E-Commerce Start-up

Business Plan
Table of Contents

Executive Summary................................................................................................................1
Chart: Highlights.................................................................................................................3
Objectives.................................................................................................................................3
Positioning Statement...............................................................................................................4
Keys to Success........................................................................................................................4
Mission.....................................................................................................................................5
Company Summary................................................................................................................6
Start-up Summary.....................................................................................................................6
Table: Start-up.....................................................................................................................6
Table: Start-up Funding.......................................................................................................7
Chart: Start-up.....................................................................................................................7
Services....................................................................................................................................7
Service Guarantee.....................................................................................................................7
Order Number...........................................................................................................................8
Return Policies..........................................................................................................................8
Return Label.............................................................................................................................9
Sequence of Process...............................................................................................................10
Benefits Summary.................................................................................................................10
Benefits to Merchants.............................................................................................................10
Benefits to Consumers............................................................................................................11
Benefits to Online Community...............................................................................................11
Market Analysis Summary..................................................................................................11
Service Description.................................................................................................................12
Promotion, Sales, and Marketing............................................................................................14
Distribution and Information Structure...................................................................................16
Strategic Alliances..............................................................................................................17
Market Segmentation..............................................................................................................18
Description of Items Sold...................................................................................................18
Chart: Market Analysis (Pie).............................................................................................19
Table: Market Analysis.......................................................................................................20
Market Needs..........................................................................................................................20
Industry Analysis....................................................................................................................21
New Markets.......................................................................................................................21
New Services......................................................................................................................22
New Customers...................................................................................................................22
Competition and Buying Patterns...........................................................................................23
Direct Competitors.................................................................................................................23
Internal Competitors...............................................................................................................23
Channel Competitors..............................................................................................................24
Strategy and Implementation Summary............................................................................24
Pricing.................................................................................................................................... 26
Sales Strategy.........................................................................................................................27
Sales Forecast....................................................................................................................27
Chart: Sales Monthly..........................................................................................................28
Table: Sales Forecast.........................................................................................................29
Management Summary........................................................................................................29
Personnel Plan........................................................................................................................29
Table: Personnel................................................................................................................30
Financial Plan.......................................................................................................................30
Table: General Assumptions..............................................................................................31
Projected Cash Flow...............................................................................................................31
Chart: Cash........................................................................................................................31
Table: Cash Flow...............................................................................................................32
Break-even Analysis...............................................................................................................33
Chart: Break-even Analysis................................................................................................33
Table: Break-even Analysis................................................................................................33
Projected Profit and Loss........................................................................................................34
Table: Profit and Loss........................................................................................................35
Projected Balance Sheet.........................................................................................................35
Table: Balance Sheet..........................................................................................................36
Business Ratios.......................................................................................................................37
Table: Ratios......................................................................................................................37
Appendix..................................................................................................................................i

Table: Sales Forecast...............................................................................................................i

Table: Personnel.....................................................................................................................ii

Table: General Assumptions................................................................................................iii

Table: Profit and Loss...........................................................................................................iv

Table: Cash Flow....................................................................................................................v

Table: Balance Sheet.............................................................................................................vi

Executive Summary

XXX E-Commerce LLC is an e-commerce start-up company positioning itself to become the
market leader in offering online merchants and consumers a uniform and trouble-free way to
return merchandise purchased online. The company offers a business-to-business solution to
online merchants of physical, non-perishable products. The company utilizes a consolidation
approach in handling all product returns that allows online merchants to instantly save bad
sales, restore customer satisfaction and stimulate repeat sales, while offering consumers a
convenient, centralized online location to claim returns. By creating a new service category
and utilizing the first-mover advantage, XXX E-Commerce LLC positions itself for rapid
growth and gains a strong opportunity to raise entry barriers for possible competition.

The Market

E-commerce continues to accelerate and the amount of money spent on purchases made
through the Internet shows no sign of decline. During the past holiday season (November 20
to December 19), retailers saw online revenues quadruple, jumping 300% to about $11
billion and far exceeding expectations, according to a study by Shop.org and Boston
Consulting Group. The study of 30 retailers in such categories as apparel, books and music,
home and garden, specialty foods and electronics showed a 270% growth in the number of
orders. The study indicated that online sales were growing at 145% annually and it projected
online retailer revenues of more than $36 billion for last year. An earlier study conducted by
Ernst & Young, before the holiday frenzy, already estimated that total revenues for online
retail and consumer products for the calendar year just completed were around $25-30
billion. Currently, the average rate of returns for Internet-based companies is 9%. In the
coming year the value of returned merchandise was $1.5 billion. This indicates an amazing
opportunity.

Service Offerings

XXX E-Commerce LLC 's services streamline the entire return process for retailers. They
allow retailers to outsource a large part of their business, allowing the retailer to concentrate
on their core competencies and not get distracted with activities that add little value. XXX E-
Commerce LLC will reduce capital expenditures of a company that uses their services,
increase customer service of the retailer, increase sales opportunities, increase revenues, and
improve inventory management. Customers will benefit by having a convenient, easy way to
return their purchases as well as the ability to track their returns.

Keys To Success

XXX E-Commerce LLC has three ambitious and obtainable keys to success. The first is the
development of a customer service / customer satisfaction software application. This robust
software will be XXX E-Commerce LLC 's engine that ensures a seamless management of
all of their business activities. Their second key is the formation of strategic relationships
with online merchants, shippers, and credit card companies. The relationships with
merchants will allow XXX E-Commerce LLC to quickly grow their customer base of
retailers served. Alliances with shipping companies will be formed since the actual cost of
shipping is their largest cost driver. Partnerships with credit card companies will allow XXX
E-Commerce LLC to offer the respective cards as the preferred credit card thereby
generating an additional source of revenue.

Management Team

There are two principals that are responsible for the idea and the progress of the firm up.
They recognize as the companies quickly grows, certain positions such as CEO and CFO will
need to be filled. The company was founded by Steve Logic and Dan Codder. Steve has
spent the last ten years at Federal Express. While at FedEx, Steve was responsible for their
logistics system. Steve has the incredible skill of perceiving business needs and creating a
solution to address the need. At FedEx, Steve was the architect behind their benchmarked
logistic system that has the ability to track customer packages and share the information with
the client. What this meant for FedEx is that they could tell the customer exactly where their
package is at any one point. This logistics system is the main driver behind FedEx's
exponential growth. Dan Codder is a twenty-year veteran in the computer industry. Self
taught, Dan has worked at IBM, Cadence, Tektronix, and several other companies. Dan has
the ability to design and write computer code very quickly and accurately. XXX E-
Commerce LLC will leverage Dan's skills for the completion of their customer service
software engine.

Financials

XXX E-Commerce LLC 's financials are conservative yet quite promising. Once they are up
and running and sign up some merchants as customers, XXX E-Commerce LLC will quickly
gain momentum and generate impressive sales. Revenue for year two will be $19 million,
climbing to $59 million by year three. Net profit for these years respectively will be $4.7
million and $27.3 million. Even more impressive is XXX E-Commerce LLC 's net profit
margin. Year two will only see a net margin of 25%, but the following year will see a
sustainable 45%. XXX E-Commerce LLC will be creating a new service category leveraging
their first mover status and seizing the incredible market potential of Internet-based retailers.

Chart: Highlights
 Highlights
$60,000,000

$50,000,000

$40,000,000
Sales

$30,000,000 Gross Margin

Net Profit
$20,000,000

$10,000,000

$0

Year 1 Year 2 Year 3

Objectives

The ultimate benefit of the program is that it enhances the overall image of the online
merchant. Consumers demand not only convenience but a peace of mind. The proposed
program offers both, and it will increase the number of online shoppers, thus causing a
market expansion for online merchants. The first retailers who implement the proposed
program will also be able to differentiate themselves and capture larger market shares in their
respective segments. Once embraced by the majority of retailers, the program will become an
industry standard. Due to lack of current competition, XXX E-Commerce LLC has the first-
mover advantage and is well positioned to establish itself as the leader in the newly created
service category. XXX E-Commerce LLC therefore has an enormous upside potential and is
poised for rapid growth. By securing agreements with companies such as AOL.com and
Yahoo! that host large numbers of merchants, XXX E-Commerce LLC will raise high entry
barriers for possible competition and will significantly minimize the replication factor.

Positioning Statement

XXX E-Commerce LLC strives to position itself as a strategic partnership between online
merchants, Web hosting companies and portals, shipping companies, and online payment
agents such as credit card issuers. Due to demand aggregation, the strategy will produce
reduced or totally free shipping of returned merchandise to consumers. This differentiating
element will multiply the consumer acceptance factor and will draw more revenues to all
participating companies. The proposed program is therefore a win-win solution to all parties
involved. Moreover, the software architecture and website format will be wireless-friendly
thus designing the service in such a way that consumers will later be able to easily use it via
cellular phones and other personal wireless devices.
Keys to Success

In order for the company to operate, a number of specific ingredients are needed. Following
are things to put in place before the service can be offered.

1. Develop a customer service & customer satisfaction software application that uses
order number (of a merchandise item) and merchant's Web address to:

o Retrieve all pertinent information on a participating merchant.

o Match appropriate return procedures against the returning item.
o Present procedures to the consumer in the most concise format.
o Provide reference to the merchant's entire return policies if requested.
o Inform the merchant of the entire transaction as it occurs.
o Gain authorization from the merchant to return merchandise if needed.
o Present the merchant's website to consumer for selling opportunities.
o Provide confirmation emails to the customer of the actions taking place if
requested.
o Interact with the merchant's database for further customer details if needed.
o Maintain a record of the transactions for the company's own database.
2. Develop successful relationships with online merchants to facilitate exchange of
information.
3. Develop strategic alliances with online merchants, shipping companies, and credit
card issuers to negotiate reduction or elimination of the shipping costs to consumers
on returned merchandise.
4. Design, maintain, and promote a user-friendly website, the corporate trademark, that
offers an easy and trouble-free merchandise return procedure for consumers.

Mission

Our mission is to enhance customer service of online merchants, boost their customer
retention and increase their sales. We strive to improve the overall image of the online
merchant and therefore stimulate growth of online shopping. We put our efforts to increase
customer satisfaction when consumers deal with retailers, to enhance the interaction process
when retailers communicate with consumers, and to streamline the problem resolution order
in all possible ways.
Company Summary

The vision behind the company is to provide a return service that is safe, convenient, and
easy to use.

Start-up Summary

XXX E-Commerce LLC is currently looking for early-stage funding and strategic
partnerships to execute the program. The company plans to raise up to $2.6 million in two
rounds of financing during Year 1, along with securing access to additional $1.4 million for
the cash flow purposes, before making its program fully available to online merchants and
consumers. The preliminary rollout timing is set for Thanksgiving this year. Based on
conservative financial projections, the company will become profitable from early Year 2.
The dual-pricing strategy generates solid net income and nearly eliminates the downside
risks. By Year 5-end , the $4 million investment will produce $150 million in cash flows, all
internally generated. The company can go public as early as Year 2. Should an IPO be
undertaken at Year 3-end, the financial standing of the company should support a market
capitalization of more than $1.4 billion.

The table below outlines the start-up expenses.

Table: Start-up

Start-up

Requirements

Start-up Expenses
Legal $200
Stationery etc. $50
Brochures $450
Consultants $0
Insurance $100
Rent $500
Research and development $400
Expensed equipment $1,100
Other $200
Total Start-up Expenses $3,000

Start-up Assets
Cash Required $47,000
Other Current Assets $0
Long-term Assets $0
Total Assets $47,000

Total Requirements $50,000

Table: Start-up Funding

Start-up Funding
Start-up Expenses to Fund $3,000
Start-up Assets to Fund $47,000
Total Funding Required $50,000

Assets
Non-cash Assets from Start-up $0
Cash Requirements from Start-up $47,000
Additional Cash Raised $0
Cash Balance on Starting Date $47,000
Total Assets $47,000

Liabilities and Capital

Liabilities
Current Borrowing $0
Long-term Liabilities $0
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $0

Capital

Planned Investment
Co-owner $25,000
Co-owner $25,000
Other $0
Additional Investment Requirement $0
Total Planned Investment $50,000

Loss at Start-up (Start-up Expenses) ($3,000)

Total Capital $47,000

Total Capital and Liabilities $47,000

Total Funding $50,000

Chart: Start-up

Start-up

$50,000

$45,000

$40,000

$35,000

$30,000

$25,000

$20,000

$15,000

$10,000

$5,000

$0
Expenses Assets Investment Loans

Services

The service offered by the company simplifies and streamlines the entire product return
procedure. By accessing the XXX E-Commerce LLC website consumers can claim product
returns in a quick and trouble-free fashion. The only necessary inputs are merchant's domain
name, item's order number, consumer's last name (for verification only), reason for return,
and preferred way to resolve the issue (refund, replacement, or exchange). XXX E-
Commerce LLC serves as a centralized online location that matches the return policy of a
given merchant against the returning item, obtains authorization if required by merchant, and
assists consumers in following the return time frames. The company's website also generates
and prints a return label to ease the shipping process for consumers.

Service Guarantee

It is important to note that during the interaction process with consumers, XXX E-Commerce
LLC does not ask for or tries to obtain consumer's credit card numbers. The company
therefore avoids consumer security concerns and substantially limits its possible liabilities.

Order Process

Only two input variables are needed to easily find the merchant and identify a particular
merchandise item. The customer's last name is asked for verification purposes only.

XXX E-Commerce LLC s website serves as a centralized online location for consumers to
claim and process returns for participating merchants. As online shopping continues to grow,
the added convenience of one single online destination to do returns for multiple merchants
will increase. At the same time, participating merchants will place XXX E-Commerce LLC
banner on their pages under return policies so that consumers could access the service
directly from there. That way the domain name of the merchant will be pre-entered and the
initial step even further simplified.

In case the merchandise was sent as a gift to another person who does not have access to the
Internet, a toll-free telephone number will be provided to call in. An operator, with access to
the Internet, will use the same exact sequence of onscreen entries and will relay options and
procedures to the customer over the phone.

Order Number

The order number should ensure that the right item is identified. However, it is possible that
the customer has ordered a few similar items but only wishes to return one of them, or the
order number included multiple items. Hence a modification option is added to address that.
In case the order number was assigned to a shipment that included multiple items, all items
will be displayed and the customer will be asked to select those they wish to return.

In case a wrong item is identified, the customer will be taken one step back and asked to re-
enter the initial information.

Return Policies

Once the item has been identified, the return policies that apply to that particular item will be
retrieved. XXX E-Commerce LLC will summarize the return policy to the point of available
options. This means that based on the item (regular merchandise, on-sale merchandise, etc.)
different return options and procedures may apply. The customer will be given the shortest
description of what needs to be done and when.

While some merchants have "no-questions-asked" return policies, others require justification
to return merchandise. For the purposes of uniformity and the reasons described below, the
customer should courteously be asked to provide reasons for return. The answer format is
quite simple (check marks and short narrative) and it eliminates much of the ambiguity. The
narrative part is also a chance for consumers to "vent out" their concerns or frustrations.

The customer will be given three options to resolve the issue: exchange, refund, or
replacement. During this stage the merchant is informed that a particular item is claimed for
return and why. In case of exchange or replacement, the merchant receives an invaluable
opportunity to instantly sell another item to the customer (the merchant's website will appear
onscreen for selection and shopping). Should the reason be incorrect or defective item, the
merchant can send the correct/new item right away, thus instantly restoring customer
satisfaction and saving the sale. The terms of the new sale are up to the merchant to decide
(charge customer's credit card right away, give grace period for the returning item to arrive,
etc.)

An option to look up the merchant's entire return procedures will also be given to consumers.
A link will be established that brings up the page containing return procedures in a separate
window. Once reviewed, the window can simply be closed.
Return Label

Once the merchant has authorized the return, if required, the customer will be asked to print
the return label for shipping. If customer does not have access to a printer, a larger view of
the label will be presented onscreen for the customer to copy down necessary information.
The customer may also be given an option to make adjustments to certain information on the
label before printing it. The label will have the merchant's address (destination where the
returning item should be forwarded), returning item's identification (Returned Merchandise
Authorization Number), the customer's return address, and possibly tracking and payment
information for the shipping company. The customer will also be advised on refund,
exchange, or replacement options, and when it will occur.

Since some companies already include pre-printed return labels in all shipments, the printing
step may be skipped. But because consumers sometimes lose or throw away enclosed labels,
the online print version will always be there as a backup thus adding convenience and peace
of mind. More importantly, XXX E-Commerce LLC will strike strategic alliances with
shipping companies to take and deliver all returned items so the printing of the labels will
add uniformity to the entire return process. The label can then incorporate the shipper's
information, and as a consolidator and demand aggregator of all returns XXX E-Commerce
LLC will be able to negotiate a rate reduction.

As an add-on to its customer service, XXX E-Commerce LLC will offer an email reminder
service to ship the claimed item. It may also offer customers a confirmation email to record
the claim. Customer's email address will then be asked for. For its own database purposes,
XXX E-Commerce LLC will record all transactions and details thereof.

Once the customer has finished the online entry process, the merchant's website will appear
where the merchant will be able to approach consumers with new sales offers. This will be
an additional selling opportunity for the merchant, which is part of the overall XXX E-
Commerce LLC service.

Sequence of Process

The list below describes the sequence of actions taking place during the return process.

1. Consumer claims an item through XXX E-Commerce LLC .

2. XXX E-Commerce LLC gains merchant's authorization, if required, and alerts the
merchant about what is claimed for return and why.
3. Merchant tries to save the sale by offering a replacement or other products.
4. Consumer makes a new purchase, unless refund is demanded.
5. XXX E-Commerce LLC generates a return label for the returning item.
6. Merchant's website appears again to offer new products to the consumer.
7. Consumer makes a new purchase.
8. Consumer ships back the returning item.
9. Shipping company delivers the item to the merchant.
10. Consumer buys more from the merchant knowing that the return process is easy and
trouble-free.
Benefits Summary

We feel we provide a value-added service to a variety of consumers. By having a safe and

easy-to-use return service, the company benefits more people than simply the average
customer.

Benefits to Merchants

 Increase revenues! XXX E-Commerce LLC turns the systemic problem of product
returns into new selling opportunities.
 Enhance customer satisfaction and retention with the quick and easy return process
and boost repeat sales! XXX E-Commerce LLC provides the opportunity to instantly
deal with returns, save bad sales, and turn unhappy customers into loyal patrons.
 Improve customer service with a simple, trouble-free way to return merchandise!
XXX E-Commerce LLC makes it easy for consumers to return products and follow
return procedures.
 Simplify the shipping hassle for consumers! XXX E-Commerce LLC provides the
option to print a shipping label since pre-printed labels sometimes get lost or
misplaced, which provides added convenience and peace of mind to consumers.
 Improve inventory management and logistics! XXX E-Commerce LLC immediately
alerts you when your customer initiates the return process so that you can act on it
right then, not when the merchandise arrives at your door.
 Fine-tune your internal efficiencies and product offerings! XXX E-Commerce LLC
provides you with invaluable new data on all your product returns by customer group,
product category, etc., so you can analyze your operations better.
 Enhance your image! XXX E-Commerce LLC underscores your customer orientation,
which you can use to promote your business.

Benefits to Consumers

 Return merchandise with ease! XXX E-Commerce LLC provides one centralized
online location with a simple and trouble-free way to return merchandise in just a few
easy steps.
 Buy online, return online! No need to call in or email your merchant if authorization
is required--XXX E-Commerce LLC does the communication for you.
 No need to look up every single merchant for return policies every time! XXX E-
Commerce LLC summarizes it for your particular item and makes sure the return time
frames are followed.
 Generate a shipping label! XXX E-Commerce LLC generates a shipping label for you
so that you do not have to worry about misplacing the pre-printed label or spending
extra time at a shipping company's counter if the pre-printed label is not included.
 Reduce or eliminate shipping costs! Through strategic alliances, XXX E-Commerce
LLC reduces or completely eliminates the cost of shipping.
 Keep track of your returns! If you would like, XXX E-Commerce LLC will remind
you to ship the claimed item and will maintain a file of your returns for your records.
Benefits to Online Community

 Increase awareness in the community! XXX E-Commerce LLC serves as a "returned

merchandise credit bureau," providing discrete information to consumers on
merchants and to merchants on consumers.
 Cross reference marketing leads! XXX E-Commerce LLC maintains a database of
purchases that help custom-target online buyers in a more efficient way.
 Improve the overall image of the online merchant! XXX E-Commerce LLC enhances
customer service of online merchants and overall customer satisfaction by simplifying
and streamlining the return process.

Market Analysis Summary

Based on publicly available survey data, the average rate of online returns is 9%, meaning
that in 2000 alone the value of returned merchandise will be more than $1.5 billion. The
company generates revenues by utilizing a dual-pricing approach. First, it charges online
merchants a flat fee for the program, which averages only 0.5% of a given merchant's total
sales. Secondly, XXX E-Commerce LLC charges merchants a low flat 8% rate on every
item's listed price that has been claimed through its website. The pricing structure reflects the
benefits of the easy and trouble-free return process for consumers, restored customer
satisfaction, selling opportunities created during the claim process, and all repeat sales
thereafter. The program is estimated to cost merchants less than 1.5% of their total revenues,
whereas it will increase sales to merchants by at least 15%.

Service Description

The service positioning in the eyes of online merchants is imperative to the success of the
enterprise. The service proposed by the company is a business-to-business solution offered to
online merchants of physical, non-perishable products. However, because online consumers
will deal directly with the company via its website, the proposed solution also incorporates
some features of a business-to-consumer service. It is therefore of utmost importance to
clearly define what this company offers is a customer service & customer satisfaction
program for online merchants. The most unique feature is that the proposed company takes
the systemic problem of product returns and turns it into new selling opportunities for online
merchants.

It is also important to note that XXX E-Commerce LLC does not try to position itself as a
competitor to any incumbents with a similar service, online merchants, or shipping
companies. The proposed company strives to position itself as a strategic partner to all
parties participating in handling product returns. If nothing else, XXX E-Commerce LLC
should be viewed as an outsourcing company to online merchants with the core competency
and focus in handling returned merchandise.

The service offered by XXX E-Commerce LLC is designed to enhance customer retention
and loyalty by offering an easy and trouble-free merchandise return process to online
shoppers. According to Jupiter Communications, the goal of the 1999 holiday season was not
about generating impressive sales, but rather securing long-term relationships. Retailers now
need to focus on retention and loyalty. XXX E-Commerce LLC will help to achieve just that
through establishing lasting, productive relationships with online merchants. Providing an
easy, uniform, and trouble-free return process to all online shoppers will enhance the overall
image of online merchants. While the number of retailers continues to grow, consumers will
not have to look up every single one to find out about return policies and later keep abreast
for possible changes. A centralized Internet location--the company's website--will retrieve,
summarize, and present the appropriate policies. Based on product information, it will make
sure the correct procedures are used. The company's banner with a notation "For an Easy,
Trouble-Free Product Return Click Here" will be placed visibly on retailers' websites and
will serve as a symbol of customer orientation and care.

Moreover, the shipping process will be streamlined. Customers will be able to generate a
shipping label on the company's website thus reducing the hassle at the shipper's counter.
Although some online retailers already supply pre-printed shipping labels for sold items,
customers sometimes lose, or throw away, those labels when they first see and like the
products they ordered. Shortly after they may change their mind and would like to return a
particular item, but the label is gone. With the proposed program, the label is always
available online so that consumers can have peace of mind and also reduce the amount of
documents they need to keep just in case. The service therefore offers a dual benefit to
consumers. The retailers may then choose to stop including a pre-printed return label with
every outgoing shipment thus reducing costs of selling. From a shipping company's
perspective, the shipping process is streamlined because the online-generated label will have
all the necessary information, possibly including a tracking number if it is going to be
shipped by UPS. That way consumers do not have to spend time at UPS counters filling out
forms--both a customer service and operations improvement for UPS. XXX E-Commerce
LLC will be a strategic merger between online merchants, carriers, and their partners
targeted at overall improvement of customer satisfaction and ultimately the bottom line of
merchants.

Another important feature of XXX E-Commerce LLC is that shipping of returned

merchandise should be free of charge to consumers. (Means of achieving it are discussed in
more detail in the Pricing and Revenue Generation section.) This differentiating feature will
tremendously increase the consumer acceptance factor of the proposed service. The fact that
products purchased online can be returned in an easy and trouble-free way, and that shipping
is also free, will help expand the entire online shopping industry. The added convenience and
peace of mind consumers will gain with XXX E-Commerce LLC will translate into more
shopping with those online merchants that participate in the XXX E-Commerce LLC
program.

When customers go through the sequence of online entries on the company's website, the
retailer whose product is being claimed for return will be offered at least one selling
opportunity. At the end of the sequence the retailer will be able to target the consumer with
any new sales offers as its website will appear onscreen. Should an exchange or replacement
be preferred by the customer during the online return process, the retailer will receive an
additional selling opportunity as its website will appear with offers during that step. These
opportunities will translate into more sales for retailers. This will also stimulate customer
retention, which means repeat sales. All in all, the program will increase customer
satisfaction and generate more sales.

The program has a number of unique features. First, it alerts the retailer that a particular
customer is claiming a particular product for return as it happens. That way the retailer
knows about it as it occurs and not when the merchandise arrives at its warehouse. This
allows to plan ahead. Since 9% of all products are returned, this feature offers useful
information to better handle logistics and inventory.

Secondly, and more importantly, by asking consumers during the online sequence why they
want to return a particular item merchants gain an invaluable piece of information. If the
reason for return is defective product (30% of all reported returns), the retailer can save the
sale and turn an unhappy customer into a delighted one by sending a new item right away. If
the reason for return is wrong color, wrong size, or wrong product altogether (28% of all
reported returns), the retailer may choose to send the correct product right then, thus instantly
restoring customer satisfaction and saving a bad sale. It will be up to the retailer to decide on
payment and credit terms of the exchange. These benefits ultimately translate into increased
customer retention, reduced costs, more sales, and improved bottom line.

It is estimated that the program will generate an average sales increase for merchants of at
least 15%. Online shopping is still at the early stage of consumer adoption. As stated earlier,
about half the people who have not shopped online cited the cost and hassle of returns as a
significant factor for not shopping online. Another recent survey found that 89% of online
buyers said that return policies influenced their decision to shop with an online retailer.
Consumers demand not only convenience but peace of mind. The proposed program offers
both and it should increase the number of online shoppers, thus causing a market expansion
for online merchants. The first retailers who implement the proposed program will also be
able to differentiate themselves and capture a larger market share in their respective
segments. Once embraced by the majority of online merchants, the program will become an
industry standard.

It is important to note that during the entire process the company will not ask for, or try to
gain access to, consumers' credit card numbers. This will significantly limit possible
liabilities and

Promotion, Sales, and Marketing

Promotion of the service will be executed through both push and pull strategies. The push
strategy will call for the use of direct sales force and industrial marketing to introduce the
service to online merchants. Once success has been achieved in the push strategy, the pull
strategy will utilize a large-scale advertising campaign to further build up consumer demand.

Push Strategy

Because the company's service is a business-to-business program, it will be initially

promoted to online merchants by direct sales force. Personal selling will be necessary to
reach decision makers within online organizations. At first, contacts will be made with
Internet service providers, such as America Online, that host online stores and shops.
America Online claims to have 20% of the total Internet service provider market in the U.S.
Therefore, arranging a strategic partnership where XXX E-Commerce LLC becomes the
preferred or exclusive choice for all returned merchandise bought at AOL.com shops will be
invaluable for establishing a well-recognized brand and building up entry barriers for any
possible competition. Ideally, a company's banner with a notation "For an Easy, Trouble-
Free Product Return Click Here" will be visibly displayed throughout the shopping section of
AOL.com. Portals such as Yahoo! will be approached as well. Reportedly, Yahoo! hosts
nearly 6,000 merchants where it charges each merchant at least $100 to $300 per month.
Arranging a strategic partnership with Yahoo! will provide a strong leverage in negotiating
return contracts with individual merchants. Similar to that of America Online, the company's
banner will be displayed throughout the entire shopping section of Yahoo!

Large online merchants such as Amazon.com and Buy.com will be targeted by the direct
sales force during the first stage as well. Those companies have already achieved significant
volumes of sales--and therefore product returns--and will find the uniform return process of
much benefit to them. Strong "category killers" such as eToys and CDnow are also first sales
targets. Auction houses such as eBay.com and uBid.com will be approached with a service
offer for products sold to consumers by merchants and direct manufacturers.

Wherever possible, smaller online retailers will be personally approached by the sales force.
To stimulate awareness and service penetration among smaller players, industrial marketing
techniques will be utilized. Those will include advertising in specialized publications such as
Internet World and Red Herring, as well as referral fees for retailers who already use the
service. Email campaigns will be used to reach decision makers at smaller companies. The
email messages will have an invitation to the XXX E-Commerce LLC website where a
specially designed presentation will explain the benefits of the new service. An invitation to
be contacted by a service consultant to discuss details will be included.

The company plans to offer its services right before Thanksgiving 2000. In order to stimulate
a quicker adoption of the services, the remainder of the year 2000 will be offered free of
charge.

Sales Structure and Customer Approach

It is estimated that the initial expenses to hire a sales force and a customer service unit of up
to five people during the first year will be close to $400,000. Another $200,000 will be
needed for sales program development, marketing activities, and training (excludes
advertising). The initial compensation package for sales force will include a nominal base
salary and a progressive commission structure. This should ensure that during the early stage
of the company's growth not only that sales targets are met, but also that customer (customer
here means merchant) satisfaction and retention are fully addressed. The sales force will
initially be located at the corporate headquarters. A territorial approach will later be
implemented, with sales people located in regions. After one year, sales force members will
split into two distinct groups. The first group will include pure sales people, the "go-getters"
who will be placed in regions and will work on pure commissions. The commission structure
will become more progressive and rewarding for such individuals, including a bonus
structure. The estimate for an average commission paid on sales is approximately 5-10%.
The second group will include client care professionals who will concentrate on customer
satisfaction and retention to ensure the continuity of the program. These individuals will
remain at the headquarters and will have a base salary with a bonus structure. The base salary
for client care professionals is in the mid-five figures. Industrial advertising and promotional
expenses in 2000 are estimated at $250,000.

It is also a possibility to sell the services to merchants via the Internet hosting service
providers, portals, and software developers. Those companies will then serve as distributors
and agents, compensated on commissions. This approach will eliminate the need for a large
sales force. The final layout will depend on how quickly agreements with companies such as
America Online and Amazon.com are negotiated, how aggressively they will be able to
promote the services, and on what conditions.

The following diagram describes the customer approach (customer here means merchant).

Service consultants are the direct sales force that approaches prospective customers with
service offers. Once a customer has been signed, a service consultant will only approach the
client with new service offers and product upgrades. A client care professional is then
assigned to each customer to deal with all customer service issues. Each customer will be
advised to direct all service inquiries to the professional. A professional will also proactively
call on customers to ensure high quality of service and customer satisfaction. The consultants
and professionals will have direct communication lines between themselves to ensure open
information exchange and a quick and efficient problem-resolution culture. This structure
will guarantee an aggressive sales approach, client-oriented service, and efficient post-sales
support.

Pull Strategy

It is important to gain critical mass in the number of signed retailers before a nation-wide
advertising campaign targeted at consumers can start. Once major retailers have been signed
and awareness achieved among the overall online merchant community about XXX E-
Commerce LLC , the company plans to roll out a nationwide TV advertising campaign. The
campaign may start as early as the first quarter of 2001; however, the timing will depend on
how quickly XXX E-Commerce LLC gains market share. The campaign should prompt
consumers to make sure that online retailers they buy from have the XXX E-Commerce LLC
service. Participating merchants will have the company's banner with a notation "For an
Easy, Trouble-Free Return Click Here" visibly displayed on their websites. The banner later
will become the symbol of customer orientation. Successfully executed, the TV ad campaign
will prompt consumers to ask their merchants for the Easy and Trouble-Free Return process.
This, in turn, will prompt online merchants to call on the company. The demand from the
merchants will then be "pulled." The estimated budget for the TV campaign in 2001 is up to
$5 million, all internally generated. However, the amount can be reduced if the preceding
industrial marketing campaign achieves the key goals. Once the objectives of service
awareness and acceptance have been achieved, subsequent marketing budgets will be used to
build up and protect the brand. This will include print, radio, and TV.

Distribution and Information Structure

The service will be made available to consumers via the Internet. The company will maintain
a website with its Easy and Trouble-Free Return procedure. The domain name will
underscore the ease and convenience of the merchandise return process. (The name XXX E-
Commerce LLC may not be the final choice.) Also, company's banners will be placed on
participating merchants' websites, most likely under return policies sections, so that
consumers could access the service directly from online stores. XXX E-Commerce LLC will
then be effectively incorporated into the customer service of participating merchants as an
outsourcing partner that specializes in product returns.
Consumers who do not have access to the Internet but want to return e-gifts received from
friends or relatives will be provided with a toll-free telephone number. Telephone operators,
with access to the Internet, will follow the same exact set of onscreen entries. They will relay
options and procedures to the consumers over the phone. The shipping sequence will remain
the same. Ideally, the toll-free numbers should be operated by the online retailers themselves.
That way they only have to make sure their operators have access to the Web. Should a
customer decide to exchange gifts or make a purchase during the return process, the retailers'
operators will be best suited to handle it. Another option is a consolidated toll-free telephone
service provided by XXX E-Commerce LLC for a fee to retailers. Such service would be
outsourced.

High-speed communication lines will be established between the company's software that
registers and processes all returns and individual merchants. Every time a product is claimed
for return by a consumer via the company's website, the corresponding merchant is advised
on the transaction as it happens. This is an integral part of the entire program. The
connection between the company and the merchants will be established via the Internet. The
company's website will have a merchant login screen where a record of all returned items
will be maintained. The merchants will be able to sort data by various categories and
copy/paste it into other software packages such as MS Excel; the data format will be
spreadsheet-friendly. The Internet connection will be secure and password protected. While
the majority of communication will be via the Internet, company's client care professionals
will routinely call on their counterparts to ensure that all information and service needs are
fully met.

For its own database purposes, XXX E-Commerce LLC will record all transactions and
details thereof. While consumers are not asked to give their home addresses during the online
entry process, such information should be provided by the corresponding merchant as part of
the information exchange agreement. This information will be needed for the return label to
be generated online. Credit card numbers and other sensitive information will not be asked
for. At the end of the online authorization process the consumer will be offered a notification
email to make a record of the return. Should customer decide to have a confirmation, his or
her email address will be obtained. The company may offer a membership program with a
consumer login, in which case all necessary information details will be obtained. The
company will also offer a "reminder service" to consumers once they have processed a return
online. If the product has to be shipped back before a deadline, an email with a reminder will
be sent prior to that.

Strategic Alliances

For shipping and handling purposes, the company will strike strategic alliances with carriers
and package service providers. Most likely, UPS will be the preferred carrier of all
shipments. UPS has an extensive network, excellent track record of quality, and a number of
agreements with package service providers such as Mail Boxes Etc. and PostNet. Its ground
shipment option appears to be the most optimal option so far, both from the quality and price
standpoints. While retailers are able to negotiate discounts with carriers for outbound
shipments, most consumers are forced to pay published rates on returned merchandise
because each return is viewed as a single transaction. XXX E-Commerce LLC will act as a
demand aggregator bundling all returns claimed through its website and will negotiate
discounts with carriers. Moreover, the company will join membership organizations such as
National Retail Association that provides member discounts of up to 42% on published rates
with Airborne Express. All that will be utilized to eliminate the shipping costs for online
shoppers, which will only speed up the company's acceptance by consumers.

Other possible strategic alliance companies include VISA, MasterCard, American Express,
and large banks such as Citibank and Chase Manhattan. Credit cards are a preferred way of
payment for online purchases. Since tens of billions of dollars are now spent online, credit
card issuers can notably increase their revenues by partnering with XXX E-Commerce LLC .
A credit card issuer can offer a partial rebate of shipping charges for returned items as long
as consumer paid for the items with the credit card. This may later become a standard feature
similar to certain kinds of insurance built into some credit cards. Also, an issuer can cover
the interim risk when a merchant sends consumer a new item or a replacement before
receiving the returned item back. This offers mutual benefits to consumers and merchants,
while the credit card issuer makes its cards more superior thus attracting more customers.
Co-branded promotional campaigns can be designed to promote XXX E-Commerce LLC
along with more established companies.

Market Segmentation

As stated in the previous section, the estimated online retail revenues for 1999 were around
$25-36 billion. Both sources providing the estimates indicated that only merchants selling
physical products (books, CDs, electronics, apparel, etc.) were included in the breakdown by
category. No mention was made of services such as online hotel reservations, news
subscriptions, or online brokerage being included in the total figures. However, it would be
advisable to use a more conservative approach when estimating the total revenues of online
merchandise sales. Presented below are estimates for Internet retail sales made by National
Retail Federation shortly after the 1998 holiday season.

Year Total Internet Retail Sales

1999 $10,800,000
2000 $17,000,000
2001 $26,000,000
2002 $40,600,000

Description of Items Sold

The next step is to identify the number of items sold. According to a Jupiter Communications
press release, during the 1999 holiday season 250 million online consumers spent $7 billion.
This means that an average online purchase was $28 (7 billion over 250 million). However, a
single purchase may have included more than one item. A study of 1999 holiday shopping
conducted by WebAssured.com indicates that an average online shopper purchased 12 items,
whereas the average purchase price was $1,613. Using these two extremes, the average price
of an online item is therefore estimated at approximately $100 ((28+161)/2=94.5). Knowing
the average price, the number of total items sold is easily calculated.

Year Internet Retail Sales Total Items Sold

1999 $10,800,000 108,000
2000 $17,000,000 170,000
 2001 $26,000,000 260,000
2002 $40,600,000 406,000

Of all items sold, some will be returned to retailers. A study of 1998 online holiday shopping
conducted by PC Data Online indicated that 9% of respondents reported returning gifts. A
slightly earlier study by the same company indicated that 12.3% of all respondents were
returning items. A survey of 1999 holiday shoppers conducted by Greenfield Online
confirmed the first figure by indicating that 9% of shoppers planned to return an e-gift. The
9% figure is still a conservative estimate. A recent survey of the retail industry by American
Express found that 46% of all respondents typically return anywhere between one and ten
holiday gifts every year.

Year Internet Retail Sales Items Sold Items Returned

1999 $10.8 108,000 9,720
2000 $17.0 170,000 15,300
2001 $26.0 260,000 23,400
2002 $40.6 406,000 36,540

The table above shows that more than 15 million items will be returned to online merchants
in the year 2000 alone. Total merchandise shipped back will be worth over $1.5 billion. The
figures more than double in 2002. There is clearly an expanding market for a "returned
merchandise" service provider.

Chart: Market Analysis (Pie)

Market Analysis (Pie)

Books/CD/Video

Toys/Games

Electronics

Computer
Table: Market Analysis

Market Analysis
Year 1 Year 2 Year 3 Year 4 Year 5
Potential Customers Growth CAGR
Books/CD/Video 25% 48,000 60,000 75,000 93,750 117,188 25.00%
Toys/Games 40% 76,000 106,400 148,960 208,544 291,962 40.00%
Electronics 30% 65,000 84,500 109,850 142,805 185,647 30.00%
Computer 65% 90,000 148,500 245,025 404,291 667,080 65.00%
Total 45.83% 279,000 399,400 578,835 849,390 1,261,877 45.83%

Market Needs

E-commerce continues to accelerate and the amount of money spent on purchases made
through the Internet shows no sign of decline. During the 1999 holiday season (November 20
to December 19), retailers saw online revenues quadruple, jumping 300% to about $11
billion and far exceeding expectations, according to a study by Shop.org and Boston
Consulting Group. The study of 30 retailers in such categories as apparel, books and music,
home and garden, specialty foods and electronics showed a 270% growth in the number of
orders. The study indicated that online sales were growing at 145% annually and it projected
online retailer revenues of more than $36 billion for 1999. An earlier study conducted by
Ernst & Young, before the holiday frenzy, already estimated that total revenues for online
retail and consumer products for the calendar year 1999 were around $25-30 billion.

While a notable amount of positive publicity about the Internet shopping has recently
appeared in the media, the number of problems encountered by online shoppers actually
increased more dramatically than the sales figures. According to a poll conducted by
WebAssured.com, the number of complaints filed between November 25, 1999 and January
13, 2000 was up 404% over the same period last year. Over 62% of the respondents claimed
they had experienced at least one problem with an online transaction.
Misrepresentation/misinformation and delivering defective products each accounted for at
least 22% of all complaints. In the breakdown of types of problems occurred, delivery of a
wrong item accounted for 17.2%. These kind of problems ultimately result in product returns
that cause additional costs to the consumers and both costs and lost revenues to the retailers.

Presently, not all online retailers have established simple and trouble-free return procedures.
Pure e-tailers such as eCost.com have no physical presence and therefore require consumers
to ship back the merchandise without offering much help in the process. Even some well-
known retailers such as BestBuy.com, an extension of Best Buy, do not allow consumers to
return items purchased online at their physical stores. To make things worse, the return
policies are not always well displayed on retailers' websites, and customers are sometimes
required an authorization prior to returning any merchandise such as in cases of Buy.com and
eCost.com. Consumers may have to read through the entire return policies, including the
notorious "fine print," in order to make sure they use the right procedures and that required
time frames are followed. This creates additional aggravation--on top of having to return the
merchandise--which all reflects in reduced customer satisfaction. The significance of an
"easy return" cannot be underestimated as about half the people who have not shopped online
cited the cost and hassle of returns as a significant factor for not shopping online. Moreover,
a recent survey by BizRate.com, an online shopping center, found that 89% of online buyers
said that return policies influenced their decision to shop with an online retailer.

When a wrong, defective, or misrepresented item was delivered to a consumer, the return
process often proved uneasy. According to recent findings by PC Data Online, 30% of all
consumers who returned items found the return process difficult. It is apparent that existing
return procedures are inadequate and sometimes irritating. The solution, however, does not
lie in forcing all online retailers to establish a "no-questions-asked" return policy and to post
it clearly at the top of their websites. The entire sequence a consumer has to follow, starting
from looking up the procedures on the Web and then having to make a trip to UPS or the
Post Office, has to be streamlined. There is clearly a need, as well as an opportunity, for a
new service company to improve the overall return process for online shoppers. As a result,
the consumer satisfaction will be enhanced and it will translate into increased repeat sales for
online retailers.

Industry Analysis

The "returned merchandise" market is there and it is growing. Listed below are a few major
expansion opportunities for the new company.

New Markets

Geographic expansion will be needed in order to provide global return services for the online
community. This will include both within-borders services and across-the-borders
operations. A number of companies such as Amazon.com and eToys have already opened
operations in the United Kingdom, not counting a growing local online merchant
community. This in itself presents an opportunity to replicate the service in other countries
for domestic online retailers. XXX E-Commerce LLC will partner with local carriers and
shippers when operating there. A country-by-country approach may be utilized; however,
there may be an opportunity to establish a centralized, consolidated operation within the
European Union.

As across-the-borders e-commerce keeps increasing, so does the need for a global service. Of
all consumer product complaints recently registered with WebAssured.com, over 4% were
about companies located outside the United States. While many domestic online retailers are
limited to shipping within the U.S. only, the consumers are already buying overseas. Having
to ship back overseas adds to the hassle and costs of returning a product. Once established
and running in the U.S., XXX E-Commerce LLC will be best positioned to take advantage of
the global trend and offer international services.

New Services

As more and more consumers shop online, the need to keep track of purchased products will
grow. Currently, many online retailers offer an option to track a purchased item, but not
always through the entire delivery process. An item itself may have an availability "window"
of up to a few weeks, plus the shipping time of a few days--the customer is never quite sure
when he or she will actually receive it. As more purchases are made, there will be more items
to track. To do that, the customer has to look up websites of the merchants or use carriers'
websites to inquire on shipping status and read through the flock of notification emails from
the merchants. There is a growing need to consolidate all this information in one location for
easy reference. A software that records all online purchases, tracks their status, and presents
the findings to consumers in an easy-to-read format will be of much value to consumers.
Having developed partnership and information exchange agreements with online merchants
and shipping companies, XXX E-Commerce LLC will be well positioned to offer such
tracking services to consumers.

While XXX E-Commerce LLC builds its core competency around product returns, it is also
gaining the most knowledge why returns actually occur, what kind of online products are
most frequently returned, by what kind of consumers, etc. The company will therefore be
best positioned to advise and consult the online merchant community on how to improve
operations and minimize product returns. Since product returns is a systemic problem of the
retail industry and most likely it will not be totally eliminated, XXX E-Commerce LLC does
not run the risk of putting itself out of business. Quite the contrary, it will secure the
leadership position in that segment of consulting services and will naturally expand its core
competencies of merchandise returns into advisory.

New Customers

XXX E-Commerce LLC will not limit its services to the online merchants only. Direct-mail
orders and catalogs also experience the same returned merchandise problem. Recent
publications indicate that there are more than 8,500 consumer catalogs in the U.S. alone.
According to the National Mail Order Association, U.S. mail order sales were a staggering
$357 billion in 1998. Despite the growth in online shopping, the 1998 sales figure
represented a 12% increase over 1997. Consumer product sales accounted for $109 billion of
the total--roughly ten times that of the online merchandise sales for the same year. Based on
a recent comment provided by the association, the rate of returned merchandise in this
business is around 10-15%. Categories such as apparel may experience a return rate close to
20%. Reportedly, some large catalog houses have to maintain separate returned merchandise
facilities just to handle the volume of returned products. A number of catalog companies,
including Lands' End, have been aggressively embracing the Internet as a new distribution
channel. While catalog business has a long history and experience in dealing with returns,
there is definitely an expansion opportunity for the new company in offering its returned
merchandise services to the catalogers. The service will further streamline their operations
and enhance customer satisfaction.

Many department stores such as J.C. Penney and Macy's now also use the Web to sell
products. Most of them allow customers to return merchandise purchased online at physical
stores. This serves as a goodwill, and customer satisfaction, builder. As an add-on to that,
XXX E-Commerce LLC can still offer its services to the pro-Internet shoppers who do not
wish to make an extra trip to the store to only return products. The company will provide at
least one selling opportunity during the online return process, which will compensate for
possible purchases a customer may make while at a store. This will underscore the
convenience of online shopping, improve the return procedures by preventing the returned
merchandise from spreading across physical stores, and enhance the image and bottom line
of "click-and-mortar" department stores.
When dealing with multi-distribution channel retailers such as Macy's department stores,
Macy's catalog and Macy's Internet store, XXX E-Commerce LLC will be able to offer one
returned merchandise procedure that will cover all channels. It will streamline the entire
process by relieving the retailers from having multiple return facilities and extra work force
to operate them.

Competition and Buying Patterns

The company foresees three types of competition for the services we offer:

1. Direct
2. Internal
3. Channel

These types of competitors are discussed in the following three sections.

Direct Competitors

Based on the current intelligence, there is no independent company out there specializing in a
"returned merchandise" service to online consumers. No single company is known to be
employing a concept of establishing a single point of presence on the Internet for consumers
to claim returns. The current situation allows the new company to gain the first-mover
advantage and build entry barriers for any possible new entrants.

Internal Competitors

The first competitors to the new service are the online retailers themselves. Since XXX E-
Commerce LLC will need to strike partnerships and strategic agreements with retailers in
order to offer its services, they are classified as internal competitors. Retailers may perceive
that their internal return procedures are adequate and fully meet customer demands.
However, the discussion under the Need Assessment section of this plan clearly indicated
that there are significant drawbacks and shortcomings in the return process across the entire
industry. Even companies like Amazon.com that touts a quick and easy return policy now
sees its customers go to Barnes & Noble superstores to return books. Partnering with brick-
and-mortar retailers may be seen as a solution by some e-tailers. However, from the
consumer perspective, there still will not be a centralized location to return merchandise, no
quick and easy return procedure, and no savings on shipping costs. Consumers may end up
having to go from one physical retailer to another to return various items.

Online retailers may try to partner with carriers and service providers such as UPS, Mail
Boxes Etc., or Rite Express. Reportedly, eBay.com is working out an agreement with Mail
Boxes Etc. to appoint them as a preferred/exclusive service for product returns. eBay.com
may receive rebates per shipment for directing its clients to Mail Boxes Etc., but consumers
again will have little or no benefit. The standard shipping rates are applied, the choice of
carriers is now limited, and online merchants are not informed about product returns ahead of
time so that bad sales could be saved. With XXX E-Commerce LLC , at least one selling
opportunity will be given to retailers while consumer is on the Web--something a partnership
with a carrier cannot provide. Moreover, serving as a demand aggregator XXX E-Commerce
LLC should be able to arrange necessary agreements and provide consumers with greatly
reduced, or even free, shipping for all returned merchandise.

Channel Competitors

Thinking in reverse to the previous paragraph, service providers such as Mail Boxes Etc. and
PostNet may try to forge strategic partnerships with numerous online retailers to simplify the
return process. But as it was described, online retailers will be shortchanged in overall
customer satisfaction, information exchange, total costs, and additional selling opportunities.
Consumers, on the other hand, will lose out on the limited number of "exclusive" carriers for
particular retailers, and uniform simplicity in the return process will not be achieved.
Moreover, both Mail Boxes Etc. and PostNet combined do not have sufficient physical
presence in the market.

Carriers such as UPS and FedEx may try to enter the arena. Those organizations have
extensive networks of facilities, experience in shipping, and a track record of quality. The
U.S. Postal Service has recently started a TV advertising campaign of a service for online
merchants that allows consumers to print return labels online. This is a step towards
addressing the shipping end of the return problem, but it falls short of saving bad sales and
creating new selling opportunities for merchants. No single shipping company can fully
provide the range of benefits the proposed company can. XXX E-Commerce LLC will be
able to arrange strategic alliances with numerous carriers and even play one against the other
in negotiating rate reductions and preferential service terms for both merchants and
consumers. Being a smaller company with a focus on the e-commerce community, it will
also have a greater degree of flexibility in adjusting to customer needs.

Strategy and Implementation Summary

The company will utilize a dual-pricing approach to ensure a recurring revenue model.
Online retailers will be charged a flat annual or quarterly program fee based on their sales
volume, product categories, and specific return conditions ("no-questions-asked" or prior
authorizations required, etc.). The company will also collect payments in a form of a fixed
percentage charge on all items claimed for return through its website.

Before getting into details about pricing, an important perception issue needs to be discussed.
Presently, only few online retailers offer free shipping with purchases. For the returned
merchandise, in most cases the retailers reimburse shipping costs only if an incorrect or
defective item was delivered. (Sephora, a retailer of beauty products, offers free returns on
all online purchases regardless.) In many instances shipping and handling costs represent a
large percentage of the selling price. Most retailers therefore may not see free shipping of
returned merchandise economically possible. However, it is financially feasible to offer free
returned merchandise shipping to consumers at a nominal cost to retailers. The following
table displays four sample companies in different product categories that differentiate in
average price per unit sold and average shipping cost.

Book/CD/Video Toy/Game Electronic Computer

Total Sales $10 million $10 million $10 million $10 million
Avg Price/Item $12 $35 $180 $1,000
Items Sold 833,333 285,714 55,556 10,000
Returned Item Rate 9% 9% 9% 9%
Items Returned 75,000 25,714 5,000 900
Avg Shipping Cost $4.50 $6.00 $15.00 $60.00
Total Shipping Cost* $337,500 $154,286 $75,000 $54,000
TSC as % of Sales 3.38% 1.54% .75% .54%
Markup Per Item $.40 $.54 $1.35 $5.40

*Total Shipping Cost (TSC)

The amount of total sales is set at $10 million for each company and any change in the
amount would not influence the important percentage and absolute figures. The average price
per unit is based on general observations and is a simple representation of various prices in
an increasing order. The average shipping cost is the actual UPS ground rate for the
corresponding product category on average.

According to the previous table, for online retailers that sell books, CDs and videos to cover
shipping costs of all returned merchandise will only cost 3.38% of their total sales. For a toy
company, the cost will only be 1.54%. Companies such as Beyond.com and eToys were
recently spending over 80% of total revenues on sales and marketing programs alone. Even if
most of the marketing budget is dedicated to customer acquisition, a customer satisfaction
and retention program can still be easily allocated for. Even if an online toy merchant decides
not to allocate any of the marketing budget money to this program, to fully cover the
shipping costs it will only have to raise the average price of an item by 54 cents. An online
computer retailer with an average unit price of $1,000 will only have to add $5.40 to the list
price. Or it only has to allocate an equivalent of 0.54% of total sales to cover the total
shipping costs. In the majority of cases the retailers will have to reimburse the shipping costs
to consumers anyway. According to a study conducted by PC Data Online, 30% of all returns
were due to the item being broken, 28% because of an incorrect item was shipped, and only
22% because the customer did not want the item.

Pricing

The following table presents the proposed allocations to cover the shipping costs so that
consumers could enjoy free returned merchandise shipping.

Books/CD/Video Toys/Games Electronics Computers

Average Price Per Item (API) $12 $35 $180 $1,000
Average Shipping Cost (ASC) $4.50 $6 $15 $60
Merchant's Share of ASC, 65% $2.93 $3.90 $9.75 $39
Shipping Company's Share of ASC,
$.90 $1.20 $3 $12
20%
Credit Card Company's Share of $.23 $.30 $.75 $3
ASC, 5%
Total Shares of ASC, 90% $4.05 $5.04 $13.50 $54
XXX E-Commerce LLC Rebate, 4%
$.48 $1.40 $7.20 $40
of API
Total Allocations $4.53 $6.80 $20.70 $94
ASC Coverage Ratio 101% 113% 138% 157%

XXX E-Commerce LLC will strive to eliminate the shipping costs to consumers by means of
strategic agreements with online merchants, shipping companies, and credit card companies.
As stated in the last quote, 58% of all product returns were due to merchants' faults, hence
merchants will have to reimburse shipping costs to consumers in those cases. XXX E-
Commerce LLC therefore proposes that 65% of a given shipping cost should be allocated to
corresponding merchants. Due to demand aggregation, the company will be able to negotiate
a shipping rate discount with companies such as UPS or FedEx. Hence 20% of shipping
costs should be allocated to shipping companies in a form of a discount. Credit card issuers
such as Chase and BancOne currently offer a 5% rebate to consumers on purchases with
selected online merchants. It is therefore feasible to arrange an agreement with credit card
companies and/or issuers to include a 5% shipping cost rebate on all returned merchandise.
Since product returns are only 9% of all purchases, it will not represent a large cost to credit
card companies to add this differentiating feature to their products. These allocations in total
will cover 90% of the shipping cost. The remaining 10% will be absorbed by XXX E-
Commerce LLC via a special "instant rebate."

XXX E-Commerce LLC will charge merchants a program fee that will average only 0.5% of
a given merchant's total sales. Also, the company will charge a low per-claim fee of 12% of
each item's listed price (each item that has been claimed through the company's website).
However, of the 12% charged per item, up to 4% will be instantly given back to merchants to
cover the remaining portion of the shipping cost. The previous table indicates that the 4%
rebate is sufficient to cover the remainder of the shipping cost in the first product category. It
is actually far more than sufficient in other product categories (refer to ASC Coverage
Ratio). XXX E-Commerce LLC can then decide whether to offer merchants a reimbursement
of the remaining portion of shipping costs only or a flat 4% "instant rebate" regardless of
shipping costs. For the purpose of this business plan and financial projections, a flat 4%
"instant rebate" was used thus reducing the per-claim fee from 12% to 8% across the board.

As it was stated in a prior chapter, retailers should see an average sales increase of at least
15% due to the service offered by the company. On the other hand, based on the proposed
pricing structure the service should not cost merchants more than 1.5% of their total
revenues. The cost-benefit ratio of 10 will be a strong promotional point for XXX E-
Commerce LLC .

While it is a possibility to charge merchants commissions on all sales made through the
company's website (when consumers claim their returns), it would not capture all sales
stimulated by the company. The program will increase consumer satisfaction and loyalty.
However, when consumers start buying more due to the program's effect but dealing directly
with the merchant, the company will not receive any commissions and will in effect be
giving its services away for free. Hence both fees charged should fully reflect the benefits of
the easy-return procedure, early information on all returning items, restored customer
satisfaction, selling opportunities created during the claim process, and all repeat sales
thereafter.

The company also plans to draw revenues from advertising on its website, but for the
purpose of this business plan advertising revenues will be considered negligible. A fee/rebate
agreement may be arranged with such companies as UPS and Mail Boxes Etc. for bringing
customers to them for shipping needs. Other revenue generating activities such as affiliate
programs with VISA, American Express, or Citibank can be arranged to promote certain
credit cards as a preferred method of payment online. Those revenues will also be omitted in
the financial projections. Once the company has generated a sufficient customer database, it
may also market information to retailers and other organizations for a fee. Any fees and
payments XXX E-Commerce LLC could generate from consulting activities in the field of
product returns will not be included in the financial projections either.

Sales Strategy

Sales Forecast

The table and chart below outline the company's projected sales volume in FY2000-2002.

 1st Program Revenues: represent the flat program fee assessed on annual or
quarterly basis. The average fee charged by the company is 0.5% of a given
merchant's total sales. The program is estimated to increase merchandise sales by at
least 15% for a given merchant. The dollar figure in this line is based on the
conservative estimates of total online sales provided by National Retail Federation
(one third of the most optimistic current estimates provided by Shop.org) and the
market share gained by the company. From 2002 to 2004, the growth of total online
merchandise sales is estimated at 145% annually, which is in line with the growth
figure for 1999.
 2nd Program Revenues: represent the per-claim charges of 8% (net of 12% charged
less the 4% "instant rebate") of each item's listed price (each item claimed by
consumers through the company's website).

The company plans to make its services available just prior to Thanksgiving 2000. The
programs will be offered to the online merchants for free for the remainder of 2000,
therefore, we will not generate any revenue from sales for the year 2000.
 Mo
Chart: Sales Monthly
Sales Monthly
$60,000

$50,000

$40,000 Coffee beverages

$30,000 Coffee beans

Pastries, etc.
$20,000

$10,000

$0

Table: Sales Forecast

Sales Forecast
Year 1 Year 2 Year 3
Sales
1st Program Revenues $0 $7,800,000 $24,360,000
2nd Program Revenues $0 $11,232,000 $35,078,400
Total Sales $0 $19,032,000 $59,438,400

Direct Cost of Sales Year 1 Year 2 Year 3

1st Program Revenues $0 $0 $0
2nd Program Revenues $0 $0 $0
Subtotal Direct Cost of Sales $0 $0 $0

Management Summary

The company plans to locate its headquarters in a metropolitan area that can provide access
to a large pool of high-tech labor force, current e-commerce intelligence, and sources of
financial capital. The location should ensure the best logistics when reaching existing and
potential clientele, as well as strategic partners. Operations in which the company cannot
develop core competencies should be outsourced. A close proximity to outsourcing
companies should be maintained. The headquarters will initially host the entire executive
team, sales force, and staff. As company progresses through its growth stages, sales regions
will be assigned for various parts of the U.S. and either in-field sales representatives be
placed or distributors assigned. Presently, XXX E-Commerce LLC is headquartered in Bala
Cynwyd, Pennsylvania.
The company will initially be a privately-held corporation. The state of incorporation will
mainly depend on the location of corporate headquarters. The company plans to raise two
rounds of venture capital financing before going public.

Personnel Plan

Those activities that are not crucial to the corporate success (i.e. payroll) will be outsourced
or subcontracted. Below are brief summaries of major responsibilities for corporate officers.

 Board of Directors: oversees the overall strategic direction and progress of the
company. Specific areas include operational soundness, financial stability, and long-
term well-being of the corporation.
 President: responsibilities include strategic guidance of the enterprise, exploration of
expansion opportunities, and strategic alliance facilitation and management.
 Chief Executive Officer: the main responsibility is to maintain a strategic fit between
the corporate resources and external factors. Responsibilities include running of the
overall day-to-day operations, technological and operational soundness, and financial
stability.
 Director of Finance and Operations: responsibilities include financial oversight,
safeguarding of assets, and human resources management.
 Director of Information Technology: responsibilities include overall technological
efficiency, software development, and information control.
 Director of Sales and Marketing: responsibilities include sales generation,
marketing programs development, and public relations.

Table: Personnel

Personnel Plan
Year 1 Year 2 Year 3
All Departments $200,000 $1,960,000 $4,105,000
Other $0 $0 $0
Total People 5 40 80

Total Payroll $200,000 $1,960,000 $4,105,000

Financial Plan

The statements incorporate two rounds of venture capital investments of $2.6 million total,
plus access to additional $1.4 million for cash flow purposes. The statements do not include
any funds raised during the proposed IPO. Any revenues from advertising, affinity,
consulting, and partnership programs were omitted. Year-end is December 31.

Important Assumptions

The table below contains assumptions important to the financial success of the company.
Table: General Assumptions

General Assumptions

11 12
Year 1 Year 2 Year 3

10 Month
Plan Month 1 2 3

9 Month
Current Interest Rate 10.00% 10.00% 10.00%
Long-term Interest Rate 10.00% 10.00% 10.00%

8 Month
Tax Rate 25.42% 25.00% 25.42%

7 Month
Other 0 0 0

6 Month
5 Month
Projected Cash Flow

4 Month
The following chart shows monthly cash balance and cash flow. The table shows the

3 Month
expected cash flow for the first twelve months of operation, with yearly estimates thereafter.
2 Month
Capital expenditures include computer equipment and technology & software investment:
1 Month

 Computer Equipment: represents 20% of the current fixed corporate costs. In 2000, it
MonthMonth

represents $80,000 from the fixed corporate costs.

 Technology & Software Investment: represents 50% of the current fixed technology
costs. In 2000, it represents the $1.3 million of the fixed technology costs.

Chart: Cash
Cash
$1,500,000

$1,200,000

$900,000
Net Cash Flow
$600,000
Cash Balance
$300,000

$0

($300,000)

Table: Cash Flow

Pro Forma Cash Flow

Year 1 Year 2 Year 3
Cash Received
 Cash from Operations
Cash Sales $0 $4,758,000 $14,859,600
Cash from Receivables $0 $14,274,000 $44,578,800
Subtotal Cash from Operations $0 $19,032,000 $59,438,400

Additional Cash Received

Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $0 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $4,110,000 $0 $0
Subtotal Cash Received $4,110,000 $19,032,000 $59,438,400

Expenditures Year 1 Year 2 Year 3

Expenditures from Operations

Cash Spending $200,000 $1,960,000 $4,105,000
Bill Payments $2,149,150 $11,445,858 $26,737,688
Subtotal Spent on Operations $2,349,150 $13,405,858 $30,842,688

Additional Cash Spent

Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current
$0 $0 $0
Borrowing
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal
$0 $0 $0
Repayment
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $1,380,000 $323,544 $653,822
Dividends $0 $0 $0
Subtotal Cash Spent $3,729,150 $13,729,402 $31,496,510

Net Cash Flow $380,850 $5,302,598 $27,941,890

Cash Balance $427,850 $5,730,448 $33,672,338

Break-even Analysis

The following table shows our estimated monthly break-even point to be approximately
$222,000.
Chart: Break-even Analysis
Break-even Analysis
$200,000

$150,000

$100,000

$50,000

$0

($50,000)

($100,000)

($150,000)

($200,000)

$0 $80,000 $160,000 $240,000 $320,000 $400,000

$40,000 $120,000 $200,000 $280,000 $360,000 $440,000

Table: Break-even Analysis

Break-even Analysis

Monthly Revenue Break-even $222,417

Assumptions:
Average Percent Variable Cost 0%
Estimated Monthly Fixed Cost $222,417

Projected Profit and Loss

The table below shows the profit and loss statement for XXX E-Commerce LLC . The
itemized costs for fixed technology, corporate and advertising are reflected in the sales and
marketing row in the table:

 Fixed Technology Costs: represents a percentage of revenues allocation for all fixed
computer and Internet-related developments and charges. In 2000, $800,000 is
allocated for the proprietary software development, $300,000 for the website design,
and $200,000 for systems integration.
 Fixed Corporate Costs: represent a percentage of revenues allocation for all fixed
corporate cost associated with office related charges. In 2000, $200,000 is allocated
for initial sales force hire, $50,000 is allocated for hiring and training expenses, and
another $150,000 is allocated for the office setup and purchase/lease of necessary
computer equipment and infrastructure.
 Advertising: represents a percentage of revenues allocation for advertising in all
media. In 2000, $250,000 is allocated for the industrial marketing campaign. In the
subsequent years, the much larger budgets include allocations for TV advertising.
  Sales & Marketing: represents a percentage of revenues allocation for marketing and
selling activities, including commissions paid on sales. In 2000, $200,000 is allocated
for the initial sales and marketing related activities.
 Research and Development: represents a percentage of revenues allocation for R&D
activities. In 2000, $200,000 is allocated for testing and fine-tuning of the computer
systems and programs.
 General & Administrative: represents a percentage of revenues allocation for
expenses associated with running a corporation. In 2000, $20,000 is expensed against
the initial set-up, legal and accounting fees, etc.
 Depreciation: represents a depreciation on all capital investment; straight-line
depreciation over 20 years.

Table: Profit and Loss

Pro Forma Profit and Loss

Year 1 Year 2 Year 3
Sales $0 $19,032,000 $59,438,400
Direct Cost of Sales $0 $0 $0
Other $0 $0 $0
Total Cost of Sales $0 $0 $0

Gross Margin $0 $19,032,000 $59,438,400

Gross Margin % 0.00% 100.00% 100.00%

Expenses
Payroll $200,000 $1,960,000 $4,105,000
Sales and Marketing and Other Expenses $2,170,000 $9,355,520 $16,379,882
Depreciation $69,000 $85,177 $117,868
Research & Development $200,000 $951,600 $1,783,152
Payroll Taxes $30,000 $294,000 $615,750
Other $0 $0 $0

Total Operating Expenses $2,669,000 $12,646,297 $23,001,652

Profit Before Interest and Taxes ($2,669,000) $6,385,703 $36,436,748

EBITDA ($2,600,000) $6,470,880 $36,554,616
Interest Expense $0 $0 $0
Taxes Incurred $0 $1,596,426 $9,261,007

Net Profit ($2,669,000) $4,789,277 $27,175,741

Net Profit/Sales 0.00% 25.16% 45.72%

Projected Balance Sheet

The Balance Sheet shows solid growth in both sales and net worth.
Table: Balance Sheet

Pro Forma Balance Sheet

Year 1 Year 2 Year 3
Assets

Current Assets
Cash $427,850 $5,730,448 $33,672,338
Accounts Receivable $0 $0 $0
Other Current Assets $0 $0 $0
Total Current Assets $427,850 $5,730,448 $33,672,338

Long-term Assets
Long-term Assets $1,380,000 $1,703,544 $2,357,366
Accumulated Depreciation $69,000 $154,177 $272,045
Total Long-term Assets $1,311,000 $1,549,367 $2,085,321
Total Assets $1,738,850 $7,279,815 $35,757,659

Liabilities and Capital Year 1 Year 2 Year 3

Current Liabilities
Accounts Payable $250,850 $1,002,538 $2,304,640
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $250,850 $1,002,538 $2,304,640

Long-term Liabilities $0 $0 $0
Total Liabilities $250,850 $1,002,538 $2,304,640

Paid-in Capital $4,160,000 $4,160,000 $4,160,000

Retained Earnings ($3,000) ($2,672,000) $2,117,277
Earnings ($2,669,000) $4,789,277 $27,175,741
Total Capital $1,488,000 $6,277,277 $33,453,018
Total Liabilities and Capital $1,738,850 $7,279,815 $35,757,659

Net Worth $1,488,000 $6,277,277 $33,453,018

Business Ratios

The following table presents important business ratios for the business services industry, as
determined by the Standard Industry Classification (SIC) Index code 7389, Business
Services, (not elsewhere classified).

Table: Ratios

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth n.a. n.a. 212.31% 8.79%

Percent of Total Assets

 Accounts Receivable 0.00% 0.00% 0.00% 28.12%
Other Current Assets 0.00% 0.00% 0.00% 44.18%
Total Current Assets 24.61% 78.72% 94.17% 76.27%
Long-term Assets 75.39% 21.28% 5.83% 23.73%
Total Assets 100.00% 100.00% 100.00% 100.00%

Current Liabilities 14.43% 13.77% 6.45% 38.61%

Long-term Liabilities 0.00% 0.00% 0.00% 13.60%
Total Liabilities 14.43% 13.77% 6.45% 52.21%
Net Worth 85.57% 86.23% 93.55% 47.79%

Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 0.00% 100.00% 100.00% 100.00%
Selling, General & Administrative
0.00% 74.84% 54.02% 82.68%
Expenses
Advertising Expenses 0.00% 1.00% 0.50% 1.66%
Profit Before Interest and Taxes 0.00% 33.55% 61.30% 1.37%

Main Ratios
Current 1.71 5.72 14.61 1.59
Quick 1.71 5.72 14.61 1.22
Total Debt to Total Assets 14.43% 13.77% 6.45% 60.22%
Pre-tax Return on Net Worth -179.37% 101.73% 108.92% 3.09%
Pre-tax Return on Assets -153.49% 87.72% 101.90% 7.76%

Additional Ratios Year 1 Year 2 Year 3

Net Profit Margin 0.00% 25.16% 45.72% n.a
Return on Equity -179.37% 76.30% 81.24% n.a

Activity Ratios
Accounts Receivable Turnover 0.00 0.00 0.00 n.a
Collection Days 0 0 0 n.a
Accounts Payable Turnover 9.57 12.17 12.17 n.a
Payment Days 27 19 22 n.a
Total Asset Turnover 0.00 2.61 1.66 n.a

Debt Ratios
Debt to Net Worth 0.17 0.16 0.07 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a

Liquidity Ratios
Net Working Capital $177,000 $4,727,910 $31,367,697 n.a
Interest Coverage 0.00 0.00 0.00 n.a

Additional Ratios
Assets to Sales n.a. 0.38 0.60 n.a
Current Debt/Total Assets 14% 14% 6% n.a
Acid Test 1.71 5.72 14.61 n.a
Sales/Net Worth 0.00 3.03 1.78 n.a
Dividend Payout 0.00 0.00 0.00 n.a

Need to create your own financial tables? Tools like LivePlan will do this for you automatically.
Appendix

Table: Sales Forecast

Sales Forecast
Month Month Month
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9
10 11 12
Sales
1st Program Revenues 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
2nd Program Revenues 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Month Month Month

Direct Cost of Sales Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9
10 11 12
1st Program Revenues $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
2nd Program Revenues $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Direct Cost of
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Sales
Table: Personnel

Personnel Plan
Month Month Month
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9
10 11 12
All Departments 0% $16,666 $16,666 $16,666 $16,666 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667
Other 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total People 5 5 5 5 5 5 5 5 5 5 5 5

Total Payroll $16,666 $16,666 $16,666 $16,666 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667

Table: General Assumptions

General
Assumptions
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Plan Month 1 2 3 4 5 6 7 8 9 10 11 12
Current Interest
10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Rate
Long-term Interest
10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Rate
Tax Rate 30.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00%
Other 0 0 0 0 0 0 0 0 0 0 0 0
Table: Profit and Loss

Pro Forma Profit

and Loss
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Direct Cost of
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Sales
Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Cost of
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Sales

Gross Margin $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Gross Margin % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Expenses
Payroll $16,666 $16,666 $16,666 $16,666 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667
Sales and
Marketing and $20,500 $46,000 $86,000 $121,500 $237,000 $237,000 $237,000 $237,000 $237,000 $237,000 $237,000 $237,000
Other Expenses
Depreciation $500 $1,500 $3,000 $4,000 $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 $7,500
Research &
$5,000 $10,000 $10,000 $15,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000
Development
Payroll Taxes 15% $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500
Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Total Operating
$45,166 $76,666 $118,166 $159,666 $283,667 $283,667 $283,667 $283,667 $283,667 $283,667 $283,667 $283,667
Expenses

Profit Before
Interest and ($45,166) ($76,666) ($118,166) ($159,666) ($283,667) ($283,667) ($283,667) ($283,667) ($283,667) ($283,667) ($283,667) ($283,667)
Taxes
EBITDA ($44,666) ($75,166) ($115,166) ($155,666) ($276,167) ($276,167) ($276,167) ($276,167) ($276,167) ($276,167) ($276,167) ($276,167)
Interest Expense $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Taxes Incurred $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Net Profit ($45,166) ($76,666) ($118,166) ($159,666) ($283,667) ($283,667) ($283,667) ($283,667) ($283,667) ($283,667) ($283,667) ($283,667)
Net Profit/Sales 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Table: Cash Flow
Pro Forma Cash
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Cash Received

Cash from
Cash Sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Cash from $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Cash $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Additional Cash
Sales Tax, VAT, 0.00% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
New Current $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
New Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
New Long-term $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Sales of Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Sales of Long-term $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
New Investment $0 $600,000 $0 $0 $110,000 $2,000,000 $0 $0 $0 $1,400,000 $0 $0
Subtotal Cash $0 $600,000 $0 $0 $110,000 $2,000,000 $0 $0 $0 $1,400,000 $0 $0

Expenditures Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Expenditures from
Cash Spending $16,666 $16,666 $16,666 $16,666 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667
Bill Payments $933 $29,017 $59,833 $99,850 $143,017 $259,500 $259,500 $259,500 $259,500 $259,500 $259,500 $259,500
Subtotal Spent on $17,599 $45,683 $76,499 $116,516 $159,684 $276,167 $276,167 $276,167 $276,167 $276,167 $276,167 $276,167

Additional Cash
Sales Tax, VAT, $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Principal $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Other Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Long-term $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Purchase Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Purchase Long- $3,000 $10,000 $17,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000
Dividends $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Cash $20,599 $55,683 $93,499 $266,516 $309,684 $426,167 $426,167 $426,167 $426,167 $426,167 $426,167 $426,167

Net Cash Flow ($20,599) $544,317 ($93,499) ($266,516) ($199,684 $1,573,833 ($426,167) ($426,167) ($426,167) $973,833 ($426,167) ($426,167)
Cash Balance $26,401 $570,718 $477,219 $210,703 $11,019 $1,584,852 $1,158,68 $732,518 $306,351 $1,280,184 $854,017 $427,850

Table: Balance Sheet

Pro Forma
Balance
Sheet
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
 Starting
Assets Balance
s

Current
Assets
$1,584,85
Cash $47,000 $26,401 $570,718 $477,219 $210,703 $11,019 $1,158,685 $732,518 $306,351 $1,280,184 $854,017 $427,850
2
Accounts
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Receivable
Other
Current $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Assets
Total
$1,584,85
Current $47,000 $26,401 $570,718 $477,219 $210,703 $11,019 $1,158,685 $732,518 $306,351 $1,280,184 $854,017 $427,850
2
Assets

Long-term
Assets
Long-term
$0 $3,000 $13,000 $30,000 $180,000 $330,000 $480,000 $630,000 $780,000 $930,000 $1,080,000 $1,230,000 $1,380,000
Assets
Accumulate
d
$0 $500 $2,000 $5,000 $9,000 $16,500 $24,000 $31,500 $39,000 $46,500 $54,000 $61,500 $69,000
Depreciatio
n
Total Long-
$0 $2,500 $11,000 $25,000 $171,000 $313,500 $456,000 $598,500 $741,000 $883,500 $1,026,000 $1,168,500 $1,311,000
term Assets
$2,040,85
Total Assets $47,000 $28,901 $581,718 $502,219 $381,703 $324,519 $1,757,185 $1,473,518 $1,189,851 $2,306,184 $2,022,517 $1,738,850
2

Liabilities
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
and Capital

Current
Liabilities
Accounts
$0 $27,067 $56,550 $95,217 $134,367 $250,850 $250,850 $250,850 $250,850 $250,850 $250,850 $250,850 $250,850
Payable
Current
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Borrowing
Other
Current $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Liabilities
Subtotal $0 $27,067 $56,550 $95,217 $134,367 $250,850 $250,850 $250,850 $250,850 $250,850 $250,850 $250,850 $250,850
Current
Liabilities

Long-term
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Liabilities
Total
$0 $27,067 $56,550 $95,217 $134,367 $250,850 $250,850 $250,850 $250,850 $250,850 $250,850 $250,850 $250,850
Liabilities

Paid-in $2,760,00
$50,000 $50,000 $650,000 $650,000 $650,000 $760,000 $2,760,000 $2,760,000 $2,760,000 $4,160,000 $4,160,000 $4,160,000
Capital 0
Retained
($3,000) ($3,000) ($3,000) ($3,000) ($3,000) ($3,000) ($3,000) ($3,000) ($3,000) ($3,000) ($3,000) ($3,000) ($3,000)
Earnings
($45,166 ($121,832 ($239,998 ($399,664 ($683,331 ($966,998 ($1,250,665 ($1,534,332 ($1,817,999 ($2,101,666 ($2,385,333 ($2,669,000
Earnings $0
) ) ) ) ) ) ) ) ) ) ) )
Total $1,790,00
$47,000 $1,834 $525,168 $407,002 $247,336 $73,669 $1,506,335 $1,222,668 $939,001 $2,055,334 $1,771,667 $1,488,000
Capital 2
Total
$2,040,85
Liabilities $47,000 $28,901 $581,718 $502,219 $381,703 $324,519 $1,757,185 $1,473,518 $1,189,851 $2,306,184 $2,022,517 $1,738,850
2
and Capital

$1,790,00
Net Worth $47,000 $1,834 $525,168 $407,002 $247,336 $73,669 $1,506,335 $1,222,668 $939,001 $2,055,334 $1,771,667 $1,488,000
2