Marketing vs. Sales: What is the Difference?
What is the difference between marketing and sales?
Let's think about thisquestion for a moment. Without marketing you would not have prospects orleads to follow up with, but yet without a good sales technique and strategy your closing rate may depress you.
Marketing is everything that you do to reach and persuade prospects. The sales process is everything that you do to close the sale and get a signed agreement or contract. Both are necessities to the success of a business. You cannot do without either process. By strategically combining both efforts you will experience a successful amount of business growth. However, by the same token if the efforts are unbalanced it candetour your growth.
Your marketing will consists of the measures you use to reach and persuade your prospects that you are the company for them. It's the message that prepares the prospect for the sales. It consists of advertising, public relations, brand marketing, viral marketing, and direct mail.
The sales process consists of interpersonal interaction. It is often done by a one-on-one meeting, cold calls, and networking. It's anything that engages you with the prospect or customer on a personal level rather than at a distance.
Your marketing efforts begin the process of the eight contacts that studies show it takes to move a prospect or potential client to the close of the sale. If marketing is done effectively you can begin to move that prospect from a cold to a warm lead. When the prospect hitsthe"warm" level it's much easier for the sales professional to close the sale.
Do you see the cycle?
As you see in my explanation above it takes multiple contacts using both sales and marketing to move the prospect from one level to the next. That is why it is import that you develop a process that combines both sales and marketing. This will enable you to reach prospects at all three levels; cold, warm, and hot. It's all about balance.
Are you unsure of how to integrate your marketing and sales?
Try this. Take a few moments and divide your prospect lists and database into categories of cold, warm, and hot leads. Then sit down and identify a strategy on how to proceed with each individual group.
For example you could try the following methods of contact:
[1] Cold Lead Strategy - Send out a direct mailing or offer them a special promotion
[2] Warm Lead Strategy - Try a follow-up call, send out a sales letter, or schedule a special seminar or training session to get all of your warm leads together.
Once you've moved your prospect to the "warm" level it's time to proceed in closing the sale. This will be easier to do if you somehow engage the prospect. You can do this by conducting a one-on-one call, make a presentation, or present a proposal, estimate, or contract.
What if you are uncomfortable with the sales or marketing process?
An alternative that often proves successful is to partner with someone that possess the talents that you feel you lack in. You can do this by creating a partnership, subcontracting, or hiring in that talent.
Remember the key to success in marketing and in sales is balance!
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The 10 Marketing Commandments
These Ten Commandments didn’t come from the Mountain. And they’re not carved on clay tablets, but on a high-tensile polyfiber instead. Yet any marketer worth his or her salt must follow these commandments in order to find the Promised Land.
[-::.1 Thou Shalt Not See Marketing as a Department.::-]
When you get right down to it, everyone in your company is a marketer. From the receptionist whose voice is the first thing your buyers hear, to the delivery person whose rear-end may be the last thing they see, every one of your employees plays a pivotal role in the orchestration of your marketing efforts. Good companies imbue every employee with healthy reverence for the customer so that the company, from every point of contact it has with its market, knows how to market.
[-::.2 Thou Shalt Follow the Ninety Day Rule.::-]
Your customers, prospects and champions (those who refer business your way) should hear from you every 90 days. People are just too busy to remember you otherwise. If you don’t follow the 90-day rule, you risk getting shouted down by any competitor of yours who does.
[-::.3 Honor the Concept of Tinkering with All your Heart.::-]
If you’re a 70’s child like me, you remember the hugely successful rock group Fleetwood Mac. But I’ll bet you didn’t know that their seemingly overnight success came only after years of tinkering. That’s right, before the release of their monster album Rumours, they endured no less than 14 personnel changes across 10 years. In marketing, as in rock and roll, success seldom happens with your original line-up.
[-::.4 Thou Shalt Not Quit.::-]
Moses and the Israelites wandered the desert for 40 years without giving up. You owe it to yourself (and maybe Moses too) to try any new marketing initiative at least three times before throwing in the towel. Your prospect could have been out of the country the first time you ran it, and tending to his sick mother the second. Repetition is a marketer’s best friend.
[-::.5 Thou Shalt Feed Thy Prospecting Funnel.::-]
Suspects become prospects, who then become customers. And these customers then generate referrals who create more prospects and the cycle begins anew. For thousands of years, this marketing process (also known as the prospecting funnel) has governed marketing activities for all companies, and I feel safe saying that it will continue this way for another thousand years.
[-::.6 Remember Thine Marketing Time by Keeping it Holy.::-]
Successful marketing campaigns don’t take the summer off, nor are they created “when I have the time.” You must make the time. I’ve found it’s helpful to consistently carve out the same day and time each week to work on marketing tasks. For me, it’s Friday afternoons; for you it may be different. But whatever day and time you choose, honor it with all your heart.
[-::.7 Thou Shalt Jettison One Program Every Year.::-]
I can’t count the number of stressed out marketers I’ve seen over the last 15 years. As task after task is added to their plates , nothing is ever removed. Stop this madness at once, and identify one marketing task each year to eliminate. Too often, someone keeps doing a task (e.g. issuing a report), yet it’s not adding value. Eliminate one marketing task a year; your health depends upon it.
[-::.8 Thou Shalt Not Cut Marketing Spending During Slow Times.::-]
From 1980 to 1985, McGraw-Hill Research analyzed 600 companies and their marketing spending. After 1985, McGraw-Hill concluded that those firms which had maintained or increased their advertising during the recession in ’81-’82 boasted an average sales growth of 275% over the next five years. But those companies who cut their advertising saw paltry sales growth over the next five years of just 19%. When is the right time to market your business? All the time.
[-::.9 Thou Shalt Honor Exiting Employees.::-]
I once had a travel industry client run a report that showed where their new referrals came from. The second highest category was ex-employees. It turns out vacation shoppers were asking these ex-employees where they could book a Vegas package just like the neighbor’s they’d heard about, and the ex-employees were referring them back to their old employer. When you treat your departing employees with a dose of good will, they may just turn into your unpaid sales force and refer business your way.
[-::.10 Thou Shalt Thank Often.::-]
Sadly, we live in an age of boorishness. But a savvy marketer can do his part to bring civility into an otherwise uncivilized world. Among the countless ways to thank customers are thank you notes, gift certificates and appreciation lunches to name just a few. These thank you’s don’t have to be showy. Just make sure the thank you is classy and considerate, and the kindness will eventually be repaid.
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Do I Need Personal Financial Planning?
Planning for a secure financial future is not easy.
> Maybe you're saving to buy your first home.
>Perhaps starting your own business is a dream.
> The costs of a college education have spiraled and you may wonder how you will pay for your child's education.
> You will probably live longer. Additional years after retirement can cost more than originally planned.
> Your EPF may not be enough to maintain your standard of living after retirement.
> Complex financial marketplace and changing tax laws make it difficult to understand your financial picture.
Everyone needs to plan for tomorrow. At every income level, there are steps you can take to make more efficient use of your assets and to ensure a secure financial future. It helps to develop well-defined goals and to map out appropriate strategies to turn your dreams into reality. The answer can be personal financial planning.
What is personal financial planning?
Personal financial planning is a
process, not a product. It is an organized, well-planned system of developing strategies for using your financial resources to achieve both short- and long-term goals. You may think of the process as helping you to answer three straightforward questions:
> Where am I?
> Where do I want to go?
> How do I get there?
> When should I start planning?
It is important to start planning for the future as soon as you can. Time passes quickly - it is never too soon to start planning for tomorrow.
Who should prepare my personal financial plan?A well-qualified
financial planner should work with you to prepare your plan. A financial planner combines the objectivity and trust long associated with the financial planning profession and the financial savvy developed through years of experience and expertise in personal financial planning.
I don't have a lot of money. Do I need a full-scale financial plan?
You may not. You can seek out different levels of financial planning advice, from counseling on a particular issue to comprehensive planning. Speak to the financial planners you are considering and discuss with them your budget. You should be able to find one who meets your needs.
What role does goal-setting play in financial planning?
It is important to list both short- and long-term financial goals on paper. You can then rank the importance of the goals. If you are saving toward something tangible, instead of just saving, it may be easier. These goals could include: available cash for emergencies, education for children, care for family members, retirement, a nest egg to permit a career change, acquiring or selling a business, estate planning, financial independence or personal objectives such as a special vacation or second home.
How do I know how much I am worth?
One of the first things that you should do in reviewing your financial situation is to determine your
net worth. Many people are surprised to find out how much they are really worth.
First, estimate the value of your assets. If you have owned your home for a number of years you may be sitting on a nice nest egg. Several different real estate appraisals will help you determine its worth. Organize bank and brokerage statements and record their value. Don't forget assets in EPF. List your liabilities such as mortgage, car loans or credit card debt. Subtract your liabilities from your assets and you will have a good estimate of net worth.
How can I plan for tomorrow when I can barely pay for today?
Create a budget. Determine what you actually spend each month. It is easy to keep track of large expenses such as
mortgage and
car payments. The variable items such as food, clothing and entertainment are often what get away from us.
How much should I be saving?
It is hard to apply a rule of thumb toward savings, because it varies with age and income level. Ten percent is a good start. If that amount is too high for you, don't let that deter you. You can start by putting a little money aside each month and slowly increasing it.
How does insurance fit in to the process?
Evaluating your
insurance needs is part of personal financial planning. The insurance industry has changed a great deal over the past few years and there is a wide array of new products. Some of them may be better options than your current coverage. Your financial planner can work with your insurance agent to see if you have adequate coverage.
What type of advice can I expect from a Financial Planner?
You can expect objective financial advice that is tailored to meet your financial goals and objectives, as well as the level of risk with which you are comfortable. Depending on your unique situation and goals, your financial planner may confer with your attorney, stockbroker, insurance agent and other investment advisors to achieve the best plan for you.
After a plan is developed, what happens next?
The best plan is useless unless it is put into action. A financial planner can advise you how to implement the plan and can put you in touch with other financial experts as needed.
How often should I update the plan?
It is good to review the plan when there is a significant life event such as marriage, birth, death or divorce. Any change in financial position should be evaluated as well. Many people have an annual update that reviews how the plan is being implemented. The review also considers changing goals and circumstances.
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Frequently Asked Business Plan Questions
Should I hire an expert to prepare the financials?
It's better to prepare them yourself. A potential lender or equity investor wants to see not only that the numbers look good, but also that you understand them inside and out. If you can't answer highly detailed or thorny questions about how you arrived at your numbers, you aren't going to get your funding.
How detailed should budgets be?
Budgets in business plans to raise money should have little detail beyond breaking expenses out by departments or functions. You should, however, have supporting details available on request.
Similarly, when creating annual plans, even for a very small, one-person business, I suggest that you have two levels of detail. One should be a budget summary that has just one entry for projected sales of each major product or service line, and just one entry for projected costs in each functional area such as marketing, cost of goods sold, etc. A budget summary is very important in helping you get a handle on the cost structure of your business and its major trends.
Then have a separate, more detailed budget for each functional area. But don't get buried in detail. I would suggest a maximum of ten to twenty entries for projected expense categories if your business is small.
How can I benchmark costs and profits?
You need to get data for firms in your industry-perhaps from an industry association. Sometimes trade magazines and newsletters publish statistics for their industries. Compare your numbers with firms of similar size in the same industry.
Which pro forma is most important?
Cash flow! It's nice to project a profit, and knowing you have a solid balance sheet can make you feel good-but if you run out of cash, your business will be dead in the water!
Just about all small businesses will feel a cash crunch sooner or later, and for most businesses it will happen sooner, later, and fairly regularly. But if you keep your cash flow projection up to date, you can take steps to avoid cash shortages before the problem becomes acute. Otherwise, you will go merrily along your way until one day you may find you have no money in the bank, your bank credit is exhausted, your payroll is due, your key vendors are howling for payment, the IRS is calling, and customers are still paying their bills slowly. Remember, cash crunches happen all the time in successful, profitable, growing businesses too!
What `tone` should I have in the plan?
Keep the tone of your business plan factual. Don't use hyperbole or generalizations to describe the potential of your business plan. Investors and lenders don't want to hear phrases like `this business has incredible potential.` They want to use the more factual information you present to reach their own conclusions.
Are long plans better?
Keep your plan succinct.Whether creating a business plan to raise money or an annual plan to run your business, keep it succinct. People tend to use too much detail when creating plans. If a business plan is too long, it might be skimmed. If an annual plan is too long, focus on what is really important might be lost.
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Attracting Equity Investors
Talk with your lawyer first
People don't invest in small companies to lend a helping hand. They invest to make money. And they expect to make a lot of money. If they expected to make just a 10% or even 15% return on their investment they would invest in largely less risky major public companies. Instead they invest in small companies because they expect to get huge returns on their investments. Often these returns do not materialize. Even if the company is successful in the eyes of the founders it may not meet the expectations of outside investors. And disappointed outside investors will often look for someone (read the company founders) to sue. This is just one reason you need to consult with a highly experienced business lawyer (not your family lawyer) before you to try to seek equity capital. There are also a lot of laws restricting how equity money can be raised from the public. And you need to be careful to structure any equity deal in your best interest--including all of the fine print.
Venture capitalists
Venture capitalist firms get a lot of attention in the financial press and they look at a lot of deals. But chances are that you are not going to get a nickel from them. Venture capitalists finance a very small percentage of new businesses. And most firms have fairly specific criteria for what type of situation they are interested in. Venture capitalists are typically looking for a company that has a realistic possibility of becoming a very large business within 5-7 years, large enough for a major public offering or for sale to a Fortune 500 size company. This would allow them to cash out their investment which they hope will have multiplied in value. Contrary to popular belief many venture capital deals are not for high tech companies, and many are for second or third round financing. Because venture capitalists are approached with many potential deals everyday, you should try very hard to get a personal referral to get your plan carefully considered.
Relatives
I know that you hate to ask relatives for money--it feels like begging--but I've done it. And you can do it too. When you need money for a business you just have to swallow your pride. Approach your relatives very much like you'd approach any other outside investor. Explain not how they can help you out--but how they can make money. Have a written agreement--and have your attorney read it. A written agreement with relatives will not only help avoid legal problems but will also help avoid potentially bitter family relations. Even with your parents, siblings or spouse keep your business relationship formal. When I borrowed money from my father he was tougher than the bank--demanding interest every 30 days. But by adhering to his strict terms I was able to borrow money from him on more than one occasion.
Employee investors
One of the most common sources of equity money is potential employees, especially people you either worked with in the past or you have personally known in the same industry. By offering equity to potential employees you not only get an equity investment but you also get (presumably) a talented and committed employee. Usually employees who have invested in a company are willing to take a significantly below market salary--but they will expect that the principal founder does likewise. While raising equity from potential employees has obvious pluses it also can raise a bunch of serious issues. What happens if the employee's work proves less than satisfactory? What happens if the employee decides to join or start a competing company? These are all issues that need to addresses with a good business attorney before you even approach a potential employee-investor.
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Planning For Profits
"No matter how small or large your business, you've got to aggressively plan the work-and then work the plan!"
How To Really Jump Ahead!
On a discussion panel, I was recently asked, "Was there a particular turning point when your small business really jumped ahead?" Absolutely. I always made up plans and budgets, but it was about five years into my business before I really began to proactively use them.
Before this point in time, my sales projections were miles off and, more importantly, I was always thinking up excuses for making unplanned expenditures, often for advertising that seldom matched my expectations. I'd finish the year way over budget, with profit margins a fraction of what my plan called for.
I learned that a lot of expenditures seem like a great decision if you look at them in isolation-but when you look at them in the context of the whole budget, they often look a lot less enticing.
Sharply Focus Your Plan!
Too many people equate annual planning with budgeting. Worse, when they budget, they simply extrapolate last year's numbers into next year's plan, perhaps increasing by 5 percent here and 6 percent there.
Big mistake! The annual planning process is your best chance to really manage the business-and to get key people to "buy into" the total plan by actively participating.
Even if you're running a one-person business you want to get a few words into your annual plans, not just numbers. You don't need a full-fledged 100-page business plan-in fact, a big, detailed plan takes focus away from what matters. What matters is the few big things that the business is going to strive to do better or different next year. The annual planning process should be focused around these few, important changes.
Don't Jump Into Budget Numbers!
Before you start doing any nitty-gritty budgeting for your annual plan, here are the crucial first steps:
1. Review the company's business strategy. Do changing market conditions or heightened
competition mean that it's ready for an overhaul?
2. Establish just a few major goals for the next year. These are usually quantitative goals such as
to increase sales by 18 percent or to increase profit margins by 15 percent-but they may be
qualitative goals such as to improve the quality of a product or customer service. It is very
important to have very few major goals-otherwise, with too many goals, the company will lose
focus and be less likely to hit any of them.
3. If your company is big enough to have departments, have one or several specific goals for
each department. To take this one step further, you may want to have specific goals for
individual people within each department.
Sales Projections Need Extra Attention!
Once you've reviewed the company's strategy and set up company-wide, as well as department, strategies for the next year, then it's time to start cranking out budget numbers.
I always begin with sales, because sales numbers will drive many of the other numbers. Unfortunately, sales numbers, particularly of new products, are difficult to project. So I try to have at least three people, typically a project manager, the sales manager, and myself, work up new-product sales projections together. If you're really unsure of sales projections, consider multiple scenarios based on "weak," "likely," and "good" sales projections.
After we've got the sales numbers, each department works up its budget numbers. Once they're tentatively approved, the controller puts them all together into one big happy plan! But more often than not, I'm not completely satisfied with the overall profit margin, so I'll work with the different department heads to cut costs and drive up the projected earnings.
Benchmark Your Costs!
One of the best ways to establish cost goals for annual planning is to benchmark your costs with other firms in your industry. Don't get too wrapped up in the details; focus on the total picture for major categories. For example, if your marketing costs are 23 percent of sales and the industry average is 16 percent, it's time for some cost-cutting. Benchmarking is a great way to get department managers to understand why they need to control costs.
Often industry associations provide standard industry costs, and occasionally they might be mentioned in articles in trade magazines.
You may want to consider hiring a consultant to put together a study of a half-dozen or more firms very similar to yours. Being a third party, the consultant will keep each firm's individual numbers confidential by providing only average and median cost information to each company as an incentive for participating. What's worked best for me is when another publisher foots the bill for the consultant, but shares the results with us in exchange for our agreeing to share our numbers.
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STRUCTURING YOUR BUSINESS PLAN
Think of your business plan as a production line. What goes in at the start are raw material and unfinished assemblies. In our case, the raw materials include:
1. Talent and initiative from your employees
2. Capital
3. Market position
4. The company's creditworthiness
5. The firm's earning capacity
6. Assessment of changes in the marketplace
The unfinished assemblies include ideas and concepts that people want to try. These are the most valuable parts of the plan. They can take the company where it needs to go.
As with most assembly lines, what goes in at the front end probably doesn't resemble the completed product. The planning process refines, changes, and adopts these original input items. It uses them all. During this process, we'll
1. Assess all your firm's resources: financial, technological, and human, to name a few.
2. Identify where your company needs to go in order to prosper.
3. Sometimes work backwards from a target to determine what specific departmental goals are
needed
In the end we'll have a workable business plan that's far more than just a written document. We'll understand the changes in property, plant, equipment, management, technology, financial structure, and capital resources needed to reach our targets. Everyone responsible for executing the business plan will know what's expected of him or her and when it's due. We'll establish milestones where we need coordination between different departments to accomplish a particular goal. We'll be able to see progress toward those intermediate goals-definite, quantified progress, reported regularly. We'll make midcourse changes in time to avoid jeopardizing the larger goals.
The structure of this business plan is like nothing you've seen before. This one is a nuts-and-bolts, how-to-get-it-done-without-fail tool kit. We're going to grab your company and take it where it needs to go. You won't find much of the theoretical strategizing so many other planning books carry on about. That's fine for larger companies that can wait five years or more for results.
Instead, what happens to your company during the next twelve months concerns us. If you can hit your short-range targets year after year, the longer term will take care of itself. Chapter 2 introduces the planning structure we'll employ for your company. It identifies the various techniques and methods used in the process. By the end you'll have an idea of how each part of the planning process builds on what went before. Further, you'll understand how the business plan ties all the various functions in your business tie together.
ACTION PLANNINGThe way we structure this process, the action of planning is just as important as the written product (sometimes more so). The planning structure builds relationships between departments that did not exist before. The design and implementation of departmental goals cements communication between people and their departments. The need for coordination between efforts that appeared unrelated becomes obvious.
A successful business plan requires the cooperation of each department in the company. Don't worry about resistance. There are some specific things we'll do to ensure the commitment of even the most diehard antiplanners.
Demanding ResultsOur orientation in this action plan is results-driven. That's probably not a foreign concept for most small-business owners and managers. Their very survival depends on results-usually daily. But there's a twist. The results we're demanding come from your employees. These are the people responsible for implementing the business plan. For the company to prosper for any length of time, the group must commit to the plan's success. The group must understand the single thing that each person must do above all else to make the company successfully hit its targets.
Finally, the group must be the body that evaluates its own performance and rewards or punishes its members. Peer influence is far more persuasive than any single reward offered by a manager. It's made even more potent when the group becomes a team seeking a set of common goals. Of course we'll demand results. Those results are concrete targets-mostly quantifiable, but always clearly understood by everyone involved. Assign specific individuals responsibility for attaining these results. Their commitment comes from their participation in establishing worthwhile goals that they're responsible for reaching.
Let's walk through the structure of this hands-on, no-excuses way to hammer out and execute a business plan.
ASSESSING YOUR CURRENT POSITIONThis probably requires the most soul-searching you've done in some time. We want an honest appraisal of your company's present status. Include each aspect of the company you deem critical to its success. Consider such things as
1. Products
2. Distribution channels
3. Market share and influence
4. Customer loyalty
5. Technological innovations and advantages
6. Management talent
7. Employee capabilities
8. Manufacturing capacity and equipment
9. Competition
10. Pricing
The role of each of these attributes in furthering our goals does not concern us now. Indeed, we haven't established our goals yet. Instead, we want an honest appraisal of where we stand today.
Using this information and comparing it with the company's goals-once we establish them-we will see a gap emerging between where we are and where we want to be. It's that gap that much of our business plan deals with. Closing that gap is our goal.
IDENTIFICATION OF COMPANY GOALSFrom the beginning we'll work to create clearly defined goals for your business plan. These goals begin at the top of the company and work their way down. Some are longer range-twelve-month time horizons. Other subgoals needed to reach the larger targets are intermediate range-say six months. Some are just three months out or even less. These are usually extremely critical things that must happen before work can proceed on the next step of a larger goal.
Unlike those of some planning exercises you may have experienced, our goals are brutally precise. They are the product of the firm's planners recognizing the specific targets the company must meet during the next twelve months if it is to prosper. It's easier for those who implement the plan to communicate precise goals rather than fuzzy, broad goals.
That's just what we want-clarity. Since our time frame is short, there's no room for anyone wasting time doing something that doesn't specifically help us get where we want to go. To this end, there are two questions we ask when establishing company goals:
1. Where do we want to go in terms of products, customers, profits, return on investment?
2. What changes do we have to make in each department to get us there?
Differences from Larger CompaniesThe business planning needs of small companies are very different from those of their larger counterparts. First of all, small firms lack the resources and influence of large companies. Second, smaller companies worry more about survival today than conquering the world tomorrow. That's why our approach deliberately omit
1. Statements of philosophy and the mission of the company
2. Creation of a strategic plan that's consistent with management's philosophy
These are of little use to us in guiding the company over the next year to a specific end point. Now, this isn't to say that we should stick our heads in the sand and ignore a longer-term look at our future. However, that activity is probably better done once we've gotten the firm under control and understand how to make short-term changes that enhance profitability. Certainly, if this is your first planning exercise, the approach we're using gets tangible results using real targets that are achievable. It's comparable to walking before trying to run.
Attainable GoalsHave you ever seen people give up before they start because the task intimidated them? That's something we don't want to have happen here. Recognize that there may be too large a gap between the goals you come up with and the firm's current position. There may come a time when you say, There's no way we can accomplish all that this year.
It takes a smart manager to recognize that the chasm is too wide to jump in a single leap. Instead, he or she must reassess the goals, and maybe scale them back. A somewhat less ambitious set of targets results. However, they are realistic targets that everyone believes in. The outcome is greater commitment and higher probability of success than if you tried to ram unnecessarily burdensome goals down everyone's throat.
The trick to setting attainable goals is to strike a balance between targets that represent a realistic reach and those that are so far out that they'll certainly cause failure. On the one hand, we've identified something worth shooting for, and we'll reward our team appropriately. On the other hand, people view impossible goals as negative even when they are sweetened with better rewards. People would rather have a reasonable chance of receiving a bucket that's 90 percent full than no chance of receiving one that's overflowing.
RECOGNIZING FACTORS CRITICAL TO PLAN SUCCESSOnce you've identified your current position and arrived at the targets for your company, it's time to figure out how to bridge the gap between the two. The technicians call this process reverse engineering. In essence, we're taking the end result and working backwards to determine the steps we need to get there.
Analyzing Success FactorsYou'll find that your business plan leaves the foggy world of strategies and mission philosophy very quickly. Instead, what makes the company move toward specific goals interests us.
Let's say that your firm's overriding target for the next year is to reach a 10 percent return on capital. There's nothing wrong with that goal. It's quantifiable. There's no question how to determine whether you've reached it (amount available for owner distribution / capital = return on capital). Even better, we can track progress toward it each month. Now, here's where the factors needed to reach this target begin to emerge.
Let's say that two things need to happen if we are to reach our 10 percent target:
1. Sales must increase by $1,000,000.
2. Production costs must decrease by $500,000.
The plan separates factors critical to each of these targets into a series of subgoals. In our example, the plan might spread the sales increase over several different products and among the quotas of different members of the sales staff. To decrease production costs, the firm might have to acquire some new machinery. Outright purchase would require more capital. That would take us in the wrong direction. Instead, the answer might be to lease the equipment. There are many other possible sales enhancements and production cost cutting measures, but you get the idea.
See how concrete solutions begin to appear once we know exactly where we want to go? The road map to get there isn't difficult to create. Each step of the way we've identified specific targets and goals that we must meet by a certain time and assigned to certain people as their responsibility.
Analyzing success factors is an exercise that consists of merely working back from a definite goal to see just how you're going to accomplish it.
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Outline of a Complete Business Plan
This is an outline of a complete business plan:
SummaryBusiness Concept
Current situation
Key success factors
Financial situation/needs
VisionVision statement
Milestones
Market AnalysisThe overall market
Changes in the market
Market segments
Target market and customers
Customer characteristics
Customer needs
Customer buying decisions
Competitive AnalysisIndustry overview
Nature of competition
Changes in the industry
Primary competitors
Competitive products/services
Opportunities
Threats and risks
StrategyKey competitive capabilities
Key competitive weaknesses
StrategyImplementing strategy
Products/Services
Product/service description
Positioning of products/services
Competitive evaluation of products/services
Future products/services
Marketing and salesMarketing strategy
Sales tactics
AdvertisingPromotions/incentives
PublicityTrade shows
OperationsKey personnel
Organizational structure
Human resources plan
Product/service delivery
Customer service/supportFacilities
Creating the financials of the business planAssumptions and Comments
Starting Balance Sheet
Profit and Loss Projection
Cash Flow Projection
Balance Sheet Projection
Ratio's and Analysis
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Creating Your Business Plan
Getting Started
The hardest part of creating a business plan is getting the energy together to get started. At first it seems like a daunting task. But once you get going you'll find that writing the plan is not as tough as it seems. Start with some of the easy steps first. Describe your business and your product or services. Talk about the market you are targeting. And explain what stage of development your company is in. If you get hung up on a particular part of the plan--skip it for now--and come back and fill it in later. Don't worry about making a perfect first draft--just get some thoughts down to get the process going and you can always come back and polish it up later.
Keep in mind your audience
Throughout the writing of your business plan you want to keep in mind your intended audience and why you are writing the plan. For example if you are trying to attract equity investors you will want to emphasize the big upside profit potential. At the same time you need to be especially careful to adequately disclose the risks and uncertainties in your business, because investors often look for someone to blame (read `s-u-e`) if their investment disappears. If you are trying to get debt financing you want to emphasize not the huge upside profit potential--but the certainty that the debt can be repaid. In fact talk of big profits may scare away debt financiers because high profit potential usually means high risks. If you are writing a plan to help you run the business better you may skip or write very simple sections with general background information on the company and the industry, and instead focus in more depth on the areas of your plan that are currently most important to you.
Strategy is the core of your business plan
Basically the first half of the business plan is geared towards helping develop and support and solid business strategy. You look at the market, the industry, customers and competitors. You look at customer needs and the benefits of current products and services. You evaluate the strengths and weaknesses of each competing firm and look for opportunities in the marketplace. All of these steps are largely aimed at helping you create a strategy for your business. The second half of the business plan is largely to execute your selected business strategy. Your products and services, your marketing and your operations should all closely tie in with your strategy. So while it may be easy to select a smart-sounding strategy for your plan, I recommend you give a lot of thought to the strategy that will set the course for your business.
Think competitively throughout your plan
In today's crowded marketplace, you're probably going to have serious competition no matter how creative your business concept is. That is why you need to think competitively throughout your business plan. You need to realistically identify where you will do things in similar manner as your competitors, where you will do things differently, where you have real strengths and where you have real weaknesses. To try to run a major aspect of your business significantly better than your competitors may be a very difficult challenge. Hence, you are often better to focus in planning on being different than your competition and competing with them less directly. Can you find a particular market niche to focus on? Can you find a unique strategy? Can you position your products differently? Can you use different sales or marketing vehicles?
Don't overreach with your business plan
A lot of business plans sound good on paper, but don't work in the real world marketplace. It's difficult to attract people to a new product or service. Just because it's better doesn't mean people are going to switch to it! People or companies have established buying patterns and are currently doing business with someone else. To get them to do business with you, you need to do more than to attract them to your business. You've got to steal them away from someone else's business. It's also quite possible that when you enter the marketplace, that your competitors may react with their own new products or services or by cutting their prices. And while it's easy to overestimate sales projections it's just as easy to underestimate costs--especially for a start-up. There are always going to be a hefty amount of cost overruns, expensive problems, and items that you simply overlooked. So forecast conservatively and try to have an extra cushion of cash tucked in reserve.
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WHY PLAN YOUR BUSINESS?
The owner of a small sheet-metal fabrication company once told me, "Why plan? It only gets in the way of what would have happened anyway." That's a fatalistic notion often held by managers of small businesses. Too many believe that they're totally at the mercy of larger competitors. In fact, for many, exactly the opposite is true.
Think of the reasons for your company's success. You'll probably come up with a series of traits that are uniquely yours-characteristics that your larger competitors can't begin to duplicate. That's why you're in business.
Of course, you may already believe in the idea. However, you may have to sell it to the others in your company. This ammunition may come in handy.
RECOGNIZING USES OF THE PLANFor many of us who left corporate America in favor of a smaller work environment, the idea of drafting a business plan may seem offensive. After all, isn't frustration with all that busywork one of the reasons we left in the first place?
We all have an aversion to doing anything on our job that doesn't immediately help the situation we're now experiencing. However, isn't it also true that a little foresight and action before the fact can help eliminate many of the problems we face each day. Wouldn't it be nice to anticipate something like a price cut by your major competitor or a rise in the interest rate on your credit line? Of course it would. And with that anticipation comes an organized and effective response. That's what planning does.
Additionally, we prepare a workable business plan to:-
1. Determine where the company needs to go
2. Forewarn of possible roadblocks along the way
3. Formulate responses to contingencies
4. Keep the business on track to reach its planned goals
Planning for Promotion of the CompanyMany people associate a business plan with start-up companies. Often our first exposure to a business plan is for the purpose of convincing investors and lenders that we have a viable idea at which they should throw money. That's not what we're developing here.
Though the techniques may be similar, the purposes are entirely different. So are the results. Promotional plans are often untested, pie-in-the-sky theories of what someone thinks will work. The goals, objectives, and numbers are usually unproven. Detailed departmental plans for hitting targets are frequently hazy-if they exist at all. Promoters don't want to burden their investors with the mechanics of execution. That comes later, after the money is in the bank.
Think of a start-up's promotional plan as concept-driven. It's more general in nature. The presentation leaves many questions of practical execution unanswered. These plans are fine for their purpose. However, most aren't intended as a blueprint for running the company.
Planning for Operational PurposesWe're not creating a promotional plan for a new start-up company. Instead, by using this book, you create a practical realistic planning tool for your business. The emphasis is on integrating the details of what each department within the company does to help the firm reach its overall goals. We want to tell each person in the company the single most important thing they need to do-must accomplish-to contribute to the overall success of the business. Certainly this results-oriented attention to detail can (and probably should) be used for a start-up venture. However, the promoters are right-it would confuse outsiders not familiar with the inner workings of the company.
Our focus is on practical solutions to everyday business objectives. We design these to work in concert with one another. When they do, the company moves from where it is today to where its owners, investors and managers want it to be.
ESTABLISHING GOALSWhy establish goals? I've heard from colleagues who run other small businesses that they always seem to fall short of any goals they set for the company. There's almost a feeling of helplessness. Their companies are small and lack the resources needed to turn goals into reality.
Some wonder why they should spend time developing a business plan that might help the company make money over the next year or two-especially when they could be working on something else that's guaranteed to make money today. That's hard logic to refute, especially in a tight economy. Many small-business owners and entrepreneurs go after the quick buck. Those are the ones that don't last. Companies that lack a definite direction and the ability to stay on course eventually sink. It's the firms with vision and a plan to exploit that vision that become the stars. If you don't set goals and then try to reach them, it's guaranteed that your firm will stay right where it is today. With changing technology, changing customer demands, and increasing sophistication, marching in place is business suicide. During the 1990s and as we approach the next century, no company has the luxury of conducting business as usual. If you stay where you are today, the rest of us will leave you in the dust.
Company GoalsThese are the targets for change and transition that your firm must reach over the planning horizon-for our purposes, the next twelve months. Company goals cover such major issues as:-
1. Products offered
2. Customers targeted
3. Company image
4. Competition
5. Levels of service
6. Product quality
Companywide goals established in the business plan move the company into the position where it needs to be.
Department Goals
At very small companies, often that's for one person. No matter. Design department goals to connect with specific requirements of both the overall company goals and the goals of other departments in terms of product and timing. We make department goals in order to
1. Assist other departments that depend on those specific results
2. Achieve the overall company goals
A good example would be in the area of finance. Say the firm needs additional funds to buy the machinery needed to expand its manufacturing operation. This will generate the sales revenue needed to meet overall profit targets. Here are examples of specific department goals:
1. Get additional funds.
2. Purchase and take delivery of new machinery.
3. Expand manufacturing.
4. Generate added sales.
5. Help attain the overall profit objectives.
Failure to reach of any one of these department goals could jeopardize reaching the overall company's target. Additionally, within every department, it's easy to identify exactly what that department must do to further the company's cause.
APPRAISING YOUR CURRENT POSITION
The question here, however, is why do this? After all, most managers of small businesses are close enough to their everyday operation to know where they are, aren't they? Not necessarily. At least few take the time to think about where they are, then write it down so that others can judge its accuracy. We're talking about things like:-
1. Market position
2. Company strengths and weaknesses
3. Reputation
4. Industry viability
5. Technology
6. Product line
7. Adequacy of capital
8. Capability and sufficiency of employees
9. Sufficiency of plant, machinery, and equipment (the infrastructure)
Often the hardest part of starting a business plan is honestly determining your current position today. It's not always so obvious. Take the case of Domino's Pizza Corporation. What business is it in? Of course, it sells pizza. So does every one of its competitors. The Domino's planners decided that differentiating Domino's product based on higher quality was too hard a sell. Besides, it wasn't necessary. So what business is Domino's really in? The convenience industry. Its pizza isn't any better or worse than most of the competition. However, the niche Domino's chose for itself in its plan was the business of selling convenience. For a while it had that entire market to itself. Another example is that of a payroll processing service. Its current position is that of providing financial convenience to its clients. The company performs a task that other companies would rather not do. While assessing the current position, someone came up with the bright idea of expanding the services offered. After all, financial convenience extends beyond simply doing the payroll. Why not add bookkeeping, tracking and collecting receivables, and personnel consulting? See how the planning process not only answers a lot of questions you may not have thought about for some time, but prompts questions that may turn into opportunities? That's the kind of penetrating thought that goes into assessing your firm's current position.
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Tips on Negotiating Rates
Prices for print advertising are fixed, as the print media can be flexible in matching supply with demand. They have expandable space; if they sell more advertising than usual, they can print more pages.
Your negotiations with print media will revolve around what other services they can offer you, such as reader response cards, additional ads in a special issue, special position, free color, and so on. You will probably not be able to negotiate an actual discount off the rate card.
Prices for radio are negotiable, because the amount of inventory is fixed. There are only so many minutes between the programs themselves that can be sold. If there is competition for those minutes, the price goes up. The effect is really noticeable when there's a sudden surge in demand for commercials.
Spring is the beginning of the broadcast media buying season, since networks issue their fall schedules in May. Networks like to get money early, so to encourage you, they will usually offer attractive package deals at this time. This is the best time to negotiate for overall lowest cost.
Opportunities come up throughout the year as other advertisers change their plans. You can make good buys at any time, but the deal might be structured differently. If you got a call from a radio station tomorrow saying that it has a highly prized time slot available during the morning newscast, and it will cost only $22 per spot, but you've got to decide fast, would you have an answer ready? A good media plan can help keep you focused on how that deal fits into your overall strategy. If it delivers an audience you want, and if it's available at a price that fits your budget, you're in business. It helps to have a well-documented plan to assist in these fast-breaking decisions.
If you plan to use broadcast media heavily, I recommend that you work with an agency or media service. Those who know the territory thoroughly and are working on your behalf will be better able to find the best buys.
If you are buying your media time and space yourself, here are some tips:
Be sure your chosen medium delivers your target market. The media sales reps are expert at putting their offerings in the best light. Everybody can find something to claim "We're Number One" about. You don't care. Does the medium deliver the audience you want to reach? That's the key question.
Beware of bringing your personal biases to your media decisions. Don't buy a certain radio station just because you listen to it--ask instead if your potential customers do. And it works the other way, too. Don't not advertise in a certain newspaper just because you hate one of its reporters.
Look for verifiable information from your sales reps. Audience size, share, gross rating points--these calculations should be based on information from third-party ratings sources. Beware of any statistic described as "estimated"--ask about the source for that information.
Representatives from the various media will call on you; no matter what the title on their business cards, they are salespeople. Do not allow them to make your decisions for you. High-pressure sales techniques are fairly common. Rely on these people for information, but do your own calculations, and make the decisions that are right for you.
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Media Plans
The largest category in your advertising budget is likely to be your media costs--the dollars you spend for air time on radio or for ad space in newspapers, magazines, and more. Because of this, it makes sense to have a sound plan to manage that investment. You'll want to set goals. You'll want to describe strategies for achieving them. You'll have to organize the day-to-day tasks of carrying out the strategies. The tool you'll need to do this is a media plan that begins with an overview and works its way down to the details. It will help you with every phase of your advertising.
Here's how many businesses manage their media buying. The person in charge of the budget starts saying yes to the salespeople who call. Advertising appears here and there as a result. When the budget's gone, the person in charge starts saying no, and the ad campaign is over. It's a method, but you wouldn't call it a media plan. And if that approach sounds familiar, you can bet you're passing up opportunities to maximize your return on investment.
Media planning is the process of choosing a course of action. Media planners develop yearly plans that list each media outlet--print or broadcast. Planning then gives way to buying, as each separate contract is negotiated, then finalized.
The media plan is a document in sections. A ring binder notebook is a good way to keep a media plan, because it's easy to update and easy to refer to. Or if you prefer to work on computer, simply think in terms of folders and files. The sections in your notebook will be:
Media outlets (newspapers, etc.). This section lists all of the media in which advertising will be placed.
Goals. This section describes the goals of the advertising, and explains why and how this plan meets these goals.
Audience. In this section, collect all the information you can about your target audience. You will want statistics by demographics or lifestyle; your professional association can help you find this information, as can trade journals or your banker. Look for any relevant articles or information about your potential buyers. Pay attention to everything that helps you imagine an individual buyer who is typical of the whole.
Strategy. You will write a statement of strategy backed up by a rationale. The action steps you describe here will guide a year's activity.
Budget and calendar. Your media plan will outline what money is to be spent where, and when.
The document you've compiled in this notebook guides you in the execution of the plan throughout the year.
Over time, these plans provide a history of your advertising. If you make alterations to the schedule in the course of the year, be sure to record those decisions in your notebook. Ring binders make it easy to update your plan as it evolves.
When you've finished this section, you will have an overview and the tools you need to create a media plan for your business. Let's start with basic vocabulary. The term you'll hear most often is CPM, or cost per thousand. CPM analysis is the method media buyers use to convert various rate and circulation options to relative terms. CPM represents the cost of reaching one thousand people via different types of media. To calculate CPM, you find the cost for an ad, then divide it by the total circulation the ad reaches (in thousands). By finding this information and calculating this cost for each of your options, you can give them a numerical ranking for comparison. CPM is a basic media concept.
Print advertising prices are based on the circulation of the publication in question. Publications will quote you a circulation figure based on paid subscribers. The audited circulation figures are verified by monitoring organizations. The publications will try to convince you that actual circulation is higher by including the free copies they distribute and the pass-along readership they claim. Sometimes these claims of "bonus" circulation are valid--for example, magazines distributed on airlines get at least eight readers per copy. Still, you should be wary of inflated circulation figures.
Audience is the equivalent of circulation when you're talking about broadcast media. Audience size varies throughout the day as people tune in and tune out. Therefore, the price for advertising at different times of day will vary, based on the audience size that the day-part delivers.
Penetration is related to circulation. Penetration describes how much of the total market available you are reaching. If you are in a town with a demographic count of 200,000 households, and you buy an ad in a coupon book that states a circulation of 140,000, you're reaching 70 percent of the possible market--high penetration. If, instead, you bought an ad in the city magazine, which goes to only 17,000 subscribers (households), your penetration would be much less--8.5 percent. What degree of penetration is necessary for you depends on whether your strategy is to dominate the market or to reach a certain niche within that market.
Reach and frequency are key media terms used more in broadcast than in print.
Reach is the total number of people exposed to a message at least once in a set time period, usually four weeks. (Reach is the broadcast equivalent of circulation, for print advertising.) Frequency is the average number of times those people are exposed during that time period. To make reach go up, you buy a wider market area. To make frequency go up, you buy more ads during the time period. Usually, when reach goes up, you have to compromise and let frequency go down. You could spend a lot of money trying to achieve a high reach and a high frequency. The creative part of media planning comes in balancing reach, frequency, and budget constraints to find the best combination in view of your marketing goals.
In developing your media plan, you will:
1. Review your marketing objectives through the "lens" of media planning.
2. Review the options available.
3. Evaluate them against your objectives.
4. Set your minimum and maximum budget constraints.
5. Create alternative scenarios until you uncover the strategy that accomplishes your objectives
within those constraints.
6. Develop a schedule describing ad appearances in each medium.
7. Summarize your plan in the form of a calendar and a budget.
8. Negotiate with media representatives to execute your plan.
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Promotions: Do They Have a Place
When your mechanic sends you a coupon for a discount on an oil change, or your local coffee shop rewards you with a free cup of coffee every tenth time you buy, you're seeing a promotional program at work.
A promotion is a planned strategy for increasing sales over a short period. A promotion adds value to the product or service offered. It stimulates sales for reasons other than the product's inherent benefits.
We call those reasons incentives. Sometimes the incentive is designed to specifically make a sale, as in "$2.00 off medium pizza with this coupon." Other times the incentive is planned simply to expose the customer to the product--to break down preliminary barriers that are roadblocks to a future sale.
With a promotional program, you can persuade people to try your product, to experiment with new beliefs about your service; you can shift buying habits so that light users find reasons to buy more.
Who uses promotions? There are business-to-business promotional programs, and there are consumer programs. We'll talk mainly about consumer programs. The concepts we'll discuss are really about the same for both. Remember, people do business with people. It's just a matter of what market you're trying to influence--end users or intermediaries.
Different businesses are drawn to different styles of promotion. The most frequent users of promotional programs are the retail services, like car care, hair care, and restaurants. Coupons are the most common promotion for these types of businesses; dry cleaners use coupons extensively, and so do groceries. It's the ability to track results, as well as their proven effectiveness, that makes coupon offers so popular.
In the business-to-business world, suppliers frequently engage in promotions by offering sale prices. You are less likely to see coupons here, because the patterns of purchasing are a little different. The person making the decision to buy may not be the same person who is writing the check, so requiring the physical coupon to be used would be an unnecessary barrier to the desired sale.
Promotions work because people like something for nothing. They respond to two-for-one offers, and they love a good deal or free extras with their purchases. Special promotions help lots of businesses achieve their marketing objectives, such as combating seasonal cycles or stealing attention from the competition.
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Unique Selling PropositionThe Art of Finding Your Unique Selling PropositionPositioning is about making your offering different from, and more valuable than, your competitors' offerings--and placing that idea in the minds of a target group of customers. Positioning attracts customers by creating a positive and unique identity for your company and its offerings. Positioning is vital for distinguishing your offering from everybody else's.
In a world where there are more and more products and services every day, your customers are on advertising overload all the time. So they pick something to believe and hold that notion until a message breaks through and persuades them to change.
People can't hold warring ideas in their heads. They can't believe that the Norton Anthology is the best study guide for English literature, then study from a set of Cliffs Notes and believe they're doing the best they can to pass their exams. They can't believe that all paper towels are pretty much alike, buy one that costs more than most, and think that they are wise shoppers. The point is, positioning is your effort to claim a high ground in that overloaded prospect's head and hold it against competition.
There may be very little difference between your product and your competitors'--but if you can't find a way to communicate uniqueness and connect it to a need of your target, you might as well quit fighting your competition and sell out to them. There are many different ways to stake out a position. Just remember, your position reflects your unique selling proposition, and it is what makes your offering more valuable to your customers than what's being offered by your competition.
Perception of your BusinessHow will your business be perceived as different from your competition in the minds of your targeted customers? To figure this out, you must look for your best customer and then design a position that matches his or her wants and needs to an advantage that only you can offer. Remember, you can't be all things to all people, but you can be the vendor of choice for a group of them.
Positioning Affects Every Aspect of Your Communications--And Your Business
Positioning is the basis for all your communications--your packaging and product design, sales promotions, advertising, and public relations. Everything you do must reinforce that position--otherwise you just undermine your marketing efforts and sow confusion instead of confidence. Positioning is serious business. You must choose the right position, for now and down the road.
Do the work now to develop a clear position for your business vis-?vis your competitors. You'll ensure that you get the most from your advertising budget.
The truth is that with enough money, you can buy success in advertising. Mediocre, unfocused messages from a company without a clear position will generate sales surprisingly well if that company buys enough time or space to pound the message home. But think how much farther that budget could take you if you had a focused message, a unique selling proposition, and a target audience for your offering. Positioning--and the creative approach that grows from it--make the difference.
Developing the Positioning Statement and the TaglineTo begin creating your own sense of positioning for your business, answer the following questions with short, articulate answers that relate your offering to your customers' needs.
1. What does your business do?
2. For whom?
3. What is your biggest benefit to them?
4. Prove your claim. To what do you attribute that benefit?
5. How will your customers perceive this benefit, relative to the competition?
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