Course: NEW VENTURE PLANNING Course Code: B20BB4020

UNIT-IV- Developing value proposition for the new venture

Sources of finance

1. Private Equity Financing

What Is Private Equity?

Private equity is an asset class, or grouping of investments, used to invest in a business with
growth potential. Private equity firms pool money from investors and other firms to buy,
improve, and potentially sell private companies that are not listed on the  stock market. A
portfolio company is a private company that a private equity firm holds a stake in. General
partners are responsible for running private equity firms, managing investments, and
developing the portfolio company with full liability. These firms can invest in an array of
business sectors, from healthcare to the tech industry.
A subset of the general partnership are the limited partners who choose to invest in private
equity rather than purchasing shares on stock exchanges. Limited partners do not usually
manage the business, and their liability does not exceed their original investment. Limited
partners include venture capital firms, pension funds, angel investors, insurance companies,
hedge funds, and endowments.
Private equity firms may tap institutional investors with access to substantial capital to buy
stakes in companies in financial distress or ones that need long-term funding during
liquidity events like initial public offerings (IPOs).
What Is the Purpose of Private Equity?
The purpose of private equity is to help investors generate a positive  return on
investment in the short term, around four to seven years. While financial experts consider
public equity—buying shares in a publicly traded company—a safer bet for investors,
private equity investment can be a lucrative way to turn a profit quickly, depending on your
portfolio.
Private equity investors and investment firms buy a stake in a company in exchange for a
percentage of ownership. These direct investments can help sustain a business over the long
term, allowing them to earn more profit over time. Private equity firms can also buy out
public companies and turn them into private companies for their own reasons.

4 Different Types of Private Equity Investing

There is more than one way to invest in a private equity portfolio. Here is a breakdown of a
few different ways that private equity works:

1. Distressed debt investing: This type of private equity involves investment firms
purchasing debt from a struggling company to help make it profitable.
2. Fundraising: Investors raise capital from limited partners and form an investment
fund, also known as a private equity fund, which they then use to invest in other
companies.
3. Leveraged buyouts: Investors may participate in a leveraged buyout, or LBO, which
involves purchasing a controlling stake in a struggling company with growth
 potential and returning it to a more profitable stage. The company eventually pays
back the debt owed to the investors but is better positioned to do it since their
earnings have improved.
4. Real estate: A private equity real estate firm uses funds from investors to acquire
properties in the real estate market. These firms draw funds from accredited and
high-net-worth investors as this market requires more capital than others. General
partners may also take a risk in commercial real estate, acquiring and financing
commercial properties.
3 Advantages of Private Equity
There are a few advantages when it comes to investing in or receiving funds from a private
equity firm:

1. Adds working capital to the business: Raising money for a company or startup isn’t
easy, but private equity firms can provide the cash infusion necessary to support a
new or struggling business.
2. Avoids conventional financing methods: Private equity valuations are not affected
by the public market. A company that receives funding from private investments
won’t have to go through a bank and risk high-interest loans to support themselves
financially.
3. Allows more freedom for growth: Companies who receive investments from
institutions like venture capital firms may do so at an earlier stage of their
development, allowing them to try different growth strategies to help form their
business.
3 Disadvantages of Private Equity
Some of the disadvantages of private equity for investors and funding recipients include:

1. Requires upfront funding: As an investor, you’ll likely need access to a substantial

amount of capital to invest in a private equity firm. Whether you aim to help turn a
company around or keep it afloat, it can be costly to turn a profit (which can take
years to happen).
2. It can be a lengthy process: It can take a while for a company to get on the radar of a
private equity firm. Established companies and startups are responsible for
convincing investors why they should put their money into their business, leading to
months of deliberation or negotiations that may not ever materialize.
3. Less control for investors: When an investment firm infuses a business with capital,
it may be able to make decisions regarding the management or structure of the
business. For people who have built their own company from the ground up,
handing over shares and relinquishing part of their control can be a difficult part of
private equity.
2. Venture capital (VC)
Venture capital (VC) is a form of private equity and a type of financing that investors
provide to startup companies and small businesses that are believed to have long-term
growth potential. Venture capital generally comes from well-off investors, investment
banks, and any other financial institutions.
Stages of Venture Capital Financing
1. Pre-Seed/Accelerator-stage Capital
Pre-Seed-stage is capital provided to an entrepreneur to help them develop an idea. Many
entrepreneurs interested in raising venture capital funding will enter business
incubators (accelerators), which provide various services and resources for entrepreneurs to
connect them with venture firms and networks that will help them develop their business idea
and product.

2. Seed-stage Capital
Seed-stage capital is the capital provided to help an entrepreneur (or prospective
entrepreneur) develop their idea into an early-stage product. Seed stage capital usually funds
the research and development (R&D) of new products and services and research into
prospective markets. 

3. Early-stage Capital
Early-stage capital is venture capital provided to set up initial operation and basic production.
Early-stage capital supports product development, marketing, commercial manufacturing,
and sales. 

This kind of financing will usually come in the form of a Series A or Series B round.

4. Later-stage Capital
Later-stage capital is the venture capital provided after the business generates revenues but
before an Initial Public Offering (IPO). 

It includes capital needed for initial expansion (second-stage capital), capital needed for
major expansions, product improvement, major marketing campaigns, mergers & acquisitions
(third-stage capital), and capital needed to go public (mezzanine or bridge capital).

 Characteristics of Venture Capital

 1. Illiquid

Venture capital investments are usually long-term investments and are fairly illiquid
compared to market-traded instruments (like stocks or bonds). Unlike publicly traded
securities, VC investments don’t offer the option of a short-term payout. Long-term returns
from venture capital investments depend largely on the success of the firm’s portfolio
companies, which generate returns either by being acquired or through an IPO.

 2. Long-term investment horizon

Venture capital investments feature a structural time lag between the initial investment and
the final payout and usually have a time horizon of 10 years. The structural time lag increases
the liquidity risk. Therefore, VC investments tend to offer very high (prospective) returns to
compensate for this higher-than-normal liquidity risk.

 3. Large discrepancy between private valuation and public valuation (market
valuation)

Unlike standard investment instruments that are traded on some organized exchange, VC
investments are held by private funds. Thus, there is no way for any individual investor in the
market to determine the value of the investment. 
The venture fund may also not completely understand how the market values its
investment(s). This causes IPOs to be the subject of widespread speculation from both the
buy-side and the sell-side.

4. Entrepreneurs lack full information about the market

The majority of venture capital investing is into innovative projects whose aim is to disrupt
the market. Such projects offer potentially very high returns but also come with very high
risks. As such, entrepreneurs and VC investors often work in the dark because no one else has
done what they are trying to do.

 5. Mismatch between entrepreneurs and VC investors

An entrepreneur and an investor may have very different objectives regarding a project. The
entrepreneur may be concerned with the process (i.e., the means), whereas the investor may
only be concerned with the return (i.e., the end). 

This can make discussions and general collaboration between entrepreneurs and investors
challenging as they may have conflicting objectives around how the company should be run.

3. Angel Investor

Angel investors are wealthy private investors focused on financing small business ventures in
exchange for equity. Unlike a venture capital firm that uses an investment fund, angels use
their own net worth. Compared to venture capitalists, angels may also be more patient with
entrepreneurs and open to providing smaller dollar amounts for a longer time period. But they
do want to see an exit strategy at some point where they can pocket their profits, typically
through a public offering or an acquisition.
 
Angel investors fund businesses in many industries. According to the Center for Venture
Research at the University of New Hampshire, 2020 was the first time in several years that
angel-funded businesses were in the seed and startup stage. 1 The total investments during that
year were $25.3 billion – a 6% increase over 2019.2
 
The Pros and Cons of Angel Investors
The Advantages of Angel Investors
Having an angel investor means your business doesn’t have to repay the funds because you’re
giving ownership shares in exchange for money. Angel investing is usually reserved for
established businesses beyond the startup phase. These companies have shown promise for
profits, but still need capital to develop products or grow. Because an angel’s money is on the
line, they can be highly motivated to help you succeed through mentoring or by offering
direct management help.
 
The Disadvantages of Angel Investors
One big disadvantage is that angel investors typically want 10% to 50% of your company in
exchange for funding. That means business owners could lose control of their business if the
angel investors determine they’re keeping the company from succeeding. It’s important to
think about how much equity you want to give away to an investor for funding because if you
give too much, you may not own the company anymore if things don’t go well and the angel
investor has more ownership than you.
 
Sources of Angel Investing
Since angel investors are typically wealthy individuals, it’s not uncommon for business
owners to want to seek them out for funding. So, how do you find angel investors? A few
sources of funding include:
  Angel List: An online platform that helps business owners find investors.
 Angel Investment Network: An online network with over 279,000 investors. Business
owners can create a profile and promote their business. If there are interested angels,
they’ll invest.
 LinkedIn: Professional social networks, like LinkedIn, can give you a direct way to
contact an angel investor.
 Local business groups or schools: Check local business schools or organizations in
your area to see if they can put you in touch with an angel investor.

Before you reach out to an angel investor, make sure you have your business plan in place.
They’ll want to make sure your business has the potential for success before investing in your
company.
 
What Percentage Do Angel Investors Want?
The more money an angel investor gives your business, they more they’ll expect a bigger
return on investment (ROI). The ROI expectation varies between angels and the specific
investing opportunity. It’s not uncommon for an angel investor to expect a 30% return on
their money.3
 Angel investors will have a ROI expectation in mind as part of their exit strategy. This is the
point in time when they sell their equity in the company to make up their initial investment
and any profits.
 Be aware that funding from venture capitalists will have a higher expectation for ROI.
Because these kinds of firms are giving significantly more money, they’ll want to have a
larger percentage of profit.
4. Crowdfunding
Crowdfunding is the use of small amounts of capital from a large number of individuals
to finance a new business venture. Depending on the type of crowdfunding, investors either
donate money altruistically or get rewards such as equity in the company that raised the
money.

Types of crowdfunding

While there are four types of crowdfunding, each receives money from interested donors.
Here’s a breakdown of each one:

 Donation: Donation-based crowdfunding is when people give a campaign, company

or person money for nothing in return. Let’s say you create a crowdfunding campaign
to purchase new equipment for your company. The individuals who give you money
do it out of support for the growth of your business and nothing else.

 Debt: Debt-based donations are peer-to-peer (P2P) lending, which is a form of

crowdfunding. In debt-based donations, the money pledged by backers is a loan and
must be repaid with interest by a certain deadline.
 Rewards: This is when donors receive something in return for their donations. The
rewards vary by the size of the donation, which incentivizes higher contributions.
Based on how much money participants give to a campaign, they may receive a T-
shirt, the product or service – often at a discounted rate.
 Equity: While some crowdfunding campaigns don’t allow backers to own a portion
of the company they’re supporting, equity-based crowdfunding allows small
businesses and startups to give away a portion of their business in exchange for
funding. These donations are a type of investment, where participants receive shares
in the business based on how much money they contribute.

Examples of successful crowdfunding sites

There are many online crowdfunding platforms you can use to kick off your business. Here
are four of the top crowdfunding sites you can use to grow your company. 

Kickstarter
Kickstarter is a rewards-based donation platform that has been helping companies raise
money since 2009. It has been used to raise more than $5 billion for more than 182,000
projects. Part of what makes Kickstarter so successful is how simple the site is to use. You set
a monetary goal and the amount of time you want to reach it, and tell your campaign’s story.
You then share your project with the community in hopes of finding backers.

GoFundMe
GoFundMe is a donation-based crowdfunding company, and although it’s famously used for
more charitable initiatives, businesses can take advantage of the platform as well. This is a
great option for non-profit organizations and businesses that have service-based initiatives.
Statistically, 1 in 10 campaigns is fully funded on the site.
Lending Club
Lending Club is a debt-based crowdfunding site because it is a P2P lending platform. It offers
up to $40,000 in personal loans and up to $500,000 in small business financing. Each loan
term is three or five years. To qualify, your company needs to have been in operation for at
least a year, the applicant must own at least 20% of the business, and it must have an annual
sales revenue of $50,000.

Indiegogo
Indiegogo is a reward-based platform that offers two kinds of funding. Fixed funding allows
you to set a goal for a certain amount of money, and if you don’t reach your target, all funds
are returned to donors. Flexible funding is when you’re looking for any amount of monetary
support, all of which you can keep whether you hit your goal or not.

Editor’s note: Looking for the right loan for your business? Fill out the below
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Crowdfunding rules
Most crowdfunding sites have specific rules. Kickstarter, for example, doesn’t allow equity
crowdfunding and has a list of prohibited items that you are not allowed to include in your
project. It’s wise to read these rules thoroughly before choosing a platform so you don’t have
to halt your campaign before it even starts.

If you ignore the rules and jump into your crowdfunding campaign, the likelihood of success
plummets. You need to adequately research the different crowdfunding sites so you
understand which platform works best for your business.

Selecting Right Sources of finance: Factors to Consider when Choosing a Source of

Finance

There are many sources of finance available to a business. Finance is needed for several
purposes and different purposes need sources of  finance which are most suitable to
them. When choosing an appropriate source of finance some factors have to  be
considered. The factors that need to be considered when choosing an appropriate source of
finance are:

1. The amount of money needed: This is the amount of finance the organisation wants
to raise. Not all sources of finance provide all amounts of funds. Some sources are
notable to raise large amounts of funds whereas others are not flexible enough to put
up for the small sum of money the business requires. Therefore it is necessary to
identify the amount of money needed by the company to choose a suitable source of
finance. For example, borrowing a commercial loan for a small and short-term cash-
flow problem is unwise because loans may have a minimum amount that can be
borrowed so taking a bank overdraft would be wise where money can be borrowed in
 small sums and bank overdrafts can be paid back quickly. Therefore the amount of
money required is a key factor in choosing a source of finance.
2. The urgency of funds: This refers to the amount of time the business can spend
on collecting funds. If the business has plenty of time before its financial needs need
to be met then it can spend time searching for cheap alternatives of sources of finance.
On the other hand, if the business wants the money as soon as possible then it would
have to make some cost sacrifices and accept a source of finance that may even cost
higher. The urgency of funds needs to be identified also because certain sources of
finance need more time to be raised than other sources of finance. For example,
issuing shares is a very long and complex process where there are legal requirements
and then the potential shareholders have to be informed (advertising) and after all
these the money is collected through the process of application and allotment which
takes more time.
3. The cost of the source of finance: Different sources of finance have different costs.
It is always more profitable to a business to seek and obtain cheaper sources of
finance. Sometimes however the time does not permit organisations to look for
cheaper sources of funds. Internal sources of finance are always cheaper than external
sources of finance.
4. The risk involved: The risk involved is the certainty of receiving returns for the
lender on the investment made using the finance. In simpler words it is the sureness of
success of the project. If the provider of finance is not confident that the project in
which his money is invested in is less likely to reap returns then the lender would be
reluctant to provide the business with funds. In this case the money can be secured
against an asset as collateral which will encourage the lender to lend.
5. The duration of finance: This is the time period for which the money is needed. It
can be for a short-term (within one year), medium-term (one to five years) or long-
term (five years and more) time period. By identifying the length  of  requirement of
finance the organisation can eliminate inappropriate sources of finance and choose a
source of finance that is more suitable for the required time frame.
6. The gearing ratio of the business:  The gearing ratio plays an important role in the
availability of the sources of finance since the gearing ratio shows the ratio of debt
capital to the total capital of a business. If a business is high geared then commercial
lenders will be unwilling to give loans because the business is already operating on
more loans than equity capital. A high geared company will have to pay more of its
profits as interests on loans and other debt capital. That being the case potential
lenders fears the business’ ability to be able to cope with more interest payments and
debt settlement.
7. The control of the business: The existing shareholders of a company would be
reluctant to issue shares because this would cause a dilution in control of the
business. Issuing shares in public  limited companies also gives opportunity of
takeovers to outside parties. The same can be said for venture capitalists where the
money is invested as equity and being owners the venture capitalists have the right to
influence how the business is run. The existing shareholders and owners of a business
who would not want any change to arise in the control and ownership of the business
would disregard sources of equity finance.

5,Banks as Sources of finance

Types of bank finance for businesses
There are several types of bank finance available to your business, with different packages
available to suit your needs as your business requirements change. The type of finance that
would best suit your business may be based on the purpose of the finance, how quickly you
need finance, and how quickly you could repay it.

Short-term finance
Overdrafts are used in conjunction with business bank accounts and are a flexible source of
working capital for short-term needs. 

Bridging finance is provided by the bank to businesses to maintain cashflow while awaiting
funds from grant cheques, drawdown of commercial mortgages or loan agreements, or other
confirmed sources of future income.

Working capital funding

Invoice finance offers ways to access working capital by unlocking the value of invoices,
although interest rates and charges apply on the cash advanced. Invoice discounting allows
you to draw on funding secured against approved invoices, while in factoring you can sell
invoices to your financier. If your buyer introduces a supplier finance scheme (also known
as supply chain finance or reverse factoring), this will provide the same benefits at a
potentially much lower cost.

Medium-term finance
Term loans have a fixed or variable interest rate and mature over a one- to seven-year
period. They are typically used to buy fixed assets such as property or machinery or other
purchases of a capital nature. 

Asset finance and leasing options allow businesses to spread the ownership associated with
buying assets. When you buy assets through leasing finance, the leasing bank buys the
equipment for you to use, in exchange for regular payments. Leasing or hire purchase can
help you maintain cashflow and allow greater flexibility in upgrading equipment.

Long-term finance
Commercial mortgages are provided by banks to finance the purchase of business premises.
Types of mortgage available include repayment, commercial endowment or pension. The
mortgage will usually be repayable over a 15-year period.

You can get advice on the best providers of commercial mortgages from your bank's business
adviser or a commercial mortgage broker. For more information, see commercial mortgages
and lenders.

Fixed asset loans are loans for assets that cannot easily be turned into cash - eg property,
plant or machinery. The loans can be fixed for up to ten years. With this type of loan, the
asset itself is the collateral and can be repossessed if you do not maintain repayments. 

Banks may also provide a range of specialist services to fund expansions, mergers or
acquisitions. For more information, see raise long-term funding through debt capital
markets.
However, there may be situations when you are unable to obtain finance from a bank. If this
is the case, there are other finance options available to you - see non-bank finance.

What is sales forecasting?

Sales forecasting is a process that allows a business to estimate future sales revenue for a
specific timeframe.

Sales leaders can use it to plan spending and adjust the sales strategy to make up for
fluctuations in revenue, lead flow, and other factors.

Forecasts are typically based on historical data, current pipeline status, and external data
sources that represent industry trends and market conditions.

While it’s easier to create a sales forecast if you already have lots of historical data at your
fingertips, companies with limited data can still benefit from forecasts done right.

Before we dive deeper, it’s important to note that sales forecasts—like weather forecasts—
aren’t a sure thing.

Rather, sales forecasts are a planning tool that enables companies to prepare for future
possibilities.

Why is sales forecasting important?

Accurate sales forecasting is the foundation for success. It enables smart decision-making,
informs budgets, and helps detect potential threats before it’s too late.

What are the downsides associated with not running forecasts? In the worst cases, cash flow
problems, layoffs, even bankruptcy, as company leaders spend without a good idea of what’s
coming.

Here’s a look at the broader benefits sales forecasting brings to the table.

 Estimate future revenue. Sales forecasting allows you to know how much revenue
your team will generate each month, quarter, and year—and when to expect money to
come in. For instance, if sales were slow during the past three Julys, there’s a good
chance that you can expect a summertime lull this year, too.
 Allocate resources. Sales forecasting also helps companies decide how to manage
internal resources, cash flow, and the sales force. Predicting future sales allows sales
leaders to head off problems by shifting focus in advance. Say leads are trending
down. By tracking these metrics, leaders can forecast when they’ll reach critical levels
and re-focus sales teams to bring more in at an appropriate time.
 Plan your growth strategy. When you have an idea of what lies ahead, you’ll be
better prepared to respond to roadblocks and opportunities as they emerge. Sales
forecasting allows business leaders to make healthy plans and investments for the
organization as a whole. That means spending, investing, and hiring at the right rates
at the right time. Sloppy forecasting or no forecasting means that leadership has no
idea when they’re overspending or skimping on important resources.
Factors that can impact your sales forecast
Anything that impacts your company, customers, or industry can impact forecasting
accuracy.
Here’s a look at some of the more common factors that can impact a sales forecast.

 Internal factors. Things like turnover rate, territory changes, and new company
policies can impact your forecast because they impact seller performance.
 Economic conditions & and your industry. What’s the economy looking like right
now? Is demand for your products/services rising or falling? Are new competitors
entering the market? If so, what are the chances that those competitors might take
some part of your market share? Are you likely to lose any major accounts? On the
flip side, is there an opportunity to gain new customers? If you’re marketing to new
audiences or you’ve launched a new product that caters to a new market, you may see
some new growth—and increased revenue.
 New legislation. New laws or compliance requirements may have an impact on your
sales process. It might mean you’ll need to rethink your approach in some cases. In
others, you might have a solution that helps prospects meet changing requirements.
 Your products or services. Are you planning on launching new products/services
with the potential to increase sales? Making major improvements to existing
offerings? Or, are certain products/product lines on the wane? If sales are declining, is
it because a competitor offers a better solution or a similar product at a lower price
point? Or is this product/product line heading toward obsolescence?
 Marketing & advertising. How are your existing strategies performing? Do they
bring in a reliable amount of qualified leads each month/quarter/year? Or are you
trying something new because the old stuff isn’t working? Are you increasing your
advertising budget? Launching any new campaigns? Marketing on new channels?

How to create accurate sales forecasts: 5 tips to know

Now that we’ve gone over the “what” and the “why” of sales forecasting, let’s get into the
“how.”

1. Define and document your sales process

Without a sales process, there’s no way to create an accurate forecast. So, before doing
anything else, you’ll need to define and document your sales process.

 Establish common definitions. If your team isn’t working from the same definitions,
same steps, and stages, it becomes hard to predict whether an opportunity is likely to
close.
 ID & document each stage. Define each “stage” from the time a lead enters the
funnel, becomes a prospect, and later, a customer. Here, you’ll need to figure out what
makes someone a “lead,” vs. a “prospect.” How will you define a “win” or a “close?”
What stages belong in your sales cycle?
 Decide which steps belong in each stage. Once you’ve defined each stage, you’ll
need to determine which steps a lead must complete before advancing to the next
“level.” A “lead” might become a “prospect” after signing up for your mailing list,
downloading a white paper, and booking a call or demo.
  Communicate standards & best practices. Everyone should also be on the same
page about when and how to count leads entering and exiting the funnel. It’s critical
that you document and communicate standards to everyone in the organization. Fail to
do this and individuals will interpret standards and best practices on their own. In
turn, you’ll end up with inconsistent data that undermines your forecasting
capabilities.

2. Make sure you’ve got the tech to support your forecasting efforts
To “predict” future sales performance, you’ll need to start with a complete set of insights.
Your CRM must be accurate, up-to-date, and integrated with all relevant sources of sales
data. You’ll also need to make sure your data ecosystem is clean, connected, and accessible
to the entire organization.

This allows you to gain complete visibility into individual, team, and company performance
and align all business functions around a single source of truth.

Once you’ve unified your sales data, you can add AI-enabled tools to your sales stack.

Look for solutions with a built-in predictive engine, which will reduce over-reliance on
subjective, human interpretation. Instead, AI can look at all data points that might impact
sales and serve up a list of steps to ensure that reps always take the best action.

And finally, it’s crucial that you invest in a solution that updates and syncs data across all
connected systems in real-time. That way, you can make decisions based on what’s
happening now instead of hoping yesterday’s data is still relevant.

3. Understand what’s happening in your pipeline

It doesn’t matter how much data you have or what kind of advanced intelligence tools you’re
using, you need to be able to quickly size up active opportunities and understand which deals
are moving, stuck, or at risk.

Without a clear picture of where your pipeline is today, and where it’s headed, the entire
business strategy falls apart.

At a minimum, make sure that you have easy access to the following data:

 Historical data. Make sure you can easily review sales from the previous year,
quarter, month, whatever. Note that some sales forecasting tools have a limit on how
far back they can pull data e.g. one or two years. As such, you’ll want to make sure
that you have a plan for capturing, storing, and integrating data long-term.
 Activity data. Can you easily identify how many calls were made? Emails sent? Do
you know how reps are spending their time? Make sure that you’re capturing and
integrating data from every tool you use in the sales process and syncing it back to
Salesforce for forecasting.
 Revenue. You’ll also want to make sure you can track performance by rep, team,
territory, or anything else that’s relevant to your business model/sales process. How
much are reps bringing in? What products/packages are performing best or
underperforming?You’ll also want to ensure that product/service lines match what’s
 in your accounting system. This makes it easy to compare estimates to actual sales
without any ad-hoc conversion math.

4. Select a sales forecast methodology

At this point, you’ve defined your sales process, goals, and set quotas.

You’ve made sure that your CRM connects to all relevant data sources and that it offers
complete visibility into your pipeline.

Now, it’s time to choose a sales forecasting methodology. The method you select depends on
factors like how long you’ve been in business, active opportunities, and how many reps are
on the team.

Additionally, how much historical data you’re working with and your team’s ability to
capture and interpret sales data will come into play here, too.

Here’s a look at some of the most common sales forecasting examples:

 Historical forecasting. Historical forecasting is a quick way to gather insights based

on past performance. The idea is to look up performance from a similar timeframe
and assume the current period’s results will be equal to or greater than in the past.
Think–looking at July’s sales numbers for the past few years to predict how much
you’ll sell in July of this year. Depending on what you’re trying to measure, you
might look at variables such as product, price, time of year, or price. Historical
forecasting assumes conditions remain the same. Meaning, it’s not so hot when it
comes to detecting and responding to new threats or opportunities. While this method
can’t predict the future, it can help you identify the actions that close deals, allocate
internal resources, and develop an adaptive business strategy.
 Pipeline forecasting. This forecasting method aims to predict future revenues by
sizing up where your pipeline is right now. Here, you’ll look at each opportunity to
determine its likelihood of closing. The variables you’ll measure should be
determined by your company and sales process. Using tools that can score your
opportunities for how likely they are to really close can greatly increase the reliability
of pipeline forecasting, which is why they’re starting to become mainstay sales tech
for many organizations.
 Opportunity stage forecasting. Opportunity stage forecasting is a method that uses
deal stage to determine the likelihood of closing. How it works is, you’ll select a
reporting period (quarter, month, year) based on your team’s targets and the length of
the sales cycle. From there, you’ll multiply each deal’s potential value by its chances
of closing. Then, after you’ve calculated the projected win rates for each deal, you’ll
add up the total to get the total forecast for your pipeline. While this method is
straightforward, it can produce inaccurate results. One of the biggest issues here is, it
doesn’t factor age into the calculation. It treats stalled opportunities the same as deals
blowing through each stage if they have the same projected close dates. To avoid this
issue, reps must be vigilant about removing cold leads and opportunities clogging up
the pipeline.
 Intuitive sales forecasting. Intuitive sales forecasting uses anecdotal data sourced
from the front-lines. While intuitive forecasting alone isn’t exactly scientific, it’s still
 a valuable tool. To pull it off, you’ll need to use other data-driven forecasting methods
to supplement anecdotal evidence. Despite the downsides, intuitive forecasting helps
teams understand the intangibles that influence deals.
 Length of sales cycle forecasting. Length of sales cycle forecasting looks at data
related to how long it takes a lead to close to forecast reps’ future sales. One of the
key benefits of this method is it allows you to gather a ton of data. Say you’re tracking
how leads interact with different touchpoints throughout the buying process. You can
measure the impact of content, messaging, and sales tactics against different variables
at a granular level. Insights can be applied to determine the content and messaging
used at different points in the process. This method can also be used to forecast
multiple sales cycles based on persona, rep, etc. As such, it’s an effective tool for
evaluating and improving your sales process, tactics, and coaching strategy.
 Multi-variable sales forecasting. Multivariable analysis forecasting is a
sophisticated method that combines predictive analytics with elements from the above
methods. Here, you’ll apply predictive analytics tools to your data ecosystem, which
analyze relationships between variables that could impact sales outcomes. Variables
might include opportunity size, buyer persona, individual rep performance stats, etc.

You’ll want to mix and match your sales forecasting methods based on what you’re trying to
measure and what kind of data sources you’re working with.

For example, newer businesses with little historical data might start with intuitive forecasting.
Their reports will be based simply on what their teams think is likely to close in the given
timeframe, based on their experience.

For more established firms, a combination of pipeline and multivariable analysis forecasting
might work best. These methods offer a holistic view of both the existing pipeline and the
external factors that impact deals.

5. Forecast regularly and often

Sales forecasts need to be updated regularly to remain a relevant part of your company’s
strategy and market navigation. Additionally, regular forecasts help leadership keep their
finger on the pulse of how things are going on the front line.

 Make forecasting part of the routine. Monthly forecasts offer a more accurate

estimate of how your sales team will perform than running the numbers once a year.
The more often you forecast, the more likely it is that your estimates reflect where
things are today.
 Consider the impact of your sales process. Changes to the business strategy,
market, and key priorities impact the sales process, and by extension, your forecast. If
the process changes, your sales forecast changes along with it.
 Model different scenarios. Create multiple sales forecasts that reflect a range of
perspectives. So, you might start with a pipeline forecast and then use intuitive
forecasting to add a human element from your sellers.
What Is Financial Forecasting?

Forecasting is determining what is going to happen in the future by analyzing what happened
in the past and what is happening now. It’s a planning tool that helps businesses adapt to
uncertainty based on predicted demand for goods or services.

Financial forecasting is a financial plan that estimates the projected income and projected
expenses of a business, and a solid financial forecast contains both macroeconomic factors
and conditions that are specific to the organization. A thorough forecast includes but is not
limited to short- and long-term outlooks on conditions that could impact revenues and
contingencies for expenditures not currently viewed as necessary.

Organizations that create effective financial forecasts rely on experts skilled in creating
models, whether on staff or on a consultative basis, and combine their work product with
insights from people with a deep understanding of the organization and the industries and
communities it serves. Likewise, information gathering and software play a key role in the
financial forecasting process.

Why Is Forecasting Important?

Financial forecasts are an essential part of business planning, budgeting, operations, funding
— they simply help leaders and outside stakeholders make better choices.

A financial forecast is an estimate of future financial outcomes for a company, and it’s an
integral part of the annual budget process. It informs major financial decisions, such as
whether to fund a capital project, undertake a staffing increase or seek funding. Businesses
use material information from their financial forecasts on their balance sheets and other
disclosures.

A financial forecast gives businesses access to cohesive reports, allowing finance

departments to establish business goals that are both realistic and feasible. It also gives
management valuable insights into the way the business performed in the past and the way it
will compare in the future. Beyond informing internal fiscal controls and decisions, financial
forecasts are essential in investor relations and when seeking loans. Banks and other funders
weigh forecasts in their own decision-making processes.

Benefits of Financial Forecasting

Some of the benefits of financial forecasting include:
  Assess the success of your efforts to determine the long-term viability or value of an
activity
 Take control of your cash flow and purposefully direct your company
 Develop benchmarks for use in future forecasts
 Perform contingency planning during challenging financial times
 Anticipate the impact of new expenses
 Identify financial problem areas and their causes
 Reduce financial risk
 Create an environment of certainty and stability
 Make future budgeting much easier

8 Key Financial Forecasting Components

Unlike other financial data, forecasts are just that: predictions based on conditions that are
subject to change. However, companies that include as many potential variables as is feasible
and invest in thorough information gathering are better positioned to make reasoned
assumptions with a high confidence in the forecast’s accuracy.

A financial forecast should include:

1. Prior results weighted against conditions at the time: Whether you’re building a
fantasy baseball roster or evaluating the performance of a product line, there
are formulas to determine how much weight to give any piece of data. Remember:
COVID-19 has skewed many assumptions. Look at the historical accuracy of data
sources.
2. A forward-looking time horizon: Again, you may choose to do a standard 12-, 18- or
24-month span; look out further; or undertake a rolling forecast.
3. Full consideration of a macroeconomic risk: This includes a sudden, major global
event such as a natural disaster or pandemic.
4. Best-case revenue scenario: What if everything falls perfectly into place for every
product and service?
5. Worst-case revenue scenario: What if everything that can go wrong does? Use
scenario planning methodologies.
6. Anticipated expenses: These have likely changed based on a wholesale exodus from
office space and will need to be recalculated.
7. Worst-case unanticipated costs: What if you’re hit with a cyberattack and lose your
data, or a factory is flattened by a hurricane or fire?
8. Internal risks: Risk-adjusted forecasting is a practice in itself, and companies may
have blind spots when it comes to identifying internal risks, like a high-level
executive committing fraud. Consider, though, that crisis management experts say a
company is about twice as likely to suffer from mismanagement as an external
cyberattack.
The accuracy of financial forecasts can be a deciding factor in whether businesses survive the
most extreme — or mundane — unforeseen events

 Reasons Your Business Needs A Financial Forecast

An effective financial forecast will:

1. Serve as the basis for budgeting decisions;

2. Show investors and creditors that your organization has a plan and is prepared for
unforeseen events that may impact revenues and budgets;
3. Provide a barometer for those making material financial decisions;
4. Ensure that an organization is prepared for the best- and worst-case scenarios;
5. Establish controls and raise awareness of a broad range of internal and external
variables that can have short- and long-term impacts;
6. Help keep business leaders from being blindsided by events that could impact
performance; and
7. Prepare businesses for increases in demand for their goods and/or services growth.

Break-Even Analysis
A break-even analysis is a financial tool which helps a company to determine the stage at
which the company, or a new service or a product, will be profitable. In other words, it is a
financial calculation for determining the number of products or services a company should
sell or provide to cover its costs (particularly fixed costs). 

What is a Break-Even Analysis

Break-even is a situation where an organisation is neither making money nor losing money,
but all the costs have been covered.

Break-even analysis is useful in studying the relation between the variable cost, fixed cost
and revenue. Generally, a company with low fixed costs will have a low break-even point of
sale. For example, say Happy Ltd has fixed costs of Rs. 10,000 vs Sad Ltd has fixed costs of
Rs. 1,00,000 selling similar products, Happy Ltd will be able to break-even with the sale of
lesser products as compared to Sad Ltd.

Components of Break-Even Analysis

Fixed costs
Fixed costs are also called overhead costs. These overhead costs occur after the decision to
start an economic activity is taken and these costs are directly related to the level of
production, but not the quantity of production. Fixed costs include (but are not limited to)
interest, taxes, salaries, rent, depreciation costs, labour costs, energy costs etc. These costs are
fixed irrespective of the production. In case of no production also the costs must be incurred.

Variable costs

Variable costs are costs that will increase or decrease in direct relation to the production
volume. These costs include cost of raw material, packaging cost, fuel and other costs that are
directly related to the production.

Calculation of Break-Even Analysis

The basic formula for break-even analysis is derived by dividing the total fixed costs of
production by the contribution per unit (price per unit less the variable costs).

For an example:
Variable costs per unit: Rs. 400 Sale price per unit: Rs. 600 Desired profits: Rs. 4,00,000
Total fixed costs: Rs. 10,00,000 First we need to calculate the break-even point per unit, so
we will divide the Rs.10,00,000 of fixed costs by the Rs. 200 which is the contribution per
unit (Rs. 600 – Rs. 200). Break-Even Point = Rs. 10,00,000/ Rs. 200 = 5000 units Next, this
number of units can be shown in rupees by multiplying the 5,000 units with the selling price
of Rs. 600 per unit. We get Break-Even Sales at 5000 units x Rs. 600 = Rs. 30,00,000.
(Break-even point in rupees)
Contribution Margin
Break-even analysis also deals with the contribution margin of a product. The excess between
the selling price and total variable costs is known as contribution margin. For an example, if
the price of a product is Rs.100, total variable costs are Rs. 60 per product and fixed cost is
Rs. 25 per product, the contribution margin of the product is Rs. 40 (Rs. 100 – Rs. 60). This
Rs. 40 represents the revenue collected to cover the fixed costs. In the calculation of the
contribution margin, fixed costs are not considered.

When is Break-even analysis used

Starting a new business: To start a new business, a break-even analysis is a must. Not only it
helps in deciding whether the idea of starting a new business is viable, but it will force the
startup to be realistic about the costs, as well as provide a basis for the pricing strategy.

Creating a new product: In the case of an existing business, the company should still peform
a break-even analysis before launching a new product—particularly if such a product is going
to add a significant expenditure.

Changing the business model: If the company is about to the change the business model, like,
switching from wholesale business to retail business, then a break-even analysis must be
performed. The costs could change considerably and breakeven analysis will help in setting
the selling price.

Breakeven analysis is useful for the following reasons:

 It helps to determine remaining/unused capacity of the company once the breakeven is
reached. This will help to show the maximum profit on a particular product/service
that can be generated.
 It helps to determine the impact on profit on changing to automation from manual (a
fixed cost replaces a variable cost).
  It helps to determine the change in profits if the price of a product is altered.
 It helps to determine the amount of losses that could be sustained if there is a sales
downturn.

Additionally, break-even analysis is very useful for knowing the overall ability of a business
to generate a profit. In the case of a company whose breakeven point is near to the maximum
sales level, this signifies that it is nearly impractical for the business to earn a profit even
under the best of circumstances. Therefore, it’s the management responsibility to monitor the
breakeven point constantly. This monitoring certainly reduces the breakeven point whenever
possible.

Ways to monitor Break-even point

Pricing analysis: Minimize or eliminate the use of coupons or other price reductions offers,
since such promotional strategies increase the breakeven point.

Technology analysis: Implementing any technology that can enhance the business

efficiency, thus increasing capacity with no extra cost.

Cost analysis: Reviewing all fixed costs constantly to verify if any can be eliminated can
surely help. Also, review the total variable costs to see if they can be eliminated. This
analysis will increase the margin and reduce the breakeven point.

Margin analysis: Push sales of the highest-margin (high contribution earning) items and pay
close attention to product margins, thus reducing the breakeven point.

Outsourcing: If an activity consists of a fixed cost, try to outsource such activity (whenever
possible), which reduces the breakeven point.

Benefits of Break-even analysis

Catch missing expenses: When you’re thinking about a new business, it’s very much
possible that you may forget about a few expenses. Therefore, a break-even analysis can help
you to review all financial commitments to figure out your break-even point. This analysis
certainly restricts the number of surprises down the road or atleast prepares a company for
them.
Set revenue targets: Once the break-even analysis is complete, you will get to know how
much you need to sell to be profitable. This will help you and your sales team to set more
concrete sales goals.

Make smarter decisions: Entrepreneurs often take decisions in relation to their business based
on emotion. Emotion is important i.e. how you feel, though it’s not enough. In order to be a
successful entrepreneur, decisions should be based on facts.

Fund your business: This analysis is a key component in any business plan. It’s generally a
requirement if you want outsiders to fund your business. In order to fund your business, you
have to prove that your plan is viable. Furthermore, if the analysis looks good, you will be
comfortable enough to take the burden of various ways of financing.

Better pricing: Finding the break-even point will help in pricing the products better. This
tool is highly used for providing the best price of a product that can fetch maximum profit
without increasing the existing price.

Cover fixed costs: Doing a break-even analysis helps in covering all fixed cost.

SMART Analysis
SMART Objectives are defined as a set of objectives and goals that are put in place by
parameters, that bring structure and tractability together. SMART goal setting creates a
verifiable trajectory towards a certain objective with clear milestones and an estimated
timeline to attain the goals. SMART is an acronym that stands for:

 S – Specific
 M – Measurable
 A – Achievable
 R – Relevant
 T- Time-based
One of the most widely used words today, in this modern, technology-driven world is
“SMART”.

This word is widely used in various industries because of high-efficiency and objectivity.
SMART method also happens to be a very practical resource that certainly can be a lifesaver
for relevant people working in competitive fields like marketing, sales, advertising, market
research and similar.
Many objects that we use in our day-to-day lives such as phones, television and so on have
this word prefixed to the name, such as  “smartphone”, “smart television”. Now we all
understand that this reference is made to something that within its qualities is intelligent, due
to its operation and its technological development.

In the world of marketing, business and similar fields, SMART objectives have a totally
different relevance. SMART objectives in the fields mentioned are for all those people who
want to meet a specific goal. This is called the SMART method. It doesn’t matter, what the
size of the objective or the goal is, this method is applicable to anyone or any organization or
business that has a time-bound, relevant and clear objectives related to achieving their goals.

Many times, before starting a new project or implementing a strategy, it becomes a little
difficult to define objectives straight away. So, to give your team members a proper objective
to work with, start making an excellent approach by using the SMART method.

SMART Method for SMART Objectives and Goals

Take a few minutes to clear your head; let us analyze through the SMART method to achieve
SMART objectives and SMART Goals. With constant practice, it will be easier to apply this
method. However, for starters let us understand what each alphabet in the word “SMART”
mean.

S-SPECIFIC: Dwelling deeper into details is a good start. This is the beginning of

everything, so put more attention and great efforts to take care of the minutest details. The
important thing is to resolve issues surrounding what, when, where, who, with what and how.
I have jokingly named this the 5 Wives and 1 Husband technique to remember the Ws and H.

More the information you can contribute, better will be the results and it will be easier for
you to reach your goals since defining the path to reach your goals will be clearer. If you are
heading an organization or are at a position where you are making strategic decisions for your
organization or similar positions, from this point onwards, you will see if you have enough
resources to achieve your goals or do you need to something extra to make things fruitful.

M-MEASURABLE: For a goal to be an objective clearly, you must have a quantitative way

of measuring that you have effectively achieved it. For this, it is necessary to involve some
numbers in definition, for example, percentages or exact amounts. If your goal is to get an
ROI then you should say something like “increase the ROI by 23%”.

It is not enough just to say “increase the number of clients”, it is best to do an analysis of the
clients that you have now, of those that you need to get, as well as the total number of client
to be achieved in a certain period of time, which is also important to define clearly.

The more quantitative data you have, the more control you can have over the advances.
A-ACHIEVABLE: Did you know that many objectives are not met because they seem
impossible? Many others remain in the air because they are little presumptuous.

It is advisable to know that there is going to be difficult tasks to achieve and that you have no
choice but to achieve them. We all want to be the first to achieve something and that feeling
can be a motivator for some people, however, setting virtually impossible goals can make the
team frustrated.  So to avoid negations, to make an objective achievable, you need a
prior analysis of what you have done and achieved so far. This will help you know and
understand the leap you want to take or a step back and analyze what you have missed.

R-RELEVANT: To define relevant and realistic goals, you must measure the scope of your
potential and of those who are associated with you in your organization or business. One very
important aspect of setting up relevant goals is to know if you have the right resources to
achieve it.  

In addition, it is important here to remove the believes that commonly adversely affect such
as “I cannot”, maybe it will be easier to create a realistic and attainable goal. Relevant goals
can only be achieved if you have everything in place, right from the ideation stage to
knowing the resources that are going to help you achieve these goals.

Remember that unreachable goals should not be thrown overboard. It is essential to make
new strategies and stay persistent to achieve these goals. This will not only send out a
positive message amongst employees but also befitting replies to your competitors who have
ever doubted your abilities to succeed.   

T-TIME-BASED: Perhaps this is one of the most important factors that determine whether
or not an objective is met. If you do not put a start time and an end time, chances are you
never achieve the objective.

Schedule and put a time to the objective. This will help you to know if what you are doing is
optimal to reach the goal in time, or maybe it would be better if you give a little more speed.

In case you are a little out of time and you are not reaching the goals in the period you
defined, do not worry, you should also learn to be flexible. Just do not abuse this flexibility as
there is a thin line with breaking commitment.

Why should you clearly define Objectives and Goals?

Do you know what is the importance of objectives and goals?

1. Time doesn’t pass in vain for anyone, more importantly not for organizations or
businesses. Every minute, every second a new idea is conceptualized and with these
ideas growing, there is a growing competition out there.
2. Every day there is a new organization or business that is ready to give a tough
competition to its counterparts and competitors. In this competitive atmosphere, it
is also essential to win customers and also understand customer satisfaction levels.
 Not only this, you have to constantly monitor to verify that every department in
your business or organization is working efficiently just like a perfect machinery.  
3. This may sound like a tedious process in which one question leads you to
more questions and then it seems like a never-ending story because not everyone
knows how to land their thoughts. Remember, putting down your goals and
objectives on a paper will help you put your thoughts and your imagination to work
in reality.
To summarize it in a very short and very significant sentence: walking without objectives is
like navigating without a compass. Imagine the immensity of the open sea and you in the
middle of it, it is a moment in which you do not know what to do, nor do you know the
resources you can count on and much less know which side of the ocean or sea will be better
to go.

The best thing is to start making some kind of effort to move forward, right? You cannot stay
there, however, it is difficult to know at that stage, if everything you are doing will have
optimal results and will bring you closer to the right path. The most likely thing is that these
efforts might exhaust you and you do not know if everything you did will be worthwhile for
something, on the contrary, if you know the goal you should reach, it would be easier to use
your energy to achieve it once and for all.

The same happens with the objectives of a company. From the particular to a general, people,
groups, and systems need clear, structured and well-defined objectives. We all have an end to
this life and we cannot get up every day thinking about facing when are we approaching the
end because in this way there will come a time when we feel that we are not doing enough to
sustain in this world.

Marketing strategy/Marketing Plan

An Marketing strategy should not be created in isolation from an offline strategy. Instead,
marketers need to take a holistic view of all business objectives and marketing opportunities.
Offline and online activities should complement each other, both having the potential to reach
different audiences in different ways. However, the Internet is exceptionally useful as a
research and information tool in the strategy process.

Step 1: Know Yourself and Know Your Market

The starting point for any business and marketing strategy is to know who you are. “You”
refers to the organization as a whole (although, of course, a little bit of self-discovery is
always advised). While this can, and should, be readdressed periodically, start by looking at
what the business problems are right now so that a strategy can be developed that solves these
problems:

 What is the nature of the organization now?

 Who are the customers and what are their needs? How can the organization fulfill the
needs of the customer?
 What is the social context that the organization operates in?
Step 2: Perform Strategic Analysis

With a solid understanding of where the organization is right now, further analysis
systematically evaluates the organization’s environmental and social context, objectives, and
strategies so as to identify weaknesses and opportunities.

Porter’s Five Forces Analysis

Porter’s five forces analysis is useful in understanding the attractiveness of the market in
which an organization is transacting. However, this framework for analysis was developed
before the Internet, which has disrupted the markets in which we operate.

Production and distribution costs in many industries have been drastically lowered; the
barriers to entry and costs of switching are reduced. This means that there are more
competitors in the market as the barriers to entry for new organizations are reduced and that
cost is less likely to inhibit customers from switching to a competing product as there are less
likely to be high costs associated with doing so. Perhaps most importantly, the bargaining
power of end users is increased as they have greater access to information when making a
purchase decision. This means that organizations seek to attract and retain customers solely
through offering services and goods at a lower price, though this is not necessarily the best
strategy for companies to follow. Strategic differentiation comes from the value that a
company can provide to a consumer.
Competitors

When analyzing competitors, it is not only product and price that lead the discovery process.
While there may be obvious competitors in the same industry, an organization needs to
consider what (or who) else may be vying for consumers’ attention and valuable search
engine traffic.

In identifying competitors, analyze the needs of your customers and determine how else
customers might fulfill those needs. Products and services are not only competing for
customers’ money: they are fundamentally competing for customers’ attention.

Step 3: Set Marketing Objectives

Marketing objectives are the desired outcomes of the marketing plan. What are the specific
goals that will indicate the success of the marketing strategy?
These should be unique to an organization and are based around the outcomes that will make
money for the organization. This is a strategy, so the focus is on long-term success. Establish
milestones that will indicate that the strategy is on the path to success.

Step 4: Generate Strategies and Tactics for Achieving Objectives

It’s time to put into practice the tactics covered in this textbook. Based on your analysis of
your organization and its objectives, consider strategies and tactics that will help you to meet
these objectives.

For example, an objective could be the acquisition of new customers. A tactic could be the
display of advertising on content Web sites that reflect your target market. If customer
retention is the objective, an e-mail newsletter strategy can help build relationships with an
existing interested database of prospects.

Step 5: Evaluate Strategies

After generating strategies, they need to be evaluated against the needs and resources of your
organization. At this stage, it can be useful to follow Humphrey’s SWOT (strengths,
weaknesses, opportunities, and threats) analysis for a full analysis of the strategies generated.

For each strategy, a SWOT analysis reveals the strengths, weaknesses, opportunities, and
threats afforded by a strategy (and of course can be used to evaluate the plan in its entirety).
SWOT analysis will reveal the feasibility and the attractiveness of the strategies generated.
The needs of the organization include the following:

 Long-term goals
 Short-term objectives
 ROI (return on investment)

The resources of the organization include the following:

 In-house talent and staff

 Budget
 Contracted agencies

Step 6: Implement

You know what you want, and you’ve made a plan for how to get it. Now do it.

Step 7: Track, Analyze, and Optimize

What is eMarketing’s chief advantage over offline marketing? It uses hyperlinks to spread
messages. This means that eMarketing can be tracked, the data can be analyzed, and this can
then feed back into the planning to optimize the marketing strategy.

The Internet allows you to track each tactic on its own, and then intelligent analysis should
allow you to consider how these tactics work together.

Introduction to Customer Analysis

A customer analysis (or customer profile) is a critical section of a company’s business plan or
marketing plan. It identifies target customers, ascertains the needs of these customers, and
then specifies how the product satisfies these needs.

Customer analysis can be broken down into a behavioral profile (why your product matches a
customer’s lifestyle) and a demographic profile (describing a customer’s demographic
attributes).

A customer profile is a simple tool that can help business better understand current and
potential customers, so they can increase sales and grow their business. Customer profiles are
a collection of information about customers that help determine why people buy or don’t buy
a product. Customer profiles can also help develop targeted marketing plans and help ensure
that products meet the needs of their intended audience.

Behavioral Analysis

(Customer Buying Criteria)

A behavioral analysis of customers (or psychographic profile) seeks to identify and weigh the
relative importance of factors consumers use to choose one product over another. These
factors, sometimes called buying criteria, are key to understanding the reasons that customers
choose to buy your product (or service) versus the products offered by your competitors. The
four major criteria that customers use to distinguish competing products
are: price, quality, convenience and prestige.

In consumer transactions, price and quality tend to be the dominant factors. However with
business-to-business (B2B) transactions (also called industrial marketing), service issues such
as reliability, payment terms, and delivery schedule become much more important. The sales
transaction in an industrial marketing scenario also differs from consumer marketing in that
the purchase decision is typically made by a group of people instead of one person, and the
selling process can be much more complex (including stages such as: request for bid,
proposal preparation and contract negotiations).

By identifying customer needs through market research and analysis, companies can develop
a clear and concise value proposition which reflects the tangible benefits that customers can
expect from the company’s products. And once the primary buying criteria have been
identified, marketing efforts can influence the customer’s perception of the product along the
four main dimensions (price, quality, convenience and prestige), relative to the competition’s
product.
 

Behavioral Analysis

(Purchase Process and Patterns)

Occasionally, customer behavior analysis requires a more in-depth understanding of the
actual decision-making process of the customer purchase. This may be especially true in an
industrial marketing scenario. Examples of purchase process questions to be answered here
include:

* What steps are involved in the decision-making process?

* What sources of information are sought?
* What is a timeline for a purchase (e.g., impulse vs. extended decision-making)?
* Will the customer consult others in their organization/family before making a decision?
* Who has the authority to make the final decision?
* Will the customer seek multiple bids?
* Will the product/service require significant modifications?

Behavior profiles can also focus on actions, such as: which types of items were purchased,
how frequently items are purchased, the average transaction value, or which items were
purchased in conjunction with other items. To understand the buying habits and patterns of
your customers, answer the following questions:
* Reason/occasion for purchase?
* Number of times they’ll purchase?
* Timetable of purchase, every week, month, quarter, etc.?
* Amount of product/service purchased?
* How long to make a decision to purchase?
* Where does the customer purchase and/or use the product/service?
Customer Demographics
The second major component in customer analysis is identifying target market segments that
are predisposed to preferring your products over those of your competitors. A market
segment is a sub-set of a market made up of people or organizations with one or more
characteristics that cause them to demand similar product and/or services based on qualities
of those products such as price or function. A marketing program aimed at individual
segments needs to understand and capitalize on the group’s differences and use
them strategically in all advertising campaigns. 

Gender, age, ethnicity, geography and income are all market-segmenting criteria based on
demographics.  
Typical questions to ask when determining the demographics of the target market include:
* What is the age range of the customer who wants my product or service? 
* Which gender would be most interested in this product or service? 
* What is the income level of my potential customers? 
* What level of education do they have? 
* What is their marital or family status: Are they married, single, divorced? Do they have
kids, grandkids?
* What are the hobbies of my target customers?

The target market segments are specified by demographic factors: age, income, education,
ethnicity, geography, etc. Then by having a well defined set of demographic factors,
marketing will be able to identify the best channels to reach these specific demographic
segments. 

What is a Sales Analysis?

A sales analysis is a detailed report that shows a business's sales performance, as well as
customer data and generated revenue. The report defines the strengths and weaknesses of
products and sales teams by referencing historical and current metrics to detect emerging
trends that are most relevant to a company. Typically, a sales analysis is mostly comprised of
quantitative data, such as key performance indicators (KPIs) and charts. The most valuable
KPIs include-
 Regional Sales
 Sales Per Rep
 Average Purchase Value
 Sell-Through Rate
 Cannibalization Rate
 Conversion Rate
 Sales to Date
 Sales Opportunities
 Sales Targets
 Sales Growth

Sales analysis provides critical values from which analysts can form actionable insights. This
enables management to make data-driven decisions rather than relying on guesswork. With
insights into various sales channels, companies can discover where their most-profitable
customers lie, where additional promotions are needed, and which products need quicker
turnover.

A thorough sales report gives businesses the ability to pinpoint performance weaknesses and
make effective improvements to promote sales, revenue, and the bottom line.
Types of Sales Analysis Methods
Businesses can run several different types of analyses, depending on their sales goals. Every
sales analysis method is directed towards a specific element to generate performance insights.

Therefore, management should determine where they need to improve, and which technique
best fits their need.

1. Sales Trend Analysis

A sales trend analysis focuses on finding patterns from sales data within a specific timeframe.
Many retailers use this method to determine micro and macro trends. A micro-trend covers a
particular line of product for a week or so, while a macro trend may track a range of goods
over the course of months. This method enables management to determine their progress
towards sales goals and detect increasing or decreasing product demand.
2. Sales Performance Analysis
A performance analysis measures the effectiveness of a sales strategy by monitoring a sales
team's performance. Aside from tracking sales per rep and other KPIs, this method often
requires a financial analysis based on revenue generated from a certain department or period.
Analysts can also tailor the report to cover win rates, revenue growth, profit margins, and any
other area of interest. This tactic shows sales teams their current performance levels and how
it compares to what is expected.

3. Predictive Sales Analysis

A predictive sales analysis is generated by forecasting software, which uses historical trends
to anticipate future risks and opportunities. This enables companies to mitigate threats and
prepare teams to capitalize on emerging customer demand. By utilizing predictive solutions,
businesses can improve conversion rates and define opportunities to upsell or cross-sell,
promoting sales and revenue.

4. Sales Pipeline Analysis

Sales pipeline analysis monitors consumers' activities before they finalize a sale or abandon
their shopping carts. These reports can generally cover several sales channels or breakdown
interactions from a specific source. This discovers how sales representatives should interact
with customers to improve conversion rates and finalize transactions.
Product Sales Analysis
Businesses that offer several product lines and variances need to conduct a routine product
sales analysis to determine which items are lagging sales. A product sales report considers
KPIs and revenue breakdowns to discover item performance within a specific time frame.
Depending on what KPIs are used, companies can view product sales from the perspective of
different demographics or customer demand. The results enable management to decide which
products should be discontinued or promoted.

6. Sales Effectiveness Analysis

Also known as sales management, sales effectiveness analysis monitors each representative's
performance to teach them how to finalize a purchase. This report requires analysts to study
generated metrics and patterns to create actionable insights. An accurate effectiveness
analysis can enhance customer interactions to boost sales rates.

Market Research
Definition:

Market research is defined as the process of evaluating the feasibility of a new product or
service, through research conducted directly with potential consumers. This method allows
organizations or businesses to discover their target market, collect and document opinions
and make informed decisions.

Market research can be conducted directly by organizations or companies or can be

outsourced to agencies which have expertise in this process.

The process of market research can be done through deploying surveys, interacting with a
group of people also known as sample, conducting interviews and other similar processes.  

Primary purpose of conducting market research is to understand or examine the market

associated with a particular product or service, to decide how the audience will react to a
product or service. The information obtained from conducting market research can be used to
tailor marketing/ advertising activities or to determine what are the feature priorities/service
requirement (if any) of consumers.

Three key objectives of market research

A market research project may usually have 3 different types of objectives.

1. Administrative: Help a company or business development, through proper

planning, organization, and both human and material resources control, and thus
satisfy all specific needs within the market, at the right time.
2. Social: Satisfy customer’s specific needs through a required product or service. The
product or service should comply with the requirements and preferences of a
customer when it’s consumed.
3. Economical: Determine the economical degree of success or failure a company can
have while being new to the market, or otherwise introducing new products or
services, and thus providing certainty to all actions to be implemented.
Why is market research important?
Conducting research is one of the best ways of achieving customer satisfaction,
reducing customer churn and elevating business. Here are the reasons why market research is
important and should be considered in any business:

 Valuable information: It provides information and opportunities about the value of

existing and new products, thus, helping businesses plan and strategize accordingly.
  Customer-centric: It helps to determine what the customers need and want.
Marketing is customer-centric and understanding the customers and their needs will
help businesses design products or services that best suit them.
 Forecasts: By understanding the needs of customers, businesses can also forecast their
production and sales. Market research also helps in determining optimum inventory
stock.
 Competitive advantage: To stay ahead of competitors market research is a vital tool
to carry out comparative studies. Businesses can devise business strategies that can
help them stay ahead of their competitors.
Types of Market Research: Market Research Methods and Examples
Whether an organization or business wishes to know purchase behavior of consumers or the
likelihood of consumers paying a certain cost for a product, market research helps in drawing
meaningful conclusions.

Depending on the methods and tools required, following are the types:

1. Primary Market Research (A combination of both Qualitative and Quantitative

Research): Primary market research is a process, where organizations or businesses get in
touch with the end consumers or employ a third party to carry out relevant studies to collect
data. The data collected can be qualitative data (non-numerical data) or quantitative data
(numerical or statistical data).

While conducting primary market research, one can gather two types of information:
Exploratory and Specific. Exploratory research is open ended, where a problem is explored
by asking open ended questions in a detailed interview format usually with a small group of
people also known as sample. Here the sample size is restricted to 6-10 members. Specific
research, on the other hand, is more pinpointed and is used to solve the problems that are
identified by exploratory research.

As mentioned earlier primary market research is a combination of qualitative market research

and quantitative market research. Qualitative market research study involves semi-structured
or unstructured data collected through some of the commonly used qualitative research
methods like:

Focus groups: Focus group is one of the commonly used qualitative research methods. Focus
group is a small group of people (6-10) who typically respond to online surveys sent to them.
The best part about focus group is the information can be collected remotely, can be done
without personally interacting with the group members. However, this is a more expensive
method as it is used to collect complex information.

One-to-one interview: As the name suggests this method involves personal interaction in the
form of an interview, where the researcher asks a series of questions to collect information or
data from the respondents. The questions are mostly open ended questions and asked in a way
to facilitate responses. This method is heavily dependent on the ability and experience of the
interviewer to ask questions that evoke responses.
Ethnographic research: This type of in-depth research is conducted in the natural settings of
the respondents. This method requires the interviewer to adapt himself/herself to the natural
environment of the respondents which could be a city or a remote village. Geographical
constraints can be a hindering factor in conducting this kind of research. Ethnographic
research can last from a few days to a few years.

Qualitative research methods are used by organizations to conducted structured market

research by using online surveys, questionnaires and polls to gain statistical insights to make
informed decisions.

This method was once conducted using pen and paper. This has now evolved to sending
structured online surveys to the respondents to gain actionable insights. Researchers tend to
use modern and technology-oriented survey platforms to structure and design their survey to
evoke maximum response from respondents.

Through a well-structured mechanism, data is easily collected and reported and necessary
action can be taken with all the information that is made available first hand.

2. Secondary Market Research: Secondary research uses information that is organized by

outside source like government agencies, media, chambers of commerce etc. This
information is published in newspaper, magazines, books, company website, free government
and nongovernment agencies and so on. Secondary source makes use of the following:

Public sources: Public sources like library are an awesome way of gathering free
information. Government libraries usually offer services free of cost and a researcher can
document available information.

Commercial sources: Commercial source although reliable are expensive. Local

newspapers, magazines, journal, television media are great commercial sources to collect
information.

Educational Institutions: Although not a very popular source of collecting information,

most universities and educational institutions are a rich source of information as many
research projects are carried out there than any business sector.

Steps for conducting Market Research

Knowing what to do in various situations that arise during the investigation will save the
researcher’s time and reduce problems. Today’s successful enterprises use powerful market
research survey software that helps them conduct comprehensive research under a unified
platform and hence provide actionable insights much faster with fewer problems.

Following are the steps to conduct an effective market research.

Step #1: Define the Problem

Having a well-defined subject of research will help researchers when they ask questions.
These questions should be directed to solve problems and they have to be adapted to the
project. Make sure the questions are written clearly and that the respondents understand them.
Researchers can conduct a test with a small group to know if the questions are going to know
whether the asked questions are understandable and will they be enough to gain insightful
results.

Research objectives should be written in a precise way and should include a brief description
of the information that is needed and the way in which it will obtain it. They should have an
answer to this question “why are we doing the research?”

Step #2: Define the Sample

To carry out market research, researchers need a representative sample that can be collected
using one of the many sampling techniques. A representative sample is a small number of
people that reflect, as accurately as possible, a larger group.

 An organization cannot waste their resources in collecting information from the

wrong population. It is important that the population represents characteristics that
matter to the researchers and that they need to investigate, are in the chosen sample.
 Take into account that marketers will always be prone to fall into a bias in the
sample because there will always be people who do not answer the survey because
they are busy, or answer it incompletely, so researchers may not obtain the required
data.
 Regarding the size of the sample, the larger it is, the more likely it is to be
representative of the population. A larger representative sample gives the researcher
greater certainty that the people included are the ones they need, and they can
possibly reduce bias. Therefore, if they want to avoid inaccuracy in our surveys,
they should have representative and balanced samples.
 Practically all the surveys that are considered in a serious way, are based on a
scientific sampling, based on statistical and probability theories.

There are two ways to obtain a representative sample:

 Probability sampling: In probability sampling, the choice of the sample will be made
at random, which guarantees that each member of the population will have the same
probability of selection and inclusion in the sample group. Researchers should ensure
that they have updated information on the population from which they will draw the
sample and survey the majority to establish representativeness.
 Non-probability sampling: In a non-probability sampling, different types of people
are seeking to obtain a more balanced representative sample. Knowing the
demographic characteristics of our group will undoubtedly help to limit the profile of
the desired sample and define the variables that interest the researchers, such as
gender, age, place of residence, etc. By knowing these criteria, before obtaining the
 information, researchers can have the control to create a representative sample that is
efficient for us.
When a sample is not representative, there can be a margin of error. If researchers want to
have a representative sample of 100 employees, they should choose a similar number of men
and women.

The sample size is very important, but it does not guarantee accuracy. More than size,
representativeness is related to the sampling frame, that is, to the list from which people are
selected, for example, part of a survey.

If researchers want to continue expanding their knowledge on how to determine the size of
the sample consult our guide on sampling here.

Step #3: Carry out data collection

First, a data collection instrument should be developed. The fact that they do not answer a
survey, or answer it incompletely will cause errors in research. The correct collection of data
will prevent this.

Step #4: Analyze the results

Each of the points of the market research process is linked to one another. If all the above is
executed well, but there is no accurate analysis of the results, then the decisions made
consequently will not be appropriate. In-depth analysis conducted without leaving loose ends
will be effective in gaining solutions. Data analysis will be captured in a report, which should
also be written clearly so that effective decisions can be made on that basis.

Analyze and interpret the results is to look for a wider meaning to the obtained data. All the
previous phases have been developed to arrive at this moment.

How can researchers measure the obtained results? The only quantitative data that will be
obtained is age, sex, profession, and number of interviewees because the rest are emotions
and experiences that have been transmitted to us by the interlocutors. For this, there is a tool
called empathy map that forces us to put ourselves in the place of our clientele with the aim
of being able to identify, really, the characteristics that will allow us to make a better
adjustment between our products or services and their needs or interests.

When the research has been carefully planned, the hypotheses have been adequately defined
and the indicated collection method has been used, the interpretation is usually carried out
easily and successfully. What follows after conducting market research?

Step #5: Make the Research Report

When presenting the results, researchers should focus on: what do they want to achieve using
this research report and while answering this question they should not assume that the
structure of the survey is the best way to do the analysis. One of the big mistakes that many
researchers make is that they present the reports in the same order of their questions and do
not see the potential of storytelling.To make good reports, the best analysts give the following
advice: follow the inverted pyramid style to present the results, answering at the beginning
the essential questions of the business that caused the investigation. Start with the conclusions
and give them fundamentals, instead of accumulating evidence. After this researchers can
provide details to the readers who have the time and interest.

Step #6: Make Decisions: A market research helps researchers to know a wide range of
information, for example,  consumer purchase intentions, or gives feedback about the growth
of the target market. They can also discover valuable information that will help in estimating
the prices of their product or service and find a point of balance that will benefit them and the
consumers.

Benefits of an Efficient Market Research

 Make well-informed decisions: The growth of an organization is dependent on the

way decisions are made by the management. Using market research techniques, the
management can make business decisions on the basis of obtained results that back
their knowledge and experience. Market research helps to know market trends, hence
to carry it out frequently to get to know the customers thoroughly.
 Gain accurate information: Market research provides real and accurate information
that will prepare the organization for any mishaps that may happen in the future. By
properly investigating the market, a business will undoubtedly be taking a step
forward, and therefore it will be taking advantage of its existing competitors.
 Determine the market size: A researcher can evaluate the size of the market that
must be covered in case of selling a product or service in order to make profits.
 Choose an appropriate sales system: Select a precise sales system according to what
the market is asking for, and according to this, the product/service can be positioned
in the market.
 Learn about customer preferences: It helps to know how the preferences (and
tastes) of the clients change so that the company can satisfy preferences, purchasing
habits, and income level. Researchers can determine the type of product that must be
manufactured or sold based on the specific needs of consumers.
 Gather details about customer perception about the brand: In addition to
generating information, market research helps a researcher in understanding how the
customers perceive the organization or brand.
 Analyze customer communication methods: Market research serves as a guide for
communication with current and potential clients.
 Productive business investment: It is a great investment for any business, because
thanks to it they get invaluable information, it shows researchers the way to follow to
take the right path and achieve the sales that are required.
Pricing Decisions: Influencing Factors, Methods and Economic Approach!
Factors Influencing Pricing Decisions:
Pricing of a product or service refers to the fixation of a selling price to a product or service
provided by the firm. Selling price is the amount for which customers are charged for some
product manufactured or for a service provided by the firm. The pricing decisions are
influenced by both internal and external factors.

Needles, Anderson and Caldwell have suggested external factors and internal factors to be
considered for setting a price by a business firm.

Factors to Consider When Setting a Price:

External Factors:
1. Total demand for product or service and its elasticity
2. Number of competing products or services
3. Quality of competing products or services evaluation
4. Current prices of competing products or services
5. Customer’s preferences for quality versus price
6. Sole source versus heavy competition (Number of suppliers in the market)
7. Seasonal demand or continual demand
8. Life of product or service
9. Economic and political climate and trends and likely changes in them in future.
10. Type of industry to which the product belongs and future outlook of the industry.
11. Governmental guidelines, if any.

Internal Factors:
1) Cost of product or service
2) Variable costs
3) Full absorption costs
4) Total costs
5) Replacements, Standard or any other cost base
6) Price geared toward return on investment
7) Loss leader or main product
8) Quality of materials and labour inputs
9) Labour intensive or automated process
10) Markup percentage updated
11) Usage of scarce resources
12) Firm’s profit and other objectives
 13) Pricing decision as a long-run decision or short term decision or a onetime spare
capacity decision

Factors Influencing Pricing Decisions:

Among the many factors influencing the pricing decisions, the three major influences are
customers, competitors and costs.

Customers:
Managers examine pricing problems through the eyes of their customers. Increasing prices
may cause the loss of a customer to a competitor or it may cause a customer to choose a less
expensive substitute product.

Competitors:
No business operates in a vacuum. Competitors’ reactions also influence pricing decisions. A
competitor’s aggressive pricing may force a business to lower its prices to be competitive. On
the other hand, a business without a competitor can set higher prices. A business with
knowledge of its competitor’s technology, plant capacity and operating policies is able to
estimate its competitors’ cost, which is valuable information in setting prices. Managers
consider both their domestic and international competition in making pricing decisions. Firms
with excess capacity because demand is low in domestic markets may price aggressively in
their export markets.

Costs:
Costs influence prices because they affect supply. The lower the cost relative to the price, the
greater the quantity of product the company is willing to supply. A product that is consist-
ently priced below its cost can drain large amounts of resources from an organisation.

In making pricing decisions, all above three factors are important. However, when setting
prices, companies weigh customers, competitors and costs differently. Companies selling
homogeneous products in highly competitive markets must accept the market price. In less
competitive markets, products are differentiated and managers have some discretion in setting
prices.

As competition further decreases, the key factor affecting pricing decisions is the customers’
willingness to pay, not costs or competitors. Pricing strategy is now being accepted as a tool
for providing customer satisfaction and continuous improvement of the product as well.

Pricing strategies can help grow your business, earn more sales, and maximize your profits.
Here are some common pricing strategies to consider.
1. Penetration pricing

It’s difficult for a business to enter a new market and immediately capture market share, but
penetration pricing can help. The penetration pricing strategy consists of setting a much lower
price than competitors to earn initial sales. These low prices can draw in new customers and
take away revenue from competitors. While your company will likely take a loss at first, you
can earn new customers and turn them into loyal customers once you start raising your prices
again. Companies like internet and smartphone providers use this strategy to gain market
share.

Pro: Market penetration is much easier than entering with an average price, and you can
quickly earn new customers.

Con: It’s not sustainable in the long run and should only be a short-term pricing strategy.

Example: A new cafe opens up in town and offers coffee that is 40% cheaper than any other
cafe in the area.

2. Skimming pricing

Businesses that charge maximum prices for new products and gradually reduce the price over
time follow a skimming strategy. Prices drop as products end their life cycle and become less
relevant. Businesses that sell high-tech or novelty products typically use price skimming.

Pro: You can maximize profits of new products and make up for production costs.

Con: Customers may become frustrated that they purchased at a higher price and watch as
the price gradually declines.

Example: A home entertainment store starts selling the latest, most advanced television well
above market price. Prices then gradually decrease over the year as newer products come to
market.

3. High-low pricing

High-low pricing is similar to skimming, except the price drops at a different rate. With the
high-low pricing method, the price of a product drops significantly all at once rather than at a
gradual pace. Retail businesses that sell seasonal products typically use a high-low strategy.

Pro: You can rid your inventory of out-of-date products by discounting them and putting
them on clearance.

Con: Customers may wait for impending sales rather than purchasing at full price.

Example: A boutique clothing store sells women’s sundresses at a high price during the
summer and then puts them on clearance once autumn arrives.
4. Premium pricing

Premium pricing occurs when prices are set higher than the rest of the market to
create perceived value, quality, or luxury. Customers are willing to pay a premium
price when they know the brand name and have a positive brand perception. Companies that
sell luxury, high-tech, or exclusive products—like businesses within the fashion or tech
industry—often use the premium pricing technique.

Pro: Profit margins are higher since you can charge much more than your production costs.

Con: This type of pricing strategy only works if customers perceive your product as

premium.

Example: A beauty salon builds up credibility within its market and offers its services for
30% higher than its competitors.

5. Psychological pricing

Psychological pricing strategies play on the psychology of consumers. In a way, you are

luring in customers by slightly altering price, product placement, or product packaging.
Some psychological pricing techniques include setting the price to $9.99 rather than $10, or
offering a “buy one, get one free” deal. For example, 90% of retail prices end with either “9”
or “5.” Nearly any type of business can use this strategy, but retail and restaurant businesses
most commonly employ this method.

Pro: You can sell more products by slightly tweaking your sales tactics without losing
profits.

Con: Some customers may perceive it as being tricky or salesy, which could potentially
tarnish your reputation or lead to missed sales.

Example: A restaurant sets a gourmet hamburger’s price at $12.95 to lure customers into
purchasing at a perceived lower price compared to $13.

6. Bundle pricing

Bundle pricing is selling two or more similar products or services together for one
price. Bundling is an effective way to upsell additional products to customers or add value to
their purchase. Restaurants, beauty salons, and retail stores are among the many businesses
that apply this strategy.

Pro: Customers discover new products they weren’t initially planning to buy and may end up
purchasing them again.
Con: Products that are sold within a bundle will be bought less often individually since
consumers are saving money on a bundled purchase.

Example: A taco cantina sells tacos, tortilla chips, and salsa individually, but offers a
discounted price if customers buy an entire meal with all of these items.

7. Competitive pricing

The competitive pricing strategy sets the price of your products or services at the current
market rate. Your pricing is determined by all other products in your industry, which helps
you stay competitive if your business is in a saturated industry. You can also decide to price
your products above or below the market rate, as long as it’s still within the range of prices
set by all competitors in your industry. 

It’s worth noting that 96% of consumers compare prices before purchasing, which gives you
an opportunity to win over customers with a price slightly below the market average.

Pro: You can maintain market share in a competitive market and attract customers who are
interested in paying slightly less than your competitors’ rates.

Con: You need to diligently watch average market prices to maintain a competitive

advantage for price-conscious consumers.

Example: A landscaping company compares its prices to local competitors and sets its prices
below the market average to attract price-sensitive customers.

8. Cost-plus pricing

Cost-plus pricing involves taking the amount it cost you to make the product and increasing
that amount by a set percentage to determine the final price. You can work backwards to
determine your markup percentage by first figuring out how much you want to profit from
each product sold.

Pro: Profits are more predictable since you’re setting your markup price to a fixed
percentage.

Con: Since this approach doesn’t account for external factors, like your competitors’ pricing,
or market demand, you may miss out on sales if you set your markup percentage too high.

Example: A pizza shop adds up the cost of its ingredients and labor, then sets the pizza price
to receive a 20% profit margin.

9. Dynamic pricing

Dynamic pricing matches the current market demand for a product. This pricing

strategy most often occurs when the product at hand fluctuates on a daily or even hourly
basis. Industries like hotels, airlines, and event venues set different prices daily and apply this
strategy to maximize profits.

Pro: You can increase overall revenues by raising prices when demand is on the rise.

Con: Dynamic pricing requires complex algorithms that small businesses may not have the
ability to produce.

Business plan
A business plan is a comprehensive written document that defines the goals of a business and
outlines the methods for achieving them. It serves as a roadmap that:
• Acts as a management and financial blueprint for starting an event company and for
profitable operation after the company is established.
• Explains the functioning of business along with company details, such as services offered,
clients, marketing strategy, human resources, infrastructure requirement, supplies, finance,
etc.
Broadly speaking developing a business plan involves conceptualization and documentation
of the final plan. It usually covers the overview of the event industry, proposed business
structure, services to be offered, anticipated clients, competition, its competitive advantage,
and relevant financial information to ascertain the viability of the business. Typically the
focus is on future projections.

A business plan comprises of the following components:

 Executive Summary is the summation of all elements and should be written once the
document is complete.
 Company Summary comprises of a snapshot of the company i.e. the scope of work,
type of business, owners, business expectations and recent sales / growth trends (if
any).
 Products and Services section covers the services offered by the event company,
thus, highlighting its area(s) of specialisation to prospective clients.
 Industry and Market Analysis shares the details of the market segment targeted by
the company including customer segmentation, their needs, and a snapshot of
competitive trends.
 Strategy and Implementation section covers company specific strategy in line with
market dynamics, including the short and long-term implementation strategy.
 A Marketing Plan provides the details of pricing, communication, promotions and
distribution of services offered by the company.
 The Operational Plan is the process backbone of the day to day operations. This
section also includes the Standard Operating Procedures (SOPs) for various activities
in the event company.
  The section on Management Team provides information about the company’s
administration, senior functional members and partners, including their background
and experience.
 Financial Summary covers the details of the sales forecasts, cost overheads, balance
sheets and profit-loss accounts spread over a short term (1-2 years), and medium to
long term, i.e. 4-5 years. Cash flow projections are an integral part of the financial
summary.
The advantages of writing a business plan are discussed below:
Provides an integrated view of the business: A business plan is an integrated document
comprising of the various aspects of business - including analysis of the event industry, client
base, details of event service, vendors for regular supply, marketing plan, etc. A good
business plan must ensure that all these aspects are synchronised with each other to achieve
the desired goal.
Determines the financial requirement: This includes capital requirement, sources of
finance and the predicted timeline to reach the break-even point.
Capital Generation: A comprehensive business plan is created to convince investors to
invest in a new venture or to move the business to the next level. Banks and investment funds
often use the business plan to periodically monitor the progress of the business.
Directing employees: A business plan is also used as a means to inform/motivate employees
about the objectives of the company. Informing strategic partners: Strategic partners can also
understand the company by studying its business plan. It may also be used as the basis for
getting approvals from the company board and shareholders.
Recruiting senior-level management: Business plan acquaints the senior level management
about the company objectives and strategy along with their role. Departmental uses:
Departments within the company may use the business plan as the starting point for preparing
the detailed marketing plan or human resource policy.
Long-term planning: A business plan is used as a platform to test future scenarios.
Assessment of current activities or near-term goals should be in line with the original strategy
of the event company. This understanding is beneficial for long-term planning of the
company.
Pitfalls to Avoid in business plan
1. The Plan is Poorly Written
Spelling, punctuation, grammar, and style, SWOT analysis, and strategic planning are
important when it comes to getting your business plan written. Investors are looking for clues
about the underlying business and its leaders when they’re studying your plan.

When they see one with spelling, punctuation, and grammar errors, they immediately wonder
what else is wrong with the business and what are the weaknesses opportunities, and threats.
Before you show your plan to a single investor or banker, go through every line of the plan
with a fine-tooth comb. Run your spell check and have someone you know with strong
editorial skills review it for grammar problems.
2. Incomplete Business Plan
The plan is incomplete. Every business has customers, products and services, operations,
marketing and sales, a management team, and competitors. At an absolute minimum, your
plan must cover all these areas including the common weaknesses of a business.

A complete plan should also include a discussion of the industry, particularly industry trends,
such as if the market is growing or shrinking. Finally, your plan should include detailed
financial projections–monthly cash flow and income statements, as well as annual balance
sheets, going out at least three years.
3. General Assumptions in A Business Plan
The plan makes unrealistic assumptions. By their very nature, business plans are full of
assumptions. The most important assumption is that your business will succeed! The best
business plans highlight critical risks, common small business mistakes, and provide some
sort of rationalization for them.

The worst business plans bury these risks throughout the plan so no one can tell where the
assumptions end and the internal and external factors begin. Market size, acceptable
pricing, customer purchasing behavior, these all involve assumptions. Wherever possible,
make sure to tie your assumptions to facts.

A simple example of this would be the real estate section of your plan. You should research
the locations and costs for real estate in your area, and make a careful estimate of how much
space you’ll actually need before presenting your plan to any investors or lenders.
4. Sticking to the plan
No matter how well a business plan is written, it’s certainly not going to appeal to everyone.
Because of that, it’s recommended that you consider picking a single business model and
sticking with it.

Don’t focus on solving multiple problems and focus on multiple industries: one is always
enough and highly recommended. If you don’t take this advice seriously, then you’re going to
spread yourself too thin and make a bad first impression by coming up with a sprawling
business plan.
5. Don’t Let Your Business Plan be Boring
If one of your potential clients has read a few pages of your business plan and got bored,
that’s a big red flag. In fact, you want them to feel exactly the opposite and make them feel
pulled in by the great and well-written business ideas you have.

To make that happen, you need to write a very catchy executive summary and cover page.
Sometimes, a well-designed logo can also go a long way.
6. Being too Optimistic When Measuring Your Market Size
You may think that projecting great revenue potential and vast markets to your potential
investors sounds impressive, but most of the time such estimates won’t appeal to them as
much as you think.

In fact, when you use big numbers too often, you appear as an amateur or someone who
doesn’t really know what he’s talking about, because you don’t sound realistic. Unless you’re
completely sure you can deliver on your promises, don’t make bold statements in your
business plan.
7. Not Having the Confidence to Sell Your Service or Product
The last thing you want your potential investors to feel is that you don’t really have
confidence in your product. And if you also ignore the competition your business faces, it
shows you are not sophisticated.

There are no or very few ideas that face no competition and even though you may think your
concept is 100% original, there are always forces that can compete with your service or
product that needs to be taken into consideration. If you don’t do so, then don’t expect to find
investors who are willing to financially support your idea anytime soon.
8. Being Inconsistent
You’d be surprised how many entrepreneurs who choose to write their own business
plans contradict themselves. When you do that, it immediately shows that you don’t have a
good grasp of how you want\should run your business and this deters investors from seriously
considering financing you.

Also, make sure that each fact concerning your main competitors, your market, and your
industry is readily verifiable and also accurate. If they’re not, then investors won’t be happy
about it.
9. Considering Too Many Perspectives
While it’s important to have someone else vet your business plan, you should not exaggerate
by identifying possible flaws in your thinking to the point where the reader is going to find it
impossible to follow the narrative thread. Yes, sure, you do need and should address some
possible investor objections, but try to be objective and clear in order to make sure you’re
successful with making a persuasive pitch.
10. Being Unable to Acknowledge the Competition
Remember that when writing a business plan, you don’t need to make it look like any other
out there. All that matters is that you come up with a proposal that stands out and clearly
expresses your personality and idea. By doing so, you’re certainly going to feel a lot more
comfortable when you’ll need to present it in front of a group of investors.

11. Not Getting Professional Help

This is one of the common business plan mistakes that just screams amateur and the sad part
is that it’s quite prevalent when your business plan is not written by a professional.
When you present your business plan to a potential investor and he finds that it’s riddled with
gaps in logic or silly errors, then that is worse than having no business plan at all.

To ensure that will never be the case, you should go ahead and reach out to some of your
contacts who’ve vetted business plans before. They’ll point out any mistakes they find and
ensure that you won’t make a complete fool of yourself when presenting it to potential
investors