers. For example, if you are offering a product at a premium price, you are sending a message to your customers that the product belongs to the premium category.

Basic Rules to Follow When Pricing Your Offering

Setting a price for your offering involves more than just putting a price tag on it. Deciding on the right pricing for your offering requires following some basic rules. They include covering your costs, primary and secondary profit center pricing, and matching the market rate.

• Covering Your Costs: The price you set for your products or service should be more than it costs you to produce and deliver them. Every business has the same goal, to make a profit. Depending on the strategy you want to use, there are exceptions to this rule. However, the vast majority of businesses follow this rule.
• Primary and Secondary Profit Center Pricing: When a company sets its price above the cost of production, it is making that product its primary profit center. A company can also decide not to make its initial price its primary profit center by selling below or at even with its production cost. It rather depends on the support product or even maintenance that is associated with the initial purchase to make its profit. The initial price thus became its secondary profit center.
• Matching the Market Rate: A good rule to follow when pricing your products or services is to match your pricing with consumer demand and expectations. If you price your products or services beyond the price your customer perceives as the ideal price range, you may end up with no customers. Pricing your products too low below what your customer perceives as the ideal price range may lead to them undervaluing your offering.

Pricing Strategy

Your pricing strategy influences the price of your offering. There are several pricing strategies available for you to choose from when examining the right pricing strategy for your business. They include cost-plus pricing, market-based pricing, value pricing, and more.

• Cost-plus Pricing: This strategy is one of the simplest and oldest pricing strategies. Here you consider the cost of producing a unit of your product and then add a profit to it to arrive at your market price. It is an effective pricing strategy for manufacturers because it helps them cover their initial costs. Another name for the cost-plus pricing strategy is the markup pricing strategy.
• Market-based Pricing: This pricing strategy analyses the market including competitors’ pricing and then sets a price based on what the market is expecting. With this pricing strategy, you can either set your price at the low-end or high-end of the market.
• Value Pricing: This pricing strategy involves setting a price based on the value you are providing to your customer. When adopting a value-based pricing strategy, you have to set a price that your customers are willing to pay. Service-based businesses such as small business insurance providers , luxury goods sellers, and the fashion industry use this pricing strategy.

After carefully sorting out your positioning statement and pricing, the next item to look at is your promotional strategy. Your promotional strategy explains how you plan on communicating with your customers and prospects.

As a business, you must measure all your costs, including the cost of your promotions. You also want to measure how much sales your promotions bring for your business to determine its usefulness. Promotional strategies or programs that do not lead to profit need to be removed.

There are different types of promotional strategies you can adopt for your business, they include advertising, public relations, and content marketing.

Advertising

Your business plan should include your advertising plan which can be found in the marketing and sales plan section. You need to include an overview of your advertising plans such as the areas you plan to spend money on to advertise your business and offers.

Ensure that you make it clear in this section if your business will be advertising online or using the more traditional offline media, or the combination of both online and offline media. You can also include the advertising medium you want to use to raise awareness about your business and offers.

Some common online advertising mediums you can use include social media ads, landing pages, sales pages, SEO, Pay-Per-Click, emails, Google Ads, and others. Some common traditional and offline advertising mediums include word of mouth, radios, direct mail, televisions, flyers, billboards, posters, and others.

A key component of your advertising strategy is how you plan to measure the effectiveness and success of your advertising campaign. There is no point in sticking with an advertising plan or medium that does not produce results for your business in the long run.

Public Relations

A great way to reach your customers is to get the media to cover your business or product. Publicity, especially good ones, should be a part of your marketing and sales plan. In this section, show your plans for getting prominent reviews of your product from reputable publications and sources.

Your business needs that exposure to grow. If public relations is a crucial part of your promotional strategy, provide details about your public relations plan here.

Content Marketing

Content marketing is a popular promotional strategy used by businesses to inform and attract their customers. It is about teaching and educating your prospects on various topics of interest in your niche, it does not just involve informing them about the benefits and features of the products and services you have,

Businesses publish content usually for free where they provide useful information, tips, and advice so that their target market can be made aware of the importance of their products and services. Content marketing strategies seek to nurture prospects into buyers over time by simply providing value.

Your company can create a blog where it will be publishing content for its target market. You will need to use the best website builder such as Wix and Squarespace and the best web hosting services such as Bluehost, Hostinger, and other Bluehost alternatives to create a functional blog or website.

If content marketing is a crucial part of your promotional strategy (as it should be), detail your plans under promotions.

Including high-quality images of the packaging of your product in your business plan is a lovely idea. You can add the images of the packaging of that product in the marketing and sales plan section. If you are not selling a product, then you do not need to include any worry about the physical packaging of your product.

When organizing the packaging section of your business plan, you can answer the following questions to make maximum use of this section.

• Is your choice of packaging consistent with your positioning strategy?
• What key value proposition does your packaging communicate? (It should reflect the key value proposition of your business)
• How does your packaging compare to that of your competitors?

Social Media

Your 21st-century business needs to have a good social media presence. Not having one is leaving out opportunities for growth and reaching out to your prospect.

You do not have to join the thousands of social media platforms out there. What you need to do is join the ones that your customers are active on and be active there.

Businesses use social media to provide information about their products such as promotions, discounts, the benefits of their products, and content on their blogs.

Social media is also a platform for engaging with your customers and getting feedback about your products or services. Make no mistake, more and more of your prospects are using social media channels to find more information about companies.

You need to consider the social media channels you want to prioritize your business (prioritize the ones your customers are active in) and your branding plans in this section.

Strategic Alliances

If your company plans to work closely with other companies as part of your sales and marketing plan, include it in this section. Prove details about those partnerships in your business plan if you have already established them.

Strategic alliances can be beneficial for all parties involved including your company. Working closely with another company in the form of a partnership can provide access to a different target market segment for your company.

The company you are partnering with may also gain access to your target market or simply offer a new product or service (that of your company) to its customers.

Mutually beneficial partnerships can cover the weaknesses of one company with the strength of another. You should consider strategic alliances with companies that sell complimentary products to yours. For example, if you provide printers, you can partner with a company that produces ink since the customers that buy printers from you will also need inks for printing.

Steps Involved in Creating a Marketing and Sales Plan

1. Focus on Your Target Market

Identify who your customers are, the market you want to target. Then determine the best ways to get your products or services to your potential customers.

2. Evaluate Your Competition

One of the goals of having a marketing plan is to distinguish yourself from your competition. You cannot stand out from them without first knowing them in and out.

You can know your competitors by gathering information about their products, pricing, service, and advertising campaigns.

These questions can help you know your competition.

• What makes your competition successful?
• What are their weaknesses?
• What are customers saying about your competition?

3. Consider Your Brand

Customers' perception of your brand has a strong impact on your sales. Your marketing and sales plan should seek to bolster the image of your brand. Before you start marketing your business, think about the message you want to pass across about your business and your products and services.

4. Focus on Benefits

The majority of your customers do not view your product in terms of features, what they want to know is the benefits and solutions your product offers. Think about the problems your product solves and the benefits it delivers, and use it to create the right sales and marketing message.

Your marketing plan should focus on what you want your customer to get instead of what you provide. Identify those benefits in your marketing and sales plan.

5. Focus on Differentiation

Your marketing and sales plan should look for a unique angle they can take that differentiates your business from the competition, even if the products offered are similar. Some good areas of differentiation you can use are your benefits, pricing, and features.

Key Questions to Answer When Writing Your Marketing and Sales Plan

• What is your company’s budget for sales and marketing campaigns?
• What key metrics will you use to determine if your marketing plans are successful?
• What are your alternatives if your initial marketing efforts do not succeed?
• Who are the sales representatives you need to promote your products or services?
• What are the marketing and sales channels you plan to use? How do you plan to get your products in front of your ideal customers?
• Where will you sell your products?

You may want to include samples of marketing materials you plan to use such as print ads, website descriptions, and social media ads. While it is not compulsory to include these samples, it can help you better communicate your marketing and sales plan and objectives.

The purpose of the marketing and sales section is to answer this question “How will you reach your customers?” If you cannot convincingly provide an answer to this question, you need to rework your marketing and sales section.

7. Clearly Show Your Funding Request

If you are writing your business plan to ask for funding from investors or financial institutions, the funding request section is where you will outline your funding requirements. The funding request section should answer the question ‘How much money will your business need in the near future (3 to 5 years)?’

A good funding request section will clearly outline and explain the amount of funding your business needs over the next five years. You need to know the amount of money your business needs to make an accurate funding request.

Also, when writing your funding request, provide details of how the funds will be used over the period. Specify if you want to use the funds to buy raw materials or machinery, pay salaries, pay for advertisements, and cover specific bills such as rent and electricity.

In addition to explaining what you want to use the funds requested for, you need to clearly state the projected return on investment (ROI) . Investors and creditors want to know if your business can generate profit for them if they put funds into it.

Ensure you do not inflate the figures and stay as realistic as possible. Investors and financial institutions you are seeking funds from will do their research before investing money in your business.

If you are not sure of an exact number to request from, you can use some range of numbers as rough estimates. Add a best-case scenario and a work-case scenario to your funding request. Also, include a description of your strategic future financial plans such as selling your business or paying off debts.

Funding Request: Debt or Equity?

When making your funding request, specify the type of funding you want. Do you want debt or equity? Draw out the terms that will be applicable for the funding, and the length of time the funding request will cover.

Case for Equity

If your new business has not yet started generating profits, you are most likely preparing to sell equity in your business to raise capital at the early stage. Equity here refers to ownership. In this case, you are selling a portion of your company to raise capital.

Although this method of raising capital for your business does not put your business in debt, keep in mind that an equity owner may expect to play a key role in company decisions even if he does not hold a major stake in the company.

Most equity sales for startups are usually private transactions . If you are making a funding request by offering equity in exchange for funding, let the investor know that they will be paid a dividend (a share of the company’s profit). Also, let the investor know the process for selling their equity in your business.

Case for Debt

You may decide not to offer equity in exchange for funds, instead, you make a funding request with the promise to pay back the money borrowed at the agreed time frame.

When making a funding request with an agreement to pay back, note that you will have to repay your creditors both the principal amount borrowed and the interest on it. Financial institutions offer this type of funding for businesses.

Large companies combine both equity and debt in their capital structure. When drafting your business plan, decide if you want to offer both or one over the other.

Before you sell equity in exchange for funding in your business, consider if you are willing to accept not being in total control of your business. Also, before you seek loans in your funding request section, ensure that the terms of repayment are favorable.

You should set a clear timeline in your funding request so that potential investors and creditors can know what you are expecting. Some investors and creditors may agree to your funding request and then delay payment for longer than 30 days, meanwhile, your business needs an immediate cash injection to operate efficiently.

Additional Tips for Writing the Funding Request Section of your Business Plan

The funding request section is not necessary for every business, it is only needed by businesses who plan to use their business plan to secure funding.

If you are adding the funding request section to your business plan, provide an itemized summary of how you plan to use the funds requested. Hiring a lawyer, accountant, or other professionals may be necessary for the proper development of this section.

You should also gather and use financial statements that add credibility and support to your funding requests. Ensure that the financial statements you use should include your projected financial data such as projected cash flows, forecast statements, and expenditure budgets.

If you are an existing business, include all historical financial statements such as cash flow statements, balance sheets and income statements .

Provide monthly and quarterly financial statements for a year. If your business has records that date back beyond the one-year mark, add the yearly statements of those years. These documents are for the appendix section of your business plan.

8. Detail Your Financial Plan, Metrics, and Projections

If you used the funding request section in your business plan, supplement it with a financial plan, metrics, and projections. This section paints a picture of the past performance of your business and then goes ahead to make an informed projection about its future.

The goal of this section is to convince readers that your business is going to be a financial success. It outlines your business plan to generate enough profit to repay the loan (with interest if applicable) and to generate a decent return on investment for investors.

If you have an existing business already in operation, use this section to demonstrate stability through finance. This section should include your cash flow statements, balance sheets, and income statements covering the last three to five years. If your business has some acceptable collateral that you can use to acquire loans, list it in the financial plan, metrics, and projection section.

Apart from current financial statements, this section should also contain a prospective financial outlook that spans the next five years. Include forecasted income statements, cash flow statements, balance sheets, and capital expenditure budget.

If your business is new and is not yet generating profit, use clear and realistic projections to show the potentials of your business.

When drafting this section, research industry norms and the performance of comparable businesses. Your financial projections should cover at least five years. State the logic behind your financial projections. Remember you can always make adjustments to this section as the variables change.

The financial plan, metrics, and projection section create a baseline which your business can either exceed or fail to reach. If your business fails to reach your projections in this section, you need to understand why it failed.

Investors and loan managers spend a lot of time going through the financial plan, metrics, and projection section compared to other parts of the business plan. Ensure you spend time creating credible financial analyses for your business in this section.

Many entrepreneurs find this section daunting to write. You do not need a business degree to create a solid financial forecast for your business. Business finances, especially for startups, are not as complicated as they seem. There are several online tools and templates that make writing this section so much easier.

Use Graphs and Charts

The financial plan, metrics, and projection section is a great place to use graphs and charts to tell the financial story of your business. Charts and images make it easier to communicate your finances.

Accuracy in this section is key, ensure you carefully analyze your past financial statements properly before making financial projects.

Address the Risk Factors and Show Realistic Financial Projections

Keep your financial plan, metrics, and projection realistic. It is okay to be optimistic in your financial projection, however, you have to justify it.

You should also address the various risk factors associated with your business in this section. Investors want to know the potential risks involved, show them. You should also show your plans for mitigating those risks.

What You Should In The Financial Plan, Metrics, and Projection Section of Your Business Plan

The financial plan, metrics, and projection section of your business plan should have monthly sales and revenue forecasts for the first year. It should also include annual projections that cover 3 to 5 years.

A three-year projection is a basic requirement to have in your business plan. However, some investors may request a five-year forecast.

Your business plan should include the following financial statements: sales forecast, personnel plan, income statement, income statement, cash flow statement, balance sheet, and an exit strategy.

1. Sales Forecast

Sales forecast refers to your projections about the number of sales your business is going to record over the next few years. It is typically broken into several rows, with each row assigned to a core product or service that your business is offering.

One common mistake people make in their business plan is to break down the sales forecast section into long details. A sales forecast should forecast the high-level details.

For example, if you are forecasting sales for a payroll software provider, you could break down your forecast into target market segments or subscription categories.

Your sales forecast section should also have a corresponding row for each sales row to cover the direct cost or Cost of Goods Sold (COGS). The objective of these rows is to show the expenses that your business incurs in making and delivering your product or service.

Note that your Cost of Goods Sold (COGS) should only cover those direct costs incurred when making your products. Other indirect expenses such as insurance, salaries, payroll tax, and rent should not be included.

For example, the Cost of Goods Sold (COGS) for a restaurant is the cost of ingredients while for a consulting company it will be the cost of paper and other presentation materials.

2. Personnel Plan

The personnel plan section is where you provide details about the payment plan for your employees. For a small business, you can easily list every position in your company and how much you plan to pay in the personnel plan.

However, for larger businesses, you have to break the personnel plan into functional groups such as sales and marketing.

The personnel plan will also include the cost of an employee beyond salary, commonly referred to as the employee burden. These costs include insurance, payroll taxes , and other essential costs incurred monthly as a result of having employees on your payroll.

3. Income Statement

The income statement section shows if your business is making a profit or taking a loss. Another name for the income statement is the profit and loss (P&L). It takes data from your sales forecast and personnel plan and adds other ongoing expenses you incur while running your business.

Every business plan should have an income statement. It subtracts your business expenses from its earnings to show if your business is generating profit or incurring losses.

The income statement has the following items: sales, Cost of Goods Sold (COGS), gross margin, operating expenses, total operating expenses, operating income , total expenses, and net profit.

• Sales refer to the revenue your business generates from selling its products or services. Other names for sales are income or revenue.
• Cost of Goods Sold (COGS) refers to the total cost of selling your products. Other names for COGS are direct costs or cost of sales. Manufacturing businesses use the Costs of Goods Manufactured (COGM) .
• Gross Margin is the figure you get when you subtract your COGS from your sales. In your income statement, you can express it as a percentage of total sales (Gross margin / Sales = Gross Margin Percent).
• Operating Expenses refer to all the expenses you incur from running your business. It exempts the COGS because it stands alone as a core part of your income statement. You also have to exclude taxes, depreciation, and amortization. Your operating expenses include salaries, marketing expenses, research and development (R&D) expenses, and other expenses.
• Total Operating Expenses refers to the sum of all your operating expenses including those exemptions named above under operating expenses.
• Operating Income refers to earnings before interest, taxes, depreciation, and amortization. It is simply known as the acronym EBITDA (earnings before interest, taxes, depreciation, and amortization). Calculating your operating income is simple, all you need to do is to subtract your COGS and total operating expenses from your sales.
• Total Expenses refer to the sum of your operating expenses and your business’ interest, taxes, depreciation, and amortization.
• Net profit shows whether your business has made a profit or taken a loss during a given timeframe.

4. Cash Flow Statement

The cash flow statement tracks the money you have in the bank at any given point. It is often confused with the income statement or the profit and loss statement. They are both different types of financial statements. The income statement calculates your profits and losses while the cash flow statement shows you how much you have in the bank.

5. Balance Sheet

The balance sheet is a financial statement that provides an overview of the financial health of your business. It contains information about the assets and liabilities of your company, and owner’s or shareholders’ equity.

You can get the net worth of your company by subtracting your company’s liabilities from its assets.

6. Exit Strategy

The exit strategy refers to a probable plan for selling your business either to the public in an IPO or to another company. It is the last thing you include in the financial plan, metrics, and projection section.

You can choose to omit the exit strategy from your business plan if you plan to maintain full ownership of your business and do not plan on seeking angel investment or virtual capitalist (VC) funding.

Investors may want to know what your exit plan is. They invest in your business to get a good return on investment.

Your exit strategy does not have to include long and boring details. Ensure you identify some interested parties who may be interested in buying the company if it becomes a success.

Key Questions to Answer with Your Financial Plan, Metrics, and Projection

Your financial plan, metrics, and projection section helps investors, creditors, or your internal managers to understand what your expenses are, the amount of cash you need, and what it takes to make your company profitable. It also shows what you will be doing with any funding.

You do not need to show actual financial data if you do not have one. Adding forecasts and projections to your financial statements is added proof that your strategy is feasible and shows investors you have planned properly.

Here are some key questions to answer to help you develop this section.

• What is your sales forecast for the next year?
• When will your company achieve a positive cash flow?
• What are the core expenses you need to operate?
• How much money do you need upfront to operate or grow your company?
• How will you use the loans or investments?

9. Add an Appendix to Your Business Plan

Adding an appendix to your business plan is optional. It is a useful place to put any charts, tables, legal notes, definitions, permits, résumés, and other critical information that do not fit into other sections of your business plan.

The appendix section is where you would want to include details of a patent or patent-pending if you have one. You can always add illustrations or images of your products here. It is the last section of your business plan.

When writing your business plan, there are details you cut short or remove to prevent the entire section from becoming too lengthy. There are also details you want to include in the business plan but are not a good fit for any of the previous sections. You can add that additional information to the appendix section.

Businesses also use the appendix section to include supporting documents or other materials specially requested by investors or lenders.

You can include just about any information that supports the assumptions and statements you made in the business plan under the appendix. It is the one place in the business plan where unrelated data and information can coexist amicably.

If your appendix section is lengthy, try organizing it by adding a table of contents at the beginning of the appendix section. It is also advisable to group similar information to make it easier for the reader to access them.

A well-organized appendix section makes it easier to share your information clearly and concisely. Add footnotes throughout the rest of the business plan or make references in the plan to the documents in the appendix.

The appendix section is usually only necessary if you are seeking funding from investors or lenders, or hoping to attract partners.

People reading business plans do not want to spend time going through a heap of backup information, numbers, and charts. Keep these documents or information in the Appendix section in case the reader wants to dig deeper.

Common Items to Include in the Appendix Section of Your Business Plan

The appendix section includes documents that supplement or support the information or claims given in other sections of the business plans. Common items you can include in the appendix section include:

• Additional data about the process of manufacturing or creation
• Additional description of products or services such as product schematics
• Additional financial documents or projections
• Articles of incorporation and status
• Backup for market research or competitive analysis
• Bank statements
• Business registries
• Client testimonials (if your business is already running)
• Copies of insurances
• Credit histories (personal or/and business)
• Deeds and permits
• Equipment leases
• Examples of marketing and advertising collateral
• Industry associations and memberships
• Images of product
• Intellectual property
• Key customer contracts
• Legal documents and other contracts
• Letters of reference
• Links to references
• Market research data
• Organizational charts
• Photographs of potential facilities
• Professional licenses pertaining to your legal structure or type of business
• Purchase orders
• Resumes of the founder(s) and key managers
• State and federal identification numbers or codes
• Trademarks or patents’ registrations

Avoid using the appendix section as a place to dump any document or information you feel like adding. Only add documents or information that you support or increase the credibility of your business plan.

Tips and Strategies for Writing a Convincing Business Plan

To achieve a perfect business plan, you need to consider some key tips and strategies. These tips will raise the efficiency of your business plan above average.

1. Know Your Audience

When writing a business plan, you need to know your audience . Business owners write business plans for different reasons. Your business plan has to be specific. For example, you can write business plans to potential investors, banks, and even fellow board members of the company.

The audience you are writing to determines the structure of the business plan. As a business owner, you have to know your audience. Not everyone will be your audience. Knowing your audience will help you to narrow the scope of your business plan.

Consider what your audience wants to see in your projects, the likely questions they might ask, and what interests them.

• A business plan used to address a company's board members will center on its employment schemes, internal affairs, projects, stakeholders, etc.
• A business plan for financial institutions will talk about the size of your market and the chances for you to pay back any loans you demand.
• A business plan for investors will show proof that you can return the investment capital within a specific time. In addition, it discusses your financial projections, tractions, and market size.

2. Get Inspiration from People

Writing a business plan from scratch as an entrepreneur can be daunting. That is why you need the right inspiration to push you to write one. You can gain inspiration from the successful business plans of other businesses. Look at their business plans, the style they use, the structure of the project, etc.

To make your business plan easier to create, search companies related to your business to get an exact copy of what you need to create an effective business plan. You can also make references while citing examples in your business plans.

When drafting your business plan, get as much help from others as you possibly can. By getting inspiration from people, you can create something better than what they have.

3. Avoid Being Over Optimistic

Many business owners make use of strong adjectives to qualify their content. One of the big mistakes entrepreneurs make when preparing a business plan is promising too much.

The use of superlatives and over-optimistic claims can prepare the audience for more than you can offer. In the end, you disappoint the confidence they have in you.

In most cases, the best option is to be realistic with your claims and statistics. Most of the investors can sense a bit of incompetency from the overuse of superlatives. As a new entrepreneur, do not be tempted to over-promise to get the interests of investors.

The concept of entrepreneurship centers on risks, nothing is certain when you make future analyses. What separates the best is the ability to do careful research and work towards achieving that, not promising more than you can achieve.

To make an excellent first impression as an entrepreneur, replace superlatives with compelling data-driven content. In this way, you are more specific than someone promising a huge ROI from an investment.

4. Keep it Simple and Short

When writing business plans, ensure you keep them simple throughout. Irrespective of the purpose of the business plan, your goal is to convince the audience.

One way to achieve this goal is to make them understand your proposal. Therefore, it would be best if you avoid the use of complex grammar to express yourself. It would be a huge turn-off if the people you want to convince are not familiar with your use of words.

Another thing to note is the length of your business plan. It would be best if you made it as brief as possible.

You hardly see investors or agencies that read through an extremely long document. In that case, if your first few pages can’t convince them, then you have lost it. The more pages you write, the higher the chances of you derailing from the essential contents.

To ensure your business plan has a high conversion rate, you need to dispose of every unnecessary information. For example, if you have a strategy that you are not sure of, it would be best to leave it out of the plan.

5. Make an Outline and Follow Through

A perfect business plan must have touched every part needed to convince the audience. Business owners get easily tempted to concentrate more on their products than on other sections. Doing this can be detrimental to the efficiency of the business plan.

For example, imagine you talking about a product but omitting or providing very little information about the target audience. You will leave your clients confused.

To ensure that your business plan communicates your full business model to readers, you have to input all the necessary information in it. One of the best ways to achieve this is to design a structure and stick to it.

This structure is what guides you throughout the writing. To make your work easier, you can assign an estimated word count or page limit to every section to avoid making it too bulky for easy reading. As a guide, the necessary things your business plan must contain are:

• Table of contents
• Introduction
• Product or service description
• Target audience
• Market size
• Competition analysis
• Financial projections

Some specific businesses can include some other essential sections, but these are the key sections that must be in every business plan.

6. Ask a Professional to Proofread

When writing a business plan, you must tie all loose ends to get a perfect result. When you are done with writing, call a professional to go through the document for you. You are bound to make mistakes, and the way to correct them is to get external help.

You should get a professional in your field who can relate to every section of your business plan. It would be easier for the professional to notice the inner flaws in the document than an editor with no knowledge of your business.

In addition to getting a professional to proofread, get an editor to proofread and edit your document. The editor will help you identify grammatical errors, spelling mistakes, and inappropriate writing styles.

Writing a business plan can be daunting, but you can surmount that obstacle and get the best out of it with these tips.

Business Plan Examples and Templates That’ll Save You Tons of Time

1. hubspot's one-page business plan.

The one-page business plan template by HubSpot is the perfect guide for businesses of any size, irrespective of their business strategy. Although the template is condensed into a page, your final business plan should not be a page long! The template is designed to ask helpful questions that can help you develop your business plan.

Hubspot’s one-page business plan template is divided into nine fields:

• Business opportunity
• Company description
• Industry analysis
• Target market
• Implementation timeline
• Marketing plan
• Financial summary
• Funding required

2. Bplan’s Free Business Plan Template

Bplans' free business plan template is investor-approved. It is a rich template used by prestigious educational institutions such as Babson College and Princeton University to teach entrepreneurs how to create a business plan.

The template has six sections: the executive summary, opportunity, execution, company, financial plan, and appendix. There is a step-by-step guide for writing every little detail in the business plan. Follow the instructions each step of the way and you will create a business plan that impresses investors or lenders easily.

3. HubSpot's Downloadable Business Plan Template

HubSpot’s downloadable business plan template is a more comprehensive option compared to the one-page business template by HubSpot. This free and downloadable business plan template is designed for entrepreneurs.

The template is a comprehensive guide and checklist for business owners just starting their businesses. It tells you everything you need to fill in each section of the business plan and how to do it.

There are nine sections in this business plan template: an executive summary, company and business description, product and services line, market analysis, marketing plan, sales plan, legal notes, financial considerations, and appendix.

4. Business Plan by My Own Business Institute

My Own Business Institute (MOBI) which is a part of Santa Clara University's Center for Innovation and Entrepreneurship offers a free business plan template. You can either copy the free business template from the link provided above or download it as a Word document.

The comprehensive template consists of a whopping 15 sections.

• The Business Profile
• The Vision and the People
• Home-Based Business and Freelance Business Opportunities
• Organization
• Licenses and Permits
• Business Insurance
• Communication Tools
• Acquisitions
• Location and Leasing
• Accounting and Cash Flow
• Opening and Marketing
• Managing Employees
• Expanding and Handling Problems

There are lots of helpful tips on how to fill each section in the free business plan template by MOBI.

5. Score's Business Plan Template for Startups

Score is an American nonprofit organization that helps entrepreneurs build successful companies. This business plan template for startups by Score is available for free download. The business plan template asks a whooping 150 generic questions that help entrepreneurs from different fields to set up the perfect business plan.

The business plan template for startups contains clear instructions and worksheets, all you have to do is answer the questions and fill the worksheets.

There are nine sections in the business plan template: executive summary, company description, products and services, marketing plan, operational plan, management and organization, startup expenses and capitalization, financial plan, and appendices.

The ‘refining the plan’ resource contains instructions that help you modify your business plan to suit your specific needs, industry, and target audience. After you have completed Score’s business plan template, you can work with a SCORE mentor for expert advice in business planning.

6. Minimalist Architecture Business Plan Template by Venngage

The minimalist architecture business plan template is a simple template by Venngage that you can customize to suit your business needs .

There are five sections in the template: an executive summary, statement of problem, approach and methodology, qualifications, and schedule and benchmark. The business plan template has instructions that guide users on what to fill in each section.

7. Small Business Administration Free Business Plan Template

The Small Business Administration (SBA) offers two free business plan templates, filled with practical real-life examples that you can model to create your business plan. Both free business plan templates are written by fictional business owners: Rebecca who owns a consulting firm, and Andrew who owns a toy company.

There are five sections in the two SBA’s free business plan templates.

• Executive Summary
• Company Description
• Service Line
• Marketing and Sales

8. The $100 Startup's One-Page Business Plan

The one-page business plan by the $100 startup is a simple business plan template for entrepreneurs who do not want to create a long and complicated plan . You can include more details in the appendices for funders who want more information beyond what you can put in the one-page business plan.

There are five sections in the one-page business plan such as overview, ka-ching, hustling, success, and obstacles or challenges or open questions. You can answer all the questions using one or two sentences.

9. PandaDoc’s Free Business Plan Template

The free business plan template by PandaDoc is a comprehensive 15-page document that describes the information you should include in every section.

There are 11 sections in PandaDoc’s free business plan template.

• Executive summary
• Business description
• Products and services
• Operations plan
• Management organization
• Financial plan
• Conclusion / Call to action
• Confidentiality statement

You have to sign up for its 14-day free trial to access the template. You will find different business plan templates on PandaDoc once you sign up (including templates for general businesses and specific businesses such as bakeries, startups, restaurants, salons, hotels, and coffee shops)

PandaDoc allows you to customize its business plan templates to fit the needs of your business. After editing the template, you can send it to interested parties and track opens and views through PandaDoc.

10. Invoiceberry Templates for Word, Open Office, Excel, or PPT

InvoiceBerry is a U.K based online invoicing and tracking platform that offers free business plan templates in .docx, .odt, .xlsx, and .pptx formats for freelancers and small businesses.

Before you can download the free business plan template, it will ask you to give it your email address. After you complete the little task, it will send the download link to your inbox for you to download. It also provides a business plan checklist in .xlsx file format that ensures you add the right information to the business plan.

Alternatives to the Traditional Business Plan

A business plan is very important in mapping out how one expects their business to grow over a set number of years, particularly when they need external investment in their business. However, many investors do not have the time to watch you present your business plan. It is a long and boring read.

Luckily, there are three alternatives to the traditional business plan (the Business Model Canvas, Lean Canvas, and Startup Pitch Deck). These alternatives are less laborious and easier and quicker to present to investors.

Business Model Canvas (BMC)

The business model canvas is a business tool used to present all the important components of setting up a business, such as customers, route to market, value proposition, and finance in a single sheet. It provides a very focused blueprint that defines your business initially which you can later expand on if needed.

The sheet is divided mainly into company, industry, and consumer models that are interconnected in how they find problems and proffer solutions.

Segments of the Business Model Canvas

The business model canvas was developed by founder Alexander Osterwalder to answer important business questions. It contains nine segments.

• Key Partners: Who will be occupying important executive positions in your business? What do they bring to the table? Will there be a third party involved with the company?
• Key Activities: What important activities will production entail? What activities will be carried out to ensure the smooth running of the company?
• The Product’s Value Propositions: What does your product do? How will it be different from other products?
• Customer Segments: What demography of consumers are you targeting? What are the habits of these consumers? Who are the MVPs of your target consumers?
• Customer Relationships: How will the team support and work with its customer base? How do you intend to build and maintain trust with the customer?
• Key Resources: What type of personnel and tools will be needed? What size of the budget will they need access to?
• Channels: How do you plan to create awareness of your products? How do you intend to transport your product to the customer?
• Cost Structure: What is the estimated cost of production? How much will distribution cost?
• Revenue Streams: For what value are customers willing to pay? How do they prefer to pay for the product? Are there any external revenues attached apart from the main source? How do the revenue streams contribute to the overall revenue?

Lean Canvas

The lean canvas is a problem-oriented alternative to the standard business model canvas. It was proposed by Ash Maurya, creator of Lean Stack as a development of the business model generation. It uses a more problem-focused approach and it majorly targets entrepreneurs and startup businesses.

Lean Canvas uses the same 9 blocks concept as the business model canvas, however, they have been modified slightly to suit the needs and purpose of a small startup. The key partners, key activities, customer relationships, and key resources are replaced by new segments which are:

• Problem: Simple and straightforward number of problems you have identified, ideally three.
• Solution: The solutions to each problem.
• Unfair Advantage: Something you possess that can't be easily bought or replicated.
• Key Metrics: Important numbers that will tell how your business is doing.

Startup Pitch Deck

While the business model canvas compresses into a factual sheet, startup pitch decks expand flamboyantly.

Pitch decks, through slides, convey your business plan, often through graphs and images used to emphasize estimations and observations in your presentation. Entrepreneurs often use pitch decks to fully convince their target audience of their plans before discussing funding arrangements.

Considering the likelihood of it being used in a small time frame, a good startup pitch deck should ideally contain 20 slides or less to have enough time to answer questions from the audience.

Unlike the standard and lean business model canvases, a pitch deck doesn't have a set template on how to present your business plan but there are still important components to it. These components often mirror those of the business model canvas except that they are in slide form and contain more details.

Using Airbnb (one of the most successful start-ups in recent history) for reference, the important components of a good slide are listed below.

• Cover/Introduction Slide: Here, you should include your company's name and mission statement. Your mission statement should be a very catchy tagline. Also, include personal information and contact details to provide an easy link for potential investors.
• Problem Slide: This slide requires you to create a connection with the audience or the investor that you are pitching. For example in their pitch, Airbnb summarized the most important problems it would solve in three brief points – pricing of hotels, disconnection from city culture, and connection problems for local bookings.
• Solution Slide: This slide includes your core value proposition. List simple and direct solutions to the problems you have mentioned
• Customer Analysis: Here you will provide information on the customers you will be offering your service to. The identity of your customers plays an important part in fundraising as well as the long-run viability of the business.
• Market Validation: Use competitive analysis to show numbers that prove the presence of a market for your product, industry behavior in the present and the long run, as well as the percentage of the market you aim to attract. It shows that you understand your competitors and customers and convinces investors of the opportunities presented in the market.
• Business Model: Your business model is the hook of your presentation. It may vary in complexity but it should generally include a pricing system informed by your market analysis. The goal of the slide is to confirm your business model is easy to implement.
• Marketing Strategy: This slide should summarize a few customer acquisition methods that you plan to use to grow the business.
• Competitive Advantage: What this slide will do is provide information on what will set you apart and make you a more attractive option to customers. It could be the possession of technology that is not widely known in the market.
• Team Slide: Here you will give a brief description of your team. Include your key management personnel here and their specific roles in the company. Include their educational background, job history, and skillsets. Also, talk about their accomplishments in their careers so far to build investors' confidence in members of your team.
• Traction Slide: This validates the company’s business model by showing growth through early sales and support. The slide aims to reduce any lingering fears in potential investors by showing realistic periodic milestones and profit margins. It can include current sales, growth, valuable customers, pre-orders, or data from surveys outlining current consumer interest.
• Funding Slide: This slide is popularly referred to as ‘the ask'. Here you will include important details like how much is needed to get your business off the ground and how the funding will be spent to help the company reach its goals.
• Appendix Slides: Your pitch deck appendix should always be included alongside a standard pitch presentation. It consists of additional slides you could not show in the pitch deck but you need to complement your presentation.

It is important to support your calculations with pictorial renditions. Infographics, such as pie charts or bar graphs, will be more effective in presenting the information than just listing numbers. For example, a six-month graph that shows rising profit margins will easily look more impressive than merely writing it.

Lastly, since a pitch deck is primarily used to secure meetings and you may be sharing your pitch with several investors, it is advisable to keep a separate public version that doesn't include financials. Only disclose the one with projections once you have secured a link with an investor.

Advantages of the Business Model Canvas, Lean Canvas, and Startup Pitch Deck over the Traditional Business Plan

• Time-Saving: Writing a detailed traditional business plan could take weeks or months. On the other hand, all three alternatives can be done in a few days or even one night of brainstorming if you have a comprehensive understanding of your business.
• Easier to Understand: Since the information presented is almost entirely factual, it puts focus on what is most important in running the business. They cut away the excess pages of fillers in a traditional business plan and allow investors to see what is driving the business and what is getting in the way.
• Easy to Update: Businesses typically present their business plans to many potential investors before they secure funding. What this means is that you may regularly have to amend your presentation to update statistics or adjust to audience-specific needs. For a traditional business plan, this could mean rewriting a whole section of your plan. For the three alternatives, updating is much easier because they are not voluminous.
• Guide for a More In-depth Business Plan: All three alternatives have the added benefit of being able to double as a sketch of your business plan if the need to create one arises in the future.

Business Plan FAQ

Business plans are important for any entrepreneur who is looking for a framework to run their company over some time or seeking external support. Although they are essential for new businesses, every company should ideally have a business plan to track their growth from time to time.  They can be used by startups seeking investments or loans to convey their business ideas or an employee to convince his boss of the feasibility of starting a new project. They can also be used by companies seeking to recruit high-profile employee targets into key positions or trying to secure partnerships with other firms.

Business plans often vary depending on your target audience, the scope, and the goals for the plan. Startup plans are the most common among the different types of business plans.  A start-up plan is used by a new business to present all the necessary information to help get the business up and running. They are usually used by entrepreneurs who are seeking funding from investors or bank loans. The established company alternative to a start-up plan is a feasibility plan. A feasibility plan is often used by an established company looking for new business opportunities. They are used to show the upsides of creating a new product for a consumer base. Because the audience is usually company people, it requires less company analysis. The third type of business plan is the lean business plan. A lean business plan is a brief, straight-to-the-point breakdown of your ideas and analysis for your business. It does not contain details of your proposal and can be written on one page. Finally, you have the what-if plan. As it implies, a what-if plan is a preparation for the worst-case scenario. You must always be prepared for the possibility of your original plan being rejected. A good what-if plan will serve as a good plan B to the original.

A good business plan has 10 key components. They include an executive plan, product analysis, desired customer base, company analysis, industry analysis, marketing strategy, sales strategy, financial projection, funding, and appendix. Executive Plan Your business should begin with your executive plan. An executive plan will provide early insight into what you are planning to achieve with your business. It should include your mission statement and highlight some of the important points which you will explain later. Product Analysis The next component of your business plan is your product analysis. A key part of this section is explaining the type of item or service you are going to offer as well as the market problems your product will solve. Desired Consumer Base Your product analysis should be supplemented with a detailed breakdown of your desired consumer base. Investors are always interested in knowing the economic power of your market as well as potential MVP customers. Company Analysis The next component of your business plan is your company analysis. Here, you explain how you want to run your business. It will include your operational strategy, an insight into the workforce needed to keep the company running, and important executive positions. It will also provide a calculation of expected operational costs.  Industry Analysis A good business plan should also contain well laid out industry analysis. It is important to convince potential investors you know the companies you will be competing with, as well as your plans to gain an edge on the competition. Marketing Strategy Your business plan should also include your marketing strategy. This is how you intend to spread awareness of your product. It should include a detailed explanation of the company brand as well as your advertising methods. Sales Strategy Your sales strategy comes after the market strategy. Here you give an overview of your company's pricing strategy and how you aim to maximize profits. You can also explain how your prices will adapt to market behaviors. Financial Projection The financial projection is the next component of your business plan. It explains your company's expected running cost and revenue earned during the tenure of the business plan. Financial projection gives a clear idea of how your company will develop in the future. Funding The next component of your business plan is funding. You have to detail how much external investment you need to get your business idea off the ground here. Appendix The last component of your plan is the appendix. This is where you put licenses, graphs, or key information that does not fit in any of the other components.

The business model canvas is a business management tool used to quickly define your business idea and model. It is often used when investors need you to pitch your business idea during a brief window.

A pitch deck is similar to a business model canvas except that it makes use of slides in its presentation. A pitch is not primarily used to secure funding, rather its main purpose is to entice potential investors by selling a very optimistic outlook on the business.

Business plan competitions help you evaluate the strength of your business plan. By participating in business plan competitions, you are improving your experience. The experience provides you with a degree of validation while practicing important skills. The main motivation for entering into the competitions is often to secure funding by finishing in podium positions. There is also the chance that you may catch the eye of a casual observer outside of the competition. These competitions also provide good networking opportunities. You could meet mentors who will take a keen interest in guiding you in your business journey. You also have the opportunity to meet other entrepreneurs whose ideas can complement yours.

Exlore Further

• 12 Key Elements of a Business Plan (Top Components Explained)
• 13 Sources of Business Finance For Companies & Sole Traders
• 5 Common Types of Business Structures (+ Pros & Cons)
• How to Buy a Business in 8 Steps (+ Due Diligence Checklist)

Was This Article Helpful?

Martin luenendonk.

Martin loves entrepreneurship and has helped dozens of entrepreneurs by validating the business idea, finding scalable customer acquisition channels, and building a data-driven organization. During his time working in investment banking, tech startups, and industry-leading companies he gained extensive knowledge in using different software tools to optimize business processes.

This insights and his love for researching SaaS products enables him to provide in-depth, fact-based software reviews to enable software buyers make better decisions.

• How PriceBeam Works
• Willingness-to-Pay
• Comparative Willingness-to-Pay
• Value Attributes / Choice-Based Conjoint
• Promotion Lab
• Promotion Lab Enhanced
• Assortment Lab
• Core / Basic Survey
• Ranking Analysis / MaxDiff
• Menu-Based Conjoint
• RGM Study - Promotion
• RGM Study - Ultra
• Concept Test
• Claims Test
• Product Variant Test
• Beer, Wine & Spirits
• Home Appliances
• Food Products
• DIY & Home Improvement
• Consumer Services
• Media & Publishing
• Hotels & Hospitality
• Subscription Services
• Phones & Telecom
• Memberships
• Training & Education
• Sports Subscriptions
• Consumer Electronics
• SaaS & Software
• Consumer Finance
• Equity Analysis
• Veterinary Products
• OTC Pharmaceuticals
• Auto Aftermarket
• Pricing New Products
• Brand Health & Pricing
• M&A Pricing
• Investment Portfolios & Pricing
• Price Segmentation
• Sales Team & Pricing
• International Pricing
• Price Optimization
• Price Increases
• Pricing Strategy
• Psychological Pricing
• Value-Based Pricing
• Lifecycle Pricing
• Market Launch Pricing
• Value Communication
• Assortment Pricing
• Promotions & Discounts
• Case Studies

How to Develop the Pricing Strategy for Your Marketing Plan

One of the key components in any marketing plan is the pricing strategy. Not only will it determine how much profit you are going to earn, it will also play a pivotal role in positioning your product. Yet, it’s neglected by most B2B marketers and B2C marketers even though it should get just as much attention as the rest of your marketing mix.

Pricing is the Most Important of the 4 P’s Whether you care about profits or not, your pricing is essential for your entire product mix. Your pricing will convey messages about your product in terms of perceived quality and attractiveness. That’s how Yves Saint Lauren manages to sell a plain black t-shirt at $390. Sure, the materials used may be of high quality but the price is in no way a reflection of the cost. It’s all about branding, and price is very effective when it comes to branding. In the case with Yves Saint Laurent, the price-tag sends a message to the customer that obviously, at this price, the product is of incredibly high quality and in very high demand (and customers want to own products in high demand to gain social recognition!). The bottom line is that the price is often what determines the perceived quality of the product, and not the actual quality of the materials used. Y our price will also influence your distribution channels. Retailers and the like have a brand to maintain and a position in the market that their product range needs to be in line with. Thus, you need to make sure that your price is attractive to distributors that target your segment.  

Developing a Great Pricing Strategy The right pricing strategy for your marketing plan is one that conveys the right message of quality, supports your promotion strategy, and maximizes your profits. Typically, these overlap so even if you don’t care about profit, the right price for your product will typically be one close to the profit-maximizing one.  

Setting a Price that Sends the Right Message In the mind of your customer, the price is a testimonial to your product’s quality. Consequently, many companies successfully manage to increase prices while increasing sales volume simultaneously! So don’t think you will automatically get a higher sales volume by setting a lower price. At this point you may or may not have identified the target segment for your product; if you haven’t, it’s time! You can’t set a price that sends the appropriate message of quality without knowing what customer segment is going to buy your product.

Setting a Price that Supports your Promotion Strategy When you have identified your target segment, you will need to find out how you will differentiate yourself from your competitors. Michael Porter’s generic strategy framework divides differentiation strategies into two groups; product differentiation and cost leadership .

If you’re using product differentiation , conveying the right quality message as mentioned above, becomes even more important. Ultimately, the quality of your product is irrelevant! It’s all about perceived quality , and here price plays an important role.

If you’re using cost leadership you obviously want to set a price that is lower than your competitors’. However, you need to be cautious with this strategy. Your competitors might not be as cost-efficient as they seem; they might be losing money at their current price point and simply try to keep you from entering the market or from gaining market share. Make sure you don’t attempt the cost leadership strategy unless you are, in fact, a cost leader. You want to make sure you can maintain an acceptable profit margin that keeps your business sustainable. Generally, for most businesses, cost leadership is not a desirable strategy as it often leaves you with razor-thin margins. And even if you may think your product can only compete on price, this is rarely the case .

Setting a Price that Maximizes Profit

Other Things to Consider When developing the pricing strategy for your marketing plan, you must also consider how you are going to justify your price to your customers. That is, how are you going to communicate your customer value proposition? The customer value proposition is your description of why your customer should buy your product and pay the price you charge for it. Your product may well be worth your price, or perhaps even more, but if you fail to communicate this to the customer you will not maximize their willingness-to-pay. Either they will not buy your product, or you will be leaving money on the table. Most purchase decisions are made in a few seconds, so don’t count on your customers to identify the value your product provides to them. You should be the one to tell them!

Final Note: Don’t “Set and Forget” Your Price Customer segments are dynamic in taste, demographics, and willingness-to-pay. Your price should be adjusted accordingly. If you developed a pricing strategy for previous marketing plans, it is very likely this will not be optimal anymore! And if this is your first time developing a pricing strategy, you will need to evaluate it on a yearly or even quarterly basis. Your price is one of the most important profit levers, so do dedicate the time and resources necessary to get it right again and again.

Thanks for reading! We have plenty of free resources for helping you develop a great pricing strategy. Have a browse!

Related posts

How to Coordinate Your Pricing Efforts

Hospitality Pricing: Identifying Segments and Willingness to Pay

Book Review - Digital Pricing Strategy: Capturing value from digital innovations

How To Write Pricing Strategy In Marketing Plan

A pricing strategy is one of the most important parts of any business, especially for startup companies or individuals who have little experience with marketing their product.

As you develop your company’s brand and recognize it among competitors, you will need to determine how much people are willing to pay for what you have to offer.

Businesses that do not have clear price strategies often lose out on potential profits because they don’t know whether their service is too expensive or if there are cheaper alternatives available .

In fact, according to research done by Harvard Business School, more than half of all customers would actively look elsewhere if a seller attempts to increase prices after making a purchase.

That is why having a solid pricing structure is so crucial — you want to make sure that you aren’t leaving money on the table!

But before we get into some helpful tips about how to write the perfect pricing section of an advertising plan, let’s take a closer look at two common types of pricing strategies.

Write your pricing strategy

The second part of writing your price is actually defining what you will offer customers for your product or service. This is called the price point or value proposition .

Your price point should include how much your product costs, but it also should state why the product or service is important to buyers. Your price should be clear and simple so people can compare prices easily .

The best way to test the clarity of your price is by seeing if others have the same thing as you and are able to compare their cost clearly.

You could also find competitors’ products and see what they say about their importance.

Decide how to price your product or service

As we discussed, you will want to determine your ideal pricing structure for your business early on. This article gives more detail about how to do this!

Your pricing strategy is an integral part of your marketing plan. It’s something that has significant impact on how well your business does.

Too often entrepreneurs spend lots of time brainstorming ideas and developing their business model, and then they forget about one of the most important parts: what they should charge for their services.

It’s very difficult to develop a solid business model when you don’t know what your prices should be.

Establish pricing benchmarks

The second step in writing effective price strategies is establishing appropriate pricing benchmarks . You can use two different approaches for this.

You can compare your product or service with similar products or services to get relative prices , which are then contrasted against yours to determine if they are undervalued or overpriced.

Alternatively, you can find absolute prices for comparable items to establish how much your product should cost.

By doing both of these, you create a mix of information that helps form a picture of whether your product is under or overextended in its current state.

Create marketing materials

After you have determined your product’s price, you will need to create some form of marketing material to describe it. This could be an advert, a flyer, an article or even a podcast episode that features both benefits and pricing.

Marketing materials should include enough information so that potential customers can compare the products effectively and decide which one is best for them. They should also feature clear pictures and bold fonts to make the product stand out.

If possible, try to keep the content short and simple as long as they are understood by the reader. The goal of the marketing material is to draw in new readers who know little about your business and its services but want them. Use straightforward language and emphasize the value of the service rather than the expensive price tag .

You can then use these materials to promote your products and services.

Test your marketing materials

The next step in writing pricing strategies is to test your material. This means creating a version of your current content and putting it out there to see if it works for you. If nothing changes, add what resources you have already and make sure those work!

If you are looking to increase sales or get new clients , you will need to reevaluate how you present yourself and your services. Your style and tone may be holding you back from connecting with people and getting the results you want.

Try revamping your content or developing new content using similar tactics to learn more about effective marketing. You can also evaluate the effectiveness of your current content by comparing costs to returns.

This article has discussed some easy ways to revise and improve your marketing messaging and strategies.

Create a marketing plan based on your pricing strategy

After you have an idea of what products or services you want to offer, it is time to create a full price list or even better, a price matrix!

A price matrix allows you to compare one product against another. For example, you could put both Product A and Product B next to each other with Price Column A as Product A and Price Column B as Product B. Then you can go row by row and column by column to find which product is more effective than the other.

This technique works well if you are not sure about the effectiveness of your current offerings or if there are too many variables that influence how cost-effective your products are. By using a price matrix, you can control those factors and determine the best option for your business.

You can also use the columns to compare different versions or sizes of a product, or different packages of a product to see which one is the most attractive to customers. This way, you can start charging for some things and observing reactions before deciding on final prices.

Promote your website or blog site

After you have determined what services you offer, how much value you provide, and which areas of business need those services, it is time to advertise yourself and your service.

You will want to make sure that people are aware of your offerings so they can choose to use them if and when needed. This includes promoting your website, blogging site, social media accounts , and anything else about you that provides exposure.

By using different mediums for advertising, this gives the audience member choice in how to find out more information about you and your services.

Some of these mediums include word -of-mouth, direct advertisements, and printed materials like flyers and pamphlets. By having multiple ways to get your name out there, it creates consistency in your branding and helps develop trust with potential clients.

Get professional feedback

Let someone else review your writing before you publish it, or even present it to people for feedback. You should have at least one friend who can give you honest criticism of your writing skills, and that person should be able to tell if something seems right or not.

By having second set of eyes look over your work, you’ll avoid wasting time trying to perfect things that may already seem good to you.

You will also save yourself some stress, as you won’t need to go through the process of editing and revising your content unless you are sure it is top quality.

As with any other form of self-help advice, this tip really applies both in business and in life. If you want to improve your own writing, get some help doing it!

There are many free resources available via blogs , forums, and social media sites like Facebook and Twitter. By being active on these platforms, you’ll find plenty of opportunities to gain helpful information.

About The Author

Featured Articles

Why Evergreen Content Should Be The Lifeblood Of Your Website

3 Reasons Why YOUR Business Can Always Benefit From Consistent SEO Practice

6 Tips For Developing a Proper Sales Funnel on Your Shopify Site

The Two Main Ways of Creating SEO Content

3 Incredible Ways to Identify Blog Growth using Google Analytics

How To Treat Your Winning SEO Articles

5 Ways to Get the Most ROI Out of Your SEO Content

What is SEO and How Can I Master it Quickly?

Get a free personalized marketing plan for your business.

On This Page

Business terms to know

4 steps to price your services, why is setting the right service price so important, more on pricing products and services.

How to Price Business Services

Service pricing is all about perceived value, which is far more subjective than setting prices for a product.

Let’s walk through the art and science of pricing a service. After reading, you’ll have a basic framework for setting and testing prices.

To get the most out of this article, you should know a few business terms.

• Direct costs: Costs directly associated with producing goods or services, such as raw materials and labor.
• Indirect costs: Costs not directly tied to production but are necessary for operations, like administrative expenses and rent.
• Profit margin: The percentage of total sales revenue that results in profit after deducting all expenses.

1. Consider your costs

To determine how much you should charge—start with your costs. Unlike a product, where costs are directly connected to production, services require a more expansive analysis. 

You need to look at both direct and indirect costs. 

Direct costs cover anything directly related to providing your service. This includes your time, materials for deliverables, and equipment.

Indirect costs may include operating expenses like rent, insurance, marketing materials, salaries, and employee benefits.

This is your starting point. Now you can determine how much you need to charge or how many customers you need to be profitable.

2. Look at what the competition charges

What are your competitors’ prices? What services do they offer at those prices? Are consumers responding positively or negatively?

Understand what their current pricing looks like and how effective they are. Don’t copy them. If you do, you’ll just be seen as the same option but far less recognizable. Use them as a baseline for setting prices and selecting service options.

And if you’re unsure about your costs from the previous step—look at your competitors. What are they spending? Where are there opportunities to start with lower costs?

Use this competitive analysis to refine your initial pricing strategy and decide on your market position. Are you higher quality or a better deal? Do you offer experience or a fresh approach?

3. What about profits?

Between your costs and competitor pricing, you should have a rough pricing range. Now you need to see if these services are worth selling and can be profitable. 

Ask yourself, how profitable do you want or need to be? If you’re unsure, identify the average profit margin for your industry by reviewing published reports and industry benchmarks.

Now, convert it to a decimal and apply it to this formula:

Price = costs  / (1 – profit margin)

Is that price higher than your competitors? If so, will the services you offer be considered a higher value by customers? 

If the answer is no, you may need to decrease your expected profit or find ways to lower costs.

4. Select a strategy and adjust to the customer

Don’t get too hung up on finding the perfect price. You can make assumptions about how customers will react, but you must test it to be certain. 

Find a few price points that you believe reflect your value and demonstrate your market position. 

Select a pricing model (hourly, per-project, or both) and be sure it works with your pricing strategy. 

Now, seek out customers and take note of their reactions. 

Are they surprised by your prices? Maybe your prices are too low.

Do they scoff at the price and walk away? You might need to consider lowering your prices.

Are they open to the price but want additional services? You may need to reconsider your pricing strategy.

Tips for setting consulting fees

Are you planning to offer consulting services? Check out these tips from professional business consultant, Tim Berry, to set better prices.

Your prices directly impact your potential for success and should be tied to your experience, education, and time.

Price too high—clients will walk away. Price too low—you may be stuck not getting paid what you’re worth. It also may not be sustainable.

To be sure you get this right, pick a strategy and start on the higher end. You can always lower prices if the price point turns too many customers away. 

As you gain more customers, more experience, and establish yourself—revisit your prices. You may need to start with lower prices to attract initial clients to get traction. But, you’ll want to find ways to raise your prices over time to ensure you build a profitable business.

It comes down to knowing: 

• What customers want
• What the competition is doing
• Your position in the market

Pay attention to these things, and you’ll find the right price point.

Need additional guidance to set your prices? Check out our other pricing resources:

• Pricing strategies explained
• How to price your products
• Mistakes to avoid when setting prices

Related Articles

6 Min. Read

What You Absolutely Cannot Afford to Forget When Pricing Your Products

3 Min. Read

How to Price a Product

Buying Your Way Into Entrepreneurship: What You Need to Know

<1 Min. Read

How to Write a Business Plan

The quickest way to turn a business idea into a business plan

Fill-in-the-blanks and automatic financials make it easy.

No thanks, I prefer writing 40-page documents.

Discover the world’s #1 plan building software

• Online Invoice Generator
• All Features call_made
• Estimates and Invoices
• Saved Invoices
• Secure Access
• Construction Invoice
• Consulting Invoice
• Freelance Invoice
• Rental Invoice
• Free Auto Repair & Mechanic Invoice Templates
• Graphic Design
• Photography Invoice
• Contractor Invoice
• Printable Invoice
• Pro Forma Invoice
• Word Invoice
• Excel Invoice
• Invoice PDF
• Google Sheets
• Itemized Bill
• Online Invoice Generator call_made
• Rent Receipt
• Cash Receipt
• Donation Receipt
• Receipt Maker call_made
• Free Quote Templates
• Estimate Maker call_made
• Profit Margin Calculator
• TRY IT FREE NOW call_made
• Support call_made
• Login call_made

How To Write a Business Plan: A Step-By-Step Guide

April 23, 2024.

No matter how unique your ideas are, launching a successful business without a well-crafted plan is tough. That’s why learning how to write a business plan is key to seeing success from the start. 

An actionable business plan helps you and potential investors understand exactly where you want to go and how to get there. And if you aren’t trying to secure funding, a lean business plan can summarize the highlights to help you in other areas. Here’s everything you need to write a business plan that clarifies your company’s vision.

Business Plan Basics

A business plan outlines the company’s products or services, how it makes money, and its customers. It should also identify the business’s long-term goals and how it’ll achieve them.

But what does a business plan look like? There’s no singular format, but most contain the following core elements:

• Executive Summary . The executive summary is a high-level summary of your business plan’s key points. Include this early in the document, but write it last so you can accurately describe what’s in it.
• Company Description . This section covers your company’s mission, leadership team, and goals. If your business has operated for several years, include a history.
• Market Analysis . This is where you’ll write out your market research. Gather data on your industry. That includes target customer segments and the current competitive landscape. This info demonstrates the viability of your business idea. 
• Product and Service Offerings . Describe your company’s offerings and what sets them apart from competitors. This is your unique value proposition.
• Marketing Plan . Outline your marketing tactics and overall strategy. Mention your plan for pricing, promoting, selling, and distributing your products. This helps investors know you have a strategy in place to grow your business. 
• Logistics and Operations Plan . After describing your products and how you plan to generate demand, lay out how you intend to drive, accept payment for, and support sales.
• Management Overview . Potential investors want to know who they’re betting on. This section provides crucial information about who’s in charge. Include their track records of success, relevant expertise, and roles and responsibilities.
• Financial Analysis and Projections . If you have them, include any historical financial details and performance metrics. This includes assets, liabilities, expenses , projected financial statements, cash flow statements, and anything else offering insights.
• Appendix . This final section is a catch-all for any miscellaneous but valuable background information. Examples might be licenses or patents.’

RELATED ARTICLE — How to Keep Track of Business Expenses

How To Create a Business Plan

With a clear understanding of these documents, it’s time to learn how to write one. Here’s how to put together a strong business plan for your company:

• Carry out a Market Analysis on target demographics, competitors, industry trends, and market.
• In the Company Description and Products and Service Offerings sections, explain what makes your offerings unique.
• Outline your Marketing Plan and sales strategy. Describe your target market and ideal customer. Include factors like geographic region, age range, and education level.
• Map out your Financial Analysis and Projections. If you’re an established business, include data like profit-and-loss statements, a balance sheet delineating your assets and liabilities, and cash flow statements or projections. If you’re still in the early stages, focus just on financial projections instead. Mention anticipated startup costs and your current cash flow.
• Your Logistics and Operations Plan explains how you’ll execute your ideas. Describe any relationships with suppliers, office space, or equipment. Make sure to mention production logistics and any shipping and fulfillment plans. This demonstrates that you understand the day-to-day operations of producing your product.
• Introduce yourself and/or your Management Team and principal hires. Emphasize past successes in related sectors and any unique expertise your staff has.
• Regardless of what order you prepare your business plan in, write the Executive Summary last. Do this by turning your market research and value proposition into tangible objectives and key milestones. This section is typically the first your readers see, so it should make them want to read more.

Be sure to get feedback from colleagues, industry contacts, and friends and family. The more eyes you get on your business plan, the less likely you are to make mistakes or leave out details.

RELATED ARTICLE — How to Offer Net 30 Terms  

What Are Business Plans For?

Writing and adhering to a business plan allows you to think through every aspect of your business. This helps you clarify your vision and shows where your ideas aren’t as developed.

But business plans don’t just clarify the company’s mission and direction. Entrepreneurs hope to answer this tough question with a business plan: how to attract investors. A well-written document can instill confidence by showing how supported it is. This is the main reason many business owners create a comprehensive overview.

And investors aren’t the only ones you’re trying to impress. An inspiring business plan attracts top talent in your industry. It proves that your team is organized, knows what it wants, and has ideas for the future.

Exploring Different Types of Business Plans

Business plans can be categorized based on type and style. Let’s explore three of the most common types.

A traditional business plan is the most common. This is what lenders and investment funds want to see before making any decisions. Traditional business plans are typically long. That’s because they provide a thorough overview of your company’s abilities, finances, and prospects

If you’re not courting investors, you might prefer a lean business plan. This type of document is shorter, focusing on the highlights instead of completeness. A lean business plan is great for brainstorming or onboarding new team members with reduced time and effort. But, because they’re less comprehensive, lean business plans aren’t ideal for seeking outside investment. Investors might not see how viable your business is without the added details. 

Finally, if your organization is a nonprofit, focus on the impact you hope to make for your chosen cause, not how you’ll grow revenue. But donors may want to see a more detailed business plan before making sizable donations.

RELATED ARTICLE — How to Write an Invoice in 5 Steps

Caveats To Watch Out For

An actionable step-by-step business plan requires a strong understanding of how it will help you reach your company’s goals. Now that you know how to start a business plan, here are some common mistakes to avoid when you start writing:

• Putting on Rose-colored Glasses . When you believe in your company and its mission, it’s easy to be too optimistic about future prospects. You might also overlook potential roadblocks. Be sure to keep one foot on the ground to avoid misrepresenting your company’s potential.
• Focusing Too Much on the Details . If your company is new or not yet established, focus on high-level strategy and vision. Save the details for when you’ve generated some actionable data.
• Setting Fuzzy Goals . Keep milestones concrete and measurable to meaningfully track progress.
• Overcomplicating . There’s nothing wrong with being comprehensive, but creating an overly intricate strategy makes it harder to execute. Keep it simple.
• Setting It in Stone . Your business plan won’t be much of a guide if you’re constantly making changes. But it’s important to move on from ineffective strategies or unachievable goals. Striking the right balance between stable ideas and flexible methods ensures your business plan is a help, not a hindrance.

5 Tips for an Effective Business Plan

Now that you know what to avoid, let’s learn some tips for making your business plan as effective as possible:

• Clearly Articulate Your Value Proposition . What unsolved problem does your company provide the solution for?
• Don’t Skimp on Market Research . A seemingly great idea won’t sell if no one is interested in buying it.
• Set Quantifiable Goals You Can Track . It’s difficult to measure progress toward vague, qualitative milestones.
• Hype up Your Team . Lenders and investors want to see that qualified personnel run your company.
• Manage Expectations . Don’t make promises you can’t keep. Surpassing your targets is impressive; falling short isn’t.

Business Expense Tracker

Make it painless to include expenses in your business plan by tracking them using our in-app receipt scanner.

Share this with your network

You may also like, related posts.

The Invoicer Report – 2023 Year in Review

What Is Accounts Receivable, and Why Does It Matter for Your Business?

How To Calculate Cash Flow: Key Formulas and Practical Examples

New to iOS: Record Partial Payments or Deposits

5 Steps to Keep Track of Business Expenses

What Are Echeck Payments, and What Can They Offer Your Customers?

Creating an Effective Invoice Number System: Best Practices

How to Write an Invoice for Freelance Work?

Get started for free, send your first invoice right now (it's free), featured in.

Small Business Trends

How to create a business plan: examples & free template.

This is the ultimate guide to creating a comprehensive and effective plan to start a business . In today’s dynamic business landscape, having a well-crafted business plan is an important first step to securing funding, attracting partners, and navigating the challenges of entrepreneurship.

This guide has been designed to help you create a winning plan that stands out in the ever-evolving marketplace. U sing real-world examples and a free downloadable template, it will walk you through each step of the process.

Whether you’re a seasoned entrepreneur or launching your very first startup, the guide will give you the insights, tools, and confidence you need to create a solid foundation for your business.

Table of Contents

How to Write a Business Plan

Embarking on the journey of creating a successful business requires a solid foundation, and a well-crafted business plan is the cornerstone. Here is the process of writing a comprehensive business plan and the main parts of a winning business plan . From setting objectives to conducting market research, this guide will have everything you need.

Executive Summary

The Executive Summary serves as the gateway to your business plan, offering a snapshot of your venture’s core aspects. This section should captivate and inform, succinctly summarizing the essence of your plan.

It’s crucial to include a clear mission statement, a brief description of your primary products or services, an overview of your target market, and key financial projections or achievements.

Think of it as an elevator pitch in written form: it should be compelling enough to engage potential investors or stakeholders and provide them with a clear understanding of what your business is about, its goals, and why it’s a promising investment.

Example: EcoTech is a technology company specializing in eco-friendly and sustainable products designed to reduce energy consumption and minimize waste. Our mission is to create innovative solutions that contribute to a cleaner, greener environment.

Our target market includes environmentally conscious consumers and businesses seeking to reduce their carbon footprint. We project a 200% increase in revenue within the first three years of operation.

Overview and Business Objectives

In the Overview and Business Objectives section, outline your business’s core goals and the strategic approaches you plan to use to achieve them. This section should set forth clear, specific objectives that are attainable and time-bound, providing a roadmap for your business’s growth and success.

It’s important to detail how these objectives align with your company’s overall mission and vision. Discuss the milestones you aim to achieve and the timeframe you’ve set for these accomplishments.

This part of the plan demonstrates to investors and stakeholders your vision for growth and the practical steps you’ll take to get there.

Example: EcoTech’s primary objective is to become a market leader in sustainable technology products within the next five years. Our key objectives include:

• Introducing three new products within the first two years of operation.
• Achieving annual revenue growth of 30%.
• Expanding our customer base to over 10,000 clients by the end of the third year.

Company Description

The Company Description section is your opportunity to delve into the details of your business. Provide a comprehensive overview that includes your company’s history, its mission statement, and its vision for the future.

Highlight your unique selling proposition (USP) – what makes your business stand out in the market. Explain the problems your company solves and how it benefits your customers.

Include information about the company’s founders, their expertise, and why they are suited to lead the business to success. This section should paint a vivid picture of your business, its values, and its place in the industry.

Example: EcoTech is committed to developing cutting-edge sustainable technology products that benefit both the environment and our customers. Our unique combination of innovative solutions and eco-friendly design sets us apart from the competition. We envision a future where technology and sustainability go hand in hand, leading to a greener planet.

Define Your Target Market

Defining Your Target Market is critical for tailoring your business strategy effectively. This section should describe your ideal customer base in detail, including demographic information (such as age, gender, income level, and location) and psychographic data (like interests, values, and lifestyle).

Elucidate on the specific needs or pain points of your target audience and how your product or service addresses these. This information will help you know your target market and develop targeted marketing strategies.

Example: Our target market comprises environmentally conscious consumers and businesses looking for innovative solutions to reduce their carbon footprint. Our ideal customers are those who prioritize sustainability and are willing to invest in eco-friendly products.

Market Analysis

The Market Analysis section requires thorough research and a keen understanding of the industry. It involves examining the current trends within your industry, understanding the needs and preferences of your customers, and analyzing the strengths and weaknesses of your competitors.

This analysis will enable you to spot market opportunities and anticipate potential challenges. Include data and statistics to back up your claims, and use graphs or charts to illustrate market trends.

This section should demonstrate that you have a deep understanding of the market in which you operate and that your business is well-positioned to capitalize on its opportunities.

Example: The market for eco-friendly technology products has experienced significant growth in recent years, with an estimated annual growth rate of 10%. As consumers become increasingly aware of environmental issues, the demand for sustainable solutions continues to rise.

Our research indicates a gap in the market for high-quality, innovative eco-friendly technology products that cater to both individual and business clients.

SWOT Analysis

A SWOT analysis in your business plan offers a comprehensive examination of your company’s internal and external factors. By assessing Strengths, you showcase what your business does best and where your capabilities lie.

Weaknesses involve an honest introspection of areas where your business may be lacking or could improve. Opportunities can be external factors that your business could capitalize on, such as market gaps or emerging trends.

Threats include external challenges your business may face, like competition or market changes. This analysis is crucial for strategic planning, as it helps in recognizing and leveraging your strengths, addressing weaknesses, seizing opportunities, and preparing for potential threats.

Including a SWOT analysis demonstrates to stakeholders that you have a balanced and realistic understanding of your business in its operational context.

• Innovative and eco-friendly product offerings.
• Strong commitment to sustainability and environmental responsibility.
• Skilled and experienced team with expertise in technology and sustainability.

Weaknesses:

• Limited brand recognition compared to established competitors.
• Reliance on third-party manufacturers for product development.

Opportunities:

• Growing consumer interest in sustainable products.
• Partnerships with environmentally-focused organizations and influencers.
• Expansion into international markets.
• Intense competition from established technology companies.
• Regulatory changes could impact the sustainable technology market.

Competitive Analysis

In this section, you’ll analyze your competitors in-depth, examining their products, services, market positioning, and pricing strategies. Understanding your competition allows you to identify gaps in the market and tailor your offerings to outperform them.

By conducting a thorough competitive analysis, you can gain insights into your competitors’ strengths and weaknesses, enabling you to develop strategies to differentiate your business and gain a competitive advantage in the marketplace.

Example: Key competitors include:

GreenTech: A well-known brand offering eco-friendly technology products, but with a narrower focus on energy-saving devices.

EarthSolutions: A direct competitor specializing in sustainable technology, but with a limited product range and higher prices.

By offering a diverse product portfolio, competitive pricing, and continuous innovation, we believe we can capture a significant share of the growing sustainable technology market.

Organization and Management Team

Provide an overview of your company’s organizational structure, including key roles and responsibilities. Introduce your management team, highlighting their expertise and experience to demonstrate that your team is capable of executing the business plan successfully.

Showcasing your team’s background, skills, and accomplishments instills confidence in investors and other stakeholders, proving that your business has the leadership and talent necessary to achieve its objectives and manage growth effectively.

Example: EcoTech’s organizational structure comprises the following key roles: CEO, CTO, CFO, Sales Director, Marketing Director, and R&D Manager. Our management team has extensive experience in technology, sustainability, and business development, ensuring that we are well-equipped to execute our business plan successfully.

Products and Services Offered

Describe the products or services your business offers, focusing on their unique features and benefits. Explain how your offerings solve customer pain points and why they will choose your products or services over the competition.

This section should emphasize the value you provide to customers, demonstrating that your business has a deep understanding of customer needs and is well-positioned to deliver innovative solutions that address those needs and set your company apart from competitors.

Example: EcoTech offers a range of eco-friendly technology products, including energy-efficient lighting solutions, solar chargers, and smart home devices that optimize energy usage. Our products are designed to help customers reduce energy consumption, minimize waste, and contribute to a cleaner environment.

Marketing and Sales Strategy

In this section, articulate your comprehensive strategy for reaching your target market and driving sales. Detail the specific marketing channels you plan to use, such as social media, email marketing, SEO, or traditional advertising.

Describe the nature of your advertising campaigns and promotional activities, explaining how they will capture the attention of your target audience and convey the value of your products or services. Outline your sales strategy, including your sales process, team structure, and sales targets.

Discuss how these marketing and sales efforts will work together to attract and retain customers, generate leads, and ultimately contribute to achieving your business’s revenue goals.

This section is critical to convey to investors and stakeholders that you have a well-thought-out approach to market your business effectively and drive sales growth.

Example: Our marketing strategy includes digital advertising, content marketing, social media promotion, and influencer partnerships. We will also attend trade shows and conferences to showcase our products and connect with potential clients. Our sales strategy involves both direct sales and partnerships with retail stores, as well as online sales through our website and e-commerce platforms.

Logistics and Operations Plan

The Logistics and Operations Plan is a critical component that outlines the inner workings of your business. It encompasses the management of your supply chain, detailing how you acquire raw materials and manage vendor relationships.

Inventory control is another crucial aspect, where you explain strategies for inventory management to ensure efficiency and reduce wastage. The section should also describe your production processes, emphasizing scalability and adaptability to meet changing market demands.

Quality control measures are essential to maintain product standards and customer satisfaction. This plan assures investors and stakeholders of your operational competency and readiness to meet business demands.

Highlighting your commitment to operational efficiency and customer satisfaction underlines your business’s capability to maintain smooth, effective operations even as it scales.

Example: EcoTech partners with reliable third-party manufacturers to produce our eco-friendly technology products. Our operations involve maintaining strong relationships with suppliers, ensuring quality control, and managing inventory.

We also prioritize efficient distribution through various channels, including online platforms and retail partners, to deliver products to our customers in a timely manner.

Financial Projections Plan

In the Financial Projections Plan, lay out a clear and realistic financial future for your business. This should include detailed projections for revenue, costs, and profitability over the next three to five years.

Ground these projections in solid assumptions based on your market analysis, industry benchmarks, and realistic growth scenarios. Break down revenue streams and include an analysis of the cost of goods sold, operating expenses, and potential investments.

This section should also discuss your break-even analysis, cash flow projections, and any assumptions about external funding requirements.

By presenting a thorough and data-backed financial forecast, you instill confidence in potential investors and lenders, showcasing your business’s potential for profitability and financial stability.

This forward-looking financial plan is crucial for demonstrating that you have a firm grasp of the financial nuances of your business and are prepared to manage its financial health effectively.

Example: Over the next three years, we expect to see significant growth in revenue, driven by new product launches and market expansion. Our financial projections include:

• Year 1: $1.5 million in revenue, with a net profit of $200,000.
• Year 2: $3 million in revenue, with a net profit of $500,000.
• Year 3: $4.5 million in revenue, with a net profit of $1 million.

These projections are based on realistic market analysis, growth rates, and product pricing.

Income Statement

The income statement , also known as the profit and loss statement, provides a summary of your company’s revenues and expenses over a specified period. It helps you track your business’s financial performance and identify trends, ensuring you stay on track to achieve your financial goals.

Regularly reviewing and analyzing your income statement allows you to monitor the health of your business, evaluate the effectiveness of your strategies, and make data-driven decisions to optimize profitability and growth.

Example: The income statement for EcoTech’s first year of operation is as follows:

• Revenue: $1,500,000
• Cost of Goods Sold: $800,000
• Gross Profit: $700,000
• Operating Expenses: $450,000
• Net Income: $250,000

This statement highlights our company’s profitability and overall financial health during the first year of operation.

Cash Flow Statement

A cash flow statement is a crucial part of a financial business plan that shows the inflows and outflows of cash within your business. It helps you monitor your company’s liquidity, ensuring you have enough cash on hand to cover operating expenses, pay debts, and invest in growth opportunities.

By including a cash flow statement in your business plan, you demonstrate your ability to manage your company’s finances effectively.

Example:  The cash flow statement for EcoTech’s first year of operation is as follows:

Operating Activities:

• Depreciation: $10,000
• Changes in Working Capital: -$50,000
• Net Cash from Operating Activities: $210,000

Investing Activities:

•  Capital Expenditures: -$100,000
• Net Cash from Investing Activities: -$100,000

Financing Activities:

• Proceeds from Loans: $150,000
• Loan Repayments: -$50,000
• Net Cash from Financing Activities: $100,000
• Net Increase in Cash: $210,000

This statement demonstrates EcoTech’s ability to generate positive cash flow from operations, maintain sufficient liquidity, and invest in growth opportunities.

Tips on Writing a Business Plan

1. Be clear and concise: Keep your language simple and straightforward. Avoid jargon and overly technical terms. A clear and concise business plan is easier for investors and stakeholders to understand and demonstrates your ability to communicate effectively.

2. Conduct thorough research: Before writing your business plan, gather as much information as possible about your industry, competitors, and target market. Use reliable sources and industry reports to inform your analysis and make data-driven decisions.

3. Set realistic goals: Your business plan should outline achievable objectives that are specific, measurable, attainable, relevant, and time-bound (SMART). Setting realistic goals demonstrates your understanding of the market and increases the likelihood of success.

4. Focus on your unique selling proposition (USP): Clearly articulate what sets your business apart from the competition. Emphasize your USP throughout your business plan to showcase your company’s value and potential for success.

5. Be flexible and adaptable: A business plan is a living document that should evolve as your business grows and changes. Be prepared to update and revise your plan as you gather new information and learn from your experiences.

6. Use visuals to enhance understanding: Include charts, graphs, and other visuals to help convey complex data and ideas. Visuals can make your business plan more engaging and easier to digest, especially for those who prefer visual learning.

7. Seek feedback from trusted sources: Share your business plan with mentors, industry experts, or colleagues and ask for their feedback. Their insights can help you identify areas for improvement and strengthen your plan before presenting it to potential investors or partners.

FREE Business Plan Template

To help you get started on your business plan, we have created a template that includes all the essential components discussed in the “How to Write a Business Plan” section. This easy-to-use template will guide you through each step of the process, ensuring you don’t miss any critical details.

The template is divided into the following sections:

• Mission statement
• Business Overview
• Key products or services
• Target market
• Financial highlights
• Company goals
• Strategies to achieve goals
• Measurable, time-bound objectives
• Company History
• Mission and vision
• Unique selling proposition
• Demographics
• Psychographics
• Pain points
• Industry trends
• Customer needs
• Competitor strengths and weaknesses
• Opportunities
• Competitor products and services
• Market positioning
• Pricing strategies
• Organizational structure
• Key roles and responsibilities
• Management team backgrounds
• Product or service features
• Competitive advantages
• Marketing channels
• Advertising campaigns
• Promotional activities
• Sales strategies
• Supply chain management
• Inventory control
• Production processes
• Quality control measures
• Projected revenue
• Assumptions
• Cash inflows
• Cash outflows
• Net cash flow

What is a Business Plan?

A business plan is a strategic document that outlines an organization’s goals, objectives, and the steps required to achieve them. It serves as a roadmap as you start a business , guiding the company’s direction and growth while identifying potential obstacles and opportunities.

Typically, a business plan covers areas such as market analysis, financial projections, marketing strategies, and organizational structure. It not only helps in securing funding from investors and lenders but also provides clarity and focus to the management team.

A well-crafted business plan is a very important part of your business startup checklist because it fosters informed decision-making and long-term success.

Why You Should Write a Business Plan

Understanding the importance of a business plan in today’s competitive environment is crucial for entrepreneurs and business owners. Here are five compelling reasons to write a business plan:

• Attract Investors and Secure Funding : A well-written business plan demonstrates your venture’s potential and profitability, making it easier to attract investors and secure the necessary funding for growth and development. It provides a detailed overview of your business model, target market, financial projections, and growth strategies, instilling confidence in potential investors and lenders that your company is a worthy investment.
• Clarify Business Objectives and Strategies : Crafting a business plan forces you to think critically about your goals and the strategies you’ll employ to achieve them, providing a clear roadmap for success. This process helps you refine your vision and prioritize the most critical objectives, ensuring that your efforts are focused on achieving the desired results.
• Identify Potential Risks and Opportunities : Analyzing the market, competition, and industry trends within your business plan helps identify potential risks and uncover untapped opportunities for growth and expansion. This insight enables you to develop proactive strategies to mitigate risks and capitalize on opportunities, positioning your business for long-term success.
• Improve Decision-Making : A business plan serves as a reference point so you can make informed decisions that align with your company’s overall objectives and long-term vision. By consistently referring to your plan and adjusting it as needed, you can ensure that your business remains on track and adapts to changes in the market, industry, or internal operations.
• Foster Team Alignment and Communication : A shared business plan helps ensure that all team members are on the same page, promoting clear communication, collaboration, and a unified approach to achieving the company’s goals. By involving your team in the planning process and regularly reviewing the plan together, you can foster a sense of ownership, commitment, and accountability that drives success.

What are the Different Types of Business Plans?

In today’s fast-paced business world, having a well-structured roadmap is more important than ever. A traditional business plan provides a comprehensive overview of your company’s goals and strategies, helping you make informed decisions and achieve long-term success. There are various types of business plans, each designed to suit different needs and purposes. Let’s explore the main types:

• Startup Business Plan: Tailored for new ventures, a startup business plan outlines the company’s mission, objectives, target market, competition, marketing strategies, and financial projections. It helps entrepreneurs clarify their vision, secure funding from investors, and create a roadmap for their business’s future. Additionally, this plan identifies potential challenges and opportunities, which are crucial for making informed decisions and adapting to changing market conditions.
• Internal Business Plan: This type of plan is intended for internal use, focusing on strategies, milestones, deadlines, and resource allocation. It serves as a management tool for guiding the company’s growth, evaluating its progress, and ensuring that all departments are aligned with the overall vision. The internal business plan also helps identify areas of improvement, fosters collaboration among team members, and provides a reference point for measuring performance.
• Strategic Business Plan: A strategic business plan outlines long-term goals and the steps to achieve them, providing a clear roadmap for the company’s direction. It typically includes a SWOT analysis, market research, and competitive analysis. This plan allows businesses to align their resources with their objectives, anticipate changes in the market, and develop contingency plans. By focusing on the big picture, a strategic business plan fosters long-term success and stability.
• Feasibility Business Plan: This plan is designed to assess the viability of a business idea, examining factors such as market demand, competition, and financial projections. It is often used to decide whether or not to pursue a particular venture. By conducting a thorough feasibility analysis, entrepreneurs can avoid investing time and resources into an unviable business concept. This plan also helps refine the business idea, identify potential obstacles, and determine the necessary resources for success.
• Growth Business Plan: Also known as an expansion plan, a growth business plan focuses on strategies for scaling up an existing business. It includes market analysis, new product or service offerings, and financial projections to support expansion plans. This type of plan is essential for businesses looking to enter new markets, increase their customer base, or launch new products or services. By outlining clear growth strategies, the plan helps ensure that expansion efforts are well-coordinated and sustainable.
• Operational Business Plan: This type of plan outlines the company’s day-to-day operations, detailing the processes, procedures, and organizational structure. It is an essential tool for managing resources, streamlining workflows, and ensuring smooth operations. The operational business plan also helps identify inefficiencies, implement best practices, and establish a strong foundation for future growth. By providing a clear understanding of daily operations, this plan enables businesses to optimize their resources and enhance productivity.
• Lean Business Plan: A lean business plan is a simplified, agile version of a traditional plan, focusing on key elements such as value proposition, customer segments, revenue streams, and cost structure. It is perfect for startups looking for a flexible, adaptable planning approach. The lean business plan allows for rapid iteration and continuous improvement, enabling businesses to pivot and adapt to changing market conditions. This streamlined approach is particularly beneficial for businesses in fast-paced or uncertain industries.
• One-Page Business Plan: As the name suggests, a one-page business plan is a concise summary of your company’s key objectives, strategies, and milestones. It serves as a quick reference guide and is ideal for pitching to potential investors or partners. This plan helps keep teams focused on essential goals and priorities, fosters clear communication, and provides a snapshot of the company’s progress. While not as comprehensive as other plans, a one-page business plan is an effective tool for maintaining clarity and direction.
• Nonprofit Business Plan: Specifically designed for nonprofit organizations, this plan outlines the mission, goals, target audience, fundraising strategies, and budget allocation. It helps secure grants and donations while ensuring the organization stays on track with its objectives. The nonprofit business plan also helps attract volunteers, board members, and community support. By demonstrating the organization’s impact and plans for the future, this plan is essential for maintaining transparency, accountability, and long-term sustainability within the nonprofit sector.
• Franchise Business Plan: For entrepreneurs seeking to open a franchise, this type of plan focuses on the franchisor’s requirements, as well as the franchisee’s goals, strategies, and financial projections. It is crucial for securing a franchise agreement and ensuring the business’s success within the franchise system. This plan outlines the franchisee’s commitment to brand standards, marketing efforts, and operational procedures, while also addressing local market conditions and opportunities. By creating a solid franchise business plan, entrepreneurs can demonstrate their ability to effectively manage and grow their franchise, increasing the likelihood of a successful partnership with the franchisor.

Using Business Plan Software

Creating a comprehensive business plan can be intimidating, but business plan software can streamline the process and help you produce a professional document. These tools offer a number of benefits, including guided step-by-step instructions, financial projections, and industry-specific templates. Here are the top 5 business plan software options available to help you craft a great business plan.

1. LivePlan

LivePlan is a popular choice for its user-friendly interface and comprehensive features. It offers over 500 sample plans, financial forecasting tools, and the ability to track your progress against key performance indicators. With LivePlan, you can create visually appealing, professional business plans that will impress investors and stakeholders.

2. Upmetrics

Upmetrics provides a simple and intuitive platform for creating a well-structured business plan. It features customizable templates, financial forecasting tools, and collaboration capabilities, allowing you to work with team members and advisors. Upmetrics also offers a library of resources to guide you through the business planning process.

Bizplan is designed to simplify the business planning process with a drag-and-drop builder and modular sections. It offers financial forecasting tools, progress tracking, and a visually appealing interface. With Bizplan, you can create a business plan that is both easy to understand and visually engaging.

Enloop is a robust business plan software that automatically generates a tailored plan based on your inputs. It provides industry-specific templates, financial forecasting, and a unique performance score that updates as you make changes to your plan. Enloop also offers a free version, making it accessible for businesses on a budget.

5. Tarkenton GoSmallBiz

Developed by NFL Hall of Famer Fran Tarkenton, GoSmallBiz is tailored for small businesses and startups. It features a guided business plan builder, customizable templates, and financial projection tools. GoSmallBiz also offers additional resources, such as CRM tools and legal document templates, to support your business beyond the planning stage.

Business Plan FAQs

What is a good business plan.

A good business plan is a well-researched, clear, and concise document that outlines a company’s goals, strategies, target market, competitive advantages, and financial projections. It should be adaptable to change and provide a roadmap for achieving success.

What are the 3 main purposes of a business plan?

The three main purposes of a business plan are to guide the company’s strategy, attract investment, and evaluate performance against objectives. Here’s a closer look at each of these:

• It outlines the company’s purpose and core values to ensure that all activities align with its mission and vision.
• It provides an in-depth analysis of the market, including trends, customer needs, and competition, helping the company tailor its products and services to meet market demands.
• It defines the company’s marketing and sales strategies, guiding how the company will attract and retain customers.
• It describes the company’s organizational structure and management team, outlining roles and responsibilities to ensure effective operation and leadership.
• It sets measurable, time-bound objectives, allowing the company to plan its activities effectively and make strategic decisions to achieve these goals.
• It provides a comprehensive overview of the company and its business model, demonstrating its uniqueness and potential for success.
• It presents the company’s financial projections, showing its potential for profitability and return on investment.
• It demonstrates the company’s understanding of the market, including its target customers and competition, convincing investors that the company is capable of gaining a significant market share.
• It showcases the management team’s expertise and experience, instilling confidence in investors that the team is capable of executing the business plan successfully.
• It establishes clear, measurable objectives that serve as performance benchmarks.
• It provides a basis for regular performance reviews, allowing the company to monitor its progress and identify areas for improvement.
• It enables the company to assess the effectiveness of its strategies and make adjustments as needed to achieve its objectives.
• It helps the company identify potential risks and challenges, enabling it to develop contingency plans and manage risks effectively.
• It provides a mechanism for evaluating the company’s financial performance, including revenue, expenses, profitability, and cash flow.

Can I write a business plan by myself?

Yes, you can write a business plan by yourself, but it can be helpful to consult with mentors, colleagues, or industry experts to gather feedback and insights. There are also many creative business plan templates and business plan examples available online, including those above.

We also have examples for specific industries, including a using food truck business plan , salon business plan , farm business plan , daycare business plan , and restaurant business plan .

Is it possible to create a one-page business plan?

Yes, a one-page business plan is a condensed version that highlights the most essential elements, including the company’s mission, target market, unique selling proposition, and financial goals.

How long should a business plan be?

A typical business plan ranges from 20 to 50 pages, but the length may vary depending on the complexity and needs of the business.

What is a business plan outline?

A business plan outline is a structured framework that organizes the content of a business plan into sections, such as the executive summary, company description, market analysis, and financial projections.

What are the 5 most common business plan mistakes?

The five most common business plan mistakes include inadequate research, unrealistic financial projections, lack of focus on the unique selling proposition, poor organization and structure, and failure to update the plan as circumstances change.

What questions should be asked in a business plan?

A business plan should address questions such as: What problem does the business solve? Who is the specific target market ? What is the unique selling proposition? What are the company’s objectives? How will it achieve those objectives?

What’s the difference between a business plan and a strategic plan?

A business plan focuses on the overall vision, goals, and tactics of a company, while a strategic plan outlines the specific strategies, action steps, and performance measures necessary to achieve the company’s objectives.

How is business planning for a nonprofit different?

Nonprofit business planning focuses on the organization’s mission, social impact, and resource management, rather than profit generation. The financial section typically includes funding sources, expenses, and projected budgets for programs and operations.

Image: Envato Elements

Your email address will not be published. Required fields are marked *

© Copyright 2003 - 2024, Small Business Trends LLC. All rights reserved. "Small Business Trends" is a registered trademark.

• Online Degree Explore Bachelor’s & Master’s degrees
• MasterTrack™ Earn credit towards a Master’s degree
• University Certificates Advance your career with graduate-level learning
• Top Courses
• Join for Free

Business Plan: What It Is + How to Write One

Discover what a business plan includes and how writing one can foster your business’s development.

What is a business plan? 

Think of a business plan as a document that guides the journey to start-up and beyond. Business plans are written documents that define your business goals and the strategies you’ll use to achieve those goals. In addition to exploring the competitive environment in which the business will operate, a business plan also analyses a market and different customer segments, describes the products and services, lists business strategies for success, and outlines financial planning.  

How to write a business plan 

In the sections below, you’ll build the following components of your business plan:

Executive summary

Business description 

Products and services 

Competitor analysis 

Marketing plan and sales strategies 

Brand strategy

Financial planning

Explore each section to bring fresh inspiration and reveal new possibilities for developing your business. Depending on your format, you may adapt the sections, skip over some, or go deeper into others. Consider your first draft a foundation for your efforts and one you can revise, as needed, to account for changes in any area of your business.  

1. Executive summary 

This short section introduces the business plan as a whole to the people who will be reading it, including investors, lenders, or other members of your team. Start with a sentence or two about your business, development goals, and why it will succeed. If you are seeking funding, summarise the basics of the financial plan. 

2. Business description 

You can use this section to provide detailed information about your company and how it will operate in the marketplace. 

Mission statement: What drives your desire to start a business? What purpose are you serving? What do you hope to achieve for your business, the team, and your customers? 

Revenue streams: From what sources will your business generate revenue? Examples include product sales, service fees, subscriptions, rental fees, licence fees, and more. 

Leadership: Describe the leaders in your business, their roles and responsibilities, and your vision for building teams to perform various functions, such as graphic design, product development, or sales.  

Legal structure: If you’ve incorporated your business, include the legal structure here and the rationale behind this choice. 

3. Competitor analysis 

This section will assess potential competitors, their offers, and marketing and sales efforts. For each competitor, explore the following: 

Value proposition: What outcome or experience does this brand promise?

Products and services: How does each solve customer pain points and fulfill desires? What are the price points? 

Marketing: Which channels do competitors use to promote? What kind of content does this brand publish on these channels? What messaging does this brand use to communicate value to customers?  

Sales: What sales process or buyer’s journey does this brand lead customers through?

4. Products and services

Use this section to describe everything your business offers to its target market. For every product and service, list the following: 

The value proposition or promise to customers, in terms of how they will experience it

How the product serves customers, addresses their pain points, satisfies their desires, and improves their lives

The features or outcomes that make the product better than those of competitors

Your price points and how these compare to competitors

5. Marketing plan and sales strategies 

In this section, you’ll draw from thorough market research to describe your target market and how you will reach it. 

Who are your ideal customers?   

How can you describe this segment according to their demographics (age, ethnicity, income, location, etc.) and psychographics (beliefs, values, aspirations, lifestyle, etc.)? 

What are their daily lives like? 

What problems and challenges do they experience? 

What words, phrases, ideas, and concepts do consumers in your target market use to describe these problems when posting on social media or engaging with your competitors?  

What messaging will present your products as the best on the market? How will you differentiate messaging from competitors? 

On what marketing channels will you position your products and services?

How will you design a customer journey that delivers a positive experience at every touchpoint and leads customers to a purchase decision?

6. Brand strategy 

In this section, you will describe your business’s design, personality, values, voice, and other details that go into delivering a consistent brand experience. 

What are the values that define your brand?

What visual elements give your brand a distinctive look and feel?

How will your marketing messaging reflect a distinctive brand voice, including tone, diction, and sentence-level stylistic choices? 

How will your brand look and sound throughout the customer journey? 

Define your brand positioning statement. What will inspire your audience to choose your brand over others? What experiences and outcomes will your audience associate with your brand? 

7. Financial planning  

In this section, you will explore your business’s financial future. Suppose you are writing a traditional business plan to seek funding. In that case, this section is critical for demonstrating to lenders or investors you have a strategy for turning your business ideas into profit. For a lean start-up business plan, this section can provide a valuable exercise for planning how to invest resources and generate revenue [ 1 ].  

Use past financials and other sections of this business plan to begin your financial planning, such as your price points or sales strategies. 

How many individual products or service packages do you plan to sell over a specific period?

List your business expenses, such as subscribing to software or other services, hiring contractors or employees, purchasing physical supplies or equipment, etc.

What is your break-even point or the amount you must sell to cover all expenses?

Create a sales forecast for the next three to five years: (No. of units to sell X price for each unit) – (cost per unit X No. of units) = sales forecast

Quantify how much capital you have on hand.

When writing a traditional business plan to secure funding, you may append supporting documents, such as licences, permits, patents, letters of reference, resumes, product blueprints, brand guidelines, the industry awards you’ve received, and media mentions and appearances.

Business plan key takeaways and best practices

Remember: Creating a business plan is crucial when starting a business. You can use this document to guide your decisions and actions and even seek funding from lenders and investors. 

Keep these best practices in mind:

Your business plan should evolve as your business grows. Return to it periodically, such as quarterly or annually, to update individual sections or explore new directions your business can take.

Make sure everyone on your team has a copy of the business plan, and welcome their input as they perform their roles. 

Ask fellow entrepreneurs for feedback on your business plan and look for opportunities to strengthen it, from conducting more market and competitor research to implementing new strategies for success. 

Start your business with Coursera 

Ready to start your business? Watch this video on the Lean approach from the Entrepreneurship Specialisation on Coursera: 

Article sources

Inc. “ How to Write the Financial Section of a Business Plan ,   https://www.inc.com/guides/business-plan-financial-section.html.” Accessed April 15, 2024.

Keep reading

Coursera staff.

Editorial Team

Coursera’s editorial team is comprised of highly experienced professional editors, writers, and fact...

This content has been made available for informational purposes only. Learners are advised to conduct additional research to ensure that courses and other credentials pursued meet their personal, professional, and financial goals.

Writing Your Very First Business Plan? Here’s What You Need To Know

Pitch deck? Check.

Business cards? Ready to go.

Lucky underwear? Washed and folded.

Business plan? Uh oh.

So you have an amazing business idea , and you’re ready to pitch it to investors or potential partners. But if you’ve never written a business plan before, it can be downright intimidating to put pen to paper (or fingers to keyboard) and try to condense your entire professional dream into one document.

But here’s the good news: writing a business plan doesn’t have to be a stumbling block on your path to business ownership. Instead, it can be a powerful tool that clarifies your business vision, guides your steps along your business journey, and helps secure the funding and partnerships you need to flourish.

And this article will help you by simplifying the process of business plan writing into smaller, more manageable pieces as well as highlighting all the essential parts of the plan that will bring your business idea to life.

Our aim here is to empower you with the foundational knowledge you need to draft a comprehensive plan that leads to a successful business. From articulating your business idea to conducting market research, defining your business objectives, making financial projections, and more — by the end of this guide, you’ll not only understand what goes into a business plan but also why it’s fundamental for your business’s success.

So read on, and let’s get started. Here’s everything you need to know to write your very first business plan.

What Is A Business Plan?

What is a business plan used for, how to write a business plan: step-by-step, downloadable business plan template.

A business plan is a comprehensive document that outlines your business objectives and details the strategies you’ll use to achieve your goals. It acts as a roadmap for your business, highlighting your plans for product development, marketing , operations, and finance.

It guides your business from the startup phase through establishment and growth, providing direction and helping you to navigate the complexities of running a business.

Types Of Business Plans

Understanding the common types of business plans can help you choose the right one for your business’s needs. Generally, there are two main categories of business plans:

• Traditional business plan: These are the most common and detailed type of business plan, often favored by banks and investors. A traditional business plan is comprehensive, covering every aspect of the business in depth. This includes executive summaries, company descriptions, market analysis, organization and management structures, sales strategies, funding requests, and financial projections. It’s suited for businesses looking for significant funding or those with a complex business model that calls for a thorough explanation.
• Lean startup business plan: As opposed to the traditional format, lean startup business plans are streamlined and focus on the core elements of your business. They might include key partnerships, activities, resources, value propositions, customer relationships, channels, customer segments, cost structures, and revenue streams. This format is ideal for businesses that want to launch quickly and iterate on their business model. It’s a living document, meant to be updated and adjusted as you learn more about your customers and your market .

In addition to these, business plans can be prepared to cater to a variety of different scenarios and objectives. These include:

• Feasibility plan: Before committing significant resources, a feasibility business plan helps determine if your business idea is viable. It focuses on analyzing the market, competition, and financial feasibility of the project, helping you make an informed decision about proceeding with the business idea.
• Internal business plan: Used primarily for internal purposes, this type of plan focuses on specific goals or projects within the company. It might detail plans for a new product launch, a restructuring of the organization, or any other internal project, without the need for financial projections if external funding is not part of the goal.
• Strategic business plan: This plan outlines the company’s long-term vision and objectives, along with your strategies to achieve them. It serves as a roadmap for the business’s strategic direction, outlining the company’s future goals and how to reach them.
• Business acquisition plan: If you’re planning to buy an existing business, a business acquisition plan will guide you through the process. It includes an analysis of the business’s current condition, how you plan to finance the acquisition, and how you will integrate it into your existing operations.
• Repositioning plan: Designed for businesses looking to change their market position or business model, this plan focuses on strategies for rebranding, targeting new markets, or altering products and services to meet different customer needs.
• Expansion or growth business plan: For businesses aiming to expand operations, whether by opening new locations, entering new markets, or increasing production capacity, this plan details a strategy for growth. It covers market research, financial projections, and operational plans to help ensure a successful expansion.

Get Content Delivered Straight to Your Inbox

Subscribe to our blog and receive great content just like this delivered straight to your inbox.

Why Business Plans Are Important

A business plan is more than a document — it’s a reflection of your ambition, vision, and the blueprint to achieve your business dreams. Whether you’re a first-time entrepreneur or an experienced business owner planning to explore a new venture, understanding the fundamentals of a business plan is the first step toward success.

It’s easy to think of a business plan as an old-school formality that isn’t needed anymore now that we’re in the age of fast-moving, agile startups.

However, a business plan isn’t just documentation. Instead, it serves multiple necessary purposes: from crystallizing your business idea to helping secure financing and guiding your strategic direction.

Let’s take a closer look at some of the ways entrepreneurs still use business plans, even for modern startups and tech companies.

1. Communicating Your Business Idea

A business plan is often your business’s first introduction to investors, partners, and stakeholders. It translates your vision into words and numbers, making it easier for others to understand and believe in your idea.

This document articulates the problem your business intends to solve, the solution it offers, and why it’s uniquely positioned to succeed. It serves as a first impression and a pitch, presenting your business concept in a structured and compelling way to capture the interest of potential backers or collaborators.

2. Getting Financing For Your Business

One of the most well-known uses of a business plan is to secure financing.

Whether you’re seeking equity investment from venture capitalists, funding from investors, a business loan from a bank, or even support from friends and family, a business plan is a crucial part of that process.

Why? Because it provides potential backers with detailed financial projections, market analyses, and business strategies they want to see before they pitch in. It also demonstrates your business’s potential for growth and profitability, so investors can see how getting involved with you will benefit them.

A thorough and realistic business plan reassures investors and lenders of your business’s viability and your competence as an entrepreneur, which makes it an indispensable tool for fundraising.

3. Documenting Your Business’s Strategy And Goals

A business plan is also an essential tool for internal use. It documents your strategic plan, operational milestones, and the timeline for achieving them. Having a roadmap like this helps guide your team’s efforts, align them with your business’s broader goals, and measure progress as you move forward. It also helps you identify potential challenges and opportunities, so you can proactively manage and respond to market changes.

4. Facilitating Partnerships And Collaborations

A business plan can help secure strategic partnerships and collaborations. It showcases your business model, target market, and competitive advantages, attracting prospective partners who can offer complementary skills, resources, or market access.

5. Guiding Expansion And Growth

For businesses looking to expand, a business plan can outline the strategy for entering new markets or launching new products. It assesses the feasibility of expansion efforts, detailing the required resources, potential hurdles, and projected outcomes.

Now that you know why a business plan is so important, it’s time to learn what goes into writing one.

Drafting your first business plan can seem like a daunting task. With so much information to gather and decisions to make, knowing where to start is often the hardest part.

However, by breaking the process down into manageable steps, you can create a comprehensive and effective business plan that helps your business succeed.

Here are the steps you need to follow.

Step 1: Executive Summary

Every strong business plan starts with a strong executive summary. The executive summary is the opening act of your business plan. It should give a concise overview of the most important aspects of your business.

Despite being placed at the beginning of your business plan, it’s often best to write this section last. This strategy allows you to distill the essence of what follows into a compelling and informative summary once you have a complete understanding of your business plan.

The purpose of the executive summary is to capture your readers’ attention, whether they are potential investors, partners, or key employees, and motivate them to read the rest of your business plan. It should highlight your business’s mission statement, foundational goals, primary products or services, and provide a brief overview of your market analysis and financial projections.

For startups seeking funding, the executive summary should also include your funding requirements and what it will be used for.

• Business concept: Start with a clear statement of your business idea, focusing on the problem it solves or the opportunity it creates.
• Products or services: Briefly describe what you’re offering. Explain how your products or services address the problem or opportunity you’ve identified.
• Target market: Describe who your potential customers are, the market size, and any market segments you’ve identified. Show that you understand your audience and competitive landscape and there’s a demand for what you’re offering.
• Competitive advantage: Outline what sets your business apart from the competition. This could be technology, expertise, partnerships, or unique business models.
• Financial highlights: Give a brief snapshot of key financial projections, including sales, profits, and cash flow, if applicable. For startups, mention the funding you’re seeking and its purpose.
• Your team: Introduce the core team members and their roles, especially management or leadership team members. Highlight their expertise and how it aligns with the business goals.
• Your mission statement: Finish with your business’s mission statement, which can help readers understand your core values.

Writing Tips For Your Executive Summary

• Be concise: The executive summary should be no more than a page or two long. It’s an overview, not a detailed account.
• Focus on what matters most: Choose the points that are most compelling and relevant to your audience. What would matter most to an investor or a potential partner?
• Be clear and compelling: Use clear, straightforward language. Avoid jargon and overly technical terms that might obscure your message.
• Try to capture readers’ interest: Your executive summary should make readers want to learn more about your business. Leave them intrigued and looking forward to the details in the following sections.

All in all, the executive summary sets the tone for the rest of your business plan. It’s your first opportunity to make a strong impression, so make sure that it clearly conveys the essence of your business, its goals, and its strategy for success.

Here’s an example of an executive summary for a bowling alley.

Step 2: Company Overview

Following the executive summary, the company overview section is like your business plan’s foundation. It provides readers with detailed information about who you are, what you do, and the market needs you aim to fulfill.

This section goes deeper into the details of your business’s identity and history, and the path you’ve charted for its future. It’s an opportunity to share the story of your business, including its inception, evolution, and vision for the future.

Business Name Generator

Get a unique and memorable name that will make your business stand out from the competition. Try our free Business Name Generator now!

The company overview is designed to give readers a clear understanding of your business’s nature, structure, and purpose. It outlines your business model, the specific niche you intend to occupy within the market, and the factors that you believe will contribute to your success. For stakeholders, this section is crucial for understanding the context in which your business operates, including its legal structure, location, history, and the objectives it seeks to achieve.

• Business name and location: Start with the basics — your business’s official name and its physical or operating locations. If you’re digital or online-based , describe how and where you conduct your business digitally.
• History and background: Give a brief history of your business. How, when, and why was it founded? What milestones have you achieved so far? This can include the evolution of your product or service, market expansion, or any pivotal shifts you’ve made in your strategy so far.
• Legal structure: Describe your business structure (e.g., sole proprietorship, partnership, corporation, limited liability company). This affects many aspects of your business, from taxation to your level of personal liability.
• Industry and market: Detail the industry you operate in and your target market. Highlight the current state of the industry, any trends readers should know about, and the segment of the market you aim to serve.
• Products or services: While you’ll dive deeper into this in later sections, provide a brief overview of your main offerings and how they meet the needs of your market.
• Team and management structure: Give a deeper overview of your team members and describe your business’s management team structure. Highlight the experience and expertise that each member brings to the table.

Writing Tips For Your Company Overview

• Be descriptive but concise: While this section is informational, keep it engaging. Avoid overly technical language or industry jargon that might confuse readers.
• Showcase your passion for your business: Let your enthusiasm and commitment shine through. Your company overview is not just about the facts but also about painting a picture of your business’s potential and values.
• Highlight your Unique Selling Proposition (USP): Clearly articulate what makes your business unique. Why should customers choose you over the competition? This could be your business model, approach to customer service, product innovation, or any other differentiators.

The company overview sets the stage for the rest of your business plan by providing a clear snapshot of your business at a glance. It’s your chance to introduce readers to the heart and soul of your business, setting the context for the detailed plans and analyses that come next.

Here’s the company summary of that same bowling alley business plan:

Step 3: Business Goals

After setting the stage with your company overview, the next step is to clearly articulate your business goals. This section is critical as it outlines what you aim to achieve in both, the short and long term. It transforms your vision and mission into actionable objectives, giving readers a clear direction for your business and a benchmark against which to measure your progress.

The purpose of the business goals section is to specify your business’s targets and aspirations. These goals should be aligned with your company’s mission, vision, and core values, serving as stepping stones to realizing your broader ambitions. This section communicates to stakeholders what you intend to accomplish, offering a clear framework for decision-making and strategic planning.

• Short-term goals: These are the objectives you aim to achieve in the near future, typically within the next year. Short-term goals could include launching a new product, entering a new market, increasing your customer base by a certain percentage, or achieving a specific sales target. They should be specific, measurable, achievable, relevant, and time-bound ( SMART ).
• Long-term goals: These goals reflect your vision for where you want your business to be in the next three to five years or beyond. Long-term goals might involve expanding your business nationally or internationally, diversifying your product line, becoming a market leader, or hitting certain financial milestones. Like short-term goals, these should also be SMART but allow for greater flexibility and vision.
• Strategies for achieving your goals: For each goal, outline the strategies or actions you plan to take to achieve them. This could include marketing initiatives, product development plans, partnerships, or operational improvements.
• Milestones to track your progress: Identify key milestones that will serve as indicators of progress toward your goals. These are critical achievements or points in time on your journey to realizing your objectives.
• Resources you need for each goal: Specify the resources (financial, human, technological, etc.) you will need to achieve your goals. This helps in planning for the acquisition or development of these resources.
• Challenges and solutions: Acknowledge any potential obstacles that might hinder the achievement of your goals and outline strategies to overcome them. This shows foresight and preparedness.

Writing Tips For Your Business Goals

• Be specific and realistic: Your goals should be detailed and achievable. Unrealistic goals can demotivate your team and disappoint stakeholders.
• Quantify your goals wherever possible: Attach numbers to your goals (e.g., revenue targets, market share, customer numbers). This makes your objectives clear and measurable.
• Be aligned with your business’s values: Make sure your goals are consistent with your company’s core values and mission. Coherence demonstrates integrity and purpose.
• Be flexible: While it’s important to have clear goals, you must also acknowledge the need for adaptability. Markets and business environments can change, and your goals may need to adjust accordingly.

By clearly defining what you aim to achieve, you provide a roadmap for your team and a compelling case for investors, showing them not just where your business is today, but where it will be tomorrow.

Step 4: Products And Services

The next step is to dive into the heart of what your business offers: your products and services. This section is where you detail what you’re selling, the benefits it offers to your customers, and how it stands out from what’s already available in the market. It’s not just a catalog of your offerings but a persuasive argument for why your products or services fulfill a need or solve a problem more effectively than your competitors.

The primary purpose of the products and services section is to explain the value proposition of your offerings. You need to convincingly articulate how your products or services meet a need or address a pain point in the market. This section should make it clear why your business exists and how it intends to deliver on its promises to customers. It’s also an opportunity to showcase the innovation, quality, and uniqueness of your offerings, highlighting how they contribute to your business’s overall goals.

• Detailed descriptions of your offerings: Provide comprehensive descriptions of your products or services, including features, advantages, and specifications. Be clear about how they work and what makes them unique.
• Benefits: Focus on the benefits your products or services offer to customers. How do they improve your customers’ lives or solve their problems? Be specific about the value they provide.
• Your market positioning: Explain where your offerings fit in the current market landscape. Who are your competitors, and how do your products or services differ from theirs? This should include pricing strategy, quality, and any unique features or technologies your business offers.
• Your development pipeline: If your products or services are still in development, outline your progress and future plans. Include timelines, milestones, and any challenges you anticipate.
• Supply and manufacturing: For physical products, describe how they are produced, your supply chain, and any dependencies or potential risks associated with manufacturing. For services, explain the process of delivery and how you ensure quality and consistency.
• Patents and copyrights: Mention any intellectual property protections you have in place, such as patents, trademarks, or copyrights.
• Future offerings: Briefly touch on any future products or services you plan to introduce. This shows investors and readers that you’re thinking ahead and planning for growth and innovation.

Writing Tips For Your Products And Services

• Use customer-centric language: Write from the perspective of the customer and use language that resonates with them, focusing on how your offerings make their lives better or easier.
• Include testimonials or use cases: If they’re available, these provide real-world evidence of your products’ or services’ effectiveness and appeal.
• Be clear and concise: While it’s important to provide detailed information, avoid overwhelming readers with technical jargon or unnecessarily complex descriptions.
• Use visuals: Whenever possible, include images, diagrams, or links to videos that demonstrate your products or services in action. Visual aids can make your offerings more tangible and understandable.

This section helps make the case to investors, partners, and customers about the value and potential of your business’s offerings. By clearly explaining the benefits and competitive advantages of your products and services, you make the argument for why your business is viable and likely to succeed.

Step 5: Market Analysis

The market analysis section of your business plan is where you demonstrate your in-depth knowledge of the industry, your target market, and your competitors. This section provides the factual foundation to support your business strategy, showing that there is a demand for your products or services and detailing how you plan to capture and grow your market share. It’s a critical component that investors scrutinize closely, as it showcases your ability to understand and navigate the market landscape.

The purpose of the market analysis is to prove to your readers, whether they’re potential investors, partners, or even team members, that you’ve done your homework. It’s about showing that your business isn’t just a great idea in theory but is viable and competitive in the real world. This section should answer key questions about the size of your target market, trends and growth potential, customer needs and behaviors, and competitive forces.

• Industry description: Start with a broad overview of your industry, including its size, growth rate, and trends. Highlight factors affecting the industry, such as technological advancements, regulatory issues, and economic factors.
• Your target market segment: Narrow your focus to your specific target market. Define your ideal customers based on customer segmentation, demographic, geographic, psychographic, and behavioral factors. Quantify the size of this segment and discuss its growth potential.
• Market needs and preferences: Delve into what drives your target customers. What are their needs, preferences, and pain points? How does your product or service meet these needs better than the alternatives?
• Market trends: Identify and explain the key trends affecting your potential market. How are customer needs changing? What technological or social trends could impact your business?
• Competitive analysis: Provide a detailed analysis of your competitors. Who are they, and what are their strengths and weaknesses? Consider using a framework like a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) to compare your business with key competitors.
• Market share and position: Discuss your strategy for capturing and growing your market share. How will you position your business against competitors? What unique selling proposition (USP) will you leverage to stand out?
• Regulatory or legal factors to consider: Mention any regulatory or legal factors affecting your industry and how you plan to comply. This is especially important for closely regulated industries like healthcare, finance, and food services.

Writing Tips For Your Market Analysis

• Use reliable data: Support your analysis with up-to-date, reliable data from trusted sources. Charts, graphs, and tables can help illustrate your points more effectively.
• Be realistic: While it’s important to be optimistic, your analysis also needs to acknowledge potential challenges and how you plan to address them.
• Know your audience: Tailor your market analysis to your readers. For example, if you’re seeking investment, focus on aspects that highlight market opportunities and your competitive advantage.
• Stay current: Markets evolve, so update your business plan periodically so your market analysis reflects the most current data and trends.

A thorough market analysis not only proves the viability of your business idea but also demonstrates your strategic thinking and planning capabilities.

Step 6: Sales And Marketing

After presenting a thorough market analysis, the next step in your business plan is to outline your sales and marketing strategy . This section explains how you intend to attract and retain customers, the channels you’ll use to sell your products or services, and how you’ll position yourself in the competitive landscape. It’s where you translate your understanding of the market into actionable strategies that will drive revenue and growth for your business.

The sales and marketing section demonstrates your approach to entering and growing within the market. It should convey that you have a deep understanding of your target customers, how to reach them effectively, and how to persuade them to choose your offerings over the competition’s. This part of the plan will be essential in the eyes of investors and stakeholders, because it shows how you plan to generate revenue and, ultimately, profit that will give them a return on their investment.

• Your marketing strategy: Detail your strategy for reaching your target market, including branding, messaging, and the marketing channels you plan to use (e.g., social media, email marketing, SEO, content marketing). Explain how your marketing efforts will align with the needs and behaviors of your target audience.
• Your sales strategy: Describe your sales process, from lead generation to closing the sale. Include information on sales channels ( online , brick-and-mortar, direct sales, wholesalers), pricing strategy, sales forecasts, and any sales teams or partnerships you plan to leverage.
• Positioning: Explain how you’ll position your business and offerings within the competitive landscape. What is your unique value proposition (UVP), and how will it appeal to your target market? How does your pricing strategy reflect your positioning?
• Promotional plans: Describe some of the promotional activities and campaigns you’ll use to attract customers. This could include advertising, special offers, sponsorships, or events. Provide a timeline for these activities and how they fit into your overall marketing and sales funnel.
• Customer retention strategies: Detail how you plan to retain customers and encourage repeat business. This could involve loyalty programs, customer service policies, or quality guarantees. Discuss how you’ll gather and use customer feedback to improve your offerings and customer experience.
• Metrics and KPIs: Finally, identify key performance indicators (KPIs) and metrics you’ll use to evaluate the success of your sales and marketing efforts. This could include website traffic, conversion rates, customer acquisition costs, retention rates, and sales targets.

Writing Tips For Your Sales And Marketing Plan

• Focus on differentiation: Clearly state what sets apart your offerings from the competition, and how this will be communicated and marketed to your target audience.
• Be specific and actionable: Provide specific details about your strategies and tactics, including channels, tools, and technologies you’ll use. Avoid vague statements.
• Use data to back up your decisions: Reference market analysis data to justify your chosen strategies and demonstrate a data-driven approach to sales and marketing.
• Include your timeline and budget: Where possible, include timelines for implementing your marketing and sales strategies, as well as budgets for promotional activities. This shows planning and realism in your approach.

The sales and marketing section should convincingly show how you will capture and grow your customer base, driving the revenue needed to support your business goals. It bridges the gap between understanding your market and actively engaging with it, highlighting the strategies that will make your business a success.

Step 7: Logistics and Operations

After detailing your sales and marketing strategy, the next step is to outline the logistics and operations aspects of your business. This section is where you demonstrate how your business will function on a day-to-day basis, including how it will deliver its products or services efficiently and effectively.

The logistics and operations section serves to reassure investors and stakeholders of your business’s ability to operate smoothly. It shows that you have a clear plan for managing the resources and processes that are critical to your business’s success. This part of your business plan is about turning your ideas and strategies into concrete actions and measurable outcomes.

• Logistics and supply chain management: Describe how your business will manage the procurement of raw materials, inventory, and supply chain operations. Detail any partnerships with suppliers or distributors.
• Production or service delivery: Explain the processes involved in building your product or delivering your service . Include information on manufacturing facilities, equipment needs, labor requirements, and quality control measures.
• Business locations and facilities: Describe the location of your business and the facilities required for operation. Explain why the chosen location is ideal for your business, considering factors like customer accessibility, cost, and infrastructure.
• Technology and equipment: Outline the technology and equipment your business will use. Describe how these tools will enhance your productivity, efficiency, and competitive advantage.
• Operations plan: Provide a day-to-day plan for your business operations, including roles and responsibilities of team members, workflow processes, and how you’ll handle order fulfillment and customer service.

Writing Tips For Your Logistics, Operations, And Finances Plan

• Be detailed and realistic: Give specific details to paint a clear picture of your business operations. Use realistic assumptions backed by your market analysis and sales strategies.
• Use visuals: Graphs, charts, and tables can make your business data easier to understand at a glance.
• Highlight risk management: Discuss any potential risks to your business operations and how you plan to mitigate them. This shows you’re prepared for challenges.

This section of your business plan is where you demonstrate your understanding of the operational details and complexities of running a business. It provides a clear roadmap for how you intend to transform your vision into a successful and sustainable business.

Step 8: Financial Projections

The financial projections section of your business plan is where you translate everything you’ve outlined into numbers. It provides a quantitative analysis of your business’s potential for profitability and growth.

In other words, this section clearly shows investors, lenders, and other stakeholders that your business is financially viable and can offer them a solid return on their investment. It’s where you make your case with numbers, showing the expected financial performance of your business over the next three to five years.

Financial projections prove the economic sustainability of your business model. They offer a forecast of your business’s revenue, expenses, and profitability, and provide a clear picture of your financial health and growth potential. This section can help reassure investors and financial institutions that your business is a sound investment with a strong chance of success. It’s also a valuable internal tool for setting financial goals and measuring performance against those targets.

• Sales forecast: Estimate the revenue your business will generate over a specific period, usually three to five years. Break down the forecast by product or service lines if applicable.
• Expense budget: Detail the costs associated with running your business, including both fixed and variable expenses. This should cover everything from rent and salaries to marketing and production costs.
• Cash flow statement: Provide a monthly or quarterly cash flow projection for the first year and annually thereafter. This will show how cash is expected to move in and out of your business, highlighting periods of cash surplus or shortfall.
• Income statements (profit and loss statements): Summarize your revenue, costs, and expenses to show your net profit or loss over time. This shows your business’s profitability and financial health.
• Balance sheet: A balance sheet offers a snapshot of your business’s financial position at a specific point in time, detailing assets, liabilities, and equity.
• Break-even analysis: Calculate the point at which your business will be able to cover its expenses and start generating a profit. This informs investors about the viability and risk level if they choose to back your business.

Writing Tips For Your Financial Projection

• Be conservative: We say it’s better to underpromise and overdeliver. Use conservative estimates that you can confidently achieve or exceed.
• Back up your projections: Base your financial projections on solid data and reasonable assumptions. Explain how you arrived at all of your numbers, referencing market research, historical data, or industry benchmarks.
• Highlight key metrics: Focus on key financial metrics that are most important for your business, such as gross margin, operating margin, and cash flow.
• Include scenarios: Consider presenting best-case, worst-case, and most-likely scenarios. This demonstrates thorough planning and shows that you’re prepared for different possible outcomes.

The financial projections section shows your understanding of your business’s financial dynamics and your ability to plan for its future. It’s not just about impressing investors — it’s also a must-have guide for your business’s financial strategy and management.

Step 9: Funding Request (Optional)

For many new businesses, securing external funding is an exciting step toward achieving their goals. This section of your business plan is where you detail your funding requirements.

Whether you’re seeking equity investment, a loan, or another form of financial support, the funding request section lays out exactly how much capital you need, how you plan to use it, and your preferred terms. This section is optional because not every business will seek external funding at the outset or as part of its growth strategy.

The purpose of the funding request section is to provide potential investors or lenders with a clear and concise overview of your financial needs. It’s about articulating why you need the funds, how they will be used to grow your business, and how this investment or loan fits into your broader financial strategy. This section should align with your financial projections and operations plan, showing a direct link between the funding request and your business’s growth potential.

• How much funding you need: Specify the total amount of funding you are requesting. Be precise, and make sure this number is supported by your financial projections and the way you plan to use the funds.
• Use of funds: Break down how the requested funds will be used. Categories might include product development, marketing, expanding operations, hiring key staff, or purchasing equipment. Be as detailed as possible to show investors how their money will be spent to drive growth.
• Type of funding: Specify the type of funding you’re seeking (e.g., equity investment, debt financing, grants). If you’re open to different types of funding, explain the conditions under which you would consider each.
• Terms: If you have specific terms in mind (for loans or equity investments), outline them here. For equity investments, specify the percentage of ownership you’re offering in exchange for the investment.
• Future funding: If you anticipate needing more funding in future rounds, mention this. Provide a brief overview of what those future needs might look like and how additional funds will help escalate your growth.
• Exit strategy: Especially for equity investors, outline your exit strategy. This could include acquisition, public offering, or buying out investors. It shows you’re thinking about the return on their investment.

Writing Tips For Your Funding Request

• Be direct: This is not the section for ambiguity. State your needs clearly and back them up with solid data from your financial projections.
• Align funding requests with your business plan: Your funding request should be consistent with your business plan’s other sections, especially your financial projections and use of funds.
• Focus on ROI: Investors and lenders are interested in the return on their investment. Highlight how funding your business will lead to a profitable outcome for them.
• Be flexible: While it’s important to specify your needs and preferences, also show that you’re open to discussions about the funding arrangement. Flexibility can be key to securing investment.

The funding request section is a direct appeal to potential investors and lenders to support your business’s growth. It should be persuasive, well-reasoned, and backed by the detailed planning you’ve put into the rest of your business plan. This section is your opportunity to make a compelling case for why investing in your business is a wise and profitable decision.

By now, you should have a solid understanding of what goes into creating a comprehensive and effective business plan that can guide your business to success and attract the investment and support you need. Our downloadable business plan template makes this process even easier!

This template is designed to help you structure your business plan in a way that is clear, concise, and compelling. It includes all the sections we’ve discussed, from the executive summary to the funding request, with helpful prompts and tips to guide your writing. Whether you’re a first-time entrepreneur or a small business owner looking to expand, this template serves as a starting point to customize and develop your unique business plan.

How To Use This Template

• Customize it: While the template provides a general structure, it’s important to customize the content to reflect your specific business idea, market, and strategy. Make it your own by adding details relevant to your business and industry.
• Take your time: Writing a business plan isn’t a race. Use the template as a tool to organize your thoughts and research. It’s okay to take your time to ensure that each section is thoughtfully considered and articulated.
• Seek feedback: Before finalizing your business plan, seek feedback from mentors, peers, or professionals in your industry. Use their insights to refine and improve your plan.
• Update your business plan as needed: Your business plan should be a living document that evolves as your business grows and as market conditions change. Revisit and update your plan regularly to ensure it remains aligned with your business’s path.

Download the Template

And when your burgeoning business needs a reliable, professional website, consider professional WordPress hosting from DreamHost .

We offer plans to suit all budgets, whether you’re a small business just getting your start or an expanding enterprise. All plans include our WP Site Builder, which allows you to build a WordPress site in a simple drag-and-drop interface (or, if you already have a site, we’ll migrate it for you for free). They also come with lots of other goodies: a free domain, SSL certificate, professional email address, and privacy protection —- all the things your new business needs to thrive online!

Starting a business is no easy feat. But with a solid business plan and a great website, you’ll have a strong foundation to get you started.

Your Great Idea Starts with a Domain Name

Don’t let someone else register your URL. Search DreamHost’s 400+ TLDs to find the perfect fit for your website.

About the Author : Brian Glassman

SEO leader and content marketer, Brian is DreamHost’s Director of SEO. Based in Chicago, Brian enjoys the local health food scene (deep dish pizza, Italian beef sandwiches) and famous year-round warm weather. Follow Brian on LinkedIn .

How to Write an Online Business Plan in 2024

Written by Vanessa Petersen on July 26, 2023 Blog , Sell Online .

You’ve committed to turning your ecommerce or online business idea into something real. You want your small business to produce revenue and change the course of your life, but what’s your first step in realizing your dream? Developing a plan. If you’re not sure about how to write an online business plan, you’ve come to the right place.

One of the most essential tasks involved in starting any kind of business is to write a business plan. An online business plan won’t look that different from a traditional business plan and will include many of the same elements.

In this post, we’ll show you how to write an online business plan, including all the components and sections. We’ll also walk through how WooCommerce can help you put your plan to action and achieve your business goals.

Why write a business plan? 

Starting your own business is a great experience and something that will shape your life, fill you with self-confidence and independence, and inspire other people around you. A new business is also a serious endeavor that will take time, money, sweat, lots of decisions, and a degree of risk.

A traditional business plan template helps you document and keep track of your business goals, challenges, opportunities, and all the steps and processes involved with making your idea work. It will help you conduct thorough market research and set you up for success.

When you write a business plan, it can confirm that you’ve found the best online business to start , or provide clarity about the need to pivot.

It details all the things you will need to do in order to successfully launch and grow your business, and may include revenue projections, timelines for specific goals, concept art for products, and architectural drawings for any brick and mortar aspects of your business. 

Business plans help create a structure for your company’s development and keep you grounded in reality, focused, and not distracted by less important matters. 

If you have more than one person helping run the business, the business plan also keeps everyone unified around the same set of goals and objectives. 

Another reason to write a business plan is for situations where you are presenting your idea to someone else and asking them to invest. In that scenario, your business plan is also a sort of sales document. It makes the argument for why your business idea is so good and well-considered that an investor should want to be a part of it. 

But even if you’re self-funding your entire business — which is more common with online businesses — you still want to write the plan for the reasons given earlier.

The benefits of running an online business

Starting an online business or ecommerce store offers many of the same great benefits as any other business, but without as much risk. If you’re thinking of starting a business, here’s why an online one is a great option:

It has low startup costs

Without a storefront, you eliminate so many costs of running a business. With all the bills that come with having property — like rent, parking, furnishings and decor, etc. — there’s a much higher investment required to start a brick-and-mortar-based business. Online businesses still have startup costs, but they are much lower. 

It gives you freedom over your schedule

With an online business, you have more freedom to set your own hours, because you don’t always have to be open during the usual times. You can build your business to suit the lifestyle you want. Rearrange your time to get things done in the fastest possible way and take time off when you need it. 

You can start small

Once you have a location, it’s yours, and you have to make it work. With an online business, you can start very small, offering just a few products or even just a single service. You can more easily test the waters without making huge commitments with inventory, and other physical investments.

You can more easily pivot

If your online or ecommerce business doesn’t do as well as you expected, it’s easier to pivot and adapt to something new because you haven’t committed so much to making your original idea work. There are many business success stories where the business owner adjusted their idea after gaining some experience, and then it took off. It’s a lot easier to do that when you aren’t tied to a physical location.

But, there’s one thing online businesses have in common with every other type of business: You need a robust business plan to help guide your idea from concept to a successful reality that makes money and fulfills your dreams and goals. 

So, let’s get into business planning. 

How do I write my own online business plan?

Most formal business plans and business plan templates include seven sections, plus an executive summary. You’ll need to keep in mind who you’re writing your business plan for. If you are taking this to potential investors or will be seeking a business loan, your business plan needs to sell the idea of your business as a great investment opportunity and communicate the skills, expertise, and commitment you personally bring to the table. 

Here are the key sections of a traditional business plan format:

• Executive summary
• Company description
• Market analysis
• Organization and management
• Service and product line
• Sales and marketing plans
• Financial projections
• Funding request (if working with investors or partners)

Here’s a brief look at each step of creating an online business plan:

Draft an executive summary

In the executive summary, the first section of almost every business plan template, you’ll present your vision and focus on building excitement. If the business plan is a sales document, the executive summary is the lead. It gets the reader engaged and excited to hear more. 

Your executive summary should achieve two goals:

• Deliver the basic facts about your business
• Motivate the reader to keep going and get them excited about your idea

What facts should you include? Whatever helps the reader understand your business idea. Describe the industry and niche. Mention the target market. Briefly state the needs or problems your products and services will be solving. Touch on the potential for growth in terms of revenue and customers. 

For motivation, describe your mission statement and company values. What will set you apart from the competition? What is your value proposition as a business owner? What makes you different? Again — keep this brief. You’ll elaborate later. 

It might be a good move to write all the other sections first, then finish with the executive summary so it will be the most concise and best version of how you describe your business.

Write a company description

Here, you’ll give a brief overview of your company. What are your strengths, skills, and areas of expertise as a business owner that will position you for success? If you have a compelling story behind why you’re starting your business, you can include that too.

Conduct a SWOT analysis 

If you’re not sure where to start, consider doing a SWOT analysis , which is a diagram outlining your strengths, weaknesses, opportunities, and threats. 

It’s a common part of many business plans and will help paint a realistic picture of what your business can achieve, and what stands in the way. You won’t include all of this in the company description, but your strengths and opportunities may fit here. 

Create a mission and vision statement

The company description is also the place to create a mission statement and a vision statement. What’s the difference between these? 

The vision is where you’re going, the mission is how you’ll get there. A vision statement paints a picture of a future reality for your customers and perhaps the world at large, as a result of your company’s influence. A mission statement expresses how you will achieve that.

The company description can elaborate on your vision and mission beyond just a single sentence, and later you can fine-tune what you write into a succinct pair of statements. Feeling some writer’s block? See company description templates by industry for some inspiration.

Include any unique attributes

If your company will involve particular attributes such as manufacturing, supply chains, dropshipping, affiliates, coaching or advising, online courses, or other relevant particulars, include that in your company description, too. 

State your business location, industry, niche, and other details

Also, state the location of your business, even though it’s online. Name your industry and niche target market again, and describe the nature of your company. For example, is it an ecommerce business, a consulting firm, delivery service, wholesale, or ad-based website? These are just some of many types of online business structures. 

You may also want to include whether your business is in any special class of business that might position it for special loan or grant opportunities like women-owned businesses or veteran-owned businesses.

After reading your description, readers should have a good understanding of what your business is about, why it exists, and how it works. Here’s a detailed look at company descriptions , with an example.

Perform a market analysis

A market analysis uses industry research to assess the scope of your business’s target market and describe the current competition in your industry. It can help you estimate the potential for success and prepare for the challenges you may face when you launch your online business or ecommerce shop.

Doing this research, and including it your business plan, can also help you:

• Identify industry trends
• Pinpoint opportunities 
• Diminish risks and reduce costs
• Generate new ideas for products and services
• Learn from the failures and shortcomings of your competitors
• Find ways to stand out from your competitors
• Discover new markets
• Refine your marketing plans

Now let’s dig into the elements involved in a thorough market analysis.

Understand your audience

Here, you will explain in detail who your target customers are and why they want or need what you’ll be selling. What problems or needs does your product solve? What will motivate people to buy from you? And why can’t they get it somewhere else just as easily? An ecommerce business competes against other ecommerce businesses as well as brick-and-mortar stores and shopping malls. Stores with omnichannel strategies compete with both. Why would someone choose you?

Share your key customer demographics, psychographics, and interests. Who will you be serving? What drives them? 

What are their values? If your product, service, or personal brand will appeal to a customer segment that also shares particular values, that’s a strength, not a weakness, and you can use that to win them over. 

Perform customer segmentation

Break down different categories of target customers your business plans to serve. One category could be age. Another might be life situations such as retirees, parents, divorcees, or living with older relatives. You could create a segment of people with particular health conditions, or who live certain lifestyles. 

But you can also get way more specific than that. Runners are different from hikers, who are different from bikers, yoga enthusiasts, and gym enthusiasts. Different supplements, philosophies about food, motivations for eating various foods — all of these present near endless possibilities for more narrowly defining your customer segments, all under the broad category of ‘health.’ And you might serve multiple segments. 

The more customer segments you know, the more effectively you can market to them. In an online store, good product descriptions call out the various customer segments that product is designed for.

Also, give a sense of the potential size of your target market. How many people need what you’re selling? Show how this market is large enough to justify your business and drive revenue. You might do this by studying revenue reports from other companies in your industry. Or look at specific products related to yours and research their sales and revenue performance. 

You may also perform a survey of some kind, or an online quiz, and use that to express the needs your potential customers have that aren’t currently being met.

Perform a competitive analysis

Study your competition. What are they doing well? What areas are they underserving? Where are they underperforming? Make note of what other companies in your industry are struggling with or failing at so that you can deliver something more valuable and gain a competitive advantage.

It could be product quality, customer service, or selection. Maybe their ecommerce store is badly designed and hard to use. Perhaps there’s a huge industry serving the masses, but customers who have more particular tastes or needs aren’t being well-served by the big companies. Those customers might spend more on something that delivers what they really want. 

Maybe your key competition has been rocked by scandal. Maybe a company went out of business, was sold, or closed down due to retirement and there’s an opening in the market you want to leverage. 

The main point of the competitive analysis is to persuade investors that there’s an underserved market that your business plans to cater to. You must be able to promise something that no one else is currently delivering. Otherwise, why should your business exist? Put them at ease by demonstrating proper market research.

Refer to your SWOT analysis and present any potential threats from the competition here, too.

Outline management and organizational structure

Next, present your management and legal structure. Is your company an LLC, sole proprietorship, S corporation, partnership, or some other arrangement? Who’s in charge of what? If you have different departments, list out the leadership for each one. If relevant, you might even include some information about the expertise of your leaders concerning the areas under their charge and the tasks they’ll be performing.

Remember — if your business plan will be used to persuade investors to help fund your business idea, this sort of information will reassure them that your company has strong and competent leadership. 

If there’s a chain of command, use a diagram or other method for laying out who reports to whom. 

List your products and services

What are you selling? You’ll touch on this briefly in the earlier sections, but here is where you’ll expand on the details. If you have an array of similar products, such as food flavors or clothing variations, list as many as seem relevant. But focus on the spirit of the business plan — you’re simply communicating what your business is about, not listing every SKU in your projected inventory. 

Also, include information about your products such as quality, durability, expirations, patents, and whatever else will give a clear picture of what you’re selling.

For service businesses and memberships that may include multiple packages, bundles, or tiers, describe each of these so your readers get a sense of how you’ll appeal to different types of customers and price points. 

Develop a sales and marketing strategy

Having products is great, but how do you intend to sell them? How will people find your business? How will anyone know you exist? And once they know, what will motivate them to buy from you and not from your competition? What is your unique value proposition — the thing that sets you apart from your direct competitors?

You’ll need to develop an initial marketing plan to help promote your business, products, and services to your target customers.

And remember, competition isn’t limited just to other businesses. Sometimes, competition is against the customer’s time, or their budget, or mere indifference — the conflict between doing something and doing nothing. Your SWOT analysis should touch on several of these potential barriers to the success of your online business.

Your marketing plan will obviously change over time, but give your readers and potential investors a sense of how you plan to launch and grow your business. 

Discuss media channels you plan to use, such as pay-per-click (PPC) ads , social media , email marketing , affiliate marketing , direct mail, referrals, joint ventures, search engine optimization (SEO), webinars, influencer marketing , and live events. Describe the ones you actually plan to use, and explain the core strategy you’ll begin with and how you will measure success. 

Also, include a sense of your marketing budget. If you will have a dedicated marketing team, or actual sales professionals using a particular process or sales script, discuss that as well. 

For ecommerce businesses, include a discussion of how you plan to leverage platforms like WooCommerce, which features a host of extensions that can help manage your business , engage customers, save money, and promote growth .

Make financial projections

You’ve made a lot of claims in your business plan, but how will your investors be convinced of your future success? At some point, you have to show them the money. 

If this is a brand new business with no income, where will your finances come from for the first year? Give realistic financial projections for anticipated profits and losses, as well as growth expectations for the first five years. Include financial documents if you have them, including profit and loss statements, balance sheets, and cash flow statements. Include costs of employment, manufacturing, and other investments both one-time and ongoing.

Your financial projections should reference your:

• market analysis 
• anticipated sales volume 

Investors will feel more confident when they can see your business plan does not rely entirely on just one or two ‘wins.’ For example, if your entire plan hinges on selling on eBay or Amazon , what happens if Amazon suspends your store, changes the terms, or you struggle to get noticed there? 

If your plan depends on winning over a few Instagram influencers, what if they don’t come through? It’s really easy to say what you hope will happen. But actually making it happen is another thing. Business success happens more easily when you apply a multi-channel marketing and sales approach. 

Your financial projections will feel based in reality, when you can demonstrate some prior successes, either in other businesses you’ve already launched, test audiences, local sales you made, prior experience, or data from other businesses. 

Explain your funding request — if applicable

If you intend to ask investors to help fund your business idea, present your request in the final main section of your business plan. If you’ve already secured funding from other sources, include that here as well. An investor will feel better knowing they are not the only one who believes in the potential of your business. 

Will your funding request be for a one-time payment, monthly, annually, or at some other interval? How do you plan to repay their investment? Will you allow them to charge interest? How much ROI can you promise them? 

How WooCommerce can help

WooCommerce can help you build a scalable online business that supports your business plan. No matter what you’re selling, WooCommerce offers a suite of flexible tools that allows you to customize your store to meet your needs and goals. 

Here are just some of the benefits your business will enjoy when you choose to build your store with WooCommerce:

• Sell absolutely anything you can imagine . From physical items and digital downloads to subscriptions, memberships, bookings, courses, and affiliate products, WooCommerce provides everything you need. Want to run a wholesale store? You can do that, too!
• Harness the power of WordPress . Since WooCommerce is a plugin specifically for WordPress, you can take advantage of powerful features like the block editor and blogging capabilities. 
• Capture payments securely. Choose from a large number of payment gateways, from popular options like PayPal and Stripe, to more niche processors for specific locations and types of regulated products. And with tools like WooPayments , you can keep customers on-site, capture a variety of currencies, and even accept digital wallets like Apple Pay and Google Pay.
• Customize your shipping options. Offer free shipping, charge based on weight, set fixed prices, or calculate shipping costs based on real-time carrier rates. You can even use extensions like Table Rate Shipping to create complicated shipping rules based on conditions that you set. And with WooCommerce Shipping , you benefit from discounted shipping labels and the ability to print right from your dashboard. 
• Connect to your social media channels. Use extensions to sync your store with social media platforms like Facebook, Instagram, and Pinterest. You can even sell on those platforms alongside your store without having to update inventory and information manually.
• Integrate with marketing tools. Quickly connect your store to any number of marketing tools, from email platforms like MailPoet to CRMs like Jetpack CRM . You can also implement a number of marketing strategies, from abandoned cart emails to loyalty programs.
• Keep track of your numbers. Ecommerce accounting is a big part of running an online business. While you can easily view data in your dashboard, you can also sync with tools like QuickBooks to make your accountant’s life a little bit easier.
• Manage inventory. Update your inventory levels manually or connect to tools like Scanventory to sync with your warehouse. Running low or out of stock? Add a wishlist option so customers get an alert as soon as it’s available.

As you can see, WooCommerce is well-equipped to handle any type of online store and support you as you grow. Here are a few more reasons that WooCommerce should be your go-to choice for implementing the ecommerce side of your online business plan:

WooCommerce itself is free! Many extensions for WooCommerce can also be found for free in the WordPress.org plugins library or on the Woo Marketplace . If you need to start your website with a limited budget, but want to build on a platform that can grow to support a thriving, high-traffic store, WooCommerce is an excellent option.

You have full control over your store

Unlike other ecommerce solutions that are tied to the platform’s own web hosting, WooCommerce is designed to be used with WordPress along with any hosting provider of your choice. You are also free to use whatever payment processor you want without any additional fees from WooCommerce. You can also customize your site’s appearance and functionality more extensively than you can with other ecommerce platforms and with less (or no) coding knowledge.

Thousands of free and premium extensions

There are over 800 free and premium extensions for WooCommerce on WooCommerce.com alone and over 1,000 in the WordPress.org plugins library . There are also hundreds of independent developers and agencies that offer premium and custom extensions for WooCommerce so that you can customize your store with the exact features you need. 

Excellent support and large community of users

WooCommerce is used by over 3.9 million stores — 23% of all online stores worldwide . The support team is available to answer questions and the documentation library is extensive and thorough. There are also plenty of independent resources for learning how to use WordPress and WooCommerce.

Dedicate time and resources to put your online business plan in action

A successful business plan is one that empowers and guides the business owner to launch their online or ecommerce business, and possibly secure funding. But it only works if you use it.

One advantage of starting an ecommerce store or online business is that you aren’t as locked down by deadlines. With a physical location, once you start paying the rent, you better have your business plan ready to put into action. 

But the beauty of being online is that you have more flexibility on the front end. Despite having more wiggle room with your timelines, you still need to keep your momentum going forward. Staying on track with your business projects and goals is one of the keys to reaching profitability sooner and turning your business plan into reality. A few quick tips:

• Schedule your time. Block out hours and specific days to work on your business.
• Treat it like a job, not a hobby. Build on your momentum week after week.
• Always keep learning. Research your industry, competition, target audience, and potential customers. Learn marketing — you can never know too much.
• Try stuff! Take risks, make calls, create campaigns, write content.

Your business plan template should give you a concrete list of tasks and business objectives. Once you write a business plan, then you can implement it.

Frequently asked questions about writing an online business plan

What are the seven steps of a business plan.

The seven key elements of a business plan are the executive summary, company description, market analysis, organization and management, services and products, marketing plan, and financial projections. If you’re making a funding request, that would be an eighth section.

Where can I find business plan templates?

You can find a free business plan template online, for general business plans as well as for specific industries. However, since each business is different and your plan must be authentic and specific to your company — a business plan template can only get you so far. 

If you need design inspiration for your own custom business plan template or want to start with a pre-designed template that you can customize, you can purchase one for a relatively low cost through a stock resources site like Envato Market or Creative Market .

Do I need a business plan if I am already running an online business or ecommerce shop?

Business plans aren’t only for people who are launching new businesses. You can create a business plan at any time to help you maintain or change the direction of your store or just to get a better picture of the health of your business. Below are a few different types of business plans that you might want to consider for your established online business:

• Operational business plan. Outlines the structure of your business operations, staffing, and logistics.
• Feasibility plan. Feasibility plans are like mini business plans that cover new business ideas and outline steps for implementation.
• Growth business plan. This plan is for businesses that want to demonstrate opportunities and plans for growth to attract investors.
• Maturing business plan. This plan is for businesses looking to merge with or acquire other companies, significantly expand, or go public.
• Strategic business plan. Any time your business wants to shift strategies regarding products or marketing or any other major changes to your previous business plan, you’ll want to create a new strategic business plan to address your new goals and the steps involved in achieving them.

What software should I use for my online business plan?

Your business plan should include some images, graphs, and graphic elements in the layout, so you’ll want to at least use word processing software to put your business plan together. If you have access to Google Workspace, Microsoft 365, Canva, or Adobe Creative Cloud, you’ll have some other options that might lead to a more professional layout.

Here’s a list of free and paid software that can help you put together your online business plan outline:

What do investors want to see in a business plan?

The most important piece of information to show investors in your business plan is potential for profitability. Investors don’t want to throw money at a sinking ship, no matter how cool and exciting the business sounds. 

Most investors also want to make sure that they’ll see a decent return on their investment in a relatively short time period — probably around 5-7 years. How much of a return they’ll expect will depend on your industry and what kind of investor they are. 

Investors will also want to see that you clearly understand your business, your industry, and that you have concrete, actionable steps for achieving, maintaining, and growing profitability. They’ll want to make sure that the key people on your team also understand your business and the roles they play and they’ll want to see that each person has a good amount of experience in their field and the required skill sets to fulfill their job duties, if not go above and beyond. 

Any details you can include that highlight unique aspects of your business will also be important. Any area where you have a competitive edge, are offering a unique or proprietary solution, have established any celebrity endorsements, have the backing of other investors, or have secured special grants will be of special interest to investors.

Create your plan for success

Now that you understand what goes into creating a formal business plan, it’s time to write one! Take the time to think through and consider each aspect of the list included in this article, and you’ll be well on your way to finding success.

And WooCommerce is here to support your business every step of the way, with powerful and flexible tools that help your business grow. Start selling online today !

Share this:

• 30-day money-back guarantee
• Support teams across the world
• Safe and secure online payments

Money latest: Deliveries cancelled as Sainsbury's hit by technical glitch - again

Sainsbury's is having technical issues again - with shoppers taking to social media to say their deliveries have been delayed or cancelled. Find out what it is, and read all the latest consumer and personal finance news below - and leave your thoughts in the box.

Thursday 25 April 2024 10:31, UK

• Sainsbury's deliveries disrupted by tech issues again
• Renters' Reform Bill signed off - but with indefinite delay to no-fault evictions ban
• John Lewis to publish job interview questions online
• Virgin Media customers share their bad experiences of customer service

Essential reads

• The world of dark tourism - what is it, is it ethical, and where can you go?
• Money Problem : I have a mortgage offer - will it change now rates are rising?
• Savings Guide : Why locking into fixed-rate bond could be wise move
• 'More important than a will': What are lasting power of attorneys and how much do they cost?
• Cheap Eats : Michelin chef's secret lasagne tip - and expensive ingredient you shouldn't use

Ask a question or make a comment

Sainsbury's is having technical issues again - with shoppers taking to social media to say their deliveries have been delayed or cancelled.

The supermarket has been replying to customers saying: "I'm really sorry about the tech issues this morning. 

"We're aware of the situation and are working to sort it as quickly as possible. In the meantime, we'd advise you place a new order for a future date."

Customer Andrew Savage wrote: "Order has not been delivered and no confirmation email this morning."

Another, John B Sheffield, said: "So angry! Just got through to your customer line after 40 min WAIT. 

"Tells me NO DELIVERIES TODAY! tech problem? I've NO FOOD IN! ANGRY!"

In a statement to Sky News, a Sainsbury's spokesperson says: "A small technical issue affected some groceries online orders this morning. 

"We have contacted these customers directly to apologise for the inconvenience." 

In another update at 10am, the supermarket said that the issue has been resolved. 

Responding to customers on X, Sainsbury's also offered those affected e-vouchers and details on how to rebook their orders.

It comes a month after the supermarket had to cancel almost all deliveries on a Saturday in mid-March due to another technical issue.

By Daniel Binns, business reporter

A potential $38.8bn (£31bn) takeover of UK-based mining company  Anglo American  has sent its shares soaring - and helped the FTSE 100 hit yet another record high this morning.

The attempted mega-merger, by larger Australian rival BHP, is currently being reviewed by Anglo American's board.

The deal, if it goes through, would create the world's biggest copper mining company - and comes as the price of the metal continues to climb amid soaring demand.

Anglo American's shares have surged as high as 13% this morning as news of the negotiations emerged.

The announcement also helped spur the FTSE 100 to a new intraday (during the day) high of 8,098 points.

The index, of the London Stock Exchange's 100 most valuable companies, has hit a string of records this week, including  an all-time closing high of 8,044 points  on Tuesday.

The score is based on a calculation of the total value of the shares on the index.

Also moving the markets are a string of company results which were published earlier on Thursday.

Among those issuing updates to investors was drugsmaker AstraZeneca. Its stock is up more than 5% after the firm reported quarterly profit and revenue above market estimates.

Unilever is also up 5% following similar better-than-expected quarterly figures.

Another good performer is  Barclays  - despite reporting a 12% fall in profits for the first three months of 2024. Its shares are up more than 4%.

That's because its quarterly figures are slightly better than expected, and the bank has said it expects its fortunes to improve later this year.

Meanwhile, as tensions in the Middle East continue, the price of a barrel of Brent crude oil continues to hover at a price of around $88 (£70).

This morning £1 buys $1.25 US or €1.16, similar to yesterday.

Every week we get experts to answer your Money Problems - usually on a Monday, but today we have a short, bonus addition in light of multiple lenders raising mortgage rates this week on fears an interest rate cut could be delayed to a little later this year (note: many economists still think it will come in summer).

A few readers have got in touch with questions similar to this one...

My remortgage is due to complete on 1 May. I already have an offer but with rates going up, is there any way at all my offer rate could increase? Saz681

We asked David Hollingworth, director at L&C Mortgages, to answer this one...

It's great news that you are already set up with a mortgage offer, Saz - ready to make a smooth switch to a new deal and/or lender, once the current one ends.  

It does take time to set up a new mortgage so shopping around the market a good few months ahead will help you put everything in place and avoid slipping onto a high variable rate.

Fixed rates have been nudging up slightly but you have already got a formal offer in place so shouldn't worry.  

Applying for a mortgage will generally secure that rate and the lender will then carry out any further checks to issue the mortgage offer.  

The offer will be valid for a specified period, often for up to six months. Rates are always shifting for new customers but you can rest easy that your rate should be safe and sound for your switch in May.

This feature is not intended as financial advice - the aim is to give an overview of the things you should think about. Submit your dilemma or consumer dispute, leaving your name and where in the country you are, by emailing [email protected] with the subject line "Money blog". Alternatively, WhatsApp us  here .

By Ollie Cooper , Money team

Interest in a phenomenon known as "dark tourism" has been steadily rising in recent years - but what is it?

To find out, we've spoken with tourism academic  Dr Hayley Stainton  and renowned dark tourist and author Dr Peter Hohenhaus, who runs a  dark tourism website .

What is it?

In general, dark tourism involves travelling to sites connected to death or disaster.

"Dark tourism has been around for as long as we have been travelling to places associated with death," Dr Stainton says. 

However, the term wasn't officially coined until 1996 by John Lennon, a professor of tourism at Glasgow Caledonian University, in Scotland.

"Not everyone is familiar with the term," says Dr Stainton, "[but] many people have been a dark tourist at some time or another, whether intentional or not."

Some examples of the most famous sites

• Auschwitz concentration camp, Poland
• 9/11 Memorial and Museum in New York, US
• Chernobyl, Ukraine 
• Hiroshima and Nagasaki, Japan
• Choeung Ek "killing fields" and the Tuol Sleng genocide museum at the former S-21 prison in Phnom Penh, Cambodia 

Areas with a degree of infamy, like Alcatraz, are extremely popular spots that also fall under the "dark tourism" umbrella. 

How popular is it?

Dr Hohenhaus and Dr Stainton say they have noticed a rise in its popularity. 

"Tourists are looking for more unique and unusual experiences," Dr Stainton says. 

"This has seen a move away from the more traditional 'sun, sea and sand' type holidays to a variety of different tourism forms, which includes dark tourism."

Dr Hohenhaus adds: "Maybe people want to connect to more recent and hence more personally relevant history - that is definitely the case with myself."

He goes on: "I think I've learned more about the world through dark tourism than through all of my formal education or my previous academic career."

Is it ethical?

This is the big question associated with dark tourism. 

Dr Stainton says that while problems do arise, the stigma around the practice is often misguided. 

"People don't visit sites like the killing fields in Cambodia or the site of Chernobyl for 'fun' - they visit for the educational experience, as dark tourism is often also a form of educational tourism," she says.

Problems arise when tourists are not respectful to those who may have been impacted.

"For instance, taking inappropriate photos or laughing and joking when others may be in a state of mourning."

Notorious examples include people taking selfies outside Grenfell Tower and at Auschwitz. 

"It is therefore imperative that dark tourists are considerate of those around them and respectful at all times," Dr Stainton says.

"As long as you are not just after a cheap sensationalist thrill - take dark tourism seriously and do it right, and it can be an immensely enriching thing to engage in."  Dr Hohenhaus

Where could you go? 

These are Dr Hohenhaus' recommendations:

• Ijen crater in Indonesia - where at night you can see the fabled blue flames of the sulphur mines next to the volcano crater lake;
• The Polygon, the former Semipalatinsk nuclear weapons test site of the USSR, now in Kazakhstan;
• The Goli Otok former prison island off the coast of Croatia;
• The Murambi memorial to the Rwandan genocide - which Dr Hohenhaus says is "certainly the very darkest place I have ever been";
• Majdanek concentration camp memorial near Lublin, eastern Poland.

What do you think of dark tourism? Is it misunderstood, educational or abhorrent?  Let us know in the comments section...

John Lewis will be sharing its job interview questions online in an attempt to find the "best talent".

The retail chain hopes that allowing candidates to view questions before an interview will allow prospective employees to "really demonstrate what they can do" and prepare, the Financial Times reports.

John Lewis talent acquisition lead Lorna Bullett told Sky News that interviews can feel daunting and "nerves can seriously impact performance".

She added the company want "the right people" from a variety of backgrounds and with "the best talent" to join.

"It makes absolute business sense to find ways of helping candidates to really demonstrate what they can do," she said.

Ms Bullett added that the process will be "no less rigorous".

Every Thursday we look at a different savings option, explain the pros and cons, and reveal the best deals on the market.  This week we're talking about the best fixed-rate bonds.  Savings Champion founder Anna Bowes  says...

As the name suggests, fixed-rate bonds pay a fixed rate of interest for a fixed term and this interest is taxable at your normal rate – if you exceed your personal savings allowances.

Over the last couple of years, fixed-rate bond rates have increased substantially and many of the top rates are now paying more than inflation, although this may not be the case for those who pay tax on their savings.

That said, the competition has slowed recently as it appears that inflation is more under control, and as a result the Bank of England base rate is expected to start to fall. We have seen the top rates on offer start to come down a little.

What is interesting and a little unusual is that the longer-term bond rates are lower than the short-term rates. Normally you would expect to be rewarded for tying your money up for longer, but that's not the case at the moment. This is a clear indication that the base rate is expected to fall over the next few months and years.

Locking into a longer-term bond, even at lower rates, may turn out to be a very wise move, especially if the interest you are earning is beating inflation for the duration of the bond.

MPs have voted in favour of the government's Renters' Reform Bill - despite it including an indefinite delay to the end of no-fault evictions.

A debate on the legislation ran throughout Wednesday afternoon, including around a new clause from the government which would hold off outlawing Section 21s until a review of the courts system had taken place.

But despite outrage from charities, campaigners and opposition parties around the measure, it got the backing of the majority of MPs - and the bill passed its final stage in the Commons shortly after 6.30pm.

A Section 21 notice is the legal mechanism allowing landlords to evict tenants without providing a reason, which creates uncertainty for those who rent their homes.

The government first promised to ban the notices five years ago, back when Theresa May was still in Number 10.

But it has faced numerous delays amid threats of rebellion from Tory backbenchers - some of them landlords - who said they feared ending Section 21s would see the courts overwhelmed with more complex eviction cases.

Ministers agreed to amend the bill to ensure no ban was enacted until a probe into the courts had been held.

But the clause offers no timeline - leaving no clear date for when Section 21s will actually be scrapped.

Read more here... 

By Daniel Binns , business reporter

Ryanair is suing air traffic control body Nats over last summer's flight chaos when more than 700,000 passengers were hit by cancellations and delays.

The low-cost carrier's chief executive Michael O'Leary said his company had been forced to pay out around £15m in compensation following the  widespread disruption  around the August Bank Holiday Monday.

An investigation into the meltdown found it was caused by a  National Air Traffic Services (Nats) technical glitch .

Around 300,000 people suffered cancellations, while approximately 95,000 endured delays of over three hours, and at least a further 300,000 were hit by shorter delays.

Airlines lost a total of £100m in refunds, rebookings, hotel rooms and refreshments.

Mr O'Leary told Sky's  Business Live with Ian King : "When things go wrong in the airline industry, we have to compensate our passengers and we want to recover those costs directly from Nats."

A spokeswoman for Nats told Sky News: "Our legal team is reviewing the claim and will respond as required."

Yesterday we reported on a Which? survey ranking Virgin Media as having the worst overall customer service among broadband providers...

Virgin Media hit back - saying the annual survey used a sample size of 0.01% of its customer base, and on average 95% of customer complaints were resolved during a customer's first initial call.

And they told the Money blog improvements were being made to customer service...

"We are investing and making changes across our business to deliver tangible customer service improvements and ensure all customers receive the best possible service," the company said.

"For example, we're multi-skilling our teams and rolling out new IT platforms that make it easier for customers to get support and have issues resolved the first time they get in touch." 

Our comments section has been bombarded with people saying they are Virgin Media customers and sharing their experiences - all but two were negative.

Here's a selection...

Virgin Media broadband keeps dropping down in speed, sometimes it drops out all day. Phoning them makes no difference. We will change supplier when our contract is up. Alan Francis

I completely agree. I've had a year of unbelievably bad service relating to the installation of broadband in our new house. It's impossible to communicate with Virgin Media without severe trauma. Everything goes through one number into an automated system that simply doesn't work. Frank

Been with Virgin Media for 13 years and they have really dropped in customer service, they don't value loyalty and all their call handlers seem to be working from home. If there is a problem they transfer you to somebody else who you have to explain your issue to again. Plumby

We moved from Virgin Media for our broadband/TV a few years ago for precisely that reason - very poor customer service. Carol Bell

I left Virgin this week too. New customers get a good price whilst existing customers see prices triple. Non-UK call centre that just pass you around when anything goes wrong. Just cancelling took an hour on the phone. Glad there are new fibre providers in my area. Digger

Current Virgin Media customer and it gives me anxiety knowing I have to call them as it takes too long to get anyone on the call or they have disconnected me, or they say they cannot help and transfer me to another department and then drop the call. LisaJ

A reader calling themselves GH was more positive, saying: "I have just renewed with Virgin Media, great customer service."

And Wells85 said: "I am a Virgin customer and have been for the last nearly seven years and I think their broadband service is top notch and their customer service."

There are only a few weeks left until all cats in England need to be microchipped.

From 10 June, every moggie must have a chip and be registered on a database by the time they are 20 weeks old.

The numbered device, which shows up whenever an animal is scanned, is placed under the skin, usually around the shoulder area.

It is likely to cost £20-£30 and will be used to identify your cat if it gets lost.

Owners who miss the deadline could be fined up to £500.

There are also fears that pet insurance may be affected - if, for example, your cat is stolen and you make a claim.

There are more than nine million pet cats in England, and up to 2.3 million are unchipped, the environment department said.

Your feline's microchip "must be fitted by a trained professional", the government website says.

Vets, local councils, rescue and rehoming centres may all be able to help.

Owners are asked to keep the chip information up to date - for example, if they move house.

There are various databases that meet government standards on which to register the chip, including Animal Data, Animal Tracker and Lost Paws.

Be the first to get Breaking News

Install the Sky News app for free

Mark Zuckerberg laid out 3 ways Meta will make money from its huge AI investments

• Mark Zuckerberg has become "more optimistic and ambitious" about Meta's ability to win in AI.
• The Meta CEO now plans to spend about $40 billion this year, largely on AI investments.
• He sees three ways AI can become a "massive business" for Meta in the next few years.

Mark Zuckerberg is now convinced that Meta is a top artificial-intelligence company, and he has even laid out how the technology will become a significant source of profit in the years ahead.

With the recent release of Llama 3 , Meta's latest AI model , Zuckerberg said he became "more optimistic and ambitious on AI" and his company's ability to deliver on the tech.

He made it clear during a Wednesday earnings call with analysts that he intended to "invest significantly more over the coming years to build even more advanced models and the largest-scale AI services in the world."

"With the latest models, we're not just building good AI models that are capable of building some new good social and commerce products," the CEO told analysts. "I actually think we're in a place where we've shown that we can build leading models and be the leading AI company in the world. And that opens up a lot of additional opportunities beyond just the ones that are the most obvious for us."

Heavy spending again

Such ambition doesn't come cheap. Meta increased its guidance on capital expenditure for this year, saying it now planned to spend between $35 billion and $40 billion, largely on AI investments. Its stock slumped 16% in after-hours trading.

The last time Zuckerberg got excited about a new technology — the metaverse — Meta spent wildly and freaked investors out. The stock collapsed and didn't recover until the company embarked on a "year of efficiency" marked by mass layoffs and a more business-minded CEO .

Zuckerberg on Wednesday made a concerted effort to head off Wall Street panic that his new AI enthusiasm is lacking in business acumen.

Related stories

He said he saw "several ways" generative AI could make money and laid out three specific paths to this becoming "a massive business" for Meta. Although he warned that getting there was a "long-term" prospect.

'Business messaging'

One of the ways AI can make money is by building up "business messaging" so that companies pay Meta for generative-AI tools, such as services that support automated interactions with users and customers. Zuckerberg envisions Meta's AI moving beyond just being a chatbot and becoming an AI "agent" that handles more complex tasks and processes multiple queries to solve user problems instead of coming back instantly with rote answers.

Zuckerberg said revenue from AI business messaging was "one of the nearer-term opportunities." While it may not become a reality this year, he said it was less than five years away. He explained that the immediate goal on this front was "getting many hundreds of millions or billions of people to use Meta AI as a core part of what they do."

Ads appearing in AI interactions

Another way generative AI could make money for Meta is by "introducing ads or paid content into AI interactions," as Zuckerberg said. Although brands and companies paying for products to show up in generative-AI results is not yet the standard for AI chatbots, Meta's entire business is effectively driven by selling digital advertising. Inserting ads into its social and messaging products is at the core of Meta as a company.

AI is already being more widely deployed by Meta in its newer "unconnected content" algorithm for social-media content recommendations, which Zuckerberg said was leading to more app engagement. That, in turn, leads to more people seeing more ads. He said that 30% of the content that Facebook users were seeing was recommended by AI, and the same applied to 50% of the content seen by Instagram users.

Selling access to AI models

A third distinct way Meta may make money from AI is by selling access to models as they get larger. "Enabling people to pay to use bigger AI models and access more compute," as Zuckerberg put it on Wednesday.

Right now, Llama 3 and Meta's other large language models are freely available to users and companies below a certain size threshold. Charging for access may be a move away from Meta's "open source" approach.

"So if the technology and products evolve in the way that we hope, each of those will unlock massive amounts of value for people and business for us over time," Zuckerberg said, adding, "I think it makes sense to go for it, and we're going to."

Watch: AI expert explains how to incorporate generative AI into your business strategy

• Main content